Tuesday, March 19, 2013

As Chavez Departs

More than a decade ago I led a US military delegation to Venezuela just as the Chavez revolution was beginning. I have followed the story closely. AP article about Venezuela upon his death (Hugo Chavez coffin parades . . . March 16, 2013) published in the Brian/College Station Eagle http://www.theeagle.com/news/world/article_ebdc7ed3-d80d-59fa-b047-32506f4001e1.html ) provides many important “dots” but does not connect them. Here is my take.
            Fourteen years ago the economic divisions in Venezuelan society were stark. A few with spectacular wealth lived spectacular lives. A larger percentage led promising middle class lives where the system of economic incentives allowed merchants, professionals and service providers who worked and saved to better their lot. And millions of desperately poor lived squalid lives with dirt streets, dirt floors, no lights, no water, no sewers, no schools, no jobs and no hope. Chavez set out to serve group 3 by redistributing wealth from groups 1 and 2.
            As is always the case with such schemes, the results were predictable. Today the poor are marginally better off. The very wealthy have found ways to hide or move their wealth. And the middle class workers have been crushed by higher taxes, higher inflation and reduced productivity. Redistribution works briefly, but only so long as you have something to redistribute. It is like giving a growing body a candy bar instead of a nutritious meal. A sugar high comes and goes. Protein builds muscle for the future. Redistribution is sugar without protein.
Giving away money and government jobs (a-la Venezuela) does not increase long term productivity. It just puts more money to chasing the same pool of goods. The price of producing those goods goes up. And if the government caps price increases as Venezuela did (predictably),  producers quit producing. Shortages result. (Stalin blamed Trotsky. Hitler blamed the Jews. Chavez blamed the Americans. Everybody blames business owners who work and save and won’t sell at a loss.) And so Venezuela is stuck: it can’t move forward and it can’t move back.
What lessons should we learn from the Venezuelan experience? Here are several. 
1) The people will not forever ignore rich thieves who use connections to beat the system. (In the US, connected bankers come to mind. So do those who sucked taxpayer blood thru Fannie Mae and Freddie Mac) 
2) Those legitimately in need are not going to disappear – we must find a sustainable way to assist them. 
3) Productive people must be rewarded for producing – our entire economic system turns on this basic idea. 
4) Unproductive people must contribute to the best of their ability in order to receive assistance – else they will crash the economy with the sheer weight of their unsustainable demands.  
 5) Holding people accountable for their behavior – at the top and at the bottom -- must be a strategic priority for the nation.
Venezuela is not unique. One hundred years of examples demonstrate these truths before our eyes. If there is any agreement and cooperation to be had between our political parties today, it must begin with a common understanding of these facts.

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