Venezuelan President Continues Failed Policy of Minimum Wage Hikes

Venezuelan President Nicolas Maduro has solved the country’s economic problems! On Sunday he raised the country’s minimum wage 60%. CNN called the wage-hike “significant.”

“The latest hike brings the minimum wage to 65,021 bolivares per month, up from 40,638. With an additional food stamp hike, that brings the country’s wage to 200,021 bolivares per month. Maduro is allowing for food stamps to be deposited and used as cash.”

It’s likely we can expect the massive protests that have rocked the South American country to end as Venezuelans head back to work to cash in on their minimum wage windfall granted by their benevolent government leaders. Or maybe not.

This represents the 15th hike in the minimum wage since Maduro took office in 2013. Meanwhile unemployment is expected to rise above 25% this year and reach as high as 28% in 2018. The unemployment rate stood at 7.4% in 2015.

As some people in the US have discovered, big hikes in the minimum wage don’t really help a whole lot when you don’t have a job.  No matter what proponents of minimum wage laws tell you,  wage floors do push employment levels down. As we reported last summer, a study by the Evans School of Public Policy and Governance showed Seattle’s minimum wage increase also increased unemployment. No surprise there given what happened in Puerto Rico.

Basic economics teaches us that when the price of X goes up, the demand for X goes down. In the case of Seattle’s minimum wage increase of $15 an hour their X equaled low-skilled jobs. Demand for those jobs, unsurprisingly, went down and unemployment went up.

While a 60% increase in the minimum wage sounds great, the effect loses something when your currency is essentially valueless. In fact, Venezuelans are awash in cash, but there’s nothing to buy. Inflation got so bad last fall businesses resorted to weighting cash instead of counting it. Boxes and bags of bills have become a nuisance to shop owners who have to find places to store the burdensome currency.

In August 2015, the Venezuelan currency had already been devalued to the point that a photo of a man using a 2-bolivar note as a napkin went viral. Since then, inflation has continued to spiral out of control. CNN reported that inflation is expected to surge to 720% this year and 2,068% next year, according to forecasts by the International Monetary Fund.

What does this mean on the street? It means even with the latest boost to the minimum wage, the Venezuelans still won’t have any purchasing power, as CNN points out at the very end of its report.

“The total monthly wage is equivalent to about $46.70, according to the popular but unofficial exchange rate website DolarToday.com.”

Not that there is much to buy in Venezuela, which continues to experience persistent shortages of basic staples such as toilet paper, rice, and coffee.

Venezuela serves as the poster child for what happens when socialist policies get carried out to their logical conclusion. And yet even in the midst of economic chaos and violence in the streets that has led to at least 28 deaths, the government can’t do anything but double down on the same failed policies while blaming “political opponents” and capitalist plots. Tragically, the net result of Venezuela’s socialist experiment has been the sound of hungry stomachs.

American socialists swear it can never happen here and continue to forge ahead promoting the same economic policies that have destroyed Venezuela. They claim they will “do it right.” The failure of socialism is never socialism. The problem is always the people in charge. But the truth is you can’t change economic laws with good intentions. You can’t just wish away basic cause and effect.

In America, we have socialism light, but, at the core, the policies are the same. Raise the minimum wage, increase regulations, manipulate the currency, and “control” prices. American may never become Venezuela, but do you really even want to be Venezuela light?

 

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