Why is it a good idea that the poor people of Venezuela shoud subsidise the rich people of London?
Half-price bus and tram passes for Londoners on income support are to be
financed by an oil deal with a Latin American socialist state.
Ken Livingstone, the Mayor of London, signed a deal with a Venezuelan oil
company yesterday for cheap fuel for the capital’s 8,000 buses. In return,
his officials will advise on street cleaning and other services.
Tim said ‘Why is it a good idea that the poor people of Venezuela shoud subsidise the rich people of London?’
They may not be. Venezuela has a comparative advantage in oil over London, London in delivering services.
And anyway better the Venezuelans, or their political representatives be free to enter whatever commercial agreement they choose. And then get voted out if its a stinker!
Mark, yes I am sure the dirt-poor folk of Venezuela, a country that is heading for the socialist ashheap, are really concerned to help Londoners.
(sarcasm alert)
Erm, what’s the subsidy exactly? Looks like a trade to me. Whether it’s “fair” or not is a different matter, but I never had you pegged for a fair trade freak Tim.
I can just see it now. Picture the cleaning depot for Caracas City Council. It’s early morning:
“Right, Manuel, wot you’ve got ‘ere is wot we in the business calls a broooom. Un’erstan’? A brooooom”.
Manuel nods.
“An’ this ‘ere. It’s yer cart or barrer. Got it?”
Manuel nods again.
“Luvverly jubberly. Your goin’ great guns my son. Well, that’s the end of lesson one. If you’ll jus’ sign sign this ‘ere chitty for ten thousand barrels of crude, I’ll be off back to me ‘otel. Lo’ sulphur if yer don’t mind. Got to look after the old enviroment ain’t we”.
One of the advantages of such a deal is that it helps people here to realise that the people there are actually real, rather than just weird foreigners in Mumbojumbo Land.
Whether that’s going to do them any good is another matter.
PS. On a more serious note, I seems to remember that the last time a maverick, leftie politician got himself involved in an oil for “services” deal there was quite a lot of suspicion about hidden bank accounts, backhanders and the like.
Anyone know how we can get the Serious Fraud Squad to start investigating Ken’s deal now? I’m sure it’ll save a lot of time later.
Remittance man said ‘I can just see it now. Picture the cleaning depot for Caracas City Council. It’s early morning:’
I know it seems surprising but some ways of organising things that we take for granted in the UK are novel elsewhere.
Adam Smith International (sister company of the Adam Smith Institute to whom Tim contributes) gets paid by governments to advise on these and other things, something I do for them from time to time.
Tim adds: As far as I’m aware (open to correction of course) there is not connection between Adam Smith International and Adam Smith Institute.
Mark and Katherine are right. Additionally, Londoners on income support are hardly rich, even by Venezuelan standards…
And then get voted out if its a stinker!
Because apparently Venezuela is a free and fair democracy……
And how exactly is this deal going to help Londoners John? You’re not honestly expecting fares to fall are you? Given they’ve multiplied many times since Ken came to power.
They get some money and some consulting expertise, we get some fuel. That sounds like what most people would call “trade”.
Tim adds: Indeed, trade is good. We’ve even got a mechanism that we know is more efficient than barter: markets using money.
Of course if Livingstone really cared about emissions (rather than using them to advance his political agenda) he would have all the buses running on electric or at lease LNG. Taxis too. Getting some nice high sulphur crude is hardly consistent with his save the planet rhetoric and giving a discount to the poor having hiked fares massively in the first place – in direct contrast to his manifesto pledges – should remind us what a slippery toad he has always been.
Tim adds: As far as I’m aware (open to correction of course) there is not connection between Adam Smith International and Adam Smith Institute.
I don’t know what the current relationship is, but believe International emerged from the Institute in the past. ‘Sister company’ may well overstate things as they are now.
sanbikioriaon, it’s a trade at less than the market value of the product, hence most people would also call it a ‘subsidy’.
Mark,
For the joke to work, the first couple of million barrels would have bought the Caracas City Council a cleaning depot, complete with training centre.
At the time of writing I felt that this extra information made the plot unwieldy and distracted the reader from the flow of the sparking narrative. Thanks to your criticism I now realise that some readers need to be given more information to enable their full enjoyment of my literary genius. Rest assured that this fact will be born in mind in all future endeavours.
