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

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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…

1 COMMENT

  1. Brilliant piece.
    I have often wondered about why they don’t discuss this or that and this is one of the topics. The possible answers are just too weird: they themselves -with a couple of exceptions- don’t know much about what transparency is or they do know but just want to let it be so that they can do the same on a lesser extent when they come to power, at least in their mind, or they are plain stupid, stupid in a way not recorded in human history.
    In any case, it’s good you call it for what it is: la partida secreta.
    Y pensar que a CAP lo sacaron por mucho menos que eso.

    • To paraphrase Keynes: “To say a country cannot afford nurses is to say it cannot afford to live.”

        • I can imagine Juan getting hold of that baby bottle while the wee child desperately tries to cling to it and Juan telling him: give-me-that-bottle-I’m-so-sorry-but-fiscal-consolidation has to start-some-where! We’ll give it back to J&J and recover some of our taxes. Every dollar counts, it’s for your future!

          • That is the socialist blackmail! What you seem to ignore though is that we are not talking about the government giving baby bottles to families. We are talking about the government giving cash. You use the cash to buy baby bottles. But let’s put the puntos sobre las ies. Suppose you had $100 of salary last year and this helped you buy 100 bottles of baby bottles. Now, a year later the accumulated inflation was 30% and you got a salary raise of 25% (for the sake of the argument let’s assume the raise is 100% effective now) with the $125 you cannot buy more than 96.15 bottles. It is a simple mathematical formula! It is not our proposal of being fiscally responsible the formula that is taking the baby bottles out of your hands. It is your formula of printing more money, and raising debt.

          • vsalomon,

            You also need to get to the point. This isn’t about baby bottles. This is about transparency. You really think it makes NO difference that tens of billions of dollars get spent off-budget, where nobody can see where they go?!

            I just think Juan is making demands of oppo politicos that would make sense in a different context. If a gringo politician or a French one demand higher spending without explaining how they would pay for it, that’s one thing: the information is out there, it’s available, and failure to cost proposals is political malpractice.

            In Venezuela, you can’t demand that spending pledges be costed because you don’t have access to the data it would take to cost them!

          • Quico,

            “In Venezuela, you can’t demand that spending pledges be costed because you don’t have access to the data it would take to cost them!”

            This is absurd. You might not have access to all the data, but a) you have access to some of it; and b) you have a pretty good guess to what they do with the money you can’t keep track of.

            Hell, let’s say the opposition said “It’s fine to raise the salaries of nurses, but if it’s done without decreasing spending in other areas, we oppose it. We want to know where the government is going to get the money for this.” If that were the case, I would not be saying what I’m saying. That would, indeed, be a responsible position.

            But that’s not what happened. The opposition’s message has basically been “It’s not enough, the government needs to spend more.” *That* is reprehensible.

          • What you don’t see, Salomon, is that while you are discussing about the potentials for more bottles for the $100 we know the government is putting billions, billions of dollars into a blackbox and we know a lot of that goes to Boliburgués pockets, to weapon companies, to useful idiots, to Ortega, to the Castros, etc.

            We also know those mothers feel now the need for the bottles.

            You want to discuss very loud how to optimize the baby bottle purchase from those $100, you consider that is more important than carrying out a thorough campaign to demand transparency on the billions. It’s a matter of priorities.

          • “You really think it makes NO difference that tens of billions of dollars get spent off-budget, where nobody can see where they go?”

            Of course! It makes a difference. I didn’t know that the controversy in the post was about demanding transparency, for which everyone should be on the same boat. I believe the controversy is that on one hand we have a big government that spents irresponsibly (and yes they should be more transparent on that) and on the other hand we have an opposition asking the government to spent even more irresponsibly. But that’s my point of view.

        • Well, ok, but at some point you do need to address the main point: massive off-budget spending makes NO difference to your stance? You just think it’s irrelevant? How, exactly?

