In words of two great Canadian singer songwriters, this is what has, and is happening, to Europe.

After the Basel Committee in 1988 decreed its risk adverse bank regulations, in words of Joni Mitchell’s Yellow Taxi, this is what has happened to Europe.

“Don't it always seem to go

That you don't know what you got 'til it's gone?

They paved paradise and put up a parking lot

Ooh, bop-bop-bop

Ooh, bop-bop-bop (na-na-na-na-na)

They took all the …. and put 'em in a …. museum

And they charged the people a dollar and a half to see them

No, no, no

Don't it always seem to go

That you don't know what you got 'til it's gone?

They paved paradise and put up a parking lot.”

And, if also Leonard Cohen could update his You want it darker, though surely in a more poetic way, it could go something like this:

If you’re the regulator, I'm out of the game

Deciding what banks need, kids will be broken and lame

If thine is the glory, theirs must be the shame

You want it darker

You killed the flame

It's written in regulations

It's not some nonsense claim

Basel Committee told banks

Keep refinancing our safer present

Don’t finance their riskier future

And that’s what our children got

You want it darker

They killed the flame

What has become of Europe (and of you the whole Western world)? Don’t be such a defeatist!

Please free us from imprudent risk-aversion and give us some prudent risk-taking

God make us daring!

USA and Canada beware… all this goes with you too.

 

Misunderstanding socialism

The heartbreaking Aug. 9 front-page article “Venezuela’s most vulnerable join the exodus” referred to Venezuela as a “disintegrating socialist state.” I am not a socialist but I have friends who are, and I know many of them have difficulties accepting that in reality, they were hoodwinked by criminals who, because it provided them cover, marketed themselves as socialists to lay their hands on Venezuela’s enormous centralized oil revenue, which many years represented 97 percent of all its exports.

Analysts said some European nations “consider the Venezuelan crisis, in contrast, a remote and politically driven byproduct of the standoff between the Trump administration and [President Nicolás] Maduro that is less likely to affect them.” That is part of the problem, as too many leaders in Europe still have Che Guevara T-shirts.

When the poorest 40 percent in Venezuela received less than 15 percent of what they should have had Venezuela’s net oil revenue been shared equally, as in Alaska, how can that be socialist? When gas is sold at less than one-millionth times the price of milk, how can that be socialist?

U.S. sanctions? Yes, on the margin they might make some things harder, but they would still explain much less than 1 percent of Venezuela’s sufferings.

Per Kurowski, Rockville

PS. The "[President Nicolás]" was inserted by WP, they placed it within brackets, for me Venezuela's legitimate President is currently Juan Guaidó. 

A letter published in the Washington Post August 12, 2019

Many lesser impact sanctions, on many more soft-liners (50.000?) are also needed in Venezuela.

The Atlantic Council has just published a document on the issue of “What US sanctions would be most effective in maximizing pressure on President Maduro’s government while minimizing repercussions for the Venezuelan people?”

It includes to “Extend the use of individual sanctions, and potentially some entity-focused sanctions, to fracture the regime soft-liners from the hard-liners with nothing to lose.” 

I agree, but I do not think that only severe sanctions, of some few very responsible hard-liners, like to “block all property belonging to those individuals and entities subject to US jurisdiction and prohibit US persons from engaging in transactions with them”, will suffice.

Lesser impact sanctions, extended to many more soft-liners, could prove easier to implement and be even more effective.

For this it might suffice with USA, Canada, Europe and all those nations that recently signed a declaration in Lima, informing they were now contemplating issuing a blank prohibition to all members of the Constituent Assembly, and of the National Guard, sort of 50.000 Venezuelans, to access any kind of visa. 

If that prohibition could, at a later moment, perhaps also be extended to include all their close relatives, it would ignite many serious discussions and doubts in the homes of the soft-liners.

Yes! to the Call for a Global Constitutional Convention Focused on Future Generations

Stephen M Gardiner makes “A Call for a global Constitutional Convention Focused on Future Generations” to avoid the “tyranny of the contemporary”. In general terms Gardiner bases his argument on that “current decision-makers, and indeed the current generation more generally, face a serious temptation: they can take benefits now (for themselves), but defer many of the costs of their behavior far into the future (to others), even when this seems ethically indefensible”. And as a specific example he puts forward the challenges of climate change. 

I agree very much with his arguments and would propose the following two items are put on the agenda of that convention.

First to analyze the possibility of awarding all citizens, including children, the right to vote. The fact that for instance mothers or fathers could exercise the voting rights of their children under a certain age, like 15, would presumably put some pressure on parents to consider more their children’s future... for instance with respect to climate change.