Serf said:
‘Because apparently Venezuela is a free and fair democracy……’
Not sure what your point is. (Maybe you don’t either).
If Venezuela is not as free a democracy as you would like then what do you propose
a) we don’t trade with them?
b) we set the terms of trade in a paternalistic, we know best way? …as with the CAP
c) we bring greater democracy to the country? …Anyone for a bit more regime change
Having been in Venezuela, I can confirm that they would benefit from assistance establishing structures and services that we regard as “basic” in anglo-saxon countries. Not just in simple structures such as better organised Sanitation Departments, but at a fundamental level too: the concept of “auditing” service delivery, or of adjusting pay to reduce the attraction of corruption– “little” things like that.
Venezuela is one of the world’s most oil-rich countries. Paying with oil is relatively cheap for it. More to the point, Venezuela’s oil is very unusual: very light “sweet” oil which America in particular is extremely dependent upon, in order to bring its own emission control requirements down to a cost-effective level. Venezuela is also in the throes of a long strong anti-USA meme, and has repeatedly used oil supplies and differential pricing to make political points vs America.
In the event they DO find that the oil delivered to London materially impacts the country’s revenues, I would be very surprised if they didn’t add a few cents to the US price to make up the difference.
ie, I regard this as cash-neutral for Venezuela under even worst-case conditions, as it will be subsidised by the driving public of the United States.
Someone correct me if I’m wrong but the US, like every other nation, buys oil at the market price on the international oil market. The US doesn’t directly buy oil from the Venezualan government Saltation, and the idea that anyone would buy a commodity at more than the market price is nuts.
Remitman: ‘Thanks to your criticism I now realise that some readers need to be given more information to enable their full enjoyment of my literary genius.’
Glad to have, in my own small way, made a modest and indirect contribution to our nation’s so varied literary heritage that it spans all possible proles.
hi AndrewPaterson
there is no “market price” for oil in the sense that you’re using it. Oil (as are most Commodities) is a far more fragmented and “lumpy” market in real life than most people realise, and that’s the reason why most successful Oil Traders are engineers rather than financial markets traders. It really is startling just how dependent commodity trading is on really fundamental physical and chemical and engineering and logistical factors, and just how variable those factors are from supply source to supply source.
And even Transport is a huge factor in these markets. And Cost of Carry is not merely implicit borrowing or margin/timing mismatch — it’s a serious and real cost of physical storage. I remember a trade we tried to do when I was in a hedge fund so had the luxury of considering such: buy spot oil, deliver to and store in a tanker, deliver Forward. But we just couldn’t get a tanker cheap enough to make it cost-effective even despite the huge discount between forward and spot. Much gnashing of teeth. Similarly, Venezuela has a huge spread to play with vs other sources shipping to the US, for simple reasons of geography over and above the scarcity of the oil quality it supplies.
Yes, there are a number of relatively standardised categories of oils which you will see reported traded, but neither the reporting of a benchmark price on a benchmark-quality benchmark type of oil, nor the ex-post measurement of volumes traded within various buckets, is a reflection of the actual processes by which those specific cargoes and volumes are traded at the margin.
Consider that even in the awesomely uniform and global world of trading money/credit (the bond market), individual counterparties routinely offer different prices to different counterparties based on their own internal preferences and/or exposures. For example, if Citi is already long my company’s parent, I can’t buy more money from them at the same price as an unrelated company can.
I can make all the noises I like about “The Market Price”, but if *I* can’t buy from *them* at that price, it’s not *MY* market price. (c.f.: Ukraine vs Russia)
And money is fungible, whereas oil types are not.
Why is it a good idea that the poor people of Venezuela shoud subsidise the rich people of London? Hmm. I thought that when the EU complain about (e.g.) the Chinese subsidising their exports to the UK you normally — and rightly, in my view — say that if the Chinese want to use their taxpayers’ money to subsidise our shopping, it’s impolite to complain. What’s wrong with the Venezuelans’ money?
Tim adds: Indeed. I just don’t think it’s very good for the Vs.
Well from a completely mercenary point of view if Chavez is stupid enough to use his poor to subsidise London’s poor then so be it.
