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Witness to the End of Soviet Power: Twenty-Five Years Ago – Article by Richard M. Ebeling

Witness to the End of Soviet Power: Twenty-Five Years Ago – Article by Richard M. Ebeling

The New Renaissance HatRichard M. Ebeling
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Twenty-five years ago, on August 22, 1991, I stood amid a vast cheering crowd of tens of thousands of people outside the Russian parliament building in Moscow, the capital of the Soviet Union. They were celebrating the failure by diehard Soviet leaders to undertake a political and military coup d’état meant to maintain dictatorial communist rule in the Union of Soviet Socialist Republics.

The Soviet regime had ruled Russia and the other 14 component republics of the U.S.S.R. for nearly 75 years, since the Bolshevik Revolution in November 1917 led by Vladimir Lenin and his communist cadre of Marxist followers. During that almost three-quarters of a century, first under Lenin and especially Josef Stalin and then their successors, historians have estimated that upwards of 64 million people – innocent, unarmed men, women and children – died at the hands of the Soviet regime in the name of building the “bright, beautiful future” of socialism.

Millions Dead

The forced collectivization of the land under Stalin in the early 1930s, alone, is calculated to have cost the lives of nine to twelve million Russian and Ukrainian peasants and their families who resisted the loss of their private farms and being forced into state collective farms that replaced them.

Some were simply shot; others were tortured to death or sent to die as slave labor in the concentration and labor camps in Siberia or Soviet Central Asia known as the GULAG. Millions were slowly starved to death by a government-created famine designed to force submission to the central planning dictates of Stalin and his henchmen.

Millions of others were rounded up and sent off to those prison and labor camps as part of the central plan for forced industrial and mineral mining development of the far reaches of the Soviet Union. In the 1930s and 1940s, Stalin’s central plans would include quotas for how many of the “enemies of the people” were to be arrested and executed in every city, town and district in the Soviet Union. In addition, there were quotas for how many were to be rounded up as replacements for those who had already died in the GULAG working in the vast wastelands of Siberia, northern European Russia and Central Asia.

By the 1960s, 1970s, and early 1980s the Soviet system had become increasingly corrupt, stagnant, and decrepit under a succession of aging Communist Party leaders whose only purpose was to hold on to power and their special privileges. In 1986 a much younger man, Mikhail Gorbachev, who had worked his way up in the Party hierarchy was appointed to the leading position of General Secretary of the Communist Party of the U.S.S.R.

Gorbachev’s Attempt to Save Socialism 

Gorbachev believed that the Soviet Union had taken several serious wrong turns in the past. But he was not an opponent of socialism or its Marxist-Leninist foundations. He wanted a new “socialism-with-a-human-face.” His goal was a “kinder and gentler” communist ideology, so to speak. He truly believed that the Soviet Union could be saved, and with it a more humane collectivist alternative to Western capitalism.

To achieve this end, Gorbachev had introduced to two reform agendas: First, perestroika, a series of economic changes meant to admit the mistakes of heavy-handed central planning. State enterprise managers were to be more accountable, small private businesses would be permitted and fostered, and Soviet companies would be allowed to form joint ventures with selected Western corporations. Flexibility and adaptability would create a new and better socialist economy.

Second, glasnost, political “openness,” under which the political follies of the past would be admitted and the formerly “blank pages” of Soviet history – especially about the “crimes of Stalin” – would be filled in. Greater historical and political honesty, it was said, would revive the moribund Soviet ideology and renew the Soviet people’s enthusiastic support for the reformed and redesigned bright socialist future.

However, over time the more hardline and “conservative” members of the Soviet leadership considered all such reforms as opening a Pandora’s Box of uncontrollable forces that would undermine the Soviet system. They had already seen this happen in the outer ring of the Soviet Empire in Eastern Europe.