Second, to exhaustible present as clear evidence of the tyranny of the contemporary the case of current bank regulations. With these, baby-boomers concerned exclusively with the immediate safety of the banks, imposed credit risk weighted capital requirements, which de facto stop banks from financing the “risky” future and have these only refinancing the “safer” past. We do not need climate change to evidence the costs of shortsightedness, when millions of young unemployed Europeans are currently threatened to become a lost generation. It would be a good opportunity to make a call for bank capital requirements based on job creation and sustainability ratings.

It would also be a good opportunity to make clear that, were we to put the climate change challenge into the hands of something as little accountable as the Basel Committee for Banking Regulations, then most likely planet earth would be toast.

PS. And if it was for me to decide, given that so much would have to do with ethics, I would try to squeeze in a session on the need for ethic ratings, since I am fed up with banks and regulatory authorities only using credit ratings, as if financing the construction of concentrations camps would be morally permissive, as long as its credit risk has been adequately priced.

What has become of you Europe [and of you the whole Western world]? Don't be such a defeatist!

I just saw a photo of your Britain’s David Cameron, Germany’s Angela Merkel, Holland’s Mark Rutte and Sweden’s Fredrik Reinfeldt, in a row boat, in a little lake, probably surrounded by thousands of life guards… wearing life vests.

The same boat used years ago by Tage Erlander (Sweden) and Nikita Khrushchev… without life vests.

And all I could think of was “Would Winston Churchill (or Putin) ever want to be photographed in a little row boat, on a small lake, wearing a life vest?

What has become of you Europe? In Swedish churches we used to sing psalms praying “God make us daring!”

PS. A “decline in courage, at times attaining what could be termed a lack of manhood…Must one point out that from ancient times a decline in courage has been considered the first symptom of the end?" Alexander Solzhenitsyn at Harvard University 1978

PS. I went to bed in a world that knew risk taking was the oxygen of development… and I woke up to one where regulators, for bank capital (equity) requirements, had decreed much higher risk weights for loans to small businesses and entrepreneurs than for loans managed by bureaucrats... and its Academia says nothing.

PS. Born 1950, during my first 30 years, we were mostly instructed to look out for risks… caveat emptor. Thereafter we were told: 

“Don’t worry, we, your government (and assorted unelected nannies), we will do that for you.”

PS. As an ordinary world citizen, to the Sveriges Riksbank, for the Nobel Prize in Economics 2026, I have recently nominated ChatGPT and Grok.

The reason I gave was all my dialogues with them, especially:

https://subprimeregulations.blogspot.com/2025/12/ai-chatgpt-grok-does-basel-committees.html

Did you know the banks are regulated by means of an ideology?

In 2004 I wrote in the Financial Times: "Bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)?

In May 2014, in the Brookings Institute in Washington, while discussing the book by Jean Pisani-Ferry "The euro crisis and its consequences", Jörg Decressin, the deputy director of the European Department of the International Monetary Fund (IMF), dared to put forward an explanation...finally! ... God bless him.

My question: “In Sweden there is a psalm that prays ‘God make us daring’. And risk-taking risks has been critical to get Europe to where it is. However, in June 2004, the Basel Committee introduced bank capital requirements based on perceived risks, which subsidizes risk-aversion and taxes risk-taking.

For example, a German bank, when lending to a German businessman should keep 8 percent of shareholders’ capital (equity) but, if lending to its government, or to Greece, it could do so without having to hold any capital. That distorts allocation of bank credit in Europe. The book does not mention that problem. Do you have any comments?"

His response: "You raise a very good question and an answer to this revolves around: 

Do you believe that governments have a stabilizing function in the economy?

Do you believe that government is fundamentally something good to have around?

If that is what you believe then it does not make sense necessarily to ask for capital requirements on purchases of government debt, because you believe that the government in the end has to have the ability to act as a stabilizer, when the private sector is taking flight from risk, that is when the government has to be able to step in and the last thing we want is then for people also to dump government debt and basically I do not know what they would do, basically like buy gold. 

If on the other hand your view is that the government is the problem then you would want a capital requirement, so it depends on where you stand [ideologically]. 

I think the issue of the governments being the problem was very much a story of the 1970s, and to some extent of the 1980s. The problems we are dealing with now are more problems in the private sector, we are dealing with excesses in private lending and borrowing and it proves very hard for us to get a handle on this. We have hopes for macro prudential instruments but they are untested, and only the future will show how we deal with them when new credit booms evolve.” End of quote

Jean Pisanny-Ferry… said he agreed and left it at that. 

