A Venezuelan Inflation Addendum

Sometimes the news dovetails with my blog.

Yesterday, I responded a Benjamin Studebaker piece where he argued, in my view, unpersuasively that the left can organize to overcome some fundamental problems in Europe’s periphery. While much of my response dealt with inflation, for the sake of length, I emphasized the havoc a “Grexit” would cause for government programs. Regrettably, I had to give short shrift to the effect inflation has on labor.

Enter Venezuela! Yesterday, enormous protests erupted against the embattled Maduro government. Under Maduro’s predecessor, Hugo Chavez, the government began pursuing the kind of communist policies that were, frankly, a throwback in the 1970s. The effects of the price controls and crackdowns have been at turns humorous and horrific. Humorous: The country ran out of toilet paper a few times. Horrific: Caracas has the highest murder rate in the world as gangs try to secure food to sell on the black market. Driving all this is acceleration inflation, which is making everyone poorer. Even if you want to hose the investment class, rapid inflation is deeply anti-labor.

f_venezuela_crisis_170419.jpg

To get some idea why Venezuela’s policies are accidentally anti-labor, one must only look to their minimum wage. In 2016, the Maduro government raised the minimum wage 322%; in US terms, that would take the wage from $7.50 to $23.35. During that same time, however, the price of goods went up by 800%. That means that $7.50 in goods would then cost $58. People making the minimum wage in Venezuela could only buy 40% of what they could at the start of the year even after the wage hikes. That’s equivalent to slashing the minimum wage to $2.90 in the US.

The Maduro government has taken the position that it is because of, “economic war and mafia attacks”. Even if you are inclined to swallow these half truths uncritically, you must wonder why the Maduro government has failed so spectacularly at trade (mismanagement of public companies) and the mafia is thriving (nothing feeds a black market like price controls). And let’s not pull the punch: The government is exaggerating much of the narrative to dodge responsibility.

While my post yesterday focused on the problems inflation causes for government financing and the argument I was responding to looked exclusively at its effects on the investor class, the lesson here is that inflation erodes labor’s standing pretty dramatically. I looked at the minimum wage because that is an unambiguous statistic, but in many ways it is missing the point. Estimating real wages during dramatic inflation is difficult because it is a moving target. We can safely say those who were working above the minimum have almost certainly not seen a raise for awhile and the erosion of the value of their labor is even greater than the government’s actions on the minimum wage.

This isn’t a question of class warfare. Its a question of not cutting off you nose to spite your face.

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