Venezuela fact of the day

by on January 20, 2014 at 9:23 am in Economics, Law | Permalink

I knew gas in Venezuela was underpriced, but I had not known by how much.  Nick Miroff brings us the latest:

Venezuela sits atop the world’s largest oil reserves, and its government sets the price of premium gasoline at about 5 cents a gallon. Its real price — adjusted to the soaring street value of the U.S. dollar — is half a penny per gallon.

But rest assured, there will be a move toward international prices:

The projected price hike is likely to push gas closer to 17 cents a gallon, at unofficial exchange rates.

There is more here.

Ted Craig January 20, 2014 at 9:37 am
derek January 20, 2014 at 9:49 am

Obviously someone cares about the poor.

prior_approval January 20, 2014 at 10:18 am

Or, Venezuelans prefer to use their own oil instead of selling it to people who believe that they use it instead.

For the U.S., a country that relies on oil imports (and will continue to do so to the tune of multiple millios of barrels of oil a day, using EIA figures, even if the oil shale boom turns out to last a decade or two), this seems like heresy. After all, we pay with paper for oil (backed with the occasional overthrow or invasion of oil producing nations like Iran or Iraq), and that is a trade that should be sufficient, right?

Richard Besserer January 20, 2014 at 10:35 am

Yes. The global North pays for oil with paper which can then be used in the global North for luxuries like food.

Don’t be juvenile.

prior_approval January 20, 2014 at 11:03 am

Strangely, the House of Saud, the Emir of Kuwait, and the Emir of Qatar all provide even more lavish fuel subsidies to their subjects in terms of percent on monthly income spent on gasoline, than Venezuela.

Though the Emir of Kuwait and the House of Saud are extremely aware of the debt they owe the American military to retaining their current position. The Iraqis still seem to be uncertain in terms of gratitude, while the Iranians remain utterly ungrateful for our installing a monarch to rule over them for a generation.

And the House of Saud and the Emir of Kuwait spend a lot of those petrodollars in the North for things other than food – why, as just one little example, the American defense industry is just showered with appreciation from such willing buyers of our weaponry. Some cynics might call it a form of protection money, to ensure that nothing happens to that nice little oil exporting business they currently have.

C January 20, 2014 at 11:59 am

Isn’t the point of the article less about the fact that the Venezuelans are reaping the benefits of sitting on top of the biggest oil reserves on the planet, than it is about the fact that giving the gas away to its citizens is just another example of how incredibly poorly managed their centralized economy is? Bringing in these other countries really doesn’t make any sense to me — it’s a completing irrelevant to the fundamental issue at hand.

From the article…
“But with annual inflation topping 50 percent and the government burning through hard-
currency reserves at a furious pace, Chávez’s handpicked successor, Nicolás Maduro, appears to have no choice. The government is spending more than $12 billion a year to subsidize domestic gasoline sales, Venezuelan energy officials say, and the gravy train is coming off the rails.”

John Thacker January 20, 2014 at 12:21 pm

Strangely, the House of Saud, the Emir of Kuwait, and the Emir of Qatar all provide even more lavish fuel subsidies to their subjects in terms of percent on monthly income spent on gasoline, than Venezuela.

In terms of “after, subsidy, what percent of monthly income people spend on gasoline,” yes, but I’m not sure exactly how that’s relevant. They’re very wealthy countries, so even if Qatar raised its gas prices by 7 times and people didn’t cut back at all, they’d still spend the same percentage of monthly salary on income as Venezuelans with an order of magnitude (by official exchange rates) more expensive gas.

I guess you can say that as wealthy countries, it’s easier for them to afford ruinous subsidies– indeed, it’s Venezuela’s poverty that is causing the government to consider cutting back.

But sure, those three countries you list are all terrible, and their gas subsidies are a terrible thing for the environment. None of them are currently considering changing their policies and raising the price of gas by 34 times, though, so it’s not a news story.

John Thacker January 20, 2014 at 12:22 pm

And none of those three countries have unofficial exchange rates due to the government hiding inflation, making the real price of gas look even more subsidized by a full order of magnitude.

John Thacker January 20, 2014 at 12:22 pm

Also mentioned in the article is that Venezuela, despite being poor, gives away gasoline free to Cuba and other leftist countries.

Tracy W January 20, 2014 at 11:48 pm

They’re all having budget problems with their fuel subsidies too. Though Saudi Arabia and Kuwait’s oil is cheaper to extract than Venezuela’s.

Tracy W January 20, 2014 at 11:44 pm
derek January 20, 2014 at 10:51 am

So how has it worked out for them?

It isn’t a matter of using their own oil, in fact you know better than to say that. It costs more than that to extract and refine.

This is classic basket case economics, and there seem to be a bunch of idiots around who should know better. Remove any incentive to produce and you get less of it, and more poverty. The agricultural production in Egypt is also ‘their own’, and they have been so great at price fixing that they can’t feed themselves any more.