Upside down question on all grounds. Poor people in Venezuela will not suffer at all from cheap oil provided to London, the govt. is spending the lot in providing progressive social services and the discount will have no effect whatsoever in country’s income.
On the other hand, what you don’t like is that Venezuela’s govt. solidarity is showing all over the world that London is not at all a city “of rich people”, several hundred thousands live under the poverty line.
What pisses you is that you can no longer show off to the world as a “city of the rich”. That’s what’s aching you, and it is the reason why you put the emphasis on “Venezuela’s poor”. So better find out the way to deal with your own miseries – exactly what Ken is trying to do.
Tim adds: Sorry, run this logic by me again? The V. Govt is spending all the oil money on progressive social services. OK, got that.
If the V. Goivt sells that oil cheaply, that won’t have any impact on the amount of oil money available to pay for progressive social services?
Excuse me, but which planet are you writing in from?
john b steps on his crank again:
“Additionally, Londoners on income support are hardly rich, even by Venezuelan standards…”
That is just willfully stupid. A huge number of Venezuelans live in absolute poverty, not the bogus poverty that tying the breadline to the median wage represents. According to this set of data, 23% of the population are living on less than $1 a day.
Reducing Venezuela’s income to play gesture politics is sickening.
As far as I can see, Chavez is merely a more populist or “friend of the oppressed” type of socialist than predeccesor regimes. The rule of the upper classes in prior years was more socialistic than anything most would imagine, though it was always phobic about communists coming out of the woodwork.
My take on the “deal” for lower-than-market oil for London (and a similar offer recently to Bostonians, I think) is that it’s mostly a gesture to show Chavez’ generosity and goodwill. Others have pointed out here (and in other places) that sales of this sort, to the extent they are meaningful, actually have a negative potential for the Venezuelan people asa a whole–a diminution in revenues they’d otherwise have available.
But that’s paltry. They’ve been subsidizing to their own market for at least 30 years. By selling so cheaply in their own market (I remember 17 cents when
it was about $1.50 here), they simply encourage their own population to waste gasoline, diesel, and fuel oil and rearrange a more proper individual assignment of priorities (not to mention creating traffic jams and smog in Caracas on a scale that would have to be seen to be believed).
When I was last there (1980), it took only 12 Bs (Venezuelan Bolivar unit) to equal $1, a rate reflecting inflation even at that time; now it’s some astounding multiple worse, though I forget whether it was 1200 or 12000 (hardly seems to matter when things get so far out of hand).
Prognosis: more of the same.
And, john b., Mr. Gillies is correct: you wouldn’t even talk as you do if you’d seen the common poverty there. People live in “barrios” of ramshackle shacks (of whatever they can salvage0 precariously perched in mountainside arroyos high above the city. Mostly built on mud, they wash down the hillside in hard rains and the sewage runs in the open in mud gutters. And, speaking of sewage, the systems are none too reliable even in the “regular” parts of Caracas; it’s routine for many not to flush their dirtied toilet paper (for fear of clogging) but to put it in a trash can placed nearby.
David Gillies & gene berman:
I fail to see the justification for attacking john b. for making a fairly simple observation. And I particularly fail to see that presenting an emotional shock-horror reaction to a different environment counts as an argument.
I would suggest both of you need to actually visit a couple of these towns and actually talk to a few of the locals. I would suggest you also do a bit less of the “shock horror” when you run across history, habits, and preferences which differ from your own and a bit more investigation.
In particular, claiming “absolute poverty” then declaring as proof a relative measure (simplistic currency conversion regardless of PPP) is a SERIOUS misuse of statistics, amounting to deliberate deception. By your measure, an Australian professional in a 3 bedroom house on an eighth of an acre is eligible for income support. If you don’t understand what purchasing power means, attacking john b. for bringing it up is wholly inappropriate.
And virtually all South American sewerage systems are incapable of coping with toilet paper — it’s not that they are not reliable –they ARE reliable– but that they lack the capacity to cope with what was only a Western habit at the time the meme of public utilities arose & was implemented there. So the extra capacity was not designed in. Clearly, with the benefit of hindsight, now that toilet paper has been adopted, that was a bad call. But it was an historical design choice, not a modern hand-wringing sign of woeful poverty and oppression.