No Decressin! It is not about the government or the private, it is about the balance between the two, that which is broken.

And I had no chance to ask: Are you arguing that we should support the government’s borrowing ex ante, so that the government can help us better ex post? Would that not result in that when the government is truly needed it might not be able to help because it would already be too indebted… like Greece?

Who authorize regulators to regulate the banks with THEIR ideology?

And what about those who argue that the IMF is a bastion of neoliberalism?... Is it just a Potemkin facade?

Europeans, the structural reform most necessary for Europe to grow, is to get rid of its current bank regulators with their foolish risk aversion and their pro-government and anti-citizen ideology.

Translated from El Universal

A letter to the European Executive Directors of the World Bank Group

Dear Friends

As a former Executive Director at the World Bank; as a Venezuelan citizen of European descent; as a holder of a passport of a European country; and foremost as someone who harbors a deep respect for the international workers and profound concerns about the future of the world at large, I respectfully ask you to consider the following:

No matter how the Chairs at the World Bank's Board of Executive Directors are realigned between countries that are all anchored to their local interests the fact is that the world itself, our planet earth, will never be sufficiently represented.

Given the ever more intensive cross border relations, in so many vital affairs, there is an urgent need to introduce at least some representation of truly global interests and perspectives at the Board; such as those represented by the migrant working communities and which if all added currently represent an economy the size somewhere between India and China.

Unfortunately there is no way something of this nature could be handled expeditiously through a process that requires political negotiations over the whole world; and so in this respect I ask of the European Executive Directors at the World Bank, to take turns lending out, just one year at the time, their respective shares and voting powers in order to accommodate the continuous presence at the Board of the World Bank of a Chair that represents the views and the interests of the migrant working communities.

The previous, which of course does not imply a permanent commitment or a final reallocation of shares, would allow Europe to speedily enact a pilot on global governance that could prove to be extremely valuable for the whole world.

Europe is of course free to use whatever procedure it feels appropriate for naming the Director for the migrant worker's community; and although we would all understand if this at first would perhaps favor the migrant working communities in Europe, or Europe's own migrant worker communities, we sincerely hope that, in time, other parts of the world are also provided an opportunity.

Yours Sincerely

Per Kurowski

Fair prices!

And while waiting in the line I see a “Fair Trade Certified” coffee that on its label promises that its purchase will improve the lives of coffee farmers by insuring they receive a guaranteed “fair price for their harvest”.

I could not resist such an enticement and I bought a cup of it. It was great, and like any truly good coffee it made my mind wander. What does a fair price mean? That the coffee grower can afford to send his kids to school, afford good decent healthcare, and buy a car? Or that his kids will not go to bed starving. I hope he gets at least the last.

Or does fair in this context mean that he is getting prices that are fairly similar to those quoted for coffee on the commodities exchanges without risking being taken to the cleaners by some savvy distributors? Who knows? I finish up my coffee with a lingering suspicion that perhaps a fair price might still not be enough.

Would it not be better to certify “unfair prices” or, in perhaps more marketing digestible terms “fair price plus 100%”? Whatever, at the end of the day, if I were a farmer, I know that I would much rather get European farm prices than fair prices.

The mouse that roared

This is dedicated to all of those who consider that the only way to combat the actual lack of self esteem present today in the country is to reduce it even further.

Last week, columnist Michael Rowan issued several recommendations for Venezuela, among these that you should “Ask not how you can be protected from the world. Ask only how best you can live in it”. 

I have frequently asked myself this question, but since the response that begins to develop in my mind is vastly different from the text book type answer hinted at by Mr. Rowan, I wish to make note of some of these differences.

To begin with, and even though I agree that a lot of the country’s internal problems as mentioned by Mr. Rowan really do exist, I consider it to be wrong to label Venezuela as a protectionist country. 

It could be that he did not know the Venezuela of old, but as of 1989 the country has, not always in a straight line and more often than not out of necessity rather than conviction, been submerged in a process of commercial and cultural aperture of such import that it is today one of the least protectionist countries in the world.

Upon rereading some of the articles I have written over the years, I find clear evidence of the fact that I have always been a constant defender of the markets as prime regulators and motors of the economy and as a consequence of this, I have also always been totally against what is today know as protectionism. 

In this sense, I am worried that Venezuela’s opening has not produced the desired results.

The commercial recipes common in today’s world are comprised primarily of the following two commandments: 

1) Open your borders and allow the products, services and capital offered by the rest of the world to come in so that all of your citizens may have access to the best the world can offer, produced in the most efficient manner possible; 

2) Respect the rights to intellectual property and to brands and patents in order to insure the adequate return of costs and to allow those who today fuel development to continue their mission.