          • The opacity in government spending shouldn’t give the opposition carte blanche to applaud whatever extra spending occurs. You think it does.

            There’s really no more to discuss.

          • The fact of a deficit (arising from secret/wasteful spending) does not give the government carte blanche to default on core social responsibilities.

            There’s really no more to discuss.

          • “The fact of a deficit (arising from secret/wasteful spending) does not give the government carte blanche to default on core social responsibilities.”

            Indeed! You believe in never-ending deficits as long as they are spent on nurses and children and puppies and bunnies, I don’t. End of story!

            I have to say, this was a very productive discussion.

          • Juan,

            It’s correct we need to demand financial common sense but: if you have to choose between carrying out a huge campaign until the election time about

            “Fonden no es un fondo de desarrollo, Chávez le da al pueblo migajas. El pueblo exige al gobierno probar cada centavo que gasta en ese Fonden YA. El que nada debe, nada teme. La partida secreta de Carlos ANdrés Pérez era una alcancía comparada con la de Chávez”

            and discussing about fiscal responsibility for one of the least wasted “wastes”, please tell me what is your priority.

            Don’t come with “we can do it all at the same time”.

    • We’ve been on our way to bankrupcy for quite a while now without following this post’s dictum… and long before the pay rise for the nurses was announced.

  2. Quico, I don’t see a controversy, just Juan making an incorrect assumption: that a suggestion to spend more on one thing implies no cuts on other things. Using Juan’s logic, we can assume from his mention that the opposition should be stating where the cuts should come from, that his lack of mention implies that the opposition shouldn’t be doing anything else; so Juan agrees with civilian militias, militarized education, expropriations, etc..

      • Juan, I didn’t address to you for the very reason you demonstrate: once you get emotionally involved, you stop reading. My point is precisely that you *don’t* agree with those things, and that it is ridiculous to assume that you do just because you make no mention of them. Similarly, it is ridiculous that you assume that that the opposition supports greater deficit just because they don’t mention where the cuts should come from.

        Shildeesh, right back at you.

  3. On this one, I radically support Juan C and I disagree with how Quico dismisses Juan’s argument by saying “you are saying family mom is irresponsible” while he never said that. Irresponsible is the government for using the money printing machine, potential tax increases, and debt issues to cover the deficit. Irresponsible is the opposition for asking the government to print more money, to issue more debt, and to increase the taxes even more so they can pay 40% instead of 25%. Either way the result of this formula have been, is and will always be the same: Venezuela the number 1 country in the world in inflation rates, not only in la 5ta but also in the 4ta republica.

  4. I’m sorry Quico but Juan is right. Any politician making promises and not explaining where the money to fullfil those promises will come from, is plainly otro demagogo más.
    De promesas electorales están llenas las campañas políticas…

      • Quico, for what it’s worth I’m on your side on this.

        It may be that your post sort of conflates two separate issues into one, the incumbent’s ‘secret fund’ and the opposition’s position to increase spending.

        Even if whatever increases in spending (for the “common good”) the opposition is hawking isn’t precisely framed in the context of guns vs. butter, I don’t think they’re being “irresponsible” at all. I figure everyone can intuit what needs to be cut in order to provide more for el pueblo.

        The fact that nobody knows how much is going in and out of Chavez’s “mad money” fund is a different issue, but it certainly shouldn’t hamstring the opposition from making proposals that might resonate with the folks they’re targeting (e.g. soft chavistas and ni-ni’s).

        I mean, what are they supposed to do? Wait until after they win an election so they can open the books to see where they’re at before they can figure out what can be cut from where to pay for their promises?

        Sorry in advance if I’ve misinterpreted the post and the ensuing comments.

  5. I wouldn’t fault the opposition for trying to make the government look cheap with their raises.

    What is surprising is the lack “donde estan los reales” type messaging. They should keep piling suspicion on the bendito FONDEN (& the other mystery funds) until the cows come home.

    Kepler said “…they got CAP for a lot less”. Goddam right, Kepler!

