Leadership on the Gas Subsidy

Here’s a fun question to ponder: how much do Gasoline Subsidies really cost Venezuela?

Everybody knows the answer, right? With gas fetching just a few US cents a gallon, it’s a no-brainer: “a lot!”

Sure, but is that “a lot” like $6 billion a year, or “a lot” like $26 billion?

A quick Google search turns up estimates that span that range. Which is pretty crazy, really…

Let’s take Simon Romero’s Low but not Crazy-Low $9 billion estimate in the New York Times. If that’s about the right figure, it’s hard to convey just how mind-blowingly, absolutely head-spinningly crazy and impossible to justify it is.

Let’s try to put that number in perspective: Brazil has become a world leader in poverty alleviation schemes through Bolsa Familia, which hands a mere $13 per child per month to the mothers of the poorest quarter of the population.

With its much smaller population, Venezuela could afford a program with similar coverage and similar payments for about $430 million a year. (The math is simple: Venezuela has around 11 million under-18s. A quarter of that is 2.75 million. Multiply that by 13 dollars a month, then again by 12 months in the year to get to $430 mill.)

Killer Fact: $430,000,000 is just 5% of the NYT-estimated cost of the gas subsidy! One twentieth!

With the money we now waste on this fat giveaway to the middle class, we could afford Conditional Cash Transfers worth $135 a month for fully half of Venezuela’s children. That’s about Bs.580 per kid – meaning a poor mom with three kids would stand to make over Bs.1740 a month just by keeping them in school and making sure they get their health check-ups on time. Of course, until we can pin down the real cost of the gas subsidy, these numbers are speculative.

I know what you’re thinking: any proposal to do away with gas-subsidies remains politically toxic in Venezuela. That’s why Chávez still hasn’t dared to touch them.

But leadership is about making people aware of the choices they face.

A gas-subsidy-financed Bolsa Familia could eradicate child poverty in Venezuela within a couple of years. It will take a leader to make that choice clear to people: to establish the trade-off in people’s minds. Because once that linkage is made, once you show people with deeds, not words, that what they get in return for higher gas prices is a guarantee that no single child will ever grow up in extreme poverty again, you “fix the moral economy” of the gas subsidy, making its elimination politically viable on a lasting basis.

[Hat tip: Moraimag.]

Addendum: How far out of whack are Venezuela’s gas prices, in international comparison? This far out of whack:

You’d have to multiply our gas prices by a factor eighteen just to bring it into line with the second most heavily subsidized gas market in the hemisphere!

Hat tip: an accompanying post from Setty. One nifty idea in his post – on Earth Day in Brunei, people are forced to pay international prices, just to see how out of whack their regular prices are.

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