California finally says, “Yes, we want to be Venezuela”

He was the most powerful man in the world in the year 1536. But even Charles V– Holy Roman Emperor, King of Spain, Lord of the Netherlands, Duke of Burgundy, Master of the Americas– still needed his mommy.

Like many monarchs of his era who lavished themselves with unhealthy diets, Charles had developed a nasty case of gout– a painful, often disfiguring inflammatory disease typically brought on by poor eating habits.

And Charles’s gout was causing him a LOT of pain.

So, in 1536, his mom, Queen Joanna of Spain, started looking into remedies. She had heard stories of native tribes in their far-off colony of Venezuela who healed afflictions with a medicinal oil.  And Joanna ordered colonial officials in Venezuela to bring as much of this oil as possible to the Emperor.

This order has gone down in history as the first-ever oil export from Venezuela, nearly 500 years ago.

Back then, there was so much oil in Venezuela that it was literally just oozing out of the ground. And centuries later when global demand for oil skyrocketed, no one needed a PhD in geology to figure out that Venezuela would become a top producer.

By the mid-20th century, Venezuela had become one of the wealthiest countries in the world. But it all changed in 1976 when Venezuela’s government nationalized the oil industry and drove the new state-owned oil company into the ground.

This isn’t much of a surprise. In the private sector, business is supposed to be about maximizing profit.

Now, sadly, ‘profit’ has become somewhat of a dirty word. But it shouldn’t be. Maximizing profits over the long-term means that everyone has to win.

You have to treat employees well and pay them fairly, otherwise you won’t be able to attract talented people… and profit will suffer.

You have to put out quality products that fill your customers’ needs. You have to innovate. You have to cut costs, i.e. use as few resources as possible to create as much value as possible. This ultimately what profit really means.

But governments aren’t profit-seeking. They squander resources to buy votes, cover up past mistakes, pay for idiotic vanity projects, line the pockets of their cronies, or just steal for themselves.

This is ultimately what happened in Venezuela; government mismanagement of the oil sector led to multiple financial crises, stagflation, and finally full-blown socialist revolution in the 1990s.

Hugo Chavez took over 25 years ago, and, through his ‘Bolivarian Socialism’ he ran the country even further into crisis. Chavez (and his successor Maduro) plundered resources, seized assets and businesses. They chased away talented people. They heavily indebted the nation. They regulated wages and prices.

And the natural result of these idiotic measures was economic collapse.

It’s extraordinary that food shortages and starvation became widespread in Venezuela– a country with nutrient-rich soil, a year-round growing season, and abundant water resources. Venezuela should be an agricultural powerhouse. And yet there’s not enough food. Something is seriously wrong with this picture.

California shares a similar origin story. The discovery of oil turned the state into an economic juggernaut in the early 20^th century, and even to this day its oil output is just behind Australia and Ecuador.

But California’s warm embrace of socialist ideals has been on hyperdrive over the past decade.

Gavin Newsom shovels outrageous sums towards the homeless, yet the problem grows worse each year. He spends even more on failed infrastructure projects, constantly whines about race, gender, sexual orientation, regulates wages, and chases business away.

Millions of Venezuelans have fled their country’s failed economy. And millions of Californians have left the state for greener pastures elsewhere. And that includes several high-profile businesses.

The latest is Chevron, which was actually founded as the Standard Oil Company of California. Chevron has been in the state for 140 years. But they announced last Friday that they’re moving to Texas.

Why? Because state bureaucrats want to put Chevron out of business.

This has been going on for years– not only from the Biden administration’s federal punishment of the oil industry… but also due to California statewide policies. These include drilling restrictions, a new “penalty”, i.e. tax, on “excess” refinery margins, climate change regulations that are virtually impossible to achieve, etc.

There are even some local governments that have piled on. The city of Richmond (in the San Francisco Bay Area), for example, is asking voters to approve a $1 per barrel tax on Chevron’s nearby refinery.

It’s no wonder that California fuel prices are among the highest in the nation.

But Gavin Newsom can’t seem to put 2 and 2 together. So, he created a special commission to investigate California’s high gas prices and make recommendations to solve the crisis.

Their report, released just days ago, is absolutely hilarious.

First off, the commission fails to make any connection between insane regulations and high gas prices. And their ‘solution’ is to essentially seize control of the industry.

According to the report, they recommend the government to “own refineries in the state to manage the supply and price of gasoline…” however they acknowledge that “the State has no experience in managing” such assets.

The commission also ponders the question: “What would drive how the State managed the refinery? Profit? Maximize production? Minimize production?”

This is actually in the report. The state wants to take over the oil refining business, but they aren’t even sure what their purpose would be.

So, in short, California’s politicians have driven gas prices up with ruinous policies. And they want to solve their own problem by letting inexperienced bureaucrats take over the state’s oil refining business without a clear purpose of what they want to achieve. What could possibly go wrong?!?

Chevron finally had enough, and they’re leaving the state. Many more will likely follow… yet the people in charge keep doubling down on the same destructive policies.

Californians already pay $1.16 more for a gallon of gasoline than the national average. But the obvious conclusion to these ideas is even higher prices, and even more inflation.

It’s a Venezuelan approach to problem solving: blame everyone else and dig yourself even deeper into a hole.

Frankly this is the same mentality that we also see from the federal government these days. And that’s a pretty compelling reason to have a Plan B.

Source

Simon Black is an international investor, entrepreneur and permanent traveler. His daily letter is both educational and entertaining, and we suggest that those who want unbiased, actionable information about global opportunities sign up for Sovereign Man’s free, actionable newsletter at http://www.SovereignMan.com.

From Simon Black of SovereignMan.com