It's not just the waste, it's the opacity

It’s rare that Juan and I disagree quite as virulently about any issue as we do about the deficit, so I do intend to exploit this controversy fully. As I think more about his “hard line” against opposition populist spending pledges – insisting that any spending pledge not offset by a corresponding cut somewhere else is fiscally irresponsible – it strikes me that there are two conceptually separate reasons why that’s wrong.

The first, which I already wrote about, is that conflating core spending on priority sectors like health with plain old waste is simply wrong-headed: a bolivar spent on providing a public service is in no sense equivalent to a bolivar tossed casually into the toilet. In a country drowning in fiscal spending that destroys value rather than creating it, that’s not an idle distinction.

But the other reason – opacity – is just as important. You can’t reasonably expect the opposition to define clearly what cuts should go hand-in-hand with any spending increase in a situation where an undisclosed (but certainly large) portion of public spending is off-budget, unaudited, unaccounted for and just plain old secret.

Now, everybody knows that, for many good reasons, analogizing government spending with a family budget is problematic. But in some limited occasions, it can help illustrate key issues. I think this is one of them. What we have in Venezuela today is like a family with a dad, a mom and two kids that earns Bs.100 and spends Bs.102.

“Deficit!” you cry, “no increases without offsetting cuts!” you demand. Fine, but let’s look at the detail.

Family Spending Budget
Family Development Fund (Fondef) – 50
Booze – 15
Escort Girls – 10
Horse Track – 10
Rent – 10
Education, Clothes, Groceries, etc. – 7
Total – 102

Now note that this analogy actually softballs the extent of our opacity problem, because it at least includes a firm number for “Fondef” – even if it tells us nothing about what that 50 is spent on.

In Venezuela, it’s worse than that – it’s not just that we don’t really know how much Fonden (and the other off-budget funds) spends on what, when, it’s that we don’t even know how much money flows into them in the first place: even the balance sheets come out years late!

But set that aside for now and ask yourself this: faced with that spending budget, does it really make sense to call the mom “irresponsible” as she pressures dad to spend more on rent, education, clothes, groceries, etc.?

In normal circumstances, you would surely be right in saying that she needs to specify what other part of the budget needs to be cut to finance that higher spending, but these are not normal circumstances: dad refuses on principle account for how a massive chunk of the budget is spent!

My feeling is that, under those circumstances, mom is more than justified in saying to dad “listen, buddy, where you get the money for it is your problem: all I know is that Pepito needs new shoes for school, Juanita’s dental bills are piling up and you’re going to put up the money for it one way or another. How? I don’t know…how could I know, if you don’t tell me what you spend Fondef on!? You want to have a debate on what needs to be cut so we can finance this desperately needed spending? Great, open up the books! Until you do, all I know is that this stuff is your responsibility.”

To me, why the crazed extent of chavista off-budget spending doesn’t cause more outrage than it does is one of those enduring little mysteries of Venezuelan public life. Maybe it’s because they’ve given it a respectable sounding name like “Fonden” – the “National Development Fund” sounds reassuringly vague and bureaucratic. Maybe it’s time we started calling it what it is, la partida secreta.

When half (or is it two thirds? or one third? see, we don’t even know that!) of your spending is secret, you relieve the other side of the responsibility to discuss countervailing cuts in detail, because you deprive them of the possibility of doing so!

Para mi está clarito…