The Limits of Economic Analysis

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Quico says: Don’t miss this provocative article by Francisco Rodríguez in the current Foreign Policy. Key graf:

The most commonly cited statistic in defense of the Chávez-helps-the-poor hypothesis is the decrease in poverty rates, from 42.8 percent when he took office in 1999 to 33.9 percent in 2006. But this decrease is neither unprecedented nor surprising, given that the Venezuelan economy is in the midst of an economic expansion fueled by a five-fold increase in global oil prices since his first term began. Historically, drastic declines in poverty in Venezuela are associated with periods of substantial real exchange appreciation similar to the current one. The last such episode, which lasted from 1996 to 1998, coincided with an even larger decline in the poverty rate, from 64.3 percent to 43.9 percent. The fact that Venezuela is presently running a fiscal deficit despite unprecedented global oil prices signals that the current improvement, just like previous ones, will sooner or later be reversed.

I find it oddly reassuring that somebody is doing this kind of work, and doing it competently, despite all the obstacles. But I do think the piece shows the limits of economic analysis. Whether or not Chávez’s policies have actually helped the poor, what’s relevant is that the poor attribute the improvement in their living standards to what Chavez has done. That’s a fundamentally political fact based on a series of complex cultural phenomena: no amount of economic data is likely to clarify it.

And, to me, it’s the most interesting part of the story.

After all: did Caldera and Alfaro Ucero get any credit for the fall in poverty rates Rodríguez cites in 1996-98?

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