Low oil prices spell trouble for Venezuela, Latin America

As the global recession begins to slow demand for energy, oil prices are expected to head even lower, from the current price of around $35 dollars a barrel, to as low as $10 dollars according to some sources.

This dramatic decline in prices is already causing severe damage to the Venezuelan economy, which lives and dies by the oil industry. Here is a nice concise article on the toxic combination of low oil income and 20-plus percent inflation that could spell trouble for our obnoxious friend Hugo Chavez. Latin America is becoming increasingly interesting, in my view, and I expect we will be talking about South and Central America quite a bit in the next few years.

The most interesting thing in terms of history and political economies, is that we are undergoing a severe world-wide economic crisis at the tail-end of a massive globalization cycle (historically not the first by the way). This is particularly interesting for Latin America, which has yet to work its way through the fog of cold-war era ideological struggles. Communism and Socialism are still very much alive in parts of Latin America, and the current crisis will likely provide fodder for proponents.

Even more interesting, is that the same crisis could have the opposite effect for Chavez - the current socialist standard bearer - as his support has slipped in recent months. If the Venezuelan economy gets much worse, he could be in real trouble. If things do get worse, expect him to become more vocal, once again, in his attacks on the United States and neighboring adversaries.

Bailout Business:

I plan on writing at length on this as soon as I can find time. For now, this video is somewhat helpful. I do, however, disagree with much of what Mr. Feldstein had to say in the video about whether the Big Three have brought down wages to the level of their foreign competition - with the help of the United Autoworker's Union, they have. I also, strongly disagree with his perception of American products. He and others are simply wrong when they say that Detroit does not make quality automobiles. It really irks me that somehow, a bunch of economists and policy wonks think they know anything about automobiles while, at the same time, they ignore reports from the car industry press that show American car makers are racking up the accolades.

Anyway, the video, which encapsulates some of the basic arguments can be found here. Below a piece I included from the Detroit Free Press that really dispels some of the myths about Detroit's automakers. I strongly recomend reading it - its short and to the point.

Myth No. 1: Nobody buys their vehicles.

Reality: General Motors Corp., Ford Motor Co. and Chrysler LLC sold 8.5 million vehicles in the United States last year and millions more around the world. GM outsold Toyota by about 1.2 million vehicles in the United States last year and holds a U.S. lead over Toyota of about 560,000 so far this year. Globally, GM in 2007remained the world's largest automaker, selling 9,369,524 vehicles worldwide -- about 3,000 more than Toyota. Ford outsold Honda by about 850,000 and Nissan by more than 1.3 million vehicles in the United States last year. Chrysler sold more vehicles here than Nissan and Hyundai combined in 2007 and so far this year.

Myth No. 2: They build unreliable junk.

Reality: The creaky, leaky vehicles of the 1980s and '90s are long gone. Consumer Reports recently found that "Ford's reliability is now on par with good Japanese automakers." The independent J.D. Power Initial Quality Study scored Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac and Lincoln brands' overall quality as high or higher than that of Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagen and Volvo. Power rated the Chevrolet Malibu the highest-quality midsize sedan. Both the Malibu and Ford Fusion scored better than the Honda Accord and Toyota Camry.

Myth No. 3: They build gas-guzzlers.

Reality: All of the Detroit Three build midsize sedans the Environmental Protection Agency rates at 29-33 miles per gallon on the highway. The most fuel-efficient Chevrolet Malibu gets 33 m.p.g. on the highway, 2 m.p.g. better than the best Honda Accord. The most fuel-efficient Ford Focus has the same highway fuel economy ratings as the most efficient Toyota Corolla. The most fuel-efficient Chevrolet Cobalt has the same city fuel economy and better highway fuel economy than the most efficient non-hybrid Honda Civic. A recent study by Edmunds.com found that the Chevrolet Aveo subcompact is the least expensive car to buy and operate.

Myth No. 4: They already got a $25-billion bailout.

Reality: None of that money has been lent out and may not be for more than a year. In addition, it can, by law, be used only to invest in future vehicles and technology, so it has no effect on the shortage of operating cash the companies face because of the economic slowdown that's killing them now.

Myth No. 5: GM, Ford and Chrysler are idiots for investing in pickups and SUVs.

Reality:The domestic companies' lineup has been truck-heavy, but Toyota, Nissan, Mercedes-Benz and BMW have all spent billions of dollars on pickups and SUVs because trucks are a large and historically profitable part of the auto industry. The most fuel-efficient full-size pickups from GM, Ford and Chrysler all have higher EPA fuel economy ratings than Toyota and Nissan's full-size pickups.

Myth No. 6: They don't build hybrids.

Reality: The Detroit Three got into the hybrid business late, but Ford and GM each now offers more hybrid models than Honda or Nissan, with several more due to hit the road in early 2009.

My First Installment of "Keeping Obama Honest"

Well, that was fun. Now that we stained our panting five-year-old faces with enough Obama Kool-Aid to start a worldwide diabetes epidemic, it's time to head outside and get back to work.

My face is as stained as any other - perhaps more so. But it is now time to switch from get-Obama-elected mode, to keep-him-honest mode.