Venezuela had a two class society and went about making it better by impoverishing those who were doing well. We’ll all get rich by making ourselves poorer. Not an uncommon theme of most measures suggested by economists.

Anon. January 20, 2014 at 11:46 am

Oil is fungible, what the hell does “use their own oil” even mean?

Willitts January 20, 2014 at 9:46 pm

Exactly. The same nonsensical thinking that led to our own export ban of Alaska crude.

prior_approval January 20, 2014 at 9:51 am

Strange – a country owns oil, and decides to sell it to its citizens at the price that its citizens find acceptable. Almost as is if that is somehow rare.

And let’s try a bit of perspective (using British numbers from August 2012 from This Is Money) –

’1. Venezuela – Price per litre: 8p Monthly cost: £9.66 – Income (after tax): £354.48 Percentage of monthly income spent on petrol: 2.73 per cent’

But look at number 8 on the list –

‘Kuwait – Price per litre: 17p Monthly cost: £20.53 – Income (after tax): £1,703.98 Percentage of monthly income spent on petrol: 1.2 per cent’

Then look at some real winners at places 3 and 4 –

’4. Qatar – Price per litre: 12p Monthly cost: £14.49 – Income (after tax): £3,664.92 Percentage of monthly income spent on petrol: 0.40 per cent

3. Saudi Arabia – Price per litre: 10p Monthly cost: £12.08 – Income (after tax): £1,234.78 Percentage of monthly income spent on petrol: 0.98 per cent’

Any idea why people spend less on petrol in Saudi Arabia, Qatar, and Kuwait? Hint – they are countries that are swimming in the same sort of resources that Venezuela is.

Yet one rarely reads about how the House of Saud ensures that its subjects don’t get too unhappy by selling oil at a price that burdens its subjects with a price that is less than half that of Venezuela, when measured by how much money the subjects spend on gas as a percentage of income.

But then, just a couple of decades ago, before the Reagan age, Americans used to travel to some of the finest wilderness preserved in national parks – and not pay a penny at all. Now, we get to pay admission to visit what we, and our descendants, own in common.

http://www.thisismoney.co.uk/money/cars/article-2191375/Top-10-cheapest-countries-world-petrol-2012.html

John Thacker January 20, 2014 at 10:15 am

Do the other three countries you mention have unofficial exchange rates that changes the real price by a factor of ten, driven partially by a massive inflation rate that the government wants to hide? It doesn’t seem so.

Surely a difference of an order of magnitude makes it relevant. Strange that you would ignore that, despite it being in the article.

John Thacker January 20, 2014 at 10:28 am

Secondly, clearly the news here is that Venezuela, unlike the other countries, is about to massively raise its price by 30 times. Surely that’s a story.

Are you really missing the point that badly?

prior_approval January 20, 2014 at 10:54 am

What, you mean that the Venezuelans will soon be paying for gasoline at a level now seen in Iran or Algeria?

Or was that not the point being missed?

John Thacker January 20, 2014 at 11:04 am

I think that a change by a factor of thirty is significant. You can pretend that the prior price was not unusual compared to oil producing countries in the Middle East (but not oil producing countries not in the Middle East), or that the resultant price is not unusual compared to same, but surely not that both the starting and ending price was not unusual compared to those countries.

Either you note the unofficial exchange rate and say that Venezuela previously had gas cheaper for its citizens by an order of magnitude from the next cheapest country– which understandably surprised Tyler Cowen, since he knew it was subsidized but not to that level, or you ignore the unofficial exchange rate and say that Venezuela is now going to gas 10 times as expensive as Iran or Algeria. But you can’t be blase about the sudden 30 times increase in the price and claim that it isn’t a news story.

prior_approval January 20, 2014 at 11:36 am

‘but surely not that both the starting and ending price was not unusual compared to those countries.’

Actually, it was a range, and Venezuela remains firmly in that range. And considering that Saudia Arabia and Venezuela are generally considered the two biggest owners of oil reserves, it does not seem strange to compare them to each other at all.

‘or you ignore the unofficial exchange rate and say that Venezuela is now going to gas 10 times as expensive as Iran or Algeria’

Not in terms of monthly income, which would place Venezuela still in the neighborhood of number 7 on that list, Turkmenistan.

And even after this gigantic price hike, this seems to be the reported reaction – ‘Many drivers here say gas prices are so low that even a large hike wouldn’t register in their wallets.’ In other words, this is not exactly a big deal. Otherwise, we would see riots, like in 1989.

Well, it is a big deal for people who would prefer to use the gasoline themselves, as compared to letting its owners do what they want with it.

John Thacker January 20, 2014 at 12:14 pm

And even after this gigantic price hike, this seems to be the reported reaction

After? I have the distinct impression from the article that the price hike has not taken effect yet– though, yes, the 1989 riots took place when price changes were announced, but had not taken effect. Hence comments like “I think people know gas is too cheap,” he said, while cautioning that a price increase to 17 cents a gallon would be “too much” — understandably, since it’s a factor of 34 change from the current .5 cents per gallon rate.

