Venezuela: Proving Mises Right

In A Critique of Interventionism, Ludwig von Mises laid out the case that government attempts to “improve” this or that market outcome wind up creating additional problems that the government then attempts to solve with additional market restrictions. If the bureaucrats are allowed to persist in their interventionist approach ad infinitum, the result is pure socialism with its corresponding basket-case economy.

Government or any organization of coercion can at first achieve what it sets out to achieve through intervention. But whether it can achieve the remoter objectives sought indirectly by the intervention is a different question. And it must further be determined whether the result is worth the cost, that is, whether the intervening authority would embark upon the intervention if it were fully aware of the costs. An import duty, for instance, is surely practical, and its immediate effect may correspond to the government’s objective. But it does not follow at all that the import duty can realize the government’s ultimate objective. At this point the economist’s work commences. The purpose of the theorists of free trade was not to demonstrate that tariffs are impractical or harmful, but that they have unforeseen consequences and do not, nor can they, achieve what their advocates expect of them. What is even more significant, as they observed, protective tariffs as well as all other production restrictions reduce the productivity of human labor. The result is always the same: a given expenditure of capital and labor yields less with the restriction than without it, or from the beginning less capital and labor is invested in production.

- Interventionism, Chapter 3, “Restrictions of Production”

I seriously doubt that either Hugo Chávez or Nicolás Maduro ever read Mises (and if they did, it’s obvious they didn’t understand him), but their destructive experiment in “21st Century Socialism” might easily be viewed as a large-scale attempt to prove just how right the Austrian economist was. For example, on government attempts at price controls, Mises wrote:

Price intervention aims at setting goods prices that differ from those the unhampered market would set. When the unhampered market determines prices, or would determine prices if government had not interfered, the proceeds cover the cost of production. If government sets a lower price, proceeds fall below cost. Merchants and producers will now desist from selling – excepting perishable goods that quickly lose value – in order to save the goods for more favorable times when, hopefully, the control will be lifted. If government now endeavors to prevent a good’s disappearance from the market, a consequence of its own intervention, it cannot limit itself to setting its price, but must simultaneously order that all available supplies be sold at the regulated price. Even this is inadequate. At the ideal market price supply and demand would coincide. Since government has decreed a lower price the demand has risen while the supply has remained unchanged. The available supply now does not suffice to satisfy the demand at the fixed price. Part of the demand will remain unsatisfied. The market mechanism, which normally brings demand and supply together through changes in price, ceases to function. Customers who were willing to pay the official price turn away in disappointment because the early purchasers or those who personally knew the sellers had bought the whole supply. If government wishes to avoid the consequences of its own intervention, which after all are contrary to its own intention, it must resort to rationing as a supplement to price controls and selling orders. In this way government determines the quantity that may be sold to each buyer at the regulated price. A much more difficult problem arises when the supplies that were available at the moment of price intervention are used up. Since production is no longer profitable at the regulated price, it is curtailed or even halted.
- Interventionism, Chapter 4, “Interference with Prices”

The Venezuelan government has been slapping price controls on everything from toilet paper to televisions, and the result has been nothing but empty store shelves from Caracas to Maracaibo. Naturally, this has resulted in further interventions, such as nationalizing toilet paper producers and even fingerprinting grocery shoppers to enforce rationing.

An essential element of any interventionist government policy is to blame everyone else for the problems that inevitably result. This is easy enough to do, as Mises pointed out:

The fact that the system functions poorly is blamed exclusively on the law that does not go far enough, and on corruption that prevents its application. The very failure of interventionism reinforces the layman’s conviction that private property must be controlled severely. The corruption of ‘the regulatory bodies does not shake his blind confidence in the infallibility and perfection of the state; it merely fills him with moral aversion to entrepreneurs and capitalists.

- Intervention, Chapter 5, “Destruction Resulting from Intervention”

This approach is on full display in Venezuela. The government has rounded up the usual suspects, pinning the blame on anyone but itself. For example, The Guardian reports Maduro has blamed shortages on his domestic political opposition, claiming they are working with “the CIA to destabilise his government, sabotage the oil industry and trigger power cuts.”

Following diligently in his idiot predecessor’s footsteps, Maduro has resorted to the printing press in the vain hope that he can inflate away all of the problems his government has caused. The result is an official annual inflation rate of 63.4%, the highest in Latin America (and that’s just the official number published by the government – you can bet the real rate is much higher). Maduro blames the inflation he created on “hoarders” (naturally) and even political protests.

To anyone with a basic understanding of economics, the causes of Venezuela’s economic problems are clear. To writers at The Guardian and the BBC, however, they remain a mystery. Take a BBC article titled, “What’s Behind Venezuela’s Economic Woes?” In an attempt to get to the root cause of the economic problems plaguing the country, Irene Caselli occasionally manages to point out both cause and effect, but generally fails to connect the two in any meaningful way.

For example, she correctly points out that the Venezuelan government imposed foreign exchange controls in 2003, causing a black market for dollars. But then she quotes analysts who blame that black market for the creation of “a dual economy” which create unspecified “distortions.” The black market may be a symptom of Venezuela’s ills, but the disease is the government’s economic intervention.

