Why Politicians Cannot Manage Economies

Maduro President Nicolas Maduro

In Venezuela,  President Nicolas Maduro is boosting Venezuela’s minimum wage to defend workers’ salaries against inflation running at nearly 60 percent annually. He said that the 30 percent increase for wages and pension payments will take effect Thursday, in honor of the May 1 international workers day. It follows a 10 percent boost in January.

Here is how the socialists just do not comprehend the economy. Maduro blames the problem on his opponents, accusing them of waging “economic war” on his year-old administration by raising prices and hoarding goods while staging protests demanding he resign. Politicians NEVER see that they are the cause of a problem – it is always opponents internally or externally.

Raising wages only fuels the inflationary spiral and increases the government deficit. He fails to grasp that INFLATION is not a one-dimensional aspect caused by simply increasing money supply. INFLATION is also caused by a collapse in public confidence. If people do not BELIEVE in government, they hoard goods and spending money. These politicians are incapable of every observing the economy from a realistic perspective.

Many people keep asking about gold and the dollar. This is a complex relationship where both can rise when the problem is external and separate when it is domestic.

Welcome to Economics 101 for the 21st Century. Maduro’s wage increase will send costs higher and prices fueling inflation. This increase takes Venezuela’s minimum wage to 4,252 bolivars a month. That’s $675 at the official exchange rate but less than a tenth of that level at the black market rate.