Not in terms of monthly income, which would place Venezuela still in the neighborhood of number 7 on that list, Turkmenistan.

Here you go changing the units of measurement again. If you ranked countries by percentage of monthly income spent on gas, then your original list would be very different. I think we’d all concede that there is already a large difference between #7 ranked in cost Turkmenistan, with 17.79% of monthly income spent on gas, and #4 ranked Qatar, with 0.40% of monthly income spent on gas. In some ranges, subsidizing oil clearly increases usage of it by quite a bit; in other ranges, it’s mostly a monetary giveaway. Hard to say without more sophisticated analysis– but I thought we were talking about whether the end subsidized price is in the band of heavily subsidized countries? A thirty fold price change is significant no matter what.

In any case, with a super naive analysis, if Venezuelans consume the same amount of gas (cutting back exclusively on other goods) but the price truly rises by thirty-four times, then they would go from 2.73% of income to 92.8% of their income spent on gas, which is of course not in the range of Turkmenistan’s 17.79% at all but also clearly insane. So obviously these price increases are significant and would force them to cutback on their usage and thus change their habits immensely. (The article does say it’s going from .5 cents to 17 cents at unofficial exchange rates.)

In what sense is that not a story?

Cliff January 20, 2014 at 10:15 am

Right, the people who use for the parks help to pay for them. I doubt poor urbanites get much utility from the knowledge that in some theoretical way they “own” some wilderness.

And yes, those other countries subsidize gasoline but they are also not complete basket cases. That doesn’t mean the subsidies are a good thing. They are highly distortionary. It would be way better just to give cash to the citizens.

prior_approval January 20, 2014 at 10:22 am

‘Right, the people who use for the parks help to pay for them’

Roosevelt is weeping in his grave.

‘I doubt poor urbanites get much utility from the knowledge that in some theoretical way they “own” some wilderness.’

Ever heard of the C & O Canal? http://www.nps.gov/choh/index.htm

John Thacker January 20, 2014 at 10:24 am

I find it strange that you seem to consider Saudi Arabia, Kuwait, and Qatar’s approach to pricing their natural resources as better than that of oil producers Canada, Norway, the UK, and the USA.

John Thacker January 20, 2014 at 11:10 am

The point being, it is not for those who do not own those natural resources to think that their opinion matters.

Then surely if the American people own the national parks, they can vote through their elected representatives to have the subset of people who choose to attend them pay for part of the park’s upkeep.

the relentlessly parching U.S. southwest, whose booming population is draining the region’s fresh-water basin several times faster than nature can replenish it. In a U.S. government survey this decade, two-thirds of U.S. states reported they expect water shortages within 10 years.

Yes, a big problem, but a problem caused by US tendency to have water prices delivered by publicly owned and cooperative utilities that price water for its citizens at far below the normal cost. Over 80% of people in the US get their water from public utilities, not private ones. Here you make a good point that the US unfortunately does with water what Venezuela and Middle Eastern countries do with oil, and it causes wasteful use.

Surely in this case it’s quite reasonable for a Canadian to say that the US should stop pricing its water too low for its own citizens, since it will lead to water running out and a demand for Canadian water. I think that even though Canadians “do not own those natural reasources” of the USA, that they are right to think that their opinion matters. Your very argument here points out why it is for Canadians to complain, even though they do not own the USA’s water. It will affect them if the USA is wasteful.

John Thacker January 20, 2014 at 11:12 am

(The biggest US underpricing of water is for farming and other large users, sometimes corporate in nature, sometimes not.)

You make a very good point about how US wasteful use of water, thanks to pricing its own water too cheaply for its citizens, may hurt Canada. Therefore, I think it’s entirely appropriate for Canadians to voice their opinion. Why don’t you?

prior_approval January 20, 2014 at 11:44 am

‘they can vote through their elected representatives to have the subset of people who choose to attend them pay for part of the park’s upkeep’

When it doesn’t violate the terms of how the property was converted to a national park. Or the idea that citizens are something other than consumers.

‘Your very argument here points out why it is for Canadians to complain, even though they do not own the USA’s water. It will affect them if the USA is wasteful.’

Sure it will affect them – because the U.S. has a proven track record of not respecting the property rights of others. The Canadians know their own history, too. It doesn’t mean the Canadians think that this is a reason for them to just give in to a potential bully, however.

But when one starts to talk about Canada feeling the same way about its water as Venezuelans do about their oil, a lot of those points about ‘basket cases’ and ‘buying food in the North’ seem a bit silly.

John Thacker January 20, 2014 at 11:59 am

Sure it will affect them – because the U.S. has a proven track record of not respecting the property rights of others.

Another thing that would make it similar to Venezuela, then.

It doesn’t mean the Canadians think that this is a reason for them to just give in to a potential bully, however. But when one starts to talk about Canada feeling the same way about its water as Venezuelans do about their oil, a lot of those points about ‘basket cases’ and ‘buying food in the North’ seem a bit silly.