The Beginning of the End in Eastern Europe

In 1989 Gorbachev had stood by as the Berlin Wall, the symbol of Soviet imperial power in the heart of Europe, had come tumbling down, and the Soviet “captive nations” of Eastern Europe – East Germany, Poland, Czechoslovakia, Hungary, Romania and Bulgaria – that Stalin had claimed as conquered booty at the end of the Second World War, began to free themselves from communist control and Soviet domination. (See my article, “The Berlin Wall and the Spirit of Freedom.”)

The Soviet hardliners were now convinced that a new political treaty that Gorbachev was planning to sign with Boris Yeltsin, president of the Russian Soviet Federation Republic and Nursultan Nazarbayev, president of the Soviet republic of Kazakhstan, would mean the end of the Soviet Union, itself.

Already, the small Baltic republics of Estonia, Latvia, and Lithuania were reasserting the national independence they had lost in 1939-1940, as a result of Stalin and Hitler’s division of Eastern Europe. Violent, and murderous Soviet military crackdowns in Lithuania and in Latvia in January 1991 had failed to crush the budding democratic movements in those countries. Military methods had also been employed, to no avail, to keep in line the Soviet republics of Georgia and Azerbaijan. (See my article, “How Lithuania Helped Take Down the Soviet Union.”)

Communist Conspirators for Soviet Power

On August 18, 1991, the hardline conspirators tried to persuade Gorbachev to reverse his planned political arrangements with the Russian Federation and Soviet Kazakhstan. When he refused he was held by force in a summer home he was vacationing at in the Crimea on the Black Sea.

Early on the morning of August 19, the conspirators issued a declaration announcing their takeover of the Soviet government. A plan to capture and possibly kill Boris Yeltsin failed. Yeltsin eluded the kidnappers and made his way to the Russian parliament building from his home outside Moscow. Military units loyal to the conspirators ringed the city with tanks on every bridge leading into the city and along every main thoroughfare in the center of Moscow. Tank units had surrounded the Russian parliament, as well.

But Yeltsin soon was rallying the people of Moscow and the Russian population in general to defend Russia’s own emerging democracy. People all around the world saw Yeltsin stand atop an army tank outside the parliament building asking Muscovites to resist this attempt to return to the dark days of communist rule.

The Western media made much at the time of the apparent poor planning during the seventy-two hour coup attempt during August 19 to the 21. The world press focused on and mocked the nervousness and confusion shown by some of the coup leaders during a press conference. The conspirators were ridiculed for their Keystone Cop-like behavior in missing their chance to kidnap Yeltsin or delaying their seizure of the Russian parliament building; or leaving international telephone lines open and not even jamming foreign news broadcasts that were reporting the events as they happened to the entire Soviet Union.

The Dangers If the Hardliners had Won

Regardless of the poor planning on the part of the coup leaders, however, the fact remains that if they had succeeded the consequences might have been catastrophic. I have a photocopy of the arrest warrant form that had been prepared for the Moscow region and signed by the Moscow military commander, Marshal Kalinin.

It gave the military and the KGB, the Soviet secret police, the authority to arrest anyone. It had a “fill-in-the-blank,” where the victim’s name would be written in. Almost 500,000 of these arrest warrant forms had been prepared. In other words, upwards of a half-million people might have been imprisoned in Moscow, alone.

The day before the coup began, the KGB had received a consignment of 250,000 pairs of handcuffs. And the Russian press later reported that some of the prison camps in Siberia had been clandestinely reopened. If the coup had succeeded possibly as many as three to four million people in the Soviet Union would have been sent to the GULAG, the notorious Soviet labor camp system.

Another document published in the Russian press after the coup failed had the instructions for the military authorities in various regions around the country. They were to begin tighter surveillance of the people in the areas under their jurisdiction. They were to keep watch on the words and actions of everyone. Foreigners were to be even more carefully followed and watched. And their reports to the coup leaders in Moscow were to be filed every four hours. Indeed, when the coup was in progress, the KGB began to close down commercial joint ventures with Western companies in Moscow, accusing them of being “nests of spies,” and arrested some of the Russian participants in these enterprises.

