Venezuela Ups Minimum Wage; Effective Rate a Whopping $13.50 Per Month
So much for that socialist paradise.
Last summer we reported that hyperinflation had devalued the Venezuelan bolivar to the point that people were using 2-bolivar notes as napkins. In order to keep up with the rate of devaluation, the Venezuelan government literally flew in 747s full of cash. Now we’ve learned that the Venezuelan government is so broke, it can’t even pay to print more money.
So, what is a benevolent socialist government to do?
Naturally, raise the minimum wage.
In fact, the Venezuelan government recently announced a 30% increase to 15,051 bolivars per month. It was the 12th minimum wage hike since President Nicolas Maduro took office.
At the official exchange rate, the new minimum wage comes to about $1,500 per month. But with the economy in shambles, and shortages of everything from food to toilet paper, the official rate is virtually meaningless. To actually buy necessary items, Venezuelans are forced into the black market, and there the value of their wage hike works out to a paltry $13.50 per month.
It may well be.
A Forbes article neatly sums up how Venezuela got to this point.
As to how this happened it’s a simple story. Idiot economic policy is to blame. That idiocy coming in two parts, one in theory and the second in reaction to that theoretical mistake. The oil price crash hasn’t helped, to be sure, but that’s not the cause of this disaster. The theoretical mistake is to misunderstand how prices and markets work. To think that prices are just near random numbers applied to things which can be changed at will…Arbitrarily trying to change prices might change the legal price but it does not change the market clearing one. Thus any move away from that market price produces shortages or gluts. Make the price of toilet paper less than the market clearing price and there’s nothing to wipe with. Make the price of labor higher than that market clearing one and some people can’t get a job. There simply are no exceptions to this. Price fixing causes shortages or gluts.”
We recently reported on how fixing the price of labor via the minimum wage in Puerto Rico was a major factor in that country’s financial crisis.
It’s easy to sit back, shake our heads and pity the Venezuelans and their socialist dreams. But in reality, the US government and central bankers believe in, and are implementing, essentially the same policies that drove the South American country into its current crisis. They love to print money, manipulate interest rates (prices), and mandate minimum wages.
The US may not be traveling down the road quite as fast as Venezuela, but the scenery looks awfully familiar.
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