But no one here is talking about Canada about its water the same way as the Venezuelans about their oil. We’re talking about the USA being the same way about its water as the Venezuelans are about their oil– pricing it too low and encouraging waste. People of the world are just as justified saying that Venezuela is being unwise about its oil as Canadians are justified in complaining that the USA is being unwise with the USA’s own water, since it will have effects on Canada eventually.

Surely you’re the one saying that Canadians aren’t allowed to complain about the USA’s wasteful use of the USA’s water– you’re the one making it more likely that Canadians will have to give in to a potential bully, as you put it.

John Thacker January 20, 2014 at 12:24 pm

But when one starts to talk about Canada feeling the same way about its water as Venezuelans do about their oil,

Well, there is this Venezuelan in the article:

“What Venezuela really needs to do is stop giving oil away to other countries like Cuba,” Flores said, echoing criticism from members of Venezuela’s opposition who argue that the country should cut off subsidized oil shipments to Havana and other leftist political allies before jacking up pump prices at home.

I suppose that could be similar to your comments about Canadians. Venezuela is subsidizing very cheap oil to countries like Cuba, much as you seem to complain about Canada considering selling water (at a market price, though) to the USA.

Are people, including Venezuelans, allowed to complain about Venezuelans sending subsidized “their oil” to Cuba?

JWatts January 20, 2014 at 12:26 pm

“John Thacker -I find it strange that you seem to consider Saudi Arabia, Kuwait, and Qatar’s approach to pricing their natural resources as better than that of oil producers Canada, Norway, the UK, and the USA.”

John, you miss the point. p_a’s point is to bash the US and to support anyone who he thinks might be opposed to the US. You’ll note how he jumped from the pricing of Venezuelan oil to the completely unrelated issue of user fees for US parks. The underlying logic might be and often is inconsistent, but it’s irrelevant.

Cliff January 20, 2014 at 12:29 pm

Whether they are paying to enter national parks or not, citizens remain consumers…

mulp January 20, 2014 at 2:24 pm

I thought that you believed in property rights, and thus farmers granted water rights can use or price it any way they want because they own the water, not the government or We the People. Are you for nationalizing water and having the government decide the winners and losers?

How can you justify giving the homeless in water scarce regions water to drink, much less bathe in? Wouldn’t famers be given priority over the homeless when it comes to water?

Keith January 20, 2014 at 10:19 am

National parks are still free. You only pay because you bring your car in.

As far as reading about those other countries, yes, I read about their gas prices all the time. Their low prices cause the populations to use more which results in less to export.

prior_approval January 20, 2014 at 10:31 am

You are right – the last time I talked to a park ranger at Assateague (ten years ago), he said a $2 fee was being implemented there in the next fiscal year. However, checking the web site, it seems as if you are still allowed to walk along the beach for free. http://www.nps.gov/asis/planyourvisit/feesandreservations.htm

As a side note, he also noted that Arcadia was being exempted from this planned visitor fee, due to how the national park land had been deeded to the government.

Richard Besserer January 20, 2014 at 10:28 am

1. Presumably the Venezuelan government has much better uses for the money than subsidizing motorists. Restocking grocery shelves, for starters.

2. Ending fuel subsidies would just by itself be a big help getting Venezuelan inflation under control.

3. In Colombia, gas costs forty times what it does in Venezuela. Life goes on.

derek January 20, 2014 at 10:53 am

Wow. Unbelievable. All these stable paragons of social harmony and justice as examples of a great policy. How could we have missed that.

Everyone should emulate them. We all want our women digging through garbage for something to eat.

The Anti-Gnostic January 20, 2014 at 11:04 am

But then, just a couple of decades ago, before the Reagan age, Americans used to travel to some of the finest wilderness preserved in national parks – and not pay a penny at all. Now, we get to pay admission to visit what we, and our descendants, own in common.

There’s certainly an emotional even primal appeal to your argument, but now you’re talking about national socialism and that’s not allowed.

prior_approval January 20, 2014 at 11:50 am

Theodore Roosevelt, national socialist?

Wow – that is an impressive entry so early in the 2014 contest for most entertaining comment at the Internet’s best satirical site.

Cliff January 20, 2014 at 12:31 pm

You realize this is your partner in crime, right? And that his post was sarcastic?

Turkey Vulture January 20, 2014 at 12:41 pm

Most more-recent U.S. and European socialists have, in practice, been of the national socialist variety. Prior to and at the start of WWI, Mussolini was an internationalist socialist, and opposed the War. But then he realized that the ferocity of the War – the fact that proletarians were willing to lay down their lives, in the millions, for their Fatherland – put the lie to the ideal of an international brotherhood of workers. Thus was born fascism, and its close cousin national socialism.

There is no need for national socialism to be eugenic or anti-semitic, or just plain batshit insane like the national socialists who once came to power in your favorite nation. It seems perfectly appropriate to label that socialism which stops at the nation’s borders what it is.

Turkey Vulture January 20, 2014 at 12:36 pm

Ha, didn’t see this before I made my own comment.