In exchange for compliance with these commandments, the interested party is offered a first class ticket on the Train of Sustained Development on the way to a better economic future. 

Certainly, some of the passengers will be weaker than others. However, if all follow the same basic diet and exercise plan, based on the exploitation of inherent strengths with the adoption of an effort towards specialization, sooner or later, so goes the theory, all will be more or less equal.

Chile, for example, is a good example of what excellent results a ride on this Train can produce. Unfortunately, Venezuela, while having complied with the commandments almost religiously has absolutely nothing to show in the way of favorable results. Why? 

Rowan would answer, ‘It is Venezuela’s own fault’. I would say that while he is partially right, it is also important to say that the world is not playing a fair ball game.

The indisputable fact is that the world is applying duties on products derived from oil, as is the case of taxes on gasoline that in some parts of the world top 800% and that bar the producers from receiving his fair share of the sale of their resources. 

If these taxes were eliminated or were simply limited, for example, to something like the 26% duty imposed by Venezuela on the importation, Venezuela’s income would be much greater. Easily US$ 10 billion greater!

In this sense, if I am to respond to Mr. Rowan’s questions as to “How best you can live in it (the world)”, I would not be lying if I told you that I am feeling dangerously close to suggesting that we quit being stupid and that until the world comes around and gives us a fair shake by eliminating the damaging taxes on oil, we begin to behave as rogues.

As a first measure, it would be most tempting to raise all import duties to the same levels each country applies to oil. To follow up I could suggest we violate all brands and intellectual property rights, copy all medicines and facilitate their generic sale world wide. Finally, I would ask PDV to quit building fancy gasoline stations in Venezuela which, being sure that Kuwait is not waiting in the wings to compete on our turf, do not generate the sale of even one extra liter of gasoline. 

Instead I would construct large floating gasoline stations, anchor them off the coast of Europe and offer each European entrepreneur with a neoliberal bend the right to freely commercialize our gasoline tax free.

Am I exaggerating? One of the principal elements of discussion in the universe of ecological taxes, the ecotax, is how to insure that oil producing nations are also convinced to adopt fiscal policies involving high oil or energy taxes. 

The reason for this, in layman’s terms, is that if we don’t, industries that consume large amounts of energy could conceivably move to those countries with cheap energy, causing the loss of jobs in non-oil producing countries. So much for the specialization credo.

We should declare total and absolute war on the injustices of today’s system of commercial interchange. Just like the small country that declared war on Europe in the movie The Mouse That Roared, we have absolutely nothing to lose and much to gain. With so many enemies without why do we need to have enemies within?

Mobility and economic growth

I still remember going through MAD Magazine at least thirty-five years ago and seeing one particular cartoon strip in which the North American population slowly lost their lower extremities due to atrophy as a result of using their cars to cover even the shortest of distances. 

They all ended up looking like bowling pins. In the last frame, a Chinese army easily bowled over these odd looking pins.

Evidently, none of this happened. On the contrary, in Kosovo, the United States and its allies have shown without a doubt that you don’t need your lower extremities even to wage war.

I have recently published several articles in which I write about the exorbitant taxes that are imposed on gasoline around the world the effect of which I consider to be like discriminatory commercial taxes or duties, which keep the oil producers from receiving what is rightly due.

In this sense, there is a marked difference between the United States and Europe. In the United States, gasoline is sold for 25 cents per liter while in Europe the final consumer must pay about US$ 1 per liter. This fourfold increase is due exclusively to these “taxes”.

I have also had the opportunity of writing about the growth in unemployment and have made some similar comparisons between the United States and Europe. In both cases the generation of jobs in traditional sectors such as agriculture and industry are basically the same, 2.5% and 17.5% respectively.

The United States, however, is today a miracle of job generation while Europe is submerged in a crisis of high unemployment that is close to being structural in character. The difference lies basically with the service sector. In 1997, the service sector in the United States represented 54% of the total population of working age while in Europe; this sector employed only 39%, a whopping 15% less.

The observed difference between the level of taxes on gasoline and the generation of jobs in the service sector allows me to suggest the thesis that the only way Europe can solve the problem of unemployment is by drastically reducing the tax charge per liter of gasoline consumed. Once this has been done, the European consumer will most certainly venture out of his home more often rather than staying in.

This means more trips to the restaurant, the movie theaters, etc., all of which generate jobs.

