Math Fail

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So, according to El Mundo, Venezuela spends some $3 million per day on diesel for electrical generation, since 200,000 barrels of the stuff is being devoted to thermoelectric plants every day.

Right.

Now, let’s puzzle this one through. Crude oil prices are over $80 a barrel now, and diesel – a refined product – obviously trades at a premium to crude oil. Closer to $100 a barrel, in fact. So, in terms of opportunity costs, we’re really talking something closer to $20 million a day, not $3, spent on Diesel generation.

If, as a matter of accounting, Corpoelec is paying just $3 million a day for its 200,000 barrels, all that means is that PDVSA is selling them fuel at $15 a barrel – an 85% discount from the international price. This entire dynamic seems to escape El Mundo’s intrepid reporter Erika Hidalgo López altogether. The whole notion that the price PDVSA charges Corpoelec might be entirely fictional, or different from prices abroad, and that that might have an impact on her story just never occurred to her. The real scandal here – the insane scale of PDVSA implicit diesel subsidy – is right under her nose, but she never sees it.

Why bother? $3 million seemed like a big number. Big enough for her purposes, anyway. She went with it.

I’ve said it before and I’ll say it again: while rampaging innumeracy on this scale is certainly sad coming from a supposed business reporter, there’s something much bigger at play here. It’s not that Ms. Hidalgo López flubbed this piece so badly that gets me, it’s that none of her higher ups caught it.

It’s supposed to be a business paper, ferchrissake!

Update: One perceptive reader thinks I had a fail fail:

The problem you’re pointing out is not the math. “It’s Economics, stupid!” See, the reporter fails to come up with the right figure of $20 million a day because she fails to understand one of the most important concepts in Economics. She doesn’t understand the concept of Opportunity Cost! If she fails to see that, then it’s impossible for her to come up with the formula 200,000 barrels/day x $100 = 20,000,000 dollars/day. That’s really the problem not the math.

1 COMMENT

  1. Sadly, Venezuela newspapers have never characterized themselves as investigation newspapers, right? With this one, I can put a dozen of other articles that really exposed a little bit of “looseness” in journalism.

    On the other hand, really? $15/ barrel? I am not asking that PDVSA makes the biggest revenues selling diesel to CORPOELEC, and I know for most of Venezuelans talking about expensive fuels is a difficult talk, but come on, every time that read something like this I can of understand why PDVSA is so immerse in debt

  2. The fact that only CC seems to notice this kind of stuff, and is the only one outraged at this catastrophic failure of analysis just goes to show what Kep always rants about, our level of education. No one seems to pay attention, and the ones that do, those very few, don´t even freaking notice that anything is wrong with this article. But the ones that should really burn in hell for all eternity are those that pay attention, notice that something doesn´t add up and then just do nothing. These people will -or should- end up in Dante´s ninth circle of hell.

  3. Francisco, send this post to the El Mundo blokes. You would be doing them a big favour.

    I don’t know what is in the journalists’ mind in Venezuela when they decide to become “specialist” in some domain. “A mí me gusta escribir sobre X”?

      • from Francisco Toro
        to olugo@cadena-capriles.com
        date Fri, Sep 30, 2011 at 10:20 AM
        subject Costo de Oportunidad del Diesel para generación eléctrica
        mailed-by gmail.com
        hide details 10:20 AM (0 minutes ago)

        Hola Omar,

        No nos conocemos pero me dicen que debo contactarte es a ti.

        En mi blog, CaracasChronicles.com, estamos un poco consternados con la nota de Erika Hidalgo López sobre el diesel para las plantas eléctricas. La discusión se da aquí: http://caracaschronicles.com/2011/09/29/math-fail/

        En dos platos, si el barril de petróleo está a $80 y el Diesel normalmente se vende por un 15-20% más que el petróleo, ¿cómo nos van a decir que 200,000 barriles de Diesel cuestan $3 millones?!

        Parece que la nota toma el precio subsidiado que le da PDVSA a Corpoelec y lo toma como bueno. En realidad, el costo de oportunidad del subsidio es como 6 veces mayor al que sale en la nota. ¿No?

        Un saludo,
        Francisco Toro
        CaracasChronicles.com

  4. Totally agree. The education of a journalist is abysmal when it comes to numbers. I studied Journalism and we only had 1 subject in 5 years that was about statistics and so badly designed that it was really useless. When I did my MBA I realized how terrible my math was, but it was a deficiency I had since primary school and high school (Kepler’s rant applies here too, our education is really bad, but the math teachers were the worst of the lot) by the time I got to University I had a strong humanistic bias and University just reinforced it. It’s like people thought that because we were going to write we dindn’t need to understand basic math. I confess I was embarrased when I realized how bad I was with numbers. And I am not sure I have gotten much better but at least I can ask the right questions and look at numbers and follow the logic of what is being said.
    For me the solution is to change the model for journalism schools, a journalist should be an expert on the field that learns to write and communicate to a broader audience in clear terms and learns about what constitutes news and all that goes into it. I should not be the way it is now where you learn the techniques and then go to report about issues you know very little of and therefore can’t ask the right questions. There is a saying that goes: a journalist has an ocean of knowledge but that ocean has an inch of depth.