Turkey Vulture January 20, 2014 at 12:35 pm

Yes, they attempt to practice the form of socialism that stops at their nation’s borders, in contrast to the internationalist socialism/communism that originally animated those movements. This is also the form of socialism most popular in Europe – really, anywhere that a form of socialism is practiced. Perhaps Mussolini was right – history has vindicated him.

Floccina January 20, 2014 at 9:51 pm

We humans do not eat the gasoline so what is important is the total cost of driving a mile at a given level of comfort and safety? With cars as expensive they are in Venezuela it maybe cheaper to drive in the USA.

Tracy W January 21, 2014 at 12:21 am

I don’t know why you don’t read about Saudi oil subsidies, but the Saudi economy ministry wants to cut their oil subsidies too: http://mobile.reuters.com/article/idUSL6N0DO12P20130507?irpc=932

As for a couple of decades ago: that was when there were a lot less retirees. Pensions and healthcare are taking a rising share of government spending around the world, squeezing all other expenditure.

Ray Lopez January 20, 2014 at 9:58 am

Happy Martin Luther King day y’all. And here’s an Alex T type post on this topic, involving misuse of copyright: http://www.thewire.com/politics/2012/01/great-martin-luther-king-copyright-conundrum/47460/

Oh, Venezuela: as prior_approval says, buying off the poor with subsidies is popular in oil-rich countries, and even in Egypt during Mubarrak, with subsidized wheat for cheap bread. Here in the Philippines you get nothing from the government. In theory there is a welfare system but in practice it really does not exist. If your family abandons you, as has happened to a few insane homeless people, you pretty much live off the kindness of strangers in a rather shabby state in the street.

prior_approval January 20, 2014 at 10:12 am

Guess which (not exactly major oil producing country) is number two on the list?

Yep – ‘Egypt – Price per litre: 9p Monthly cost: £10.87 – Income (after tax): £247.35 Percentage of monthly income spent on petrol: 4.39 per cent’

John Thacker January 20, 2014 at 10:22 am

Egypt isn’t a member of OPEC, but it does produce roughly as much oil as Libya, which is on list– or Argentina, or the UK, which are not. (And a lot less than the USA, which is not.) So, yes, you’ve shown that it’s almost exclusively Arab states with cheap oil for their citizens, except for Venezuela. I imagine that for some of the countries in the Middle East, there’s an effort to keep the citizens happy by keeping up with the neighbors.

The most common correlation seems to be a terrible, oppressive unrepresentative government, combined with a fair amount of oil production. (Which is necessary but not sufficient.) Given that, I think you’re making an argument in support of the USA charging admission to national parks, considering the terrible governance of the countries that underprice their resources like oil. Or are you suggesting that Saudi Arabia et al. are better models for the USA than Canada, Norway, and the UK?

prior_approval January 20, 2014 at 10:40 am

‘Egypt isn’t a member of OPEC’

My memory was about 300K barrels a day from Egypt. And it was thoroughly wrong, it seems, as oil production is double that –

‘Egypt’s oil production comes from the Gulf of Suez, Nile Delta, Western Desert, Eastern
Desert, Sinai, and the Mediterranean Sea. Most of Egypt’s production is derived from
relatively small fields that are connected to larger regional production systems. Overall
production is in decline, particularly from the older fields in the Gulf of Suez and Nile Delta.
However, declines have been partially offset by small new finds, particularly in the Western
Desert and offshore area. In addition, the use of enhanced oil recovery (EOR) techniques at
mature fields has eased production declines.
After Egypt’s production peak of more than 900,000 bbl/d in the mid-1990s, output began to
decline as oil fields matured. However, natural gas liquids (NGL) output has increased over
the past decade as a result of expanding natural gas production and has offset some of the
declines in other liquids production, such as crude oil. In 2012, Egypt’s total oil production
averaged around 720,000 bbl/d, of which approximately 555,000 bbl/d was crude oil
including lease condensate, almost 170,000 bbl/d was NGL, with refinery processing loss
accounting for the difference.’ http://www.eia.gov/countries/analysisbriefs/Egypt/egypt.pdf

However, it is an oil importer, since 2010. Just a very small one, that subsidizes oil at a truly murderous exchange rate, magnifying the costs of its imports in terms of cost to the government – easily losing a couple of dollars on each imported gallon of gasoline. A burden that will only grow as production continues to decline.

John Thacker January 20, 2014 at 11:20 am

Indeed. It is a net importer, barely. And Canada, Russia, and Norway are net exporters. (The UK I believe used to be a net exporter, but oil production has dropped rapidly there IIRC.)

So you’ve demonstrated that being a net exporter is not the most relevant thing for these cheap prices– plenty of net exporters don’t, and several oil producing but not quite net exporting countries in the Middle East subsidize oil prices for their citizens. Being in the Middle East appears to be a better predictor of cheap gas than being a oil exporter. Thus, contrary to your earlier statement, perhaps we should be surprised that Venezuela subsidized gas prices so much, rather than dismissing it as “not a story.” They are, after all, the only country outside the Middle East that had so cheap prices and, in real terms, it was an order of magnitude cheaper than the second such.

prior_approval January 20, 2014 at 11:57 am

‘So you’ve demonstrated that being a net exporter is not the most relevant thing for these cheap prices’

So, I started off by saying exactly that when talking about Egypt, and it took you this long to see it?