Whether you like it or not, the people living in Venezuela’s shanty towns have a lifestyle very similar to the UK’s poor. They eat much better than the UK’s poor (though red meat is relatively more expensive), they can buy better clothes with a smaller proportion of their takehome pay, and they have a similar number and type of consumer electronics. On the other hand, the UK’s poor has SIGNIFICANTLY better public services, primarily non-varying (high-quality) electricity, non-varying high-quality house-to-house water, strict building codes, and house-to-house sewerage. However, most V’s poor can make you a cup of tea on the hob from the kitchen tap, even though they’ve had to run the tap off the communal pipe themselves.
So the primary distinction between the UK’s poor and Venezuela’s poor is that Venezuela’s public services (eg garbage collection, sewerage) and public restrictions (eg building regulations, health regulations) are far weaker.
And what is the purpose of Venezuela supplying cheap oil to London?
(Which, as I pointed out, is most likely to be wholly subsidised by car drivers and heavy industry in the USA.)
Skill-transfer to improve Venezuela’s public services and public restrictions.
Which will disproportionately benefit the poor.
David Gillies & gene berman:
I fail to see the justification for attacking john b. for making a fairly simple observation. And I particularly fail to see that presenting an emotional shock-horror reaction to a different lifestyle counts as an argument.
I would suggest both of you need to actually visit a couple of these towns and actually talk to a few of the locals. I would suggest you also do a bit less of the “shock horror” when you run across history, habits, and preferences which differ from your own.
In particular, claiming “absolute poverty” then declaring as proof a relative measure (simplistic currency conversion regardless of PPP) is a SERIOUS misuse of statistics, amounting to deliberate deception. By your measure, an Australian professional in a 3 bedroom house on an eighth of an acre is eligible for income support. If you don’t understand what purchasing power means, attacking john b. for bringing it up is wholly inappropriate.
And virtually all South American sewerage systems are incapable of coping with toilet paper — it’s not that they are not reliable –they ARE reliable– but that they lack the capacity to cope with what was only a Western habit at the time the meme of public utilities arose & was implemented there. So the extra capacity was not designed in. Clearly, with the benefit of hindsight, now that toilet paper has been adopted, that was a bad call. But it was an historical design choice, not a modern hand-wringing sign of woeful poverty and oppression.
Whether you like it or not, the people living in Venezuela’s shanty towns have a lifestyle very similar to the UK’s poor. They eat much better than the UK’s poor (though red meat is relatively more expensive), they can buy better clothes with a smaller proportion of their takehome pay, and they have a similar number and type of consumer electronics. On the other hand, the UK’s poor has SIGNIFICANTLY better public services, primarily non-varying (high-quality) electricity, non-varying high-quality house-to-house water, strict building codes, and house-to-house sewerage. However, most V’s poor can make you a cup of tea on the hob from the kitchen tap, even though they’ve had to hack the tap off the communal pipe themselves.
So the primary distinction between the UK’s poor and Venezuela’s poor is that Venezuela’s public services (eg garbage collection, sewerage) and public restrictions (eg building regulations, health regulations) are far weaker.
And what is the purpose of Venezuela supplying cheap oil to London?
(Which, as I pointed out, is most likely to be wholly subsidised by car drivers and heavy industry in the USA.)
Skill-transfer to improve Venezuela’s public services and public restrictions.
Which will disproportionately benefit the poor.
Saltation:
Three bones to pick with you:
1. I made no “attack” on john b;
2. a better example of “attack” would be
your own characterization of my
comments as “deliberate deception.”
That is a gratuitous slander, as you
are entirely unacquainted with me to
the extent necessary to impute such
offensive behavior;
3. in making the comparisons between
currencies, “statistics” are in no
way “misused”–they aren’t even used!
I simply made a rough comparison in
monetary conditions past and present.
On PPP, I was silent, for
the simple reason that my limited
direct observation was more than 25
years in the past. I don’t know what
a thorough analysis on the basis of
PPP would show–for the same reason
but am relatively confident such
result would not show the Venezuelan
condition improved in that time.
I agree with your exposition of the technical intricacies of “oil” business (what Texans call the “awl bidness”). But it is essentially misaimed; your hearers are not unacquainted, merely less technically proficient in those intricacies. The general principle remains unchanged and is summed best in one of the longest-known (and virtually unchallenged)observations in the field of Economics: the “Law of Comparative Advantage.”
