"He will put the sheep on his right and the goats on his left."
Matthew 25:33

Sunday, January 10, 2010

The Shape of Things to Come

Economics is may be the "dismal science", but some economic laws are a lot like gravity. The laws of supply and demand are ironclad.

We have learned over the last 100 years, in repeated experiments, what happens when governments ignore this, and try to dictate market outcomes. In Cuba, the Soviet Union, and even in the 1970s in the USA when President Nixon imposed wage and price controls, we have learned that trying to engineer economic outcomes against markets is a fool's errand.

In most cases, these market interventions are simply failures, resulting in long lines, and/or wasted resources. If the governments are more determined to impose their will, the result is much more severe. In some cases it has been mass starvation and death, as in Pol Pot's Cambodia, and Stalin's Ukraine in the 1930s.

Our next lesson is unfolding in Venezuela. Mr. Chavez is unhappy with the way the economy is going. You can read about his current situation here.

The people of Venezuela have allowed someone who neither understands, nor supports markets and private property to gain power. Mr. Chavez is showing a willingness to bypass legal protections and process and to use force to impose his agenda.

We have seen where this leads. Mr. Chavez will fail to force the markets to bend to his will.

Ultimately, Mr. Chavez will back off, and the markets will do their work. If brute force is used to try to impose Mr. Chavez's will on the Venezuelan people, it will do great damage to the nation, but not change the economic outcome much.

The USA recently elected a new government that has limited respect for markets and private property, and a zeal for enacting its agenda over the objections of some citizens.

We need to watch Venezuela carefully, because it could be a preview of things to come.

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