For a bit more insight into fossil fuel subsidies, this link migh be useful – http://www.iea.org/subsidy/index.html

Lots of countries do it – the list above is only the top ten for retail gasoline. It is simply that countries that own oil can do with it as they please, including ‘selling’ it to themselves, so to speak, at absurdly low prices.

John Thacker January 20, 2014 at 12:29 pm

So, I started off by saying exactly that when talking about Egypt, and it took you this long to see it?

No, I always saw it, as you see above. What you “started off by saying” was saying– as you do in this same post– that “[i]t is simply that countries that own oil can do with it as they please, including ‘selling’ it to themselves, so to speak, at absurdly low prices.” — But then you pointed, as though it was significant, to a list of countries that includes ones like Egypt, that don’t exactly “own (enough) oil” in the same sense, since they’re net importers.

Or are you saying that Egypt is bad for doing it, since they’re not a net exporter, but we should all shut up about Venezuela and Saudi Arabia and Qatar and Kuwait, including the Venezuelans that complain about them shipping subsidized oil to Cuba?

And even though the Venezuelans have a right to do what they wish, even if a bad idea, surely it’s significant that they’re supposedly planning on raising prices by thirty four times?

John Thacker January 20, 2014 at 12:35 pm

Lots of countries do it – the list above is only the top ten for retail gasoline. It is simply that countries that own oil can do with it as they please, including ‘selling’ it to themselves, so to speak, at absurdly low prices.

Except that a paragraph ago you agreed with me that being a net exporter is not the most relevant thing for appearing on this list. So it’s clearly not “simply” that countries that own oil (or have enough to export, because clearly if you produce a lot of oil but still have to import a lot the finances of subsidizing oil look different) sell it at absurdly low prices. Quite a few subsidize to absurdly low prices despite having to import oil, meaning that they’re also buying oil at world market prices then reselling it to their citizens very cheaply. (Perhaps to keep up with the neighbors.)

I suppose you’re saying that Venezuela is more justified in their subsidy than Egypt is. Egypt’s subsidy is even closer to the US subsidy of water, then.

John Thacker January 20, 2014 at 12:39 pm

It is simply that countries that own oil can do with it as they please, including ‘selling’ it to themselves, so to speak, at absurdly low prices.

And also give it away cheaply to Cuba, or subsidize it only to see people smuggle it to Colombia, and then have to crack down on the smuggling. Surely others are allowed to argue that perhaps Venezuela would be better off charging more for gasoline and instead giving the extra money to the people directly, the way Norway does?

prior_approval January 20, 2014 at 2:27 pm

‘the way Norway does’

Norway is much cleverer than that – currently, its SWF(s) are estimated to own about 1% of the world’s entire market of stock. Which is pretty good for the SWF(s)’s 5 million ‘shareholders.’ But then, the Norwegians made most their money selling to their Europeans neighbors, in a very orderly fashion. Maximizing extraction volume instead of maximizing flow rates (at least in offshore terms).

Which means that those 5 million Norwegians can get long term benefits from those doing such heroic work in New York, Frankfurt, London, Shanghai, etc. on their behalf.

prior_approval January 20, 2014 at 2:45 pm

‘But then you pointed, as though it was significant, to a list of countries that includes ones like Egypt, that don’t exactly “own (enough) oil” in the same sense, since they’re net importers.’

Well, the list I first quoted shows gasoline subsidies in terms of monthly income, which is an interesting way to measure how generous that subsidy is. Especially since Venezuela then falls back compared to such noted economic basket cases as Qatar and KSA.

Egypt was the one that stood out – it is not sitting on the sorts of resources that the other three are, and provided no reason to mention, until it was pointed out that the Egyptians also subsidize bread, thus pointing out their place on the listing. Egypt is clearly a case of a state bribing its populace – but that is not exactly news for the last couple of thousand years. The alternative is uglier – and we might even get to see what it looks like in real time, and not just from written sources.

prior_approval January 20, 2014 at 10:42 am

And to end about ‘wilderness’ – of the two countries mentioned that actually have wilderness, both have very liberal policies on citizens taking advantage of them.

Cliff January 20, 2014 at 12:33 pm

So does the U.S.

prior_approval January 20, 2014 at 2:37 pm

The U.S. is quite strict about trespassing in any number of ways. The Canadians tend to be a lot laxer (in my limited experience backpacking in the Maritimes), while the Norwegians have this – ‘Everyone in Norway enjoys the right of access to, and passage through, uncultivated land in the countryside. The right is an old consuetudinary law called the allemannsrett (lit. all men’s right), that was codified in 1957 with the implementation of the Outdoor Recreation Act’ http://en.wikipedia.org/wiki/Freedom_to_roam#Norway

It’s worth reading about – the concept is not one exactly familiar to most Americans. It is one that is quite liberal – no permit required to just wander for days, unlike in American national parks, where backcountry permits are required.