    • (primary school and high school) math teachers were the worst of the lot

      A few years ago, a study was done on this, in the US, I think, as a way to understand why female students were traditionally weaker in math than the males. It was found that the math skills (of mostly female teachers) was poor. All teachers learn is the pedagogy of how to teach a subject. So their pedagogical skills in teaching math may be ok, but the fundamental love of the subject – a precursor for transmitting that enjoyment to students – just ain’t there.

      • “… but the fundamental love of the subject – a precursor for transmitting that enjoyment to students – just ain’t there.”

        Even though all my life I attended private schools, this was a consistent attitude in math teachers. No wonder almost everyone, ended up disliking the subject. Something of the sort could also be said about the other sciences’ teachers, although to a lesser extent.

        The problem is that without a sufficient quantity of people being interested in pursuing careers in science and technology, the economic prospects of a country are really dismal. But in Venezuela, everyone wants to be a journalist, psychologist, or something of the sort.

        • ditto and agree. it’s a vicious cycle. If there’s a scarcity of teachers that are keen on a given subject, a whole swath of students (barring the minority of self-motivated youngters), go wanting in the building blocks of maths (and sciences). Year after year. And building blocks they are! For as a student, if you miss a step along the way because you are unable to comprehend, then another mis-step is sure to follow. After a few more of these mis-steps, you can pretty well kiss goodbye a career, heavy in quantitative skills.

          A few decades ago, I had the opportunity to study business at a post-grad level – at McGill – heavy with engineering students. I realized I was deficient in maths. So, I took a breather from the quantitative subjects to retrench at another (and in my expeirience, less challenging) university in town. And when I say retrench, I mean, deeply, all the way to intermed. algebra. My savior was an elderly math prof by the name of Dr. Saul Pasen. Like a grandfather, he really wanted his students to understand, as he practically spoon fed the information. I was amazed by the variance between my performance and that of much earlier times. Took a few more math courses — both pure and “maths for business”. I was on a roll.

          I often wonder what might have been if Dr. Pasen, or someone like that, had taught me math in grade school.

          Sound building blocks. So important.

    • I agree with you Moraima, but to go back to FT’s general point regarding the math illiteracy of many of the Venezuelan journalists, the problem is much worse than that. My 9 year old daughter can figure out many of the mistakes they commonly make. In many cases it’s a freaggin’ multiplication! We are not talking about Weibull distributions or partial differential equations; we are talking about addition and multiplication! It’s grade 2 math.

      For the particular case that concerns us today, we know that the Venezuelan government subsidizes fuels, so the opportunity cost calculated on the base of the subsidised price of fuel oil is simply absurd. You’d think that an economy reporter should know better. On the other hand (let me take the devil’s advocate position here), we should give Erika the opportunity to defend herself. In times of widespread self censorship, Erika must have calculated the actual figures and then pondered the possibility of a furious response from Izarra or any of the other henchmen accusing the newspaper of “reporting false numbers to manipulate the population”. Perhaps Erika is smarter than what we think.

    • And the solution is so painstaking that few would dare to really start.

      Firstly we need to explain how horribly low the levels are and state how incompetent the vast majority of teachers are. But who is going to do that? People will tell you you are exagerating, if you are not specific enough people will say “I know, I know, education, we need more education, more schools”, same crap as anyone is saying.

      One of the teachers who has been responsible for the Cematec and other projects on mathematics in Venezuela told me there was a national study at the Min. Educ (1998). The results were so terrible they didn’t know what to do with that (!), they just filed the whole thing. Apparently no one was interested in taking the political responsability or doing the right PR about the situation. As I mentioned a zillion times, Venezuela also took part in 2 other evaluation projects in 1998 – at international level – and the average Venezuelan pupils came out as the very last of the worst.
      There are, thus, some people who know about the issue, but they do not even want to be the messangers.

      • The solution is not so painstaking. It’s painstaking if you try to attack the problem head on.

        If education is so valuable, why aren’t the educated getting much more ahead of the non educated in society? Quite simply because the system is stacked in favor of other attributes. The key is to change the social system so that it rewards people more for being educated than it does for being vivos, or connected, or charismatic, or cute, etc.. And that begins by getting rid of the Petro-state model. But that seems like it will only happen when a leader decides to use his power to reduce his own power, as well as the power of every other leader that follows him.

