Actions Have Consequences! Ask Venezuela

Authored by Bill Bonner via InternationalMan.com,

Let’s turn to an economy getting doomier by the day: Venezuela.

Actions have consequences. In public policy, it is impossible to say what the consequences will be. There are too many delusions and too much smoke.

Take a policy said to eradicate city rats. Its real purpose is to reward a large political donor who owns a pest control firm. It ends up killing the pigeons.

Often, policies with clear and obvious purposes end up producing outcomes completely at odds with the stated objectives.

Prohibition, for example, increased the number of drunks. The War on Drugs fattened drug dealers’ profits.

The War on Poverty has made poverty respectable… even attractive… to poor people.

The War on Terror has probably made a million otherwise sane and sensible Muslims yearn to blow up something with a U.S. flag on it.

Most often, these outcomes are not exactly surprises. Look more closely and you will often find, hidden behind the promises… a pest control firm!

News reports, for example, tell us that U.S. arms dealers are about to get a $110 billion payday. President Trump announced a weapons deal with the Saudis – the biggest in history.

Into the Abyss

Although the exact consequences of public policies are obscure, the patterns are familiar.

Win-lose deals always reduce total human satisfaction.

Win-lose deals – unless they are imposed by petty criminals or local bullies – require government insistence. Otherwise, no one would take the losing side.

So the more government there is… the more active, ambitious, and overbearing it is… the more win-lose deals subtract from the sum of human happiness.

A month ago, as many as a million of these disappointed people demonstrated against the government of Nicolás Maduro in Venezuela. It was the “Mother of All Protests,” they said.

What was their beef?

Inflation is running at about 700% a year. Last year, GDP plunged 19%. Food staples – beans, rice, bread – are disappearing. Families cross the border into Colombia to buy toilet paper.

Hospitals have no medicine, no equipment, not even rubber gloves and disinfectants. Sometimes, they have no electricity. Deaths of premature babies have increased 10,000% in the last five years.

How did a country make such a mess of itself?

Win-Lose

In a sense, the country was a victim of its own good luck… and then a victim of its own bad judgment.

The good luck happened in 1914 when the first oilfield was drilled. The money followed.

By the 1950s, with a basically market-oriented government, Venezuela rose to become the world’s fourth-richest country in terms of GDP per capita.

Today, the country has the largest proven oil reserves in the world – 297 billion barrels of the stuff compared to 267 billion barrels in Saudi Arabia.

But good luck allows you to make bad judgments. With the oil wealth flowing, Hugo Chávez – who described himself as a Trotskyist two days before his inauguration as president in 2007 – could impose win-lose deals on the whole economy.

Key industries were nationalized. Price controls were put in place. Wealth was redistributed.

Win-lose deals can redistribute wealth but only to the extent win-win deals create it. Take away the win-win deals, and the wealth soon runs out… as it did in Cuba and the Soviet Union.

Now the tank is about empty in Venezuela, too.

Banana Republic

It doesn’t matter what you call it – government is always a means for the few to exploit the many.

The few use every resource available to them to keep the hustle going, with special attention given to manipulating the gullible mob.

The typical citizen rarely has any idea of what is going on… and doesn’t have much curiosity about it. As long as he has credit for a new pickup and a champion who promises to smite his enemies, the common man will go along with almost anything.

But the Venezuelan auto industry has been ruined. And there’s no credit available. So there are few new pickups on the streets, and much of the public has turned against the government.

Not surprisingly, the policies that destroyed Venezuela delighted U.S. economists and politicians – who were eager to impose win-lose deals of their own.

In 2007, Nobel Prize-winning economist Joseph Stiglitz praised the “positive policies” in health and education of the Chávez government.

And in 2011, Bernie Sanders wrote:

These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?

Sanders had no idea what was really going on in Venezuela. But he was right about what was going on in the U.S. It was on its way to becoming a banana republic.

Only without the bananas. Or the republic.

What Nassim Taleb Can Teach Us

Authored by Jeff Deist via The Mises Institute,

Nassim Nicholas Taleb does not suffer fools gladly. Author of several books including The Black Swan and Antifragile, Taleb is known for his incendiary personality almost as much as his brilliant work in probability theory. Readers of his very active Medium page will experience a formidable mind with no patience for trendy groupthink, a mind that takes special pleasure in lambasting elites with no “skin in the game.”