Fear Underneath a Surreal Calm

During the coup attempt Moscow had a surrealistic quality, as I walked through various parts of the center of the city. On the streets around the city it seemed as if nothing were happening – except for the clusters of Soviet tank units strategically positioned at central intersections and at the bridges crossing the Moscow River. Taxi cabs patrolled the avenues looking for passengers; the population seemed to go about its business walking to and from work, or waiting in long lines for the meager supplies of everyday essentials at the government retail stores; and motorists were as usual also lined up at the government owned gasoline stations. Even with the clearly marked foreign license plates on my rented car, I was never stopped as I drove around the center of Moscow.

The only signs that these were extraordinary days were the grimmer than usual looks on the faces of many; and that in the food stores many people would silently huddle around radios after completing their purchases. However, the appearance of near normality could not hide the fact that the future of the country was hanging in the balance.

Russians Run the Risk for Freedom

During the three days of that fateful week, Russians of various walks of life had to ask themselves what price they put on freedom. And thousands concluded that risking their lives to prevent a return to communist despotism was price they were willing to pay. Those thousands appeared at the Russian parliament in response to Boris Yeltsin’s appeal to the people. They built makeshift barricades, and prepared to offer themselves as unarmed human shields against Soviet tanks and troops, if they had attacked. My future wife, Anna, and I were among those friends of freedom who stood vigil during most of those three days facing the barrels of Soviet tanks.

Among those thousands, three groups were most noticeable in having chosen to fight for freedom: First, young people in their teens and twenties who had been living in a freer environment during the previous six years since Gorbachev had come to power, and who did not want to live under the terror and tyranny their parents had known in the past. Second, new Russian businessmen, who realized that without a free political order the emerging economic liberties would be crushed that were enabling them to establish private enterprises. And, third, veterans of the Soviet war in Afghanistan, who had been conscripted into the service of Soviet imperialism and were now determined to prevent its return.

The bankruptcy of the Soviet system was demonstrated not only by the courage of those thousands defending the Russian parliament, but also by the unwillingness of the Soviet military to obey the orders of the coup leaders. It is true that only a handful of military units actually went over immediately to Yeltsin’s side in Moscow.

But hundreds of Russian babushkas – grandmothers – went up to the young soldiers and officers manning the Soviet tanks, and asked them, “Are you going to shoot their mother, your father, your grandmother? We are your own people.” The final act of the coup came when these military units refused to obey orders and seize the Russian parliament building, at the possible cost of hundreds or thousands of lives.

Freedom! Freedom! Freedom!

On that clear, warm Thursday of August 22, that huge mass of humanity that had assembled in a large plaza behind the Russian parliament stood and listened as Boris Yeltsin told them that that area would now be known as the Square of Russian Freedom. The multitude replied in unison: Svoboda! Svoboda! Svoboda! – “Freedom! Freedom, Freedom!”

A huge flag of pre-communist Russia, with its colors of white, blue and red, draped the entire length of the parliament building. The crowd looked up and watched as the Soviet red flag, with its yellow hammer and sickle in the upper left corner, was lowered from the flagpole atop the parliament, and the Russian colors were raised for the first time in its place. And again the people chanted: “Freedom! Freedom! Freedom!”

Not too far away from the parliament building in Moscow, that same day, a large crowd had formed at Lubyanka Square at the headquarters of the KGB. With the help of a crane, these Muscovites pulled down a large statue of Felix Dzerzhinsky, the founder of the Soviet secret police that stood near the entrance to the KGB building. In a small park across from the KGB headquarters, in a corner of which rests a small monument to the victims of the Soviet prison and labor camps, an anti-communist rally was held. A young man in an old Czarist Russian military uniform burned a Soviet flag, while the crowd cheered him on.

The seventy-five-year nightmare of communist tyranny and terror was coming to an end. The people of Russia were hoping for freedom, and they were basking in the imagined joy of it.