Age Of Doubt January 20, 2014 at 10:38 am

The fact that producers are able to make fuel so cheaply is a clear sign that global prices are grossly manipulated.

Handle January 20, 2014 at 11:09 am

Not exactly. Extracting non-renewable oil is not like producing corn. It is as much ‘capital stock drawdown’ as ‘production’. It’s confusing when accounting for GDP too. As Norwegians really ‘producing’ so much value in a year, or all they all just closet multimillionaires, not formally accounted for, and gradually spending down their lucky inheritance at a rate that only resembles what occurs in a high-GDP nation that relies on the generation of capital instead of its drawdown?

Expanding output to the point where marginal costs = marginal revenues in the present is not the optimal ‘dynamic-programming’ solution to extract the maximum net present value out of all future income streams. Pumping as fast as you can is not the way to make the most money from your resource, and it’s arguable not a wise choice for humanity until we’re sure we’ve got a genuinely economical alternative substitute.

In a way, OPEC’s production-restriction quotas provide a kind of positive externality of ‘depletion-pace discipline’ that prevents the current generation from over-discounting the needs of the future.

JWatts January 20, 2014 at 12:31 pm

“or all they all just closet multimillionaires, not formally accounted for, and gradually spending down their lucky inheritance”

Well, in the unique case of Norway, they aren’t so much spending down their wealth, as transitioning their oil wealth into stock wealth. And then transferring the dividend from the stock wealth into a yearly citizen dividend.

mulp January 20, 2014 at 4:01 pm

According to economists. oil is as good as “renewable” because it is sustainable and is available in infinite supply – the world will never run out of oil, and the only reason oil prices increase is because government leftist elites raise the price of oil.

Tracy W January 21, 2014 at 12:26 am

Huh? What matters for price-setting is the costs of the marginal producer, not the average producer.

ummm January 20, 2014 at 10:45 am

long 1 million dogecoin. if you haven’t heard about it go here http://dogecoin.com

turkish lira continues to weaken to historic lows against the dollar. that american exceptionalism is why the US dollar has been the best performing currency since 2009. no hyperinflation, no dollar crisis as so many incorrectly predicted. It’s safe to say lending standards are more sober , that balance sheets are healthier than ever. Most of the surpluses are being stored at the fed instead of lended.

ron wilton January 20, 2014 at 11:15 am

Before we jump on the hate Venezuela band wagon, read this…
http://digitaljournal.com/article/342972

Mike January 20, 2014 at 11:50 am

Is that really the most productive use of Venezuela’s wealth? The problem with how they have handled their oil production (and lack of investment in it) is the opportunity cost. I’m not against helping poor people in the US, but people in the US are probably not the neediest when it comes to life basics paid for by the people of Venezuela. Since I have a pretty good familiarity with a non-profit built mainly around heating oil for poorer residents in the northeast US, I do get that it’s a big deal for those who benefit and they would be foolish to turn it away and go buy oil instead, but the people of Venezuela need that more and giving away the country’s mineral wealth instead of having the foresight to handle it to improve their lot (like Norway has) isn’t okay just because a lot of other dictators have done the same thing.

JWatts January 20, 2014 at 12:33 pm

To shorten the point: The dictators of Venezuela use the countries oil wealth to score political points versus feeding their starving people.

Brett Champion January 20, 2014 at 11:20 am

Which might be why Venezuela ran a budget deficit in 2013 of around 8.5% of GDP. It amazes me that an OPEC country could ever have a budget deficit, let alone one that large.

ron wilton January 20, 2014 at 11:22 am

Brett, Alberta has run deficits for the last three years and this year anticipates the largest ever.

Cliff January 20, 2014 at 12:35 pm

Alberta is a provence

The Anti-Gnostic January 20, 2014 at 11:32 am

What’s the mystery here? Give current voters benefits at the expense of future taxpayers, who don’t have a vote.

tedder January 20, 2014 at 12:25 pm

Ecuador is about 50 cents per liter, which comes out to about $2 per gallon. Not nearly as cheap as Venezuela, but still quite the bargain- neighboring Colombia is in the $5-6/gallon range.

John Thacker January 20, 2014 at 12:37 pm

And if you look at certain oil consumption statistics, Columbia’s is suspiciously low, implying that there’s a lot of smuggling of cheap subsidized Ecuadorian gasoline to Colombia.

Preston Sturgeon January 20, 2014 at 2:18 pm

Wouldn’t you expect more of the smuggled gasoline comes from Venezuela than Ecuador?

prior_approval January 20, 2014 at 2:17 pm

Strange how all three are neighbored oil producing nations (Columbia at almost 1 million barrels a day, Ecuador at 500k barrels a day). Almost as if to the right, the radical government was the one supported by the U.S. against communists, cartels, and terrorists (and with ongoing attacks by rebels against oil infrastructure). And on the left, the other being almost a radical government throwback to the heyday of revolutionary fervor financed by their Soviet socialist comrades, without the Soviet financing (the Venezuelan government’s generosity with gasoline predates Chavez by decades, one should note).