Some European countries have already announced a plan that will increase taxes on gasoline annually by about 6% over inflation. If so, by the year 2006, consumers should be paying about US$ 2.50 per liter.

Since the oil producer would only obtain about 12.5 cents of said price; we are in the presence of a great commercial injustice. Additionally, if Europe insists on levying such taxes on gasoline, they are not only contributing to unemployment on their own continent, but will also be guilty of putting the brakes on economic development worldwide.

I clearly remember when the world in general accused the oil producing countries of pushing them into global recession during the oil boom of 1974. As a remedy, these countries were obliged to recycle their petrodollars, which they did with such enthusiasm that they went overboard and ended up with immense public external debt. Today Europe as well as many others keeps the price of gasoline higher than ever even though most of the final selling price is tax, causing recession and unemployment.

The difference is, however, that today nobody accuses them of anything.

I think the world should seriously rethink its energy policy and study the elimination of these duties. This is the only way to get out of the vicious circle which, aggravated by the development of the Internet, cable TV and other such technological progress, conspires to increasingly isolate consumer within his home, where he simply restructures his purchase habits, mostly to the detriment of job creation.

In the Venezuela of today, submerged as it is in a profound recession, we must certainly not forget when it comes time to consider increases in the price of gasoline that many jobs still exist only because the cost of mobilization has been kept low.

Similarly, I consider the revision of our fiscal policies to be an absolute necessity. I simply cannot accept that the basic income tax with its definite advantages as far as redistribution of wealth is concerned, is subrogated to VAT or taxes on gasoline, which only punish consumption and therefore economic activity per se.

Finally, we must remember that only healthy global economic growth will make resources available to develop technology that will make gasoline a cleaner burning fuel.

Time, the ANC and meridians

I have no intention of putting the right to punctuality in the same category as the basic traditional human rights such as the right to education, security, access to health care, food and work. 

However, in a country such as Venezuela we can easily lose up to three hours per week waiting for something or another, due mostly to a total lack of respect for the value of our time. Accumulated over our average active life span of 55 years, this adds up to approximately one year of our lives. I therefore think that this matter is not at all irrelevant, less so in times of a constituent assembly.

 

As a matter of fact, our Constitution and laws supposedly protect the common citizen against the unjustified loss of his or her right to freedom. All civil rights organizations in the world would go ballistic if someone would dare propose the possibility of unjustified arrest, even if it were for only one year. 

So how come nobody says anything when we lose our liberty for more that one year, even if it is bit by bit, due to the lack of punctuality or mediocre and/or non-existent services.

 

I am not a candidate for the constituent assembly. My other responsibilities to my family and country allow me to avoid a process which would only bring my lack of powers of assembly to light. However, this does not limit nor my right nor my obligation as a citizen to present proposals and observations to the process. 

In this sense, I must remind the 131 members of the constituent assembly that, for example, when the State requires the country’s population to carry an identification card and the latter takes more than fifteen minutes to issue, we are essentially in the presence of a clear violation of human rights.

 

But in the case of the lack of punctuality, it is evident that we need a total reform of all civil society. There is no doubt that among the majority of the population, both among defenders of human rights as well as among those that complain about the public administration, there hide a bunch of vulgar violators of human rights who, without remorse whatsoever, blithely ignore the existence and purpose of the clock.

 

How, then, do we reform our civil society? This is a difficult question to answer, specially when you consider that should we require punctuality as a basic prerequisite for election to the constituent assembly, it would surely be very difficult to complete the roster of 131 members.

 

One alternative would be the creation of a Punctual Venezuela, parallel to the actual one. For example, if we start to use a little symbol that could be printed on all invitations to those activities that really require punctuality at the risk of being either excluded from the event or publicly chastised, we could possibly begin to create some semblance of civility.

This symbol could be a watch, but I would rather leave that up to the specialists in advertising.

 

The interesting part of this alternative is that it would simultaneously allow us to impose, as of today, a heavy public sanction for those who lack punctuality without having to request that notorious sinners must go through a process of painful public remorse. Additionally, the mere fact of maintaining the option of a “Punctual Venezuela” alive, would allow us to simultaneously allow us to continue to humor those foreign visitors who, with a tropicalisation which rivals that of the inhabitants of Borburata, take every chance to take revenge on and/or liberate themselves of the yoke of punctuality.

 

I wish to take this opportunity to mention another problem that preoccupies me and that also is related to time. We have recently been witness to public spectacles such as the fight the United States has sustained with Europe about bananas. I have often suggested that the effect of global warming has been much greater that we first suspected. It seems to have moved the parallels normally identified with Banana Republics northwards towards Washington.