Simply, the law is an observation that everyone does best maximizing production WRT market pricing. Better for both to sell in the market in which the price is highest for an amount of the other’s production. It’s not only better for each materially–it’s far simpler, as well, in part for the very non-uniformity you cite as characteristic of `petroleum types.
The exchange entertained is appalling in its idiocy. “I gots bunches of this black goop I’d rather not mess with if I can help it and I can sure use some o’ them smarts you guys are so well-known for.” That’s what he SEEMS to be saying. I may be going out on a limb here, Saltation (but with no “deliberate deception” intended, I assure), but I’m going to translate that for you (despite my only knowing enough Spanish to avoid starvation) below.
“I can do whatever I want with this shit. I never paid for it and have a different attitude from what a dirty capitalist. But I’m responsible–I got to look good, no matter how things work out. The easier it is to gauge my performance–you know, in numbers like in profit and loss, or in the equation of those things with living conditions of the masses–the more vulnerable I’ll be to criticism and maybe even loss of popularity with those masses–you can only spin ’em so much before even they get wise that I’m crooked or stupid or maybe both. This sounds perfect! No numbers a-tall. Might even sneak in stuff of lower value than they expect–they might catch it but it’ll be easy to chalk up to misunderstanding–we can throw some diplomacy around to advantage. I know they’ll send us guys short on experience and entrepreneurial savvy and long on theory and education but it’ll help replace the rats that took their money and ran to places like Florida and I won’t have to worry much about ’em criticizing me and alienating voters–or the military. Prolly a little short on Spanish, too–a good thing! When we get into unavoidable tiffs, we can work diplomacy again. What I can fall back on for security is knowing that the guys in London that hammer out the deal will be comin’ from the same sort of place as me–just not as cagey.”
Wish him luck–he’ll need it. And I don’t, not because it will be disproportionately benefit the poor but because it will disproportionately assure the continuance of poverty.
Saltation:
If there were ever a really effective mode of communication between all the peoples on Earth, especially with regard to those matters each felt impinged directly on his own material well-being, it couldn’t look much different than what we call “the market”–a real time, reality-based system in which the valuations of all are represented through their actions.
The excellence of the market system is based on the validity of the signals: it takes no account of thoughts, imagination, or ideals lofty or base; it cannot be deceived or manipulated to send false signals because it takes no account of any but values expressed in action: buying, selling, and abstention. Except for those with ability to physically compel compliance (governments, in the main), no one can manipulate the market to others’ disadvantage) without symmetrical risk of loss for himself.
The market is “normative” and “oppressive”
in only one (inescapable) respect: it conditions welfare for each participant directly and proportionately to his contribution to that others (and precisely in the opinions–valuations–of those very others). One chooses occupation freely but is forced to pay for that choice in lower remuneration had there been another more in tune with the desires of others. In truth, that is the least oppressive regime imaginable in a world in which the nature-given means of survival are constrained by scarcity. No other system–particularly none interfering with signals between participants–can deliver more all-round satisfaction of needs and desires. None can alleviate generally unsatisfactory conditions with anywhere near the reliability and efficiency and particularly with regard to those in the worst of physical and economic condition.
I’m going to occupy another, separate post with this matter–because its importance cannot be overestimated.
Saltation:
I shall have to postpone for a bit my intended remarks. That’s particularly because I believe those remarks to be potentially important to that which seems to concern you (and others): the alleviation of poverty and general melioration. My attention is, in general, to identification of the means most suited to that very end and especially to comparison with other, less-suited or even counterproductive means. My aims are in no way political except to the extent that politics influences the choice of means to the achievement of an end which I desire and which others at least profess to share.
“The margin” and “at the margin” are words frequently used by economists and those speaking of economic matters. The margin is some imaginary (and perhaps shifting) “edge” of whatever’s being discussed. “Marginal” land is that from which the yield cannot be expected to exceed in value, at market prices, those resources “input” toward production. Marginal (or submarginal) land has no value unless as something considered as a speculation for the uncertain future.But the word “marginal” can also be applied to people. In everyday parlance, those whose production is marginal cannot be employed except as charity or, anticipating that, with not-too-expensive training, their production will exceed the margin enough to render risk involved in their training a wise one.