And the country with the profile which would sound familiar to Europeans is the one with a balance between extremes. Illustrated by its president –

‘Rafael Vicente Correa Delgado (Spanish: [rafaˈel korrˈea]; born 6 April 1963)[1] is the President of the Republic of Ecuador and the former president pro tempore of the Union of South American Nations.An economist educated in Ecuador, Belgium and the United States, he was elected President in late 2006 and took office in January 2007. In December 2008, he declared Ecuador’s national debt illegitimate, based on the argument that it was odious debt contracted by corrupt and despotic prior regimes. He announced that the country would default on over $3 billion worth of bonds; he then pledged to fight creditors in international courts and succeeded in reducing the price of outstanding bonds by more than 60%.[2] He brought Ecuador into the Bolivarian Alliance for the Americas in June 2009. To date, Correa’s administration has succeeded in reducing the high levels of poverty, indigence, and unemployment in Ecuador.[3][4][5][6][7] In contrast, he has been accused of authoritarism, nepotism, attacking dissidents and curtaling freedom of speech.[8][9][10][11]

Correa’s first term in office had been due to end on 15 January 2011, with elections in October 2010, but the new approved constitution written by the new National Assembly mandated general elections for 26 April 2009. In that election, Correa won in the first round with 51.9%[12] of votes counted. In the 2013 general election, Correa was elected President for a third time with 57% of the vote. Correa was a close ally of the late President Hugo Chávez of Venezuela and presided over Ecuador’s accession into the Bolivarian Alliance for the Americas.’ http://en.wikipedia.org/wiki/Rafael_Correa

Preston Sturgeon January 20, 2014 at 2:14 pm

I’m calling for an international oil boycott of Germany until prior_approval shuts up his idiotic, arrogant pie hole.

prior_approval January 20, 2014 at 2:18 pm

The Russians don’t care.

The Anti-Gnostic January 20, 2014 at 2:44 pm

If only George Mason had accepted him for a tenure-track position, then we wouldn’t have this belligerent German nationalist out there stirring up trouble. Tyler Cowen will have the blood of millions on his hands.

prior_approval January 20, 2014 at 2:54 pm

‘If only George Mason had accepted him for a tenure-track position’

Why? – I certainly never had anything to do with academics after I graduated and started working there. I got paid to write PR, among other things. The PR was paid for by the Commonwealth of Virginia’s taxpayers, while the other things were paid for by a center that was not accountable to anyone but its ‘owners.’ There are a lot of advantages in terms of freedom of action when the money being spent is not the taxpayer’s. Especially when the money being spent is being used to influence how tax revenue is to be directed.

Preston Sturgeon January 20, 2014 at 3:51 pm

And now you’ve taken that singular experience and expanded it to include your view of not only the USA but the entire world.

Willitts January 20, 2014 at 9:55 pm

“Especially when the money being spent is being used to influence how tax revenue is to be directed.”

Look at these upstanding organizations:

Top Heavy Hitters
OpenSecrets.org’s historically researched organizations

1 ActBlue $97,192,340.
2 American Fedn of State, County & Municipal Employees $61,262,029.
3 AT&T Inc $57,173,417.
4 National Education Assn $54,087,163.
5 National Assn of Realtors $51,449,352.
6 Intl Brotherhood of Electrical Workers $45,083,939.
7 Goldman Sachs $44,984,951.
8 United Auto Workers $41,945,608.
9 Carpenters & Joiners Union $39,377,871.
10 Service Employees International Union $38,297,590.

There’s also the Center on Budget and Policy Priorities (can’t get more clear about what they’re doing with their funding)

Careless January 21, 2014 at 10:52 am

Well, you’ve certainly highlighted the hell out of a couple of things George Mason should be very embarrassed about.

Thomas Swift January 20, 2014 at 2:50 pm

Is there any debate to be had on whether Venezuela’s oil subsidies result in less total utility for it’s citizens? If not, why all the wheel-spinning about whether or not it’s subsidies are in keeping with other countries?

Spencer January 20, 2014 at 5:06 pm

No where in this did I see what it cost to produce gasoline in Venezuela.

Many statements were made about gas being subsidized, but how big is the subsidy?

For all I know it is negligible and the point that it is much cheaper than in the US does not really matter.

C January 20, 2014 at 5:18 pm

It’s estimated in the article: “The government is spending more than $12 billion a year to subsidize domestic gasoline sales, Venezuelan energy officials say, and the gravy train is coming off the rails.”

Thomas Swift January 20, 2014 at 6:41 pm

The subsidy is better understood as World Market Price – Venezuelean Price = X. Why would you need to know the cost of production? Would you argue that giving away a $1,000,000 inheritance that cost the recipient $0 to produce would cost $0 or $1,000,000?

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