 

I consider, however, that not only the parallels have gone crazy, the meridians have gone haywire as well. I often take my daughters to parties that begin at midnight, which to me simply seems like a real and crude version, in cinéma vérité, of Saturday Night Fever. I can not but suspect that their generation has simply decided to substitute the East Coast’s meridian for that of the West Coast. Some of the television channels seem to suffer from the same syndrome. Somehow, I always seem to go to bed at night watching comics while, if I am not careful, my daughters wake up with XXX.

Three bullets on punctuality

Time and human rights

I have no intention of putting the right to punctuality in the same category as the right to education, security, health care, food, and work. 

However, in a country such as ours (Venezuela) where we because of sheer lack of punctuality can easily lose up to three hours per week waiting for something or another, this, over our an average active life span of 55 years, adds up to around one year. 

As civil-rights organizations normally go ballistic whenever anyone is arrested without justification even for a couple of hours, I wonder how they let this pass.

There can be no doubt that the majority of our countrymen do, without any remorse whatsoever, blithely ignore the existence and purpose of the clock, and so it is evident that in terms of punctuality we need a total reform of our civil society. How do we achieve this? 

One alternative would be the creation of a “Punctual Venezuela,” parallel to the actual one. For example, if we start to use a little symbol that could be printed on all invitations to those activities that really require punctuality at the risk of being either excluded from the event or publicly chastised, we could possibly begin to create some semblance of civility. This symbol could be a watch, but I’d rather leave that up to the specialists in advertising.

The interesting part of this alternative is that it would allow us to impose, as of today, a heavy public and social sanction for those who lack punctuality without having to request that “notorious and incurable sinners” kick the habit cold-turkey. Also, maintaining the option of a not punctual Venezuela alive would allow us to continue to humor those foreign visitors who with a tropical flare that rivals our best take every chance they get to free themselves from the yoke of punctuality.

About parallels and meridians

We have recently witnessed public spectacles such as the fight the United States has sustained with Europe about bananas. Perhaps the effect of global warming has been much greater than we suspect as it seems to have moved the parallels normally identified with Banana Republics northward.

However the meridians might have gone haywire as well. I often take my daughters to parties that begin at midnight, which to me simply seems like a real and crude version, in cinéma vérité, of Saturday Night Fever. I cannot but suspect that their generation has simply decided to substitute the East Coast’s meridian for that of the West Coast. Some of the television channels seem also to suffer from the same syndrome. Somehow, I always seem to go to bed at night watching their afternoon comics while, if I am not careful, my daughters could wake up with their XXX-rated after midnight material.

My daughter’s cult

She is rarely late but she is absolutely never ever a minute early. She follows that Just-In-Time cult that drives us inhumanely nuts.

Extracted from "Voice and Noise" 2006. The first two bullets are based on an article published June 11, 1999 in The Daily Journal

Seeking allies against oil taxes

In Europe, as well as in many other parts of the world, the price of gasoline is somewhere around US$ 1.25 per liter (Bs. 750 at current exchange rates). This is five times what a liter goes for at gasoline stations in the United States. This sky-high price is the simple result of applying what effectively is a commercial duty and which I have roughly calculated at about 800%. 

This duty, basically imposed by means of a gasoline tax, is the main reason oil producers today are obtaining such poor results. The 800% duty, besides naturally reducing demand for oil, also generates a totally unjust distribution of income. The producer of the very valuable and non-renewable resource of oil receives less than 10% of what the consumer pays at the pump.

It might only get worse. A European government recently announced a fiscal policy that implies raising these taxes on gasoline by 6% over annual inflation, thereby effectively duplicating them by the year 2007. There is no doubt in my mind as to the danger this implies for countries such as ours. How much more will demand be depressed if the plan is to charge US$ 2.50 per liter?

It is evident that the degree of development of a country is to a great extent a function of how they defend their own interests. As an example today we observe the United States threatening to impose duties of 100% on Europe as a result of a dispute over bananas, a fruit neither one of them cultivates. In this sense, and faced with the surprising silence both of our own oil industry as well as of the rest of the world, I will try do my part by a small campaign aimed at informing the public in general about this abusive tax-duty on gasoline.

What can be done? The answer to this question should be, before anything else, to inform. It is very probable that many of the affected parties that today are unaware of this problem could, once properly informed, become powerful allies. The following comments are aimed at exactly that.

Today’s strategy of defending prices is based on production cuts, which requires a heavy dose of sacrifice for producing nations and creates divisions and disputes across the board. On the other hand, a well-aimed protest against elevated taxes on gasoline could serve to unify all oil producers, OPEC and non-OPEC.