  5. Quico, the problem you’re pointing out is not the math. “It’s Economics, stupid!” See, the reporter fails to come up with the right figure of $20 million a day because she fails to understand one of the most important concepts in Economics. She doesn’t understand the concept of Opportunity Cost! If she fails to see that, then it’s impossible for her to come up with the formula 200,000 barrels/day x $100 = 20,000,000 dollars/day. That’s really the problem not the math.

    • It is not. The problem is the math. No math, no economics, no nothing. Math and writing/reading skills are the Alfa and Omega.

      These people as most people in Venezuela did not get even that. I wonder if you have seen the average basic school from inside in Venezuela.

      With a bit of common sense (no economy studies in political “sciences” or economic “sciences”) AND math you can easily grasp the concept of opportunity cost…no Economics 101 needed…but only if.

      • Yes, it is! Math is just a tool, a fundamental too, of course. However, concepts in economics such as opportunity costs, sunk costs, and others, are abstract concepts that have nothing to do with math. I’m not saying that we cannot express or define those concepts in math language. Of course we can, but all math can do for us is to allow us to define them in a very precise way. Once we do that we can “play” with those concepts as much as we want. In other words, math allows us to follow logical steps and reach logically consistent conclusions like the one the reporter failed to get (and Quico cleverly reached). With math alone you can’t reach that conclusion. You need to know the concept of opportunity cost, even if it’s only intuitively. Of course, if you know no math, even if you have an idea what opportunity cost means, then it will very hard to come up with the right conclusion. Since in this case the math involved is sooooo basic (it’s just a freaking multiplication), we can rule out that the math is the problem. Then, it must be Economics!!!!

        • Actually: what we mean is not so far. Math is not just about performing some mechanic calculations but about analysis and that is where our system and our society fails so badly. Economists may actually know all those things and yet fail to foresee the most foreseable because they lack numerical analytical thinking.

          Most bachilleres in Venezuela would know how to calculate some basic areas. Still, if you put them a very stupid problem where they have to figure out the area of some “weird” object (by weird: they don’t know the formula but have to simply calculate the area of some other objects and substract here or there, just figure things out) , most Venezuelan 15-year olds will fail.

          Why? Someone said it already: Venezuelans are trained to do more rote learning, math teachers are pretty bad, there is an incredible stress on the form – not even on formal knowledge but on the most stupid form. I remember in bachillerato in many cases teachers would focus on whether your work had “one and a half lines space” and “blue folder, don’t give me a brown folder, I won’t accept it and you will have 0”.
          Math teachers may usually not ask for blue folders but they would hardly last for 3 months, most were not much better at analytical thinking.

  6. OIL CONFUCIONISM:
    Things are very suspiciously confused in oil numbers, and I would like to state following facts:
    a)Since may 2010, Venezuelan oil came from 8-10$/bbl under WTI to almost Brent price .Como asi?…Just for making the paraphrased barrel greater or equal to the FONDEN low limit and make people happy with a “whithe lie”…
    b)Somebody said that the Chinese sold Venezuelan diesel at 5$/bbl last year…
    c)Before CORPOELEC shallowed EDC they payed full international prices for fuels and bunkers, the thereafter they had a subsidy. Or not?…
    So if b) is true and c) is true the girl is right, it have to be around 3$/BBL for Chinese entrepreneurs, an that´s about what PDVSA is not making on fuel…

  7. The issue here is not even math. We are talking about a simple multiplication (number of barrels consumed per day times price of barrel), which can be done by a 4th grader. The issue is critical thinking. That is, when one hears a figure, does it make sense? Notice that the reporter quoted the union president. She then researched the number of barrels consumed daily. So, knowing the price of a barrel, she could have checked if the figure cited made sense.

    While I do not disagree that education in Venezuela may be poor, I should say that I see this kind of stuf on a daily basis in university students in the US. And I am not teaching at some podon school. I teach a place that is ranked among the top 2% of US schools. Critical thinking is a scarce commodity in most places in the world.

    • That’s exactly right. It didn’t even occur to her to check if what she was reporting made sense at all. First, she gets the figures from some union guy, who evidently doesn’t know what the hell he is talking about when he implies that the country is spending a lot of cash in Diesel fuel, when in fact that is not the case, quite the contrary. It is PDVSA which is losing a lot of money selling the Diesel at a steep discount. Then, she fails to get things in perspective. It was easy to figure out that $15 per barrel of diesel is an impossible figure, because it does not make financial sense. Had she realized that, she could have simply found out the real price and concluded that diesel is in fact being heavily subsidized, and is PDVSA the one losing money.