Freedom’s Hope and Post-Communist Reality

The demise of the Communist Party and the Soviet system was one of the momentous events in modern history. That it came about with a relatively small amount of bloodshed during those seventy-two hours of the hardline coup attempt was nothing short of miraculous – only a handful of people lost their lives.

The last twenty-five years have not turned out the way that many of the friends of freedom in Russia had hoped.

Indeed, post-communist Russia saw a contradictory, poorly organized, and corrupted privatization of Soviet industry, plus a high and damaging inflation in 1992-1994; a severe financial crisis in 1998; a return to authoritarian political rule following Vladimir Putin’s rise to power in 1999; two bloody and destructive wars in the attempted breakaway region of Chechnya; widespread and pervasive corruption at all levels of government; state controlled and manipulated markets, investment, commerce, and the news media; assassinations and imprisonments of political opponents of the regime; and significant nostalgia among too many in the country for a return to “great power” status and the “firm hand” of the infamous Stalinist era. Plus, Putin’s recent military adventures in Crimea, Ukraine, and Syria.

Nonetheless, for those of us who were fortunate enough to be in Moscow in August 1991, it remains in our minds as an unforgettable historical moment when the first and longest-lived of the twentieth century’s totalitarian states was brought to the doorstep of its end. The Soviet Union, finally, disappeared off the political map of the world on December 24, 1991 with the formal breakup and independence of the 15 Soviet republics that had made up the Union of Soviet Socialist Republics.

The Soviet nightmare of “socialism-in-practice” was over.

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

See the original article here.

Brazil’s Lost Decade: We Must Free Our Economy – Article by Felipe Capella

Brazil’s Lost Decade: We Must Free Our Economy – Article by Felipe Capella

The New Renaissance HatFelipe Capella
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It was a lost decade for Latin America. Years of populist governments combined with a commodity boom turned out to be our oil curse, our Dutch Disease. This disastrous mix made bad public policies look like temporary successes, pushing developing countries to an unsustainable path. The collectivist ideology monopolized the debate for more than 10 years, and now that the natural resource party is over, the harm of these policies have become clearer: deep economic crisis generated by a utopia whose greatest achievement was turning toilet paper into a rare-earth product.

Populist and authoritarian South American regimes have set up government bureaucracies aimed at pleasing special interest groups that provide political support while tirelessly harming the population as a whole. These groups are divided into several small groups with special rights and privileges: judges, civil servants, members of parliament, friendly businessmen. These factions are getting their more-than-fair share while the unprivileged citizen foots the bill.

Latin American politicians played it very well during these favorable times. Cronyism and populism greatly benefited some chosen groups, while the harms were diffused enough throughout the whole country and difficult to measure during favorable economic winds. Brazil is just the biggest and clearest example of that.

How We Got Here 

For many years Brazil’s road to serfdom was being paved by the left through a combination of the world’s worst ideas: a Venezuelan-like project to subordinate decisions of the Supreme Court to the ratification of Congress; an Ecuadorian will to regulate and control the free press; a Russian compassion for cronies handpicked by the executive; Greek style benefits for public servants; Southern European pension costs (for a much younger population); Argentinean barriers for international trade, and an American/EU taste for subsidies.

The former — and now failed — cherry-picked billionaire darling of the regime Eike Batista was showered with tax funds while ordinary entrepreneurs lacked governmental support; friendly national industries were heavily protected, while people were taxed up to 50 percent on food and health supplies. Oi Telecom, a multibillion dollar mobile company, is just the most recent example of Lula’s national-champion policy (the company has just filed for bankruptcy, with 17 percent of its debt held by state-owned banks).

That was the result of 10 years of left-populist government in Brazil, all of them enjoying the applause of the international press. For years The New York Times constantly published articles with a pro-Dilma/Lula tone. Right after Dilma’s reelection — which is now known to have been funded by money siphoned from state-owned companies — The NYT published a piece half-mocking 48 percent of voters that were concerned about Dilma’s economic and political approaches.

