No Runny Eggs

The industry term for them is “trailers” but I’m old enough (no, none of my movie experiences included silent films) to remember when the previews of movies were called “Future Attractions.”   Future attractions were put together to give people enough of an insight on the coming movie to decide whether they wanted to see, or “participate,” in the movie experience.   Today, we have a “Future Attraction” of what the United States will be showing.

Venezuela’s dictator, Hugo Chavez, has announced that he will be nationalizing a rice production plant owned by Cargill:

“Prepare the decree, we are going to expropriate Cargill. We are not going to tolerate this,” Chavez said.

Just another rant of a Tyrant you say?   An irrational act that is based on thuggery and emotion.   An act that is devoid of rational thought or law?   Au contraire!   Chavez has a perfectly legal reason for his expropriation:

Chavez said he ordered the takeover because Cargill — one of the largest privately owned U.S. companies — avoids producing basic rice that is subject to government price controls.

Chavez set the rules that he thought would get the outcome he wanted.   Cargill looked at the rules and said “we can’t make any money doing that,” so they  looked at the rules, set by Chavez, and found a way to stay within them and make money.   The problem is that Cargill’s “outcome” is not the “outcome” that Chavez envisioned.   Thus, Chavez is crying foul and is threatening to take the plan over so that he can not only dictate the terms but dictate the outcome.

Huh, that’s funny.   Not “ha ha” funny but “isn’t that ironic” funny.

In October the TARP plan was put into place.   It was an “EMERGENCY” so one of the largest government interventions ever, was put into place with legislation that boiled down to “whatever the Secretary of Treasury says.”   Nearly immediately following the implementation, there was citing of banks who had received TARP funds doing things that their new “investors” didn’t like.   Annual recognition trips, purchasing of foreign banks, payment of “performance” bonuses, were some of the activities over which “foul” was cried.   Of course, the problem, as with Chavez’s is that the rules didn’t preclude these activities so little other than shaming them, was able to be done.

Shortly after TARP, the auto industry knocked on Congress’ door asking for alms.   Congress, having learned that providing money with no rules left them looking foolish, responded by providing a set of rules to go with the automaker loans.   These new rules ran to the opposite side of the balance.   The new rules boil down to “you will have a bunch of rules that we will have the right to change whenever and in whatever manner we choose to.   You will have no input to these rules.   The rules will not be based on any real business objectives but will be based on what we feel would be best for us.”  

There’s no doubt that Congress’ new approach to dictating outcomes will have no greater success than their original approach.   The issue isn’t whether Congress gets the rules right.   The issue is that government never, ever, ever is able to dictate economic outcomes, the best they can do is provide a framework that allows capitalism to best work.  

There’s one other lesson from this exercise.   Government is never, ever, ever a benevolent overseer.   Government in all forms, is far too susceptible to removing rational thought and believing that “because they say so” is a good enough reason for something to occur.   The result is that the more Government is involved, the less likely the outcome will be one that is able to be accomplished without significant distortion or disruption of an economic enterprise.   Also, Government’s response to not getting the right outcome is to further restrict economic options, even to the point, as with Hugo Chavez, of taking over companies who don’t comply with their vision.

Hugo Chavez’s Venezuela, scenes of America’s Future Attractions.

Revisions/extensions (6:03 pm 3/5/2009, steveegg, who is slacking in his copy editing duties) – Fausta has more background on the Venezuelan end of this story. I’m shocked, SHOCKED that neo-Communists would have the same food-shortage problem the old-line Communists had.

Also, R.S. McCain has pretty much the same conclusion, as he takes a look at the exit of capital from the markets.

R&E part 2 (6:13 pm 3/5/2009, steveegg) – There’s a couple of updates in the Reuters story that bear mentioning:

– The Cargill plant that is causing Chavez to nationalize Cargill’s rice business is designed to specifically make parboiled rice and not the “basic” white rice Chavez wants made.

– Venezuelan nationalizations used to be paid for by cash, but are now paid for by debt. It seems Chavez is writing checks his treasury can’t cash.