Along those lines, I will be writing about some things to look for that could go sour or stay sour in an Obama administration. Just one item today:

Bolivia:
Things have been less than perfect in Bolivia for quite some time - for a number reasons. But two things make me believe that we will be hearing a lot more about the South American country very soon. The first, is that Bolivia holds the world's largest known supply of lithium. Just for information's sake, lithium is fast becoming the most popular component of battery technology. Lithium helps power laptops and cell phones already and is becoming a favorite of the auto industry for use in hybrids. There have also been conflicts over coca production and natural gas.
Political science teaches us that there is a significant correlation between countries with persistent political problems, and countries that are extremely rich in just one, or a few, highly valuable natural resources. Think about the oil rich nations, but think more about where you found the most valuable commodities like diamonds. Think Sierra Leone and Ivory Coast.

Add to that, a potential conflict between geo-political personalities. The first is Bolivian president Evo Morales, who, has considered nationalizing the countries lithium supplies, stating in essence that he wants to protect those resources from plunder by industrialized countries. There have long been tensions between Morales and Bush for that very reason.

I trust Obama's judgment a great deal more, but he has a second major problem: Greg Craig.

Craig is a chief foreign policy advisor to Obama that has been at the center of controversy in Bolivia. While he has an impressive resume and track record of working on behalf of human rights in Latin American, Tibet and elsewhere, his legal representation of former Bolivian President Gonzálo Sánchez de Lozada and former Minister of Defense Carlos Sánchez Berzaín, is cause for concern.

The two men are under indictment for their alleged role in a government sponsored massacre of civilians. Craig has said that he does not agree with the interpretation of the current Bolivian government, but instead, claims that protesters became violent, causing the military to respond.

The International Herald Tribune reported in July that the matter has caused a serious rift between the Bush administration and Bolivian officials - one that Craig may be ill-equipped to repair. Some 20,000 protesters railed against U.S. officials at the embassy in La Paz, drawing praise from current president Morales.

The Council on Hemispheric Affairs (COHA), a non-partisan research group dedicated to Latin American relations, said that "incontestably, then-president Sánchez de Lozada ordered troops into El Alto and Sánchez Berzaín gave them the green light to open fire on unarmed civilians; one simply cannot deny the facts of the case."

Craig's defense of two men, who the Bush administration later gave political asylum, has been a sticking point with human rights activists. And another of Craig's clients, Panamanian national Pedro Miguel González Pinzón, has also caused controversy. Pinzon, now a member of the Pannamanian Senate, is accused of murder by the Bush administration and has been at the center of controversy over Panama's signing of a US-Panama free-trade agreement.

But, Obama has parted with Craig on the matter, being one among many U.S. officials to oppose the deal until Pinzon is is brought to justice. The conflict of interest is, however, pretty obvious. For his part, Obama has pushed for more attention to the needs of Latin America.

And Morales, was very complimentary of Obama's victory. Morales said that he was looking forward to working with Obama and hosting him if he chose to visit. Whether Obama will keep Craig in his administration is yet to be seen. My sense is that Obama will not be as reactive to Morales, who has accused Bush of plotting a coup as a way to gain access to Bolivian lithium. Obama will likely be less driven by capitalism than by warming relations - also a good way to gain access to Bolivian lithium , regardless of whether private companies or the Bolivian government own the resources.

We will see very soon what type of president Obama will be, this will be just one interesting test that could indicate whether we have reached a true sea change in U.S. foreign policy, or just elected another president.

With respect to Craig, it is important to understand that lawyers often defend the indefensible - it's part of being a lawyer. With respect to how Craig would advise Obama if selected, it would appear that he has a very modern and pragmatic approach that the COHA said would represent a profound step away from flawed Bush policies that have undermined democracy for the sake of economic goals. Here is a sample of what they had to say:

Craig proposed that the U.S. engage in a multilateral approach to hemispheric diplomacy which respects truly democratic governments, regardless of their political or economic orientation, in order to promote strong links between the North and South. He emphasized the importance of recognizing the sovereignty of other regional governments, stating that the U.S. has “suffered” as a whole because the Bush administration “has cared more about outcomes than about process.” This is a reasonable and pragmatic approach to politics which can be traced to Craig’s unfairly maligned legal profession. In giving his sophisticated analysis, he correctly points out that by patently intervening in free and fair elections in Venezuela, Nicaragua, Ecuador, El Salvador, and Bolivia, the U.S. has not only compromised its own democratic values but also has elicited deep-rooted animosity from its southern neighbors.

Interference in electoral processes is problematic because it allows the U.S. to dictate another nation’s internal and external affairs. Manipulated trade agreements present a similar dilemma. Under President Bush, the U.S. has exploited its dominant trading position by negotiating targeted trade pacts with close political allies. In the era of free trade, this piecemeal bilateral approach appears to have jeopardized any prospect for integrated hemispheric ties. Some regional specialists take the position that these bilateral trade agreements bypass social and economic protections otherwise provided by multilateral agreements. According to Craig, U.S. trade policies favored by the Bush administration have “accentuated division and hostility in the region … against the United States.”

If Craig stays true to his stated principles, he could actually be of great help. We are in grave need of a foreign policy that is truly supportive of human rights and democracy. Democracy is not something we can promote when it suits us and ignore when it does not. And democracy is not something that should exclude countries that are less market-centric.