Hugo Chavez Takes Over the Federal Reserve
by Andrew MellonTime was when countries believed in strong currencies — strength measured not in the rhetoric of bearded wise men but of bank vaults flush with gold coin.
Venezuelan tyrant Hugo Chavez recently announced that he would be devaluing his currency on New Year’s day. As the Wall Street Journal reported:
News of the devaluation came just after the central bank said the Venezuelan economy contracted 1.9% in 2010, the second consecutive year of declining output in the oil-rich nation after a 3.3% decline in 2009.
Both pieces of news suggest Mr. Chávez is having an increasingly difficult time balancing his populist policies with economic reality, according to economists. His government’s widespread nationalizations of private industry have sapped economic growth, while public spending has sparked inflation that the government has tried to contain by measures such as price controls.
There are a couple of striking aspects to this news. First, in the above excerpt one could easily replace Mr. Chávez’s name with Mr. Obama’s. Nationalizations or de facto nationalizations cripple an economy by replacing functional markets driven by the people with dysfunctional economies driven by central planners and have a secondary effect of chilling entrepreneurship, and thus competition, innovation and capital formation that drive economic growth.
Constantly imposing costs implicit and explicit on the private sector (i.e. those who must survive by providing a product demanded by consumers in quantities, of qualities and for prices willingly paid by these consumers), including the cost of propping up failed businesses and inflating asset prices, disincentivizes people from partaking in mutually beneficial commercial activity.







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