A Lump of Coal for Chavez

Cheap oil is one of the few silver linings in the current worldwide recession. That is unless you are Hugo Chavez or one of his US bashing comrades. When oil traded for above $100 per barrel, Chavez was a powerful figure in Latin America. He solidified his dictatorship over Venezuela by selling an oil funded socialist dream. He pulled publicity stunts by giving free oil to New England states represented by far left congressmen. He funded leftist rebels to destabilize US friendly Columbia.

With oil trading 75% off its peak, the party is over for Chavez, Putin, and Ahmadinejad. They wrongly assumed that they could rely on oil revenues to fund their ambitions. Indeed, not content to wait for their regular checks to arrive, many oil despots like Chavez and Putin nationalized their oil industries by confiscating private oil producing assets. Sovereign risk, as economists call such thievery, is a powerful disincentive to future investment, meaning these bad actors’ troubles are here to stay.

Venezuela is in economic collapse and can’t keep the lights on. Russia may have food shortages this winter. Iran’s poetic justice is that it can’t refine enough gasoline to fuel its cars, plus the runaway inflation typical of a collapsing regime. All this points to the fact that mineral wealth is no substitute for the broader wealth of functioning capitalist states. Even though countries like the US, Japan, and Singapore rely heavily on foreign oil, they generate great profits from such imports (see the previous blog on T. Boone Pickens). The rule of law, adequate infrastructure, and an educated population are always more valuable than proven reserves of oil.

So, the next time politicians like Pelosi and Reid threaten to punish an oil company for selling its product at the market price, consider weather their ideas are so far removed from those of Chavez. The reasonable expectation of keeping lawful profits is a cornerstone of the US economy. Both these Democrats, like Chavez, pumped up popular frustrations in order to confiscate oil assets. Such irresponsible intrusions into private property rights pave the road to the kind of misery found in Venezuela and other failed states.

The suffering of the people led astray by the populist call of the oil despots is a tragedy. The US should take note of their errors and avoid them. Far left politicians should learn that profits are not to be punished, lawful contracts and private property are not to be molested, and that free enterprise should not be traded for a temporary boost to the government coffers.