On the issue of shortages, those same currency controls are mentioned (correctly) as a causal factor for reduced supplies of imports, but the last word on the matter is the Venezuelan government’s blame of “businessmen who are trying to boycott the system.” As if the business community’s inability to sell at a loss in perpetuity qualifies as a “boycott.” No mention is made of the government’s price controls on most staple goods, which is the real reason basic items have all but disappeared from Venezuelan shelves.

The BBC’s sad confusion over the state of affairs in Venezuela is summed up nicely in the section titled, “What Is the Government Doing?” The answer? Seizing a chain of electronics stores, granting President Maduro dictatorial powers, and imposing further price controls.

In short, the Venezuelan government is proving Mises right.

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Inversion and Ex Post Facto Laws

Nothing gets hardcore statists riled up more than when the US government’s tax cattle wander off the ranch in search of greener pastures overseas. We witnessed this when Facebook’s Eduardo Saverin high-tailed it to Singapore, and we’re seeing it again now that Burger King has announced its intention to merge with the Tim Horton chain in Canada, in part to lower its corporate tax burden. Case in point, Senator Sherrod Brown (D-Ohio), who stated,

“Burger King’s decision to abandon the United States means consumers should turn to Wendy’s Old Fashioned Hamburgers or White Castle sliders. Burger King has always said ‘Have it Your Way'; well my way is to support two Ohio companies that haven’t abandoned their country or customers. To help business grow in America, taxpayers have funded public infrastructure, workforce training, and incentives to encourage R&D and capital investment. Runaway corporations benefited from those policies but want U.S. companies to pay their share of the tab.”

Once again the the tired (yet stubborn) progressive “Your Dog Owns Your House” nonsense spouted by the likes of Senator Elizabeth Warren and President Obama finds new life. The way Senator Brown tells it, you might think Burger King never paid any corporate taxes to contribute to those indispensable infrastructure projects (which would make one wonder why they’d want to move to Canada in the first place). It must be Burger King’s “patriotic duty” to sit idly by and allow politicians like Senator Brown fleece them with one of the highest corporate tax rates in the industrialized world.

As there’s not much new here, I hadn’t been paying too much attention to the story other than to chuckle at the likes of Warren “Raise My Taxes, Please” Buffett helping finance a deal that will enable a giant corporation like Burger King lower its tax burden. But then I heard that Treasury Secretary Jacob Lew had weighed in on the issue.

In a recent opinion piece in The Washington Post, Secretary Lew urges Congress to reform the tax code “to make the U.S. economy more competitive and to accelerate economic growth and job creation. Taking this step will make the United States an even more attractive place to do business and ensure that capital and talent are allocated more efficiently in pursuit of high economic returns, rather than low tax bills.”

So far, so good. But he continues…

“But one particular tax loophole has become increasingly urgent to address: the fact that the law rewards U.S. corporations with substantial tax benefits when they buy foreign companies and declare that they are based overseas. This practice, known as an inversion, has accelerated in recent months, with a significant number of big corporations nearing completion of such deals and reports of many more in the works.”

Time to string some more barbed wire fence along the American tax ranch, I guess. But that was not what struck me about his piece (which, to be fair, does seem to imply that the US tax rate should be lowered). What got my attention was the following:

“For legislation to be effective, it must be retroactive. Current proposals in Congress would apply to any inversion deal after early May of this year. The alternative — legislation taking effect after the president signs it into law — could have the perverse effect of encouraging corporations to act more quickly, negotiate new deals and rush to close those transactions before the bill is enacted. It would be a mistake for Congress to pass anti-inversion legislation that creates a race against the clock and encourages more, not fewer, inversions.


Making legislation effective before the date that a bill is enacted is not a new or novel approach; the Congressional Research Service referred to the practice as ‘quite common’ in a 2012 report. A good example of this is the 2004 anti-inversion legislation. Passed by a Republican-led Congress and signed into law by President George W. Bush in October 2004, it had an effective date of March 2003.”

The legalese term for “retroactive” is ex post facto. And Mr. Lew is correct that the 2012 report he references does indeed refer to the practice as being quite common. It even states that “[i]t is clear there is no absolute constitutional bar to retroactive tax legislation.”

No constitutional bar other than the actual Constitution, that is.

Article I, Section IX, Paragraph III seems to differ from the Congressional Research Service’s take on the subject of “retroactive” laws, stating in remarkably plain English that “No bill of attainder or ex post facto Law shall be passed.” Full stop. No asterisk, no codicil, no “except for Burger King” clause, nothing. No ex post facto law shall be passed.

This is not to say that none have been passed, nor to imply that a silly thing like the Constitution will stop the likes of Senator Brown from passing another one. Tax law in the United States is pretty much a Constitution-free zone where you are guilty until proven innocent. And not only do companies here pay above-average prices for the US government’s “services,” they also get the added bonus of possibly having conduct that is perfectly legal today be criminalized retroactively at some point in the future.