The good thing about bad journalism is that reality eventually catches up with it. Since that 2014 article, Dilma has since lost her job and is about to be impeached for illegal budgetary schemes and deep corruption. Her top aides are all in jail or about to be thrown there, accused of stealing dozens of billions of dollars, including former Ministers and three former treasurers of her Labor Party (which some people now deem to be the most dangerous job in the world). Brazil is in its worst economic crisis since the 1930s, which has been worsening since 2014 (while Dilma was coming up with her now-famous accounting tricks to fool the Brazilian voters). Lula had even become a frequent contributor of The Times after his presidency, but now faces criminal charges and has seen the federal police knock on his door with a coercive trip to the criminal courts.

In its recent opinion page about the failed Rio Olympic Games preparation, The NYT’s favorite Brazilian correspondent Vanessa Barbara wrote that “political turmoil has paralyzed the country and frozen the economy.” This rhetoric of blaming “political turmoil” for Latin American calamities does not help to set the record straight. The problems with the Olympic games stem directly from Dilma’s and Lula’s incompetence and corruption. But the problem also lies on media vehicles like The Times, always ready to turn a blind eye to mismanagement and corruption in the name of ideology.

So here we are. Brazil is a failing state after a decade of populist presidents, misguided policies and commodity boom, all under the auspices of the progressive press.

The Need for Laissez-Faire Liberalism

For a long time, Brazil has been a place where liberalism (i.e., the ideology of freedom and free markets) was mostly marginalized, despite its positive track-record. In the minds of most Brazilians, being liberal was conspiring for the wealthy, being socialist is taking care of the poor.

But if The Times does not want to recognize its mistakes, apparently the Brazilian population is more willing to deal with self-criticism. There is now a strong resurgence of liberalism throughout the country.

Partido Novo (“New Party”) is a new political party created with a clear liberal approach to the economy, and it is just one of the recent examples of how liberalism is growing in the country, waking up millions of Brazilians who were orphans of a liberal political leadership. Many creative and hardworking people that do not think that socialism (or heavy-handed South American social democracy) will make our countries more prosperous. There are substantial constituencies that want public policies driven by research, metrics and actual public interest.

Free Trade Is the Key

The European Union has no appetite and no urgency to negotiate any comprehensive trade agreement with Mercosur or other Latin American countries. The United States faces a choice between a populist protectionist and a trade-dubious democrat (to put it mildly).

It is essential for the world that someone — anyone — pushes forward the liberal pro-trade agenda. As we natives well know, it is never wise to bet on Brazil as a global force for good. But maybe — just maybe — because we are suffering first-hand the harms of a decade of interventionist, protectionist, and corrupted government, we can somehow understand that populism is an illusory lucky charm that actually curses a country for years to come; and maybe — just maybe — we can do something to redeem ourselves.

Now that international trade seems under constant attack from all places and political spectrums, and no big world economy wants to step up and bluntly defend the liberal track record — including the United States — maybe Brazil could become the champion of good policy at last, pushing for reforms throughout Latin America and holding the liberal torch high in these dark times.

As Roberto Campos advised decades ago, for us Brazilians there are only three ways out of the current mess: Rio’s airport, Sao Paulo’s airport, and Liberalism.

Felipe Capella is an attorney turned entrepreneur. He is a former law professor at the Federal University of Santa Catarina (Brazil), former attorney at Sullivan & Cromwell (New York) and the Inter-American Development Bank (Washington, DC), has Master degrees from UPenn/Wharton and Universidad Francisco de Vitoria (Spain), and holds an MBA from FGV (Brazil).