In the United States there are a great many individuals, owners of oil wells, who would form a pressure group with much more power than shareholders of fruit companies once they understand that the main reason for their diminished royalties is the gasoline tax.

Likewise, we must analyze how and to what degree these high gasoline prices, caused by these high taxes, are putting the brakes on the growth of the global economy. A decrease in gasoline prices could have a very positive impact, for instance creating jobs in the service sector, where Europe clearly lags USA. 

We must also put to rest the fears of environmentalists. Our joint action is aimed at obtaining a just distribution of income, not to provoke irresponsible consumption. Also if it results in more economic growth and if adequately channeled, this could avoid ecological disasters of much greater impact than those that could result from a simple increase in gasoline consumption. Let us not forget that Chernobyl and fires in the Amazon are events very closely related to poverty.

Just simply raising the issue of gasoline taxes being duties in disguise allows us to redefine the relationships with a series of international entities. For example, one could question the bases on which entities such as the World Trade Organization leans heavily on Venezuela and other countries, to reduce their trade barriers while they simultaneously keep absolutely silent about the tariffs imposed on gasoline. 

In the same sense, we could question the International Monetary Fund’s recipe calling for the increase in gasoline prices and taxes. This is totally opposed to free and open markets, and in our case certainly helps to aggravate our balance of payment problems even further.

As always, I wish to make it perfectly clear that my position on this subject is not an effort to find an excuse for the deplorable economic situation we are going through in this country. That responsibility is ours, and only ours. Nonetheless, one of the aspects we must necessarily rectify is our miserable capacity to unite the nation behind a concerted effort to defend our interests.

If we don’t defend our oil, what else is there to defend?

A nation guilty of innocence

In a European country (it does not really matter which, since in this sense they are pretty much alike), out of every U.S.$100 that a motorist spends on gasoline, $85 goes towards taxes, $5 to cover the cost of distribution and $10 or less to pay for the refined product itself. In other words, the amount that a country will be paid in order to extract this non-renewable resource is actually peanuts.

The 85% that goes to the European taxman is just a simple duty. In normal markets, a fall in oil prices of about 55% should technically result in an increase in consumption. In Europe, however, gasoline prices remain basically the same. 

This means that the tax authorities simply took advantage of the above-mentioned fall in prices to simply increase their collections.

I am among those that believe that the solutions to Venezuela’s current financial crisis will require much more than a simple increase in oil prices. Among other things, I feel it is necessary to develop a real national conscience which will allows us to properly defend our own interests. Ironically, I don’t see any other place to begin but with our own oil.

Had Venezuela properly invested the resources obtained during the oil boom, it would definitely been in a better financial position. There is no doubt that Venezuela’s crime was to spend and give away excessively. An example of this excess is that the overspending did not only include oil income but indebtedness as well.

However, neither the excess generosity described above, even if it borders on stupidity, nor the country’s masochistic streak (nobody can deny that our problems are self-inflicted) should result in the loss of fair and respectful treatment from the rest of the world.

Because of this, it angers me no end that in spite of the fact that Venezuela is suffering due to low oil prices, the country is not being offered other alternatives to restructure its debt than that of suicide by way of the ingestion of 20-year credits at 20 percent interest per annum available in the marginal emerging market.

The taxes imposed by Europe on gasoline, the prohibition on Orimulsion imposed by Florida, and finally, the usurious demands made by the financial markets are sufficient evidence to prove that, even if it seems like a contradiction in terms and even when globalization continues to steam along, it is up to every man to look out for himself.

When we also note that the developed world spends huge amount of resources to co-opt those that ‘misbehave’, logic would seem to imply that one simply has to play hardball.

It would seem to me that something like a suspension of landing rights in Venezuela for flights from Florida as a response to that state’s continued imposition of its ban on Orimulsion simply in order to favor some particular local interests would be a fairly civilized level of roughness, specially when compared to what is going on in, for example, Kosovo. 

It would seem to me that something like a special duty imposed by Venezuela (preferably backed by OPEC) on all products coming from countries that locally apply a direct tax on oil products is neither worse nor different than all the conflicts being debated today in the international commercial system.

It seem to me that we would not be asking too much from the United States if we propose to restructure all of our external debt on 30-year terms at an interest rate of 0.5% over Treasury Rates to be repaid in advance if and when the price of oil goes over US$ 30 per barrel, especially if we consider the expense the USA undertakes in order to build its strategic oil reserves by burying them in underground deposits or in militarily guaranteeing access to other strategically important areas, and if we consider that after such a restructure, Venezuela, with a fairly small debt, would immediately merit a much better credit rating than many of the other countries, currently favored by the markets.