    If I were controlling the oppo message I’d try to make Chavez look worse than CAP.

  6. The Fonden “budget” reports remind me of something I heard from a Latino on how they do business in one specific country (and probably more). Businessmen have four total sets of books. In decreasing order of total profit, they are: the real ones, the ones he shows his wife (so he has a way to hide money spent on the mistress/es), the ones he shows his partner (so the partner doesn’t know he’s getting cheated out of his due share of profits), and the set for the tax authority (if you don’t know why…I’m worried for you).

    I think published Fonden budgets are analagous to either the third or probably the fourth set. What they’re reporting as money going in (and out) falls well short of the true amounts, and it’s because they’re cheating somebody (many somebodies) out of the rest.

  7. Problem is, the “Mom”, when she had control, maybe was not that opaque because she did not have so many things to hide… But she was not that behind “Daddy” in spending the family into debt and into the ground.

    Populism is wrong. Consistently spending more than the State’s intake and producing money from nowhere to cover up, or incurring untenable debt, is W.R.O.N.G.

    The results for Venezuela are at hand.

  8. Its the kids I worry about. They are bein spoiled and robbed of their support money, inheritance, etc. and by the time they find out what has happened the parents will be gone or dead.

    One visit to the metro offices by an oppo diputado, asking around the project overruns, clearly falls into idiocy, when half the national budget is not accounted for…

    Has anyone made an excersise into framing the amount of oil money being embezzled and comparing it to investment budgets elsewhere…Think UAE, Norway, Canada

  9. I really don’t understand “the controversy”.
    The way I see it there are good spendings and bad spendings and they are basically independent. To keep the budget balanced each spending should be evaluated individually and prioritized accordingly, those at the bottom of the list past the deficit line should be cut. It makes no sense for opposition to criticize new spending if it is good spending (fair salary for nurses, teachers, electric system maintenance) just because there is a deficit, just as it makes no sense not to criticize bad spending (Migs, Dragunovs, houses in Benin, unproductive workers, new ministries, Alo Presidente, change the name of the country, Pudreval, expropriations) just because there is enough money. Opposition should always support new spending if it is good spending and should always be opposed to bad spending regardless of if it’s deficitary or not.
    In other words the discussion of the merit of new spending and the balancing of the budget are separate discussions. There cannot be a freeze on new good spending just because there is a deficit, instead the freeze must be imposed on old bad spending at the bottom of the priority list.

    • Put another way, you cannot wage the good fight of balance budget against the nurses they are the victims not the culprits.

    • There’s another fact in play that affects not only nurses or government employees but everyone else.

      Venezuelan governments of the petrostate era, when faced with a lack of money, have printed new money, incurred new debt, etc, etc…

      Inflation gets intractable and the economy becomes a sort of continuous “sauve qui peut”. In such a situation, there’s no way for anyone employed and with a modest salary to make a living, save, or think of retirement. There’s only room to complain, ever louder. That does half-solve things if you get a raise, until next year or whereabouts. That’s simply NO way to live.

      The State goes under too.

  10. The paycheck and the working hours of nurses in relatively affluent Central European countries actually differs a lot. In Sweden, Denmark, Switzerland and UK they get much more money and work less hours than in Germany or Austria. I see no reason why a Latinamerican can’t pay a bit more than its neighbours.
    Of course a Government has to balance its budget, so they have to cut elsewhere or generate more inflow, which is pretty obvious but often forgotten. If Chávez won’t cut spending for weird stuff this probably means more inflation. It all depends on the elasticity of weird-spending by Chávez when facing budget constraints or some such. The elasticity may be close to zero or higher, who knows…

  11. Hold on: Many people here are equating the Welfare State (in its many incarnations) to Deficit-driven Populism. That’s not necessarily true, and it wasn’t even the case in Venezuela (not all the time, at least).