The world has known people–often whole tribes or regions–whose people are marginal in the sense that the means of their survival (food, water, especially) are scarce to an exceptional degree. The further back in prehistory, the more likely it is that marginal existence was a more usual phenomenon and that many or all lived an existence much closer to the margin than we might now surmise; our knowledge is imperfect.
What we know is that today, marginal existence relqatively rare and is characteristic of certain groups happen caught in circumstances interfering with their productive efforts. Especially this is the case where conflicts rage and ordinary routines cannot be pursued. Some regions also, are subject to periodic but unpredictable physical events (earthquake, flood, etc). Many in parts of Africa and places like Bangladesh live so near the margin that almost any unfavorable event may cause many deaths–particularly of children unable to provide or care for themselves.
What I urge those who may read this is to bear in mind that there are actual people ALL THE TIME (though the particular people may vary) living at that very moment on the margin of continued existence. We cannot often have much influence on the conflicts which bring about these temporary but often fatal (for many) consequences but there are certain actions ion which everyone engages that actually make a difference in whether more live opr more die.
Critical to the survival of many is the specific price level in their region for those things on which life depends. What causes prices of these thing to rise, even in the short term–means death for some. Whatever causes those same prices to ebb–means survival. Whatever causes any disruption in whatever might be called the natural advantage of such people (and these do exist) interferes with prospects in the future and virtually guarantees a continuance of their marginal existence and even the creation of greater numbers of those existing close to the margin.
Thus, the subsidization of foodstuffs by the EU, the US, and others in order to furnish these products at below-market prices has vicious consequences for these very people. To the extent that some operators (farmers, herders, etc.) are deprived of the profits their successful efforts might reap (and the opportunity for the re-investment of those profits in other potentially profitable efforts), the population is maintained to that extent in a condition of dependency and the best hopes of emergence stifled. The same is true in cases where the produce of such populations fqaces discrimination (tarrif) in markets where it might otherwise be a boon, not only for themselves but even for the better-off in distant lands.
Virtually all market interference, much of which is lauded where it is practiced, is desiogned deliberately to rearrange the values and priorities of the market, favoring some few at the expense of many others, with groups vying for their particular shares of one or another favoritism. But the net effect is to make everyone poorer than otherwise. And, though we in “developed” countries are so rich that we can actually afford the diminution in our material conditions even if we might recognize that we’re all actually poorer on that account, we should also realize that our tolerance for these practices means, literally, death for many at the margin. Charity is a wonderful thing but rationality is even better.
gene berman-
only my second example referred to your own post — remember i was responding to 2 posters, not just yourself.
my currency example was referring to David Gillies’ invalid attempt to make a point re absolute poverty by using a relative measure. your own currency notes were not apparently directly related to any point you were making, other than a suggestion that the economy was weakening in the long term, so i did not comment specifically on them. so your own currency example was not the near-deceit i marked.
the remainder of your further posts i’m afraid i won’t address in detail. while your heart appears to be (very much!) in the right place, your posts show very muddled understandings of the concepts being discussed, meaning i would either have to spend days attempting to sort them out in your own head before we could even START to address them, or i could preemptively declare it more time&effort-expensive than i can justify.
sorry, but i lost my appetite for education-by-email many years ago. i’m taking option 2.
two glaring examples so you won’t think i am being a troll:
1. you declare as a “Law” a first-year-economics-student concept that exists for theoretical illustration of the o-so-important concept of the non-zero-sum game, then in seeking to show that Venezuela’s payment breaches this concept you assert (correctly) that oil is cheap for Venezuela — that Venezuela has a comparative advantage.
ie, you neatly prove that Venezuela is acting rationally within that theoretical construct of trade being beneficial if comparative advantages are exploited.