Hunger is a violation of human rights. In my country innocent people are suffering from hunger, most of them as a direct result of populism. The battle against internal populism, however, often results in falling into the trap of innocently accepting imposed external economic populism, more often than not resulting in more hunger. It is high time Venezuela defends its own interests by not consistently bending over backwards.

Burning the bridges in Europe

In just a few weeks, on the 1st of January 1999, eleven European countries will forsake the right to issue their own currency and accept the circulation within their boundaries of a common currency, the Euro. 

Monetary policy related to the Euro will be set by a European Central Bank. One fact that struck me as curious is that in all the abundant legislation that regulates this process, there is no mention whatsoever of how to manage the withdrawal or future regret of any of the union’s members.

The absence of alternatives in this case evidently represents a burning of the bridges, but this may be necessary to achieve credibility. There is no turning back and there is no doubt that this is a truly historical moment. As participants in a globalized world in which Europe has an important role, we must naturally wish all members luck, no matter what worries we might secretly harbor.

Until 1971, all money used throughout the history of humanity was backed in one way or another by something physical to which a real value was attributed. Sometimes the backing was direct, pearls for example, while in other cases it was indirect such as the right to exchange bills for a certain quantity of gold.

This physical backing in itself did not necessarily mean it consisted of something of fixed value. The value of a pearl, for example, is in itself subjective. 

The promise to exchange bills for gold did not guarantee anything either, since this promise could easily be voided by fraud. Whatever the backing was, however, it did at least offer the holder of the money the illusion that it was supported by something concrete.

In 1971, the United States formally abandoned the gold standard and the direct backing, however imaginary, disappeared. Since the Dollar is a legal currency, it could always be used to repay Dollar denominated debt. 

Today, however, in spite of the fact that the Dollars may have lost some of their purchasing power, a holder of excess Dollars can only hope that the Government of the United States will exchange his old bills for new ones of the same tenor.

This apparently precarious situation must be the raison d’etre of the motto printed clearly on the bills which states “In God We Trust”.

Since 1971, the real value of the Dollar as an element of exchange, has lost some of its value due to inflation. 

Today, we would need many more Dollars to buy the same houses, cars, movie tickets and gold than we would have needed in 1971. In spite of the above, with few exceptions such as the end of the ‘70s during which inflation increased dramatically, few would dare qualify the United States’ elimination of the gold standard as a failure.

The world’s economies have managed to increase international commerce drastically and with it, sustain a healthy growth rate. Many analysts would explain this phenomenon by saying that the discipline exacted by the gold standard represented a brake on international commerce. The growth rate registered in commerce after 1971 was the result of the release of this brake. 

Other more critical analysts sustain the thesis that, due to the fact that we have abandoned the discipline required by the gold standard, the world has accumulated gigantic accounts payable, which we may be coming due very soon.

I personally swing back and forth between amazement of the fact that the world has accepted such a fragile system and satisfaction that it actually has done so.

The Euro has one characteristic that differentiates it from the Dollar. This characteristic makes me feel less optimistic as to its chances of success. 

The Dollar is backed by a solidly unified political entity, i.e. the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 

Exchange rates, while not perfect, are escape valves. By eliminating this valve, European [Eurozone] nations must make their economic adjustments in real terms. 

This makes these adjustments much more explosive. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.

What worries me most is the timing. The world is facing the possibility of a global recession. This will require very flexible economic and monetary policies. 

The fact that the search for initial credibility for the Euro is based on trying to assure markets around the world that the new currency will be guided by a philosophy closer to that of Bonn (soon to be Berlin) than that of Rome, probably goes against the best interests of the world.

Published in Daily Journal, Caracas, November 19, 1998

20 years later: Let’s face it. Americans dream they are American. Few if no Europeans, dream they are Europeans.

PS. A new English Language Empire?

PS. What I did not know when I wrote this article was that EU authorities (EC), for the purpose of their (crazy) risk weighted capital requirements for banks decided, in a “good-will” gesture to, even though none of these could print Euros, assign a sovereign debt privilege of a 0% risk weight to all European sovereigns like Greece. That of course, by removing market credit constraints, would make the Euro challenges so much more explosive especially considering that the Euro is de facto not a domestic (printable) currency of any Eurozone nation. Shamefully EU authorities responsible for that have not acknowledge their mistake, and made Greece have to walk the plank for it.

IT IS NOW A TICKING BOMB!