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Currency controls and price controls and government nationalization have destroyed Venezuela. Currency controls: there's a 1:10 exchange rate, dollars to boliv

Currency controls and price controls and government nationalization have destroyed Venezuela. Currency controls: there's a 1:10 exchange rate, dollars to bolivars, for essential imports, like food, medicine, etc. The black market exchange rate is about 1:1010. To get the good rate, you need connections. But hey, it's a pain in the ass to actually contact suppliers and get goods through customs, and you're capped at what price you can sell goods at, so what you do is actually exchange 10 bolivars for a dollar, and turn around and exchange that dollar for 1000 bolivars on the black market. You keep doing that until either you have way too much money or you lose the preferred exchange rate. Price controls: No country is an island these days. No matter what good it is, you need external imports. For instance, if you're making beer, you might need to import hops or barley (true story, look up Polar in Venezuela). With the currency controls, you can't get hard foreign currency to pay your suppliers. And they sure as heck aren't going to accept your debased currency as payment. So your factories sit idle, because you just can't get supplies for production, and then the government nationalizes your factory because you're "sabotaging production". Government nationalization: The goal of the government is ideological purity. If you're not producing goods for sale at artifically low prices (sometimes the sale price is below the cost of production), the government swoops in, calls you an enemy of the revolution, and replaces all the skilled people who are ideologically impure, such as managers, with party hacks who have no idea what they're doing. That's why Venezuela oil production is in the toilet. The Nordic version of "socialism" simply involves taxing the rich and giving subsidies to the poor. They don't try to dictate prices or control means of production or fiddle with the exchange rate. The authoritarian socialism Venezuela is using right now has failed in every instance it has been tried.

