Thursday, May 01, 2014

May 1 follies

Let's look at the economic thermometer of today, Labor Day in Venezuela, a traditional populist day since I can remember when the president grants to the workers a hike in minimum wage. This time around, Maduro orders a 30% minimal wage increase. In time of crisis, the inflation at 60% is sure to gain fast a dozen points at the very least. Middle incomes cannot be adjusted at 30% so what we are going to see is a continuing pauperization of the working class AND the middle class. The rich, at least the bolibourgeois rich who do not need to follow the revolution's charge books will become richer.

It is not a matter of being pro or con minimum wage: in Venezuela it has become unfortunately a social stabilization factor, people always bitching at how low the increase is but willing to tune down protest while they have the brief illusion that they are better off. The problem here is that the regime, or almost any government in the past for that matter, fails to combine the politically moderating effect of a wage increase with new measures that would in the long term end the need for regular artificial wage increases. This time around is no exception: the regime has finally relented and allowed for the increase in prices of basic staples like chicken and coffee, but not enough to truly compensate for inflation, not enough to allow return of investment. As such, within days of being granted price increases the productive sector is hit by a 30% increase in personnel cost, and we will be back very soon to more scarcity, less purchasing power, etc.

In case you miss my point, let me tell you that it is pandemonium in Caracas today as there is a shortage of gas. As I arrived, duly warned and having pout gas leaving Maracay, I was trapped in a couple of bottle necks due to frantic people trying to get inside gas stations still operating.

The crisis is getting worse, not better, and the regime, trapped in its contradictions and own interest groups is unable to make the real decisions. So let's increase wages. After all, the regime will pay public workers with printed Monopoly currency.

PS: I am personally for the existence of minimal wages, but not when those become an hindrance to economic development or populist tools. That is, fixing minimal wage should be taken away from the hands of the executive power.

PS 2: from reports I see the regime and the opposition called for May first rallies. The opposition won, hands down, in spite of the buses I saw on my way to Caracas.

9 comments:

  1. Anonymous11:30 PM

    So real wages dropped 60 percent and Maduro, out of the goodness of his little Cuban heart, is raising the bottom wage up 30 percent.

    I bet Maduro doesn't keep his money in Bolivars Fuertes.

    ReplyDelete
  2. Has a black market developed for gasoline yet?

    ReplyDelete
  3. Anonymous5:19 AM

    Word was that the lack of gasoline in Caracas was due to striking truck drivers who were pissed that one of their number was robbed and killed last week.

    However given the fact that this Kleptocracy now imports gasoline, it is hard to tell whether the strike actually had the effect of getting several gas stations, notably mostly in El Cafetal/Macaracuay, to run dry or whether there is a "kink in the hose" thanks to Holy Week.

    The more this government rules, the more I feel we are in Boca de Uchire of the 70's and 80's. The town electricity ran on a generator that was promptly shut down every night at 10 pm and gas was available when the guy that ran the pump felt like it.

    Roberto N

    ReplyDelete
  4. Anonymous7:12 AM

    Are things really getting worst? As crap as things may be it seems like things have stabilized (at a level to be expected for country in dire straights).

    Recall at the beginning of the year your call was that the regime would be finished around the May 1st timeframe because of economic circumstances. That hasn't happened.

    Can you please give us an update on this and what you expect from an economic standpoint.

    ReplyDelete
    Replies
    1. I said that if the regime did not do anything an expiration date could be May/June. The regime has done a little bit and consumption went down, allowing for raw material reserves to stretch some. For example my business which I was considering closing June first has found some of the material needed, some only, and we may be rolling all the way through late July, but at 50% of what we were doing last year. This is basically the case for all my providers and clients, to the point that even among competition we exchange goods as "loans", on the condition that we see the completed paper work of imported raw material so we know that the "loan" will be repaid in kind very soon.

      The thing is that oil keeps being pumped though at lower levels and the regime has moved some of its stashed reserves. Some money has surfaced through that and devaluation and some imports have taken place. So the day of doom is pushed. But only pushed because the regime is not taking yet real measures that would allow for home production to start again. If nothing more is added to the little bit done, I expect a mid summer crunch, but with less reserves this time around.

      Just as a token evidence, Polar has stopped production at his Maracaibo plant for pasta, a major staple in the carbohydrate rich, protein poor diet of the Venezuelan. And this in spite of warnings from Polar for weeks to speed up wheat import as Venezuela can only grow a tiny fraction of the wheat it needs, if it set its mind to it.

      Delete
  5. Roberto Carlos4:46 PM

    "I am personally for the existence of minimal wages, but not when those become an hindrance to economic development or populist tools. "

    Hmmm, totally meaningless sentiment as the minimum wage is a socialist populist tool to begin with.

    ReplyDelete
    Replies
    1. NO.

      Minimum wage is also a tool to help avoid slave working, to stabilize consumption in a country, to help guarantee the levels of certain markets. Like all things it has its good and bad sides. What needs to be rejected are automated social benefits that do not encourage people to work. Minimum wage, when decent, actually is an incentive for some to take a job, any job rather than remain on the dole.

      Delete
  6. Am I understanding this correctly? The regime thinks that more money chasing fewer goods is a solution to the problems? Is that reverse thinking, or is that just plain stupidity? And. Is their continuing application of political repression so they can keep being so stupid? This would be lousy fiction if it weren't true!

    ReplyDelete
  7. Given the level of corruption and lawlessness it's difficult to see how any of this can ever be resolved and understand where Maduro thinks this will end. However, Mugabe is still in place in Zimbabwe in a country riddled with corruption so a Venezuelan change may be some time off yet

    ReplyDelete

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