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

UN “Green Climate” Program Is a Slush Fund for Dictators – Article by Marian L. Tupy

UN “Green Climate” Program Is a Slush Fund for Dictators – Article by Marian L. Tupy

The New Renaissance HatMarian L. Tupy
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The fund is planned to be $450 billion by 2020

Wherever you stand on the subject of global warming, pay close attention to one under-reported aspect of the 2015 United Nations Climate Change Conference or Paris Agreement. I am referring to the Green Climate Fund (GCF), which is a financial mechanism intended “to assist developing countries in adaptation and mitigation practices to counter climate change.”

According to the current estimates, developed countries will be obliged to contribute up to $450 billion a year by 2020 to the GCF, which will then “redistribute” the money to developing countries allegedly suffering from the effects of global warming.

Lo and behold, Zimbabwe’s government-run daily “newspaper” The Herald reported that “Southern Africa is already counting the costs of climate change-linked catastrophes… In Zimbabwe, which has seen a succession of droughts since 2012, a fifth of the population is facing hunger… Feeding them will cost $1.5 billion or 11 percent of … the Gross Domestic Product.”

No doubt Robert Mugabe, the 91-year-old dictator who has ruled Zimbabwe since 1980, is salivating at the prospect of some global warming cash. Beginning in 2000, Mugabe started to expropriate privately-held agricultural land. The result of what is euphemistically called “land reform” was a monumental fall in productivity and the second highest bout of hyperinflation in recorded history.

slush1Some three million of Zimbabwe’s smartest people, including tens of thousands of doctors and lawyers, have left the country. Most of those who have remained behind are subsistence farmers with very little wealth. There is, in other words, very little loot left for the government to steal.

slush2

Thankfully for the Zimbabwean dictator, there are plenty of gullible Westerners willing to believe that the frighteningly vile, comically incompetent government isn’t at the root of Zimbabwe’s food shortages, but that global warming is to blame.

Of course, this is pure nonsense. Botswana and Zimbabwe share a border and their climate and natural resources are exceptionally similar. Yet, since 2004, food production has increased by 29 percent in Botswana, while declining by 9 percent in Zimbabwe. It is not drought but government policies that make nations starve!

slush3

As befits a dictatorship, Zimbabwe is one of the most corrupt places on earth. The notion that GCF funds will be will used for environmental “adaptation and mitigation” is a dangerous fantasy.

Like much foreign aid before it, most of the “green aid” money will likely end up in the pockets of some of the cruelest and most corrupt people on earth. Congress must stand firm and refuse to appropriate any money for the fund.

slush4

This post first appeared at Human Progress.

Marian L. Tupy is the editor of HumanProgress.org and a senior policy analyst at the Center for Global Liberty and Prosperity. 

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Venezuela’s Bizarre System of Exchange Rates – Article by Emiliana Disilvestro & David Howden

Venezuela’s Bizarre System of Exchange Rates – Article by Emiliana Disilvestro & David Howden

The New Renaissance HatEmiliana Disilvestro & David Howden
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Venezuela is currently going through its worst crisis in history, replete with an endless list of interesting problems. Foremost among these are severe shortages in even the most basic of necessities. Economists have used these shortages as textbook examples to illustrate the pernicious effects of price controls.

Few people, however, are aware that many of the country’s problems are caused by a complex monetary arrangement that makes use of four different exchange rates simultaneously. The result is that Venezuela can either be extremely cheap, or unbearably expensive, depending on the rate used.

Monetary chaos began in 2003 when the late President Hugo Chavez imposed currency controls to stem capital flight after an oil strike. At the time, one US dollar could fetch 1.6 Venezuelan bolivars. Today, barely ten years later, that same dollar can buy 172 bolivars, a devaluation of over 99 percent! Of course, that is in the official (i.e., government regulated) market. On the black market, the exchange rate is currently nearly 900 bolivars to the US dollar. That is, if you can find anyone selling dollars, or more importantly, looking to buy the badly tarnished Venezuelan currency.

This devaluation is in and of itself a large problem, both for consumers who must deal with high degrees of price inflation and for businesses that must undergo long-term capital planning decisions with a constantly moving monetary unit. However, it is the volatility of the exchange rate caused by the government’s continuous changes to currency restrictions and official rates that is proving the most cumbersome problem.

