Localizing the Crazy that Matters

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seek-alternate-reality1-300x300So (in between changing diapers) I’ve been thinking through why Omar’s latest blog post grabbed me so powerfully. (If you haven’t read it yet, go rectify that now before going on with this post.) And I think I’ve figured it out: what’s so valuable about it is that it brings analytical precision to an intellectual exercise we – and I’m very much guilty as charged here – tend to approach with real laziness: the effort to differentiate the crazy that matters from the crazy that’s just noise.

Here’s what I mean: given the tsunami of crazy Venezuelans have been living in for the last 15 years, there’s a strong tendency – a lazy tendency – to lump it all together in one big bucket marked “crazy” and be done with it. Why is the country going to shit, the economy in chaos, the social fabric in tatters? Why are cheap plasma screens easier to find than milk? What’s gone wrong? The answer, really, is all too obvious: the guys running the show are crazy!

But the Bolivian experience makes a powerful counterpoint to that. Bolivia proves that not all types of governing crazy are equal.

It’s almost a natural experiment, with Bolivia serving as a control case for what happens if you keep all the rhetorical crazy – the trasnochao rhetoric, the histrionic anti-imperialism, the nutty posturing, the for-the-gallery indigenism, the superheated paja-mental resource nationalism, the senseless expropriations and from-the-gut contempt for the wealthy – in fact the panoply of chavista looney-tunes ultraleftism virtually whole, but carve out a tiny little space for sanity in a little box marked “fiscal policy” and “monetary policy”. What happens then?

Well, Bolivia may be throwing away its long-run future for all I know, but what it’s not doing is generating that special kind of social-fabric corroding chaos that only a badly out-of-what macro framework can bring out. Its micro-policy environment may score any number of own-goals on the country, it may leave it worse governed and poorer than it could and should be, but those kinds of policy mistakes will not and cannot set off the all-encompassing chaos that is Venezuela’s new normal.

Because, in the end, what Omar’s post brings out so powerfully is that macroeconomic chaos is not the plural of bad micro policies.

That’s why it’s crucial Venezuelans think through the Bolivian case.

Because ask 100 opposition minded opinion leaders right now the top-3 causes for the economic chaos we face today, and you’ll hear lots about CADIVI, lots about price controls, lots about authoritarianism and the