With an operating environment like that, it’s little wonder that companies are increasingly eager to leave. If having Burger King headquartered in the United States is as important to Senator Brown as he claims, then maybe he should spend less time lambasting them for seeking better opportunities abroad, and more time improving the tax and regulatory environment here so that the US might once again become the kind of country that companies invert to, rather than from.

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Ban Everything!

As you may have heard, there has been a spate of incidents recently involving airline passengers bickering over reclining seats (assuming three qualifies as a “spate”). As Maria Cardona writes in a recent CNN op-ed,

“We have now witnessed the third instance in only nine days  of a flight being diverted from its original destination because someone leaned her seat back and someone objected.

Has it come to this? Do we really need air marshals on flights now to intervene between people in front who (in this most recent case) want to get comfy and knit, and people behind who want to put their heads down on a tray table to nap?

While both passengers in each of the three cases had reasonable arguments on their side — recliners felt they had every right to recline, and the people behind them felt their personal space was being violated — does their inability to work it out not seem like just another example of a society where civility is declining?

There is a simple solution to save us from our worst selves: Get rid of reclining seats.

If we are all compelled to sit upright for a flight’s duration, the issue of invading already infinitesimal personal space simply goes away.”

There are roughly 30,000 commercial flights every day in the United States, so three incidents over a period of nine days equates to roughly 0.001% of the flights during that period. So naturally nanny-staters like Ms. Cardona immediately conclude that an all-out ban on reclining seats is an appropriate corrective action. This is what passes for thought among statists – all that is considered good must be compulsory, and all that is considered bad (or even mildly annoying) must be banned.

To be fair, she does not explicitly state that the government should be the one to implement the ban, but given her “credentials” as a political commentator for CNN, a Democratic strategist, a former senior adviser to Hillary Clinton, former communications director for the Democratic National Committee, and former communications director of the Immigration and Naturalization Service, I think it’s a safe bet that’s where she’s heading. After all, it’s not as though she’s encouraging passengers to fill out suggestion cards to request airlines change their seating policies.

As an all-too-frequent flyer myself, I can see both sides of the “to recline or not to recline” question. On short-haul flights (which for me is anything under six hours), I fly upright. On long-haul flights (which for me can be as many as sixteen hours non-stop), however, I want as little discomfort as possible. A quick look over my shoulder will inform my decision whether or not to recline the seat and claw back those three precious inches. But the difference between Ms. Cardona and me is that I would never demand that the government transform my personal preference into a national policy to which all others are forced to adhere.

The recent brouhaha over airline seats is merely the latest symptom of Americans’ growing inability to conceive of non-coercive solutions to minor inconveniences. The notion that individual passengers and airlines are perfectly capable and motivated to figure these things out on their own (as roughly 99.9999999% of them do every single day) seems completely beyond the grasp of professional statists who write editorials for CNN (as is the antiquated notion that businesses in an allegedly free country should be able to set their own rules about what they will or will not allow in their own operations).

So if Ms. Cardona’s 0.001% threshold of inconvenience is to be the new standard for across-the-board prohibitions, what else should we ban? Back in 2010, CNN’s Jack Cafferty highlighted five separate instances of holiday shopping related violence. Should we ban the holidays, or just the malls?  Last year two people got into a fight over prize tickets at a Dearborn-area Chuck E. Cheese. Obviously a nationwide ban on pizza and skeeball is needed. Earlier this year an Iowa man got in a fight with his brother over peanut butter sandwiches. According to Ms. Cardona’s “logic,” there’s a simple solution: just make it a crime for anyone to eat peanut butter sandwiches. And more recently President Obama blamed the media for his sagging poll numbers.

Maybe we should just ban CNN. At least that way we’d be spared these simplistic solutions from statists.



Update: CNN later posted a far more rational op-ed on the same subject. You can check it out here.

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Who Is John Galt?

Find out in ten days

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But Without the Government

…who would warn us that hot water is hot?


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A Libertarian Down Under

I’ve been spending a lot of time in Australia over the past few months, and now I learn from that they’ve gone and elected an avowed libertarian, David Leyonhjelm, to their Senate (as if the friendly people and beautiful landscapes weren’t reason enough to like the place).

Here’s the video of his debut speech:

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Use a Sharpie, Go to Jail

I got carded today, which came as a surprise since I wasn’t even trying to buy alcohol. I was buying a Sharpie marker. It turns out that in the great nanny state of California, one must be at least eighteen years old to buy a Sharpie pen. An age requirement for markers would be laughable in of itself, but seems even more so given the fact the California public school system lists them on the recommended school supplies list for second graders – many of whom are younger than eighteen. Apparently California’s youth are free to possess and use Sharpies, they just aren’t allowed to purchase them with their allowance. I will sleep soundly tonight knowing my child is being protected from a danger that before today I didn’t even know existed (and still don’t fully understand).

The cashier also informed me that buyers must be at least eighteen to purchase White Out, spray paint, or any of the small fishing or pocket knives located in sporting goods (but there is no age restriction on kitchen knives of any size or sharpness as long as they are purchased from the housewares department).

Somewhere in Sacramento is a bureaucrat making more money than I am to come up with these rules. He should probably stay there, since I doubt anyone in the private sector would willingly pay him for such stupidity.

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