A Very Complex System of Exchange Rates

Currently there are four exchange rates: First is the official one, called CENCOEX, and which charges 6.30 bolivars to the dollar. It is only intended for the importation of food and medicine.

The next two exchange rates are SICAD I (12 bolivars per dollar) and SICAD 2 (50 bolivars per dollar); they assign dollars to enterprises that import all other types of goods. Because of the fact that US dollars are limited, coupons are auctioned only sporadically; usually weekly in the case of SICAD 1 and daily for SICAD 2. However, due to the economic crisis, no dollars have been allocated for these foreign exchange transactions and there hasn’t been an auction since August 18, 2015. As of November 2015, the Venezuelan government held only $16 billion in foreign exchange reserves, the lowest level in over ten years, and an amount that will dry up completely in four years time at the current rate of depletion.

The last and newest exchange rate is the SIMADI, currently at 200 bolivars per dollar. This rate is reserved for the purchase and sale of foreign currency to individuals and businesses.

There are many problems in Venezuela as a result of this complex system. The most obvious is the near impossibility to actually get assigned to these rates due to the complex bureaucratic process one must navigate to apply for them. In response to these difficulties, Venezuelans must rely on the black market to meet their demands for foreign currency. Therefore, people naturally rely on the black market rate, which although it is much less advantageous (at 900 vs. anywhere from 6.3 to 200 bolivars per dollar on the “official” market), at least offers the possibility to procure the much needed foreign exchange.

Corruption, which is a main characteristic of Venezuela’s political regime, is another problem derived from this complex monetary system. Officials within the government and those connected to it have taken advantage of their positions of power and influence to mismanage the money assigned for other, productive and necessary, institutions. Thus, well-connected individuals obtain US dollars through the legal channels and then sell them on the black market at a higher price. (This activity is one of the only ways to consistently earn high levels of profits in the beleaguered Venezuelan economy, and is only available to those privileged few who are connected to the proper government officials.)

This point is especially important when studying the vast array of shortages. The embezzlement of foreign currency intended for importing basic goods, e.g., foreign exchange reserved for the CENCOEX and SICAD exchange rates, leave legitimate businessmen with no options to obtain legally the necessary currencies to import goods. Owing to the rapidly depreciating bolivar, US dollars are hoarded as a means of savings, thus further exacerbating the foreign exchange shortage for importers. As a consequence, imports are unable to be paid for, leading to shortages on top of those already caused by extensive and damaging price controls.

The Poor Suffer the Most

These problems affect directly all citizens, but are especially pernicious to lower-income individuals. Many suppliers will only sell what few goods they have for US dollars, eschewing accepting bolivars in the payment of their wares. Black market currency sellers set up shop outside supermarkets to accommodate this phenomenon, but it must be noted that only the upper-middle and higher income earners are able to afford to pay the black market rate. The result is that the lower-income segment of Venezuelan society, those who price and currency controls are supposedly helping, are not able to obtain the currency necessary to buy simple goods and services (and the wealthy can only do so at a high price).

Although the business community demands to be paid in US dollars this harms lower-income individuals unduly and is a completely rational response. If businesses kept selling their scarce supply of goods at the official rate their shelves would deplete faster than they already do. Venezuelans earn income at the official rate of 6.30 bolivars to the US dollar while businesses must pay a much higher rate in order to import goods. This difference must be accounted for by stores asking for prices commensurate with what they must pay to stock their shelves.

The complex exchange rate system in Venezuela is not only a good example of unnecessary government meddling in the economy, but also explains why a corrupt political regime has been able to retain power for so long despite more than a decade of hardship imposed on the country. The use of several exchange rates has made it easy for the Chávez and Maduro governments and their followers to make enormous profits by embezzling the money assigned to the business community and individuals. By doing so, they have completely devalued the bolivar and impoverished what was once one of the richest countries in the world.