“Skin in the game” is a central (and welcome) tenet of Taleb’s worldview: that we are increasingly ruled by an intellectual, political, economic, and cultural elite that does not bear the consequences of the decisions it makes on our (unwitting) behalf. In this sense Taleb is thoroughly populist, and in fact he correctly identified trends behind the Crash of ’08, Brexit, and Trump’s election. He understands that globalism is not liberalism, that identity and culture matter, and most of all that elites don’t understand how randomness and uncertainty threaten the inevitability of a global order. 

Thus Taleb argues the intelligentsia are not only haughty when they plan our future, they are also clueless: fragility abounds, and threatens to crash the Party of Davos. Hubris results from unearned wealth and prominence, coupled with a blindness to the Black Swans lying in wait.   

Born in Lebanon to a prominent family, educated at the University of Paris and Wharton, Taleb was poised to become part of the cognitive aristocracy he mocks. But he was never one of them. His hard-nosed persona, enhanced by a dedication to rigorous deadlift workouts, is quickly evident in his notorious interviews and very public Twitter brawls. His willingness to delve into history and and religion sets him apart from the neoliberals who hope to wish them both away. Taleb writes for the intelligent everyman, and this blue-collar approach also extends to his description of himself as a “private intellectual, not a public one.”

Austro-libertarians will find much to admire in his brilliant takedowns of the “pseudo-experts” he identifies in academia, journalism, politics, and science. But Taleb is no Austrian. While he holds a decidedly jaundiced view of most economists—calling for the Nobel in economics to be cancelled— he does not denounce economics as a field of study per se. Nor does he claim heterodox or reactionary inclinations:

“I am as orthodox neoclassical economist as they make them, not a fringe heterodox or something. I just do not like unreliable models that use some math like regression and miss a layer of stochasticity, and get wrong results, and I hate sloppy mechanistic reliance on bad statistical methods. I do not like models that fragilize. I do not like models that work on someone"s computer but not in reality. This is standard economics.”

While he is not averse to using mathematics and statistics in economics, Austrians share his perspective that both are tools for economists. Statistical models are mostly bunk that provide no value to economic forecasters or investors, despite the highly paid Ivy League quants who produce them. In fact, models often have harmful effect of creating a false sense of relative certainty where none exists. It"s refreshing to see Taleb make this claim so effectively from outside the Austrian paradigm of praxeology. But if his view of economics is mainline, his tone is Rothbard meets Hayek:

I"m in favour of religion as a tamer of arrogance. For a Greek Orthodox, the idea of God as creator outside the human is not God in God"s terms. My God isn"t the God of George Bush.

We know from chaos theory that even if you had a perfect model of the world, you"d need infinite precision in order to predict future events. With sociopolitical or economic phenomena, we don"t have anything like that.

Taleb does see a role for government, and supports consumer protection laws against predatory lending as one example. But he also purportedly supported Ron Paul in the 2012 presidential election, and has indeed mentioned Hayek as an influence regarding the dispersal of knowledge in society. He’s also applied special venom to several worthy targets in professional economics, including Paul Krugman, Joseph Stiglitz, and Paul Samuelson. Taleb labels as “Stiglitz Syndrome” the process whereby public intellectuals suffer no financial or career consequences for being spectacularly wrong in their predictions.

This is especially galling to a man who correctly called (and in fact became wealthy as a result of) economic crises in 1987 and 2008. In both instances, Taleb had “skin in the game” as a market trader. His own money and reputation were on the line, unlike the court economists in the New York Times.

For an excellent (albeit indirect) analysis of how Austrians and libertarians can advance their cause from a minority position, Taleb’s recent article The Most Intolerant Wins: The Dictatorship of the Small Minority is a must-read. He reminds us that a small minority with courage—the most important form of skin in the game— can prevail over the slumbering masses. And he also reminds us that courageous individual actors, not 51% mass movements, drive real changes in every society:

The entire growth of society, whether economic or moral, comes from a small number of people. So we close this chapter with a remark about the role of skin in the game in the condition of society. Society doesn’t evolve by consensus, voting, majority, committees, verbose meeting, academic conferences, and polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere. And asymmetry is present in about everything.

Economics is lost, mired in a quicksand of predictive models that fail to predict and macro-analysis that fails to analyze.

Democratic politics is lost, ruined by bad actors with perverse incentives to burn capital rather than accumulate it.

And academia is lost, still stuck in a centuries-old model run by hopelessly sheltered PhDs.

Taleb gets all of this, and does an admirable job of explaining it. Austro-libertarians would be wise to see him as a valuable ally and voice in the ongoing fight against states, central banks, and planners of all stripes.