Proving that no idea ever really goes out of style Hillary Clinton is stealing her economic plans from the Chavez / Mugabe playbook.

And why not? It’s worked well for Venezuela, where although the government doesn’t officially control all private businesses, price controls, currency controls, a tendency to intervene in the market and rampant public spending have combined to produce an annual inflation rate of 17% and a shortage of subsistence items.

These factors are among those that have also fuelled soaring inflation, which reached 22.5% year on year in December 2007—the fastest pace in five years—according to newly released Central Bank figures. This rate compares with 17% inflation in full-year 2006, and was substantially above the government’s target of 12%. It was the highest rate of inflation for any Latin American country last year.

Also contributing to inflation are four years of rising oil export revenues, the government’s stimulatory fiscal spending and fast-growing domestic demand. At the same time, price controls on many basic consumption items, in place since 2003, have discouraged production, creating shortages of food and other goods. This, in turn, has spurred further price pressures. An increase in imports has filled a portion of unsatisfied local demand (imports grew by 36% in 2007), but this has been insufficient to prevent price pressures. Although the finance ministry announced in mid-December that it was easing price controls for several goods (including milk and cooking oil) in response to the shortages, the adjustments are unlikely to provide the necessary push to domestic producers, particularly given ongoing concerns about private property rights.

With aggregate demand exceeding supply, introduction of the bolívar fuerte will do nothing to stabilise prices, despite government claims to the contrary. In fact, the easing of some price controls is likely to boost inflation further. In addition, the government remains reluctant to cut back significantly on its spending. Although the Economist Intelligence Unit forecasts a gradual decline in public expenditure as a percentage of GDP, this will not be enough to prevent an increase in the central government deficit to 2.6% of GDP this year (from an estimated 1.4% in 2007). The true fiscal position will be worse, as a rising burden of expenditure will be placed on entities other than the Treasury (such as the state oil company, Petróleos de Venezuela).

It’s also working well in Zimbabwe where Robert Mugabe has manage to turn what was the most productive economy in Africa into a Mad Max like post apocalyptic wasteland.

Sadly there are already parallels between the US and both of these countries, but our economy has been large enough and flexible enough to absorb the blows bad policies have inflicted. If Hillary gets her way and manages to freeze home mortgage rates as well as installing new regulatory burdens that may well break the camels back.

My own stimulus package is a little simpler. Lower the corporate tax rate to 30% plus give business the ability to write off an additional 5% / year (plus start up costs) for jobs / manufacturing brought back from overseas with the understand if the jobs move offshore again in the next 10 years the difference in the taxes will have to be paid. (I picked the rates and time period randomly, a real economist would have to come up with the actual plan).

Hillary Clinton, Economics, Hugo Chavez, Robert Mugabe, Venezuela, Zimbabwe

This entry was posted on Monday, January 21st, 2008 at 11:21 pm by Chad and is filed under Election 2008 Live Team Coverage!. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.