    The reason why this government needs to issue IOUs every fortnight is not the fact that it is a Welfare State, is the fact that is a Welfare State, which has a number of Clientele States under him, and which also runs its own finances with opacity and -it seems- disorganization.

    So, since the opposition is not against a sensible welfare State (which could in itself be arguable, I know), they do not attack the entitlements, but rather the general mishandling of the economy that create the need for such unplanned and even capricious increases. It is not necessary to uphold fiscal responsibility and also dismantling Social entitlements: you can have it both ways, if you do it well. It’s only a lot more demanding on your priorities and your management (especially if you add the pressure of perceived rights and public opinion; but Democracy is like that).

    Quico is not calling for fiscal irresponsibility, nor is Juan C. calling for murdering orphans…

    • Of course they are not equal.

      The Welfare States that work do try to maintain reasonable debt levels, along with stable currencies and low inflation. Else, everything they might do in the welfare and assistance area is completely USELESS, except in the shortest of terms.

      They are also under the constraints imposed by democracy and the sense of entitlements of their own citizens, who might at times react emotionally rather than try to estimate the numbers involved.

      The underlying principle for this discussion should be that fiscal stability is indispensable to the workings of any government that is effective, presiding over a sane economy, and that it is a necessary condition for salaried people in that country to have a decent life. Unless the government renounces its means of intervention on the national economy; particularly having a national currency and having a Central Bank.

      Else, as happens in Deficit Driven Populism and in Venezuela, you can give the nurses and every government or private sector employee all the raises you want every week, every day if you like. It will NOT benefit them except for the first month after the raise when they can go and buy something they had put off, and will probably worsen their situation when inflation eats up their raises. Repeat the vicious cycle enough, and first they might put off buying homes, later, they put off buying food because they get poorer and poorer.

      • That is absolutely true. And that is why transparency and a set of common -and not far-fetched- spending and investment priorities are of the essence.

        • In a sense, discussing financial responsibility around Venezuela’s present and former governments is like discussing healthy drinking/eating habits and personal economy around the mutinous pirates of Treasure Island fame. And I am beginning to feel like Dr. Livesey, in telling who things actually stand for them.

  12. The issues are not as important as the impact that information has on the voting public. The voting public, as I understand psychology, are divided among to extremes”

    1. The Source-Oriented, or those who evaluate information according to their feelings about who is communicating the information, and whether they are worthy of trust.

    2. The Content-Oriented, or those who evaluate information according to its content, and whether it conflicts with what they already believe to be true.

    Most people are a combination of the two extremes.

    In either extreme, I think it is very difficult for opposition to persuade loyalists of anything. The facts won’t do it.

  13. One follow-up. It is very very frustrating to see constant the lies, fraud and deceit from Chavez, but there is one possible good outcome. Chavez will indeed eventually fall, and when he does it will divide the public into two groups: (1) the “disillusioned” who will have proven themselves to be “fools” and will be in a state of disgrace and depression, and (2) the “redeemed” who will have proven themselves to be “right” all along and will be in a state of redemption and restored honor.

    Make sure which side you and others will wind up in. One thing is certain, Chavismo is going to self-destruct! Make sure you are on the right side of history.

  14. … And hopefully we also get groups like:
    The ones that use all the remaining power of the state to neutralize the incumbent chavistas, full of cash, going around trying to torpedo all efforts to reunity the nation,
    The ones that get accused and judged and indicted and imprisioned,
    The ones that learn a little lesson or two about the provervial free ride,
    The ones that , new to power, want to, and do go ahead with fundamental changes to the petrostate model, and not just a new round of quitate tu pa ponerme yo…
    “sigh”

  15. It’s telling that you’ll rarely (never?) hear Venezuelan voters worry about where the money for social spending could come from. This is not just about oil revenue. It’s because they know, deep in their bones, without ever having seen a breakdown of Fonden expenditures, that zillions are being wasted on Libyan delegations and red shirts and making “friends” abroad and gross mismanagement and….the list goes on.

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