  8. Let me take the devil’s advocate position . We should give Erika the opportunity to defend herself. In times of widespread self censorship, Erika must have calculated the actual figures and then pondered the possibility of a furious response from Izarra or any of the other henchmen accusing the newspaper of “reporting false numbers to manipulate the population”. Perhaps Erika is smarter than what we think. Para muestra un boton:
    http://www.noticias24.com/actualidad/noticia/328086/en-video-polemica-discusion-entre-andreina-flores-chavez-e-izarra/

  9. Critical thinking is an art one can master after being educated in the home, in the shool and in the street. It becomes second nature and you exercise it with out “thinkin’ ” about it…

    Now to the topic of the post, The economic issue here is not only pure opportunity costs, but also could deal on a discussiion on trnasfer pricing. PEDVSA decidins to share some of OC via the subsisies it applies to the invoices price to corpoelec and other internal clients.

    This TP policy could well be a convenient one if defined at a higher optimization level.

    Anyways, the real problem with investing in education is that the return horizon is larger thatn the next re-election, thus, politically irrelevant. It must be a Politica de Estao and not a Politica de Gobierno. Enough said.

  10. BTW Quico, speaking of numerical estimates, a while back there were discussions about how much it cost to produce a barrel of Orinoco heavy crude and the number $4 came up. Later Setty wrote about it. This is my comment on his site:

    $4 sounds incredibly low to me. To give you an example, the Cerro Negro Project produces 120,000 barrels a day at $100 a barrel, we are talking “profits” of US$ 4 billion a year for that project alone. The original cost was US$ 1.9 billion. I dont think ExxonMobil would be asking for only US$ 7 billion if these numbers were correct.

    • 1 USD/day/person gets rid of critical poverty. Double that and you’ve eliminated poverty, by definition, while reducing inequality, linearly.

  11. Long before Adam Smith wrote the “The Wealth of Nations”, circa 100 B.C., a Syrian ex-slave living in Rome, wrote a truism that still seems to escape the vast majority in the world today, “Everything is worth what its purchaser will pay for it.” Which is to say that the “cost” of an item is not its “value”. It is surprising that, 2,100 years later, this concept is still so poorly understood.

  12. Here is a good lesson in math: If we are talking about the price of diesel being reported being off by more than 6 times the actual price, then we should look at the cost of oil spills. The clean up of an oil spill is in the order of 10’s of thousands of times more than what might have been saved by cutting safety procedures. Chavismo doesn’t care too much about spills, but there’s going to be a huge price to pay someday.

  13. Quico, first of all, I agree with the comment that this is not a Math problem. The journalist knows how to multiply.

    Second, I point out that she is just REPORTING what someone else said. She is not reporting on an investigation or doing an analysis. It is a simple report. So I think that your criticism is not focused on the right person, you should have criticized the guy that is making the statement.

    Third, you assume that the report is wrong because instead of using the international prices, she (or he, the guy who made the statement) is using the subsidized price. Now, is that SO WRONG after all?

    Let’s see. If you fill up your tank in Caracas. Would you say that it costs you 5$ (or whatever is the cost of gas in CCS) or 70$ (what you’d pay here in Montreal) or 90$ (what would be paid in Italy) or use instead the US price? I think you’d probably use the actual cost of bolivares translated to dollars, even if there is a HUGE subsidy hidden in that price.

    • I take your point, Bruni, but I suppose what I’m saying is that I question this entire mode of reporting, where you put a microphone in somebody’s face and if they say “the sun rises in the West” you just dutifully go and write down “the sun rises in the west” in your report without realizing that it’s your duty to clue your reader in that the sun definitely does NOT rise in the west.

      I understand that this kind of stenography is widely accepted as legitimate journalism in Venezuela. And that’s precisely what I’m questioning.

      Because, really, the journalist-as-stenographer serves the sources’ interests. But a journalist’s job is never to serve the source’s interest. It’s to serve the reader’s interest. And in mindlessly transcribing crazy numbers, a journalist does a disservice to her readers.

      ¿no?

    • But I do accept it’s not a “math” problem in that the journo probably does “know how to do multiplication.”

      It’s a numeracy problem – it’s about having a seat-of-your-pants sense for what’s a crazy number and what’s a reasonable number, about the fact that the 200,000 barrels figure together with the $3 million figure never made her even curious enough to divide and see if what came out was a crazy number, because I guess she doesn’t have the tools to see that kind of manipulation of numbers as part of her job, as a tool at her disposal, as something that might help her to do her job better or to enlighten her readers in any way.

      So yeah, I think “Numeracy Fail” would have been a better title. The problem isn’t that she can’t do math, the problem is that she can’t integrate the maths she probably does know into an analysis of the world.

      And that problem is, if you ask me, extremely widespread.

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