optimuspaul 10y ago
I'm not sure that's how the black market works. I don't think I can exchange dollars for bolivars. That sounds like a losing proposition for the black market.
- jimmywanger 10y ago
  I'm pretty sure that's how the black market works. Why do you think otherwise? If you were on the black market, you'd LOVE to exchange bolivars for dollars. The inflation rate is over 700% I think this year, and it's only going up. Why wouldn't you want something that's almost guaranteed to be valuable, instead of holding on to a rapidly depreciating asset?
  - segmondy 10y ago
    He said, he won't want to exchange dollars for bolivars. He is right, what are you going to do with with the bolivar? By the time you get to spend it, it's lost it's value by tons. Unless you are buying land, or paying people and doing business. But even then you run the risk of having your land, business seized. Anyone with dollar will hoard it as much as possible. It's your golden ticket out of the country.
    - jimmywanger 10y ago
      Did you not read my comments? I said that exchanging dollars for bolivars was easy. Exchanging bolivars for dollars, that's different. You realize you just said that you said the exact reversal of my statement.
- bpolania 10y ago
  People who lives in Venezuela saves in US$ and exchange dollars for bolivars when they need liquidity in local currency.
rm_-rf_slash 10y ago
Bingo. Too many people equate socialism with safety nets and draw the wrong conclusions from either. Socialism traditionally means that the state - composed of the people, one assumes - owns the means of production. This does not mean that safety nets are assured or can even be sustained if the profits are insufficient. A safety net can exist independent of government control/ownership of industry. Just take a bit out of everybody's paycheck and BAM! Universal healthcare. It is clear to anyone with a basic understanding of economics and history that the private market allocates resources more efficiently and creates more wealth than central planning. There are times that the government steps in to fix market failures or areas without sufficient private investment (acid rain regulations and the interstate highway system), but that doesn't mean letting the government step in is an inevitable path towards Leninism. It simply makes more sense to tax the profits of the private sector than to step in, say you can do it better, and route the profits directly to the social safety net without cannibalizing the business in the first place.
jimmywanger 10y ago
Funny thing is that socialism tends to reject religion, but price controls originated in Christian thought. https://en.wikipedia.org/wiki/Just_price https://en.wikipedia.org/wiki/Just_price What a lot of people don't realize is that prices aren't inherently good or bad in and of themselves, they just are. If somebody else is willing to pay 20k for a diamond, that's the price of a diamond. No amount of legislation or argument will drive down the price of a diamond to what it "should" be. See http://www.wsj.com/articles/SB10001424052702303460004579192100178248012 http://www.wsj.com/articles/SB100014240527023034600045791921.... The prices of electronics dropped in price after a governmental mandate. Guess what? After the store inventories were depleted, they never got any more TVs to sell.
- cvwright 10y ago
  > What a lot of people don't realize is that prices aren't inherently good or bad in and of themselves, they just are. If somebody else is willing to pay 20k for a diamond, that's the price of a diamond. Arguably, even the early Christian thinkers like Acquinas agree with you on this. http://www.thepublicdiscourse.com/2015/08/15435/ http://www.thepublicdiscourse.com/2015/08/15435/
  - jimmywanger 10y ago
    In theory, yes. But look at this following quote from the article: > but was simply the current market price, with this important reservation: in cases of collusion or emergency, the public authorities retained the right to interfere and to impose a fair price. In socialist governments, they see the free market as always "colluding" to cheat the working man. That's why they set unrealistically low prices for basic goods, like bread, and rail against producers for "colluding" because hey, most price costs about the same amount, so it has to be a coordinated effort while people are going hungry.
- bpolania 10y ago
  In Venezuela price control is not ideological is a stupid move to try to rein inflation.
pascalxus 10y ago
Yes. Would someone please explain this all to residents of SF. We definitely need more economic education in this country - the voting public needs to understand these things. As thing get increasingly dire, I'm afraid, something like this will someday occur in the US.
- jimmywanger 10y ago
  It's not just economics. It's politics as well as a dash of military theory. For instance, it's cheaper to produce steel and aluminum abroad than in the states. But we erect protective tariffs on steel and aluminum to keep those industries in the states so that in case war breaks out, our aggressors can't cut our supply lines, and we can keep churning out jet and tank parts. But agreed, it's a fascinating field. Why do you restrict the explanation to residents of SF, rather than all citizens of the US?
segmondy 10y ago
What you quoted for swapping dollars for bolivars doesn't make any sense, especially the back and forth to game the standard and black market rate. This is the reality, when foreign government's peg their currency. It's usually when they are doing bad. So say you live in such a country and want to buy a good from the US or another country because you want to resell or do manufacturing. You need dollars. But all you have is your local currency in this case the bolivar. There is such a short supply of the dollar, because most of it is going out due to imports and less is coming in (little exports). You go to the govt to get some and most likely will be told there's none. There usually is none too! the govt is spending all their little dollar buying more things they need and paying debt. At the end of the day, they have none, they find themselves in the negative. So trying to sell your bolivar for the USD? Good luck. Desperate to keep your business afloat, you go to the black market, and you are willing to pay a lot for dollar. There is more demand for dollar than supply, so the dollar climbs and that's why people are willing to buy a dollar for their 1010 bolivar. Why would anyone do that? If you need to buy raw materials to produce, or maybe you need medicine. Since your country is in the shitters, no one wants your currency but dollars, euros, etc. The only way to survive is buy dollar,euro, pounds. The reality is that to play that arbitrage between the dollar and bolivar is difficult. The politicians/govt/bankers are very corrupt and hoard all the cash that is suppose to be sold in the market. That 1:10 peg is if you are selling dollar for bolivar. If you are buying dollar, they will never sell it to you at 10, they will sell it for much higher or never. So who in the world will sell their dollar for 10 bolivar? Tourists. Not even foreign businesses. If you are a foreign entity, you bring in $1, get 10 Bolivar, you do some sort of business, turn it into 100 bolivar. very nice, time to get out, you exchange it for USD. you get 10cents before cost of business and taxes. At this point, most foreign companies have closed up shop and are long gone.
- jimmywanger 10y ago
  Ahhh... I think you didn't understand what I'm saying, or didn't add enough corruption and/or personal influence. Let me give you a concrete example. Let's say you have a connection in the government, maybe your uncle is high up in politics. So the 10:1 bolivar to dollar rate is given by the government for essential supplies (who has hard currency reserves), but you need to know somebody to get it. So your uncle hooks you up, and gives you 100 dollars for 1000 bolivars, cause you want to import 100 pounds of flour, because flour is an essential supply. You turn around, buy 10 pounds of flour for 10 dollars, and then on the black market exchange 90 dollars for 90,000 bolivars. You have just made an incredible profit for doing nothing except exploiting your contacts. And since you still have the flour contract you can do this indefinitely, until your uncle gets tired of your leeching ass and kicks you out. Does that make more sense?