Emiliana Disilvestro studies international business at Saint Louis University at its Madrid campus.

David Howden is Chair of the Department of Business and Economics and professor of economics at St. Louis University’s Madrid Campus, and Academic Vice President of the Ludwig von Mises Institute of Canada.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Prohibition: Bootleggers, Baptists, and Bandits – Article by Sanford Ikeda

Prohibition: Bootleggers, Baptists, and Bandits – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
July 7, 2012
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The political economist Bruce Yandle’s phrase “bootleggers and Baptists” captures the idea that special-interest groups with conflicting moral positions often find common cause in particular government interventions.  Many on the political left agree with crony capitalists that government should make taxpayers bailout some businesses that are “too big to fail”; some radical feminists agree with some Christian fundamentalists that government should ban pornography.  Their reasons are different but the policies they support are the same.

Bootleggers and Baptists

The inspiration for “bootleggers and Baptists” (pdf) comes directly from the diverse support that so-called “blue laws” have historically received.  According to Yandle,

Bootleggers . . . support Sunday closing laws that shut down all the local bars and liquor stores [because they increase the demand for illegal hooch].  Baptists support the same laws and lobby vigorously for them [because they believe drinking on Sunday is wrong].

Of course the story behind Prohibition era in the United States, marked by the passage of the Eighteenth Amendment to the U.S. Constitution (1920-33), is this lesson writ large.  Banning the sale of liquor, whatever it did to deter drinking, did wonders for promoting organized crime, which had (and still has) a comparative advantage over law-abiding people in supplying and demanding illegal goods. By clamping down on a product in such high demand, local and national governments (including the fledgling Federal Bureau of Investigation, which also prospered during Prohibition) spurred mob activity, intentionally or not, from Los Angeles to Chicago to New York.

Ken Burns: No Eighteenth Amendment without the Sixteenth

What I hadn’t realized until I saw Ken Burns’s excellent documentary “Prohibition” is that an important and, I think, less-known connection existed between the anti-liquor lobby–which included among others the Anti-Saloon League (ASL) and the Women’s Christian Temperance Union (WCTU)–and passage of the Sixteenth Amendment to the US Constitution.  That amendment gave Congress in 1913 the power

to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

(The Supreme Court had ruled an earlier income tax law unconstitutional in 1895.)

In an earlier FreemanOnline column, Don Boudreaux explained why Prohibition was repealed after only a dozen or so years.  In short the inability to tax liquor, now illegal, along with the onset of the Great Depression, had a devastating impact on government tax revenues.  My focus is on the alliance between anti-liquor forces on the right, pressing for prohibition, and Progressives on the left, pressing for an income tax.

Now, according to one source:

By 1868, the main source of Government revenue derived from liquor and tobacco taxes. . . . From 1868 to 1913, almost 90 percent of all revenue was collected from . . . excises.

That’s a significant source of taxes, without which the government could hardly operate, let alone grow to the size needed to implement the Progressives’ agenda: making government more efficient in order to run society along “rational” principles.  Government programs to improve schools, health care, and industry need a steady funding source, and without liquor taxes intervention could not go far enough.  So no matter how hard prohibitionists argued, marched, and lobbied, and no matter how sympathetic government officials may have been to their cause, they would never dream of sacrificing their cash cow on the alter of idealism–at least not without an equally reliable alternative.

And that of course led naturally to the social conservatives support of the progressive (in both senses of the word) income tax.  The Sixteenth Amendment passed in 1913, opening the way in 1919 for the Eighteenth Amendment.  The rest is history.

Baptists and Bandits

I’m not arguing that the alliance was primarily responsible for passage of the amendment, but rather that it’s clear the interests of social conservatives and the taxman were perfectly aligned.  “Baptists” on the one side, and on the other, those eager to expand the use of aggression to plunder wealth created by trade and to spend it to indulge their own preferences–that is, bandits.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.