2. your understanding of “Margin” is incomplete, so i believe you may mis-read people’s usage of it in wider contexts. there are 3 main uses in financial contexts:
1. “at the margin” — the region/timing/point/circumstances of decision-making
2. “margin” — amount of profit accruing to a party
3. “marginal” — technically meaning: of the edges; but in ordinary english most often taking its meaning from farmland that has existed for a while, so that good soil has already been taken up up and to the point that it becomes uneconomic — which then becomes the boundary of the farmland. you correctly identify the most common conversational meaning, but then invalidly apply it over everything else.
eg, “Marginal Propensity to Consume” (a first-year concept so very well known) does not mean that someone’s propensity to consume is valueless, nor zero.
the key understanding intended to be drilled into economics students’ minds from the idea of Comparative Advantage is that trade can be mutually beneficial — BOTH sides can earn a margin. trade is NOT a zero-sum game. and what changes it from a zero-sum game to non-zero-sum game is the differing cost structures and demand levels for various goods across the various parties. it IS very possible for both parties to walk away from a trade with each making a clear margin higher than either could have got in the open market at the average market price.
this is the essence of crossing networks and of barter networks. and of illiquid trading — “lumpy” exchanges of value. consider that even in the truly awesomely liquid exchange-traded financial markets, block trades change hands at eye-opening discounts to “the” market price.
the marginal benefit to London is the fuel discount and reduced emissions.
the marginal cost to London, even assuming it has NO spare capacity, is of the order of £40k per person with no revenue opportunity-costs. (it thus has a tremendous comparative advantage over the more normal consultants, which charge at least 5 times that and for people WITHOUT specialist knowledge or delivery capability.)
the marginal cost to Venezuela is AT WORST the difference between market price and delivery price on a microscopic amount of oil.
the marginal benefit to Venezuela can be viewed two ways:
1. the benefit of the consulting services received: BENEFIT THE POOR.
2. if they were going to buy in consultants anyway, then they are benefitting –not only by buying them from a body with a long track record of good delivery in a public service environment of investment-constrained conditions, thus guaranteeing a much better result than if bought from the standard market providers of consulting services– but also by acquiring these services at a fraction of their normal market price: at least an 80% discount.
Venezuela’s representatives are acting as though that the marginal benefit is worth the marginal cost.
i would tend to agree.
given the near-zero-to-zero cost and the real risk/possibility of far-reaching positive upside for (only) the poverty stricken locals of Venezuela, IMHO even taking into account all the ego and corruption and sub-optimalities and ….etc. *fume*, i see this as two parties with substantial comparative advantages in a good the other party can unusually highly benefit from, allowing a materially cost-less shot at helping dramatically improve country-wide living conditions for people who won’t otherwise have this chance.
Saltation:
It’s all very well to describe comparative advantage as simply a tool for teaching first-year economics students that trade is not a zero-sum game. But it’s far more than that; had Ricardo understood it a bit better, he’d have called it “The Law of Association” and seen its operation as underlying civilization, itself. And, if he’d been inclined a bit more toward the natural sciences, he’d have noted the glimmer of similarity to evolutionary development of function of cells, tissues, and organs toward efficiency of operation.
Comparative advantage instructs whoever got it in abundant supply to specialize in furnishing it–to the market, not to whoever happened to have something they wanted at the moment (unless so close by that special-instance costs be minimized)
and would direct the English to behave likewise with regard to whatever they’ve got to sell. Money’s the stuff that not only “oils” that transaction but makes it “efficient.” I will apologize for thinking that you understand economics far less well than you think if you can contstruct any case that would run contrary to my statement–and I’ll give you a month to come up with it.
I’m quite aware of the normal applications (whether in economics, finance, or anywhere else) of the word “marginal” and insist that it’s every bit as valid in my application to existing humans in exactly the same way as it would be applied to land or anything else.
And, by the way, the real “key idea” to be taken from comparative advantage is not that trade is not zero-sum (that much is ascertainable even to the relatively dull in pre-ricardian times) What the law most clearly teaches is the value in placing emphasis, in descending order, on those outputs (for any trade participant) in which the comparative advantage is highest. It’s summed up in the phrase “buy in the cheapest market and sell in the dearest.” Another (frequently-used) illustration is of the highly-paid surgeon
hiring people to clean his instruments whom he can outperform several-fold).
My opinion stands: if the amount of oil under consideration is “microscopic,” as you aver, then very little benefit can be purchased with its cash equivalent, whether at market or below-market price.
And, as I surmised in my original, the “experts” to be furnished to turn that basket-case around are to be the ones that can’t find a job at prevailing rates–an indication, at least somewhat, of their actual worth. Chances exist that their activities may even turn out to have a negative impact–always a poosibility–not that I’m forecasting it, mind you. Enuff.
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