Monday, October 24, 2005

He's the new king...of the socialist moonbats

I wanted to discuss this last weekend but haven't had the time to address it properly. Like any good socialist leader, Hugo Chavez is never short on half-truths, damned lies, and economic ignorance. Can we expect anything else from someone so paranoid that he accuses the U.S. of planning to invade his country and assassinate him? (The latter was long before Pat Robertson suggested it, which mainstream media almost always took out of context anyway.) And, of course, Chavez again blames capitalism for just about everything.
Chavez: World Faces Major Energy Crisis
Sat Oct 15, 7:15 PM ET

SALAMANCA, Spain - Venezuelan President Hugo Chavez said Saturday that the world faces an energy crisis but there is little chance of his country and other OPEC members increasing production because they are already pumping near "their capacity."

"The world will have to get used to a barrel price, I think, of above $50, and energy will have to be saved," he told reporters as leaders from Spanish- and Portuguese-speaking countries met in this central Spanish town.

After soaring in August, crude oil prices have been between $60 and $70 a barrel for more than a month.

"We're at the doorway of major energy crisis worldwide," Chavez said. "We'll have to develop other resources such as wind, solar and nuclear energy naturally for peaceful purposes." He said Venezuela was in talks with Argentina and Brazil regarding nuclear power.

"Prices will continue to rise but oil is running out," he said.

Chavez said a "lack of imagination in the United States and the war in Iraq, which has destabilized the market in the Middle East, has also driven up prices." Increased demand from countries such as China and India is making the problem worse, he said.

"The whole world right now is producing petroleum at their maximum capacity," he said. "In Venezuela, for example, we can't produce a single barrel more."

Venezuela, a member of Organization of Petroleum Exporting Countries, is the world's fifth largest oil exporter and a major supplier to the U.S. market.

Venezuela's state oil company, Petroleos de Venezuela, says it pumps 3.2 million barrels of crude oil a day. But industry analysts put the figure lower, saying the country has never fully restored output since an extended strike in 2003 that sought to force Chavez's resignation.

Increased production would not solve the price problem, Chavez said.

"The cause of the increase in the price is not in the production. It's partly the intermediaries who make things dearer. It's also because of the increase in demand and the irrational capitalist consumerism model," he said.

"The United States for example, with scarcely five percent of the world's population, uses almost 25 percent of the petroleum and combustion fuels produced in the world," he said.
The arrogant central-planning bureaucrats of Hayek's essay "The Use of Knowledge in Society" could not be more perfectly represented. Typical of socialists, Chavez erroneously believes that he has perfect knowledge, or at least such extensive knowledge (compared to the rest of us) that he can predict a barrel price for oil, that the world is on the brink of an "oil crisis," and that his nation is producing oil at 100% capacity. When anyone learns of his qualifications to make such statements, please let me know.

Chavez claims that Venezuela cannot produce any more oil. The article notes that industry experts don't believe Venezuela's production is what it was before its disruption two years ago. However, we'll even put aside Chavez' ignorance of his country's own oil industry. Even if Venezuela were producing oil at maximum capacity, it could certainly produce more -- if offered enough money. If oil reached $100 per barrel, Venezuela would start drilling in oil deposits that before were not worthwhile, but are now profitable because the oil can be sold at a higher price. That's the power of markets: offer someone a sufficiently high price for a good or service that you want badly enough, and it will become feasible to provide it. Offer enough if you really, really want it, and someone could probably, given enough time and money, genetically engineer a turnip with a drop of blood inside.

Don Luskin reminded us last year that global oil reserves keep increasing through the years, but the energy doomsayers still maintain we're running the wells dry. As I mentioned in my entry about Malthus' philosophical descendants, OPEC nations are investing a large portion of their profits in developing new oil fields. Instead of wringing their hands and warning about energy crises, they're always looking to expand their capacity. More recently I pointed to, as part of a large entry, an article describing the technological development so that someday we might extract 1 trillion barrels of oil in the western U.S. -- locked away in shale. Even if it will never be feasible, in the meantime we might develop a cheap, efficient source of energy, whether undiscovered or currently known. Who is to say? Certainly not Chavez and the the other delusional central planners.

Granted it's not a precise quote, but the article did say, "Increased production would not solve the price problem, Chavez said." Chavez then proceeded to blame "intermediaries," increased demand, and capitalism. Is he that blind to the laws of supply and demand? The increased demand is precisely why oil suppliers are always looking to increase their output; the higher prices are their incentive, and as I've said before, the fact that they don't want oil to get so expensive that its substitutes become economical. Moreover, Chavez doesn't understand the very role of "intermediaries," i.e. middlemen: they reduce the total cost of making transactions by facilitating deals between buyers and sellers, but they lack the significant power over final prices that Chavez thinks they have. No matter how much a broker tries to profit, by definition the buyer will still not pay more than what he deems the item is worth. I addressed that in "Rising oil costs: still nothing to worry about" and then in "The power of markets" as a semi-follow-up.

Chavez brought up a tired and wholly fallacious accusation, that the U.S. uses a larger "share" of the world's resources than its percentage of the global population. First, Chavez forgets that what's "fair" is that an entity (whether an individual of a nation) uses however much of a resource as desired after paying an agreed-upon market price. Being a certain percentage of the population has nothing to do with it. I, for example, eat more red meat than the typical American, far more than my "share," but I'm willing to pay for it, whereas others may prefer chicken. My boss at my previous job was shocked at how often I eat beef. Surprisingly, my recent cholesterol test came back 172, not 1172.

Second, Chavez is still wrong when we determine what is actually "fair." Despite high oil prices, U.S. economic growth through 2005 will be very strong: GDP will be well over $12 trillion. That's more than a fourth of the $44 trillion that the IMF estimates for global GDP in 2005, so if we want to be as nonsensical as Chavez and implement any "fair share" standard, then the U.S. is actually entitled to use more oil. And how much oil does Venezuela use? How much more than his "fair share" does Chavez use to live far more comfortably than the average Venezuelan?

The problem isn't with the "irrational capitalist consumerism model," but with a socialist, central-planning government that keeps people poor. Don Boudreaux recently blogged about how Niger's government keeps its people in economic serfdom; I have detailed how Robert Mugabe economically enslaves the poor of Zimbabwe. Chavez seems to be taking a page out of their book. Nearly half of Venezuelans already live in poverty (straight from the World Bank's mouth), and Chavez wants to make them effectively more poor by forcibly increasing Venezuela's use of more expensive wind, solar and nuclear energy instead of petroleum. It's an elementary conclusion that the three are more expensive than petroleum: if they were cheaper, Venezuelans would already be using them. But Venezuela has tremendous oil wealth, so wind, solar and nuclear energy would have to be extremely cheap to be price-competitive.

So why does Chavez persist? Insanity? Stupidity? Arrogance? Evilness? All four? What we do know is that he's following all too well in the footsteps of previous state planners, most notably Lenin, Stalin, Mao and Kim Jong Il. He just hasn't caused millions of people to starve to death. That's only because Venezuela can abundantly supply a commodity that's in high global demand (oil is about 80% of Venezuela's exports). That has still hardly helped the third of Venezuelans who live in extreme poverty, despite Chavez's professions of anti-capitalist, socialist-egalitarian ideals. Besides, mineral wealth, as we've seen in Zimbabwe and other nations, is no guarantee of keeping the people from starving when a socialist ruler sets his mind to things.

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