optimuspaul 10y ago

I'm not sure that's how the black market works. I don't think I can exchange dollars for bolivars. That sounds like a losing proposition for the black market.

jimmywanger 10y ago
I'm pretty sure that's how the black market works. Why do you think otherwise? If you were on the black market, you'd LOVE to exchange bolivars for dollars. The inflation rate is over 700% I think this year, and it's only going up. Why wouldn't you want something that's almost guaranteed to be valuable, instead of holding on to a rapidly depreciating asset?
- segmondy 10y ago
  He said, he won't want to exchange dollars for bolivars. He is right, what are you going to do with with the bolivar? By the time you get to spend it, it's lost it's value by tons. Unless you are buying land, or paying people and doing business. But even then you run the risk of having your land, business seized. Anyone with dollar will hoard it as much as possible. It's your golden ticket out of the country.
  - jimmywanger 10y ago
    Did you not read my comments? I said that exchanging dollars for bolivars was easy. Exchanging bolivars for dollars, that's different. You realize you just said that you said the exact reversal of my statement.
bpolania 10y ago
People who lives in Venezuela saves in US$ and exchange dollars for bolivars when they need liquidity in local currency.

rm_-rf_slash 10y ago

Bingo. Too many people equate socialism with safety nets and draw the wrong conclusions from either. Socialism traditionally means that the state - composed of the people, one assumes - owns the means of production. This does not mean that safety nets are assured or can even be sustained if the profits are insufficient. A safety net can exist independent of government control/ownership of industry. Just take a bit out of everybody's paycheck and BAM! Universal healthcare. It is clear to anyone with a basic understanding of economics and history that the private market allocates resources more efficiently and creates more wealth than central planning. There are times that the government steps in to fix market failures or areas without sufficient private investment (acid rain regulations and the interstate highway system), but that doesn't mean letting the government step in is an inevitable path towards Leninism. It simply makes more sense to tax the profits of the private sector than to step in, say you can do it better, and route the profits directly to the social safety net without cannibalizing the business in the first place.

jimmywanger 10y ago

Funny thing is that socialism tends to reject religion, but price controls originated in Christian thought. https://en.wikipedia.org/wiki/Just_price https://en.wikipedia.org/wiki/Just_price What a lot of people don't realize is that prices aren't inherently good or bad in and of themselves, they just are. If somebody else is willing to pay 20k for a diamond, that's the price of a diamond. No amount of legislation or argument will drive down the price of a diamond to what it "should" be. See http://www.wsj.com/articles/SB10001424052702303460004579192100178248012 http://www.wsj.com/articles/SB100014240527023034600045791921.... The prices of electronics dropped in price after a governmental mandate. Guess what? After the store inventories were depleted, they never got any more TVs to sell.

cvwright 10y ago
> What a lot of people don't realize is that prices aren't inherently good or bad in and of themselves, they just are. If somebody else is willing to pay 20k for a diamond, that's the price of a diamond. Arguably, even the early Christian thinkers like Acquinas agree with you on this. http://www.thepublicdiscourse.com/2015/08/15435/ http://www.thepublicdiscourse.com/2015/08/15435/
- jimmywanger 10y ago
  In theory, yes. But look at this following quote from the article: > but was simply the current market price, with this important reservation: in cases of collusion or emergency, the public authorities retained the right to interfere and to impose a fair price. In socialist governments, they see the free market as always "colluding" to cheat the working man. That's why they set unrealistically low prices for basic goods, like bread, and rail against producers for "colluding" because hey, most price costs about the same amount, so it has to be a coordinated effort while people are going hungry.
bpolania 10y ago
In Venezuela price control is not ideological is a stupid move to try to rein inflation.

pascalxus 10y ago

Yes. Would someone please explain this all to residents of SF. We definitely need more economic education in this country - the voting public needs to understand these things. As thing get increasingly dire, I'm afraid, something like this will someday occur in the US.

jimmywanger 10y ago
It's not just economics. It's politics as well as a dash of military theory. For instance, it's cheaper to produce steel and aluminum abroad than in the states. But we erect protective tariffs on steel and aluminum to keep those industries in the states so that in case war breaks out, our aggressors can't cut our supply lines, and we can keep churning out jet and tank parts. But agreed, it's a fascinating field. Why do you restrict the explanation to residents of SF, rather than all citizens of the US?

segmondy 10y ago

What you quoted for swapping dollars for bolivars doesn't make any sense, especially the back and forth to game the standard and black market rate. This is the reality, when foreign government's peg their currency. It's usually when they are doing bad. So say you live in such a country and want to buy a good from the US or another country because you want to resell or do manufacturing. You need dollars. But all you have is your local currency in this case the bolivar. There is such a short supply of the dollar, because most of it is going out due to imports and less is coming in (little exports). You go to the govt to get some and most likely will be told there's none. There usually is none too! the govt is spending all their little dollar buying more things they need and paying debt. At the end of the day, they have none, they find themselves in the negative. So trying to sell your bolivar for the USD? Good luck. Desperate to keep your business afloat, you go to the black market, and you are willing to pay a lot for dollar. There is more demand for dollar than supply, so the dollar climbs and that's why people are willing to buy a dollar for their 1010 bolivar. Why would anyone do that? If you need to buy raw materials to produce, or maybe you need medicine. Since your country is in the shitters, no one wants your currency but dollars, euros, etc. The only way to survive is buy dollar,euro, pounds. The reality is that to play that arbitrage between the dollar and bolivar is difficult. The politicians/govt/bankers are very corrupt and hoard all the cash that is suppose to be sold in the market. That 1:10 peg is if you are selling dollar for bolivar. If you are buying dollar, they will never sell it to you at 10, they will sell it for much higher or never. So who in the world will sell their dollar for 10 bolivar? Tourists. Not even foreign businesses. If you are a foreign entity, you bring in $1, get 10 Bolivar, you do some sort of business, turn it into 100 bolivar. very nice, time to get out, you exchange it for USD. you get 10cents before cost of business and taxes. At this point, most foreign companies have closed up shop and are long gone.

jimmywanger 10y ago
Ahhh... I think you didn't understand what I'm saying, or didn't add enough corruption and/or personal influence. Let me give you a concrete example. Let's say you have a connection in the government, maybe your uncle is high up in politics. So the 10:1 bolivar to dollar rate is given by the government for essential supplies (who has hard currency reserves), but you need to know somebody to get it. So your uncle hooks you up, and gives you 100 dollars for 1000 bolivars, cause you want to import 100 pounds of flour, because flour is an essential supply. You turn around, buy 10 pounds of flour for 10 dollars, and then on the black market exchange 90 dollars for 90,000 bolivars. You have just made an incredible profit for doing nothing except exploiting your contacts. And since you still have the flour contract you can do this indefinitely, until your uncle gets tired of your leeching ass and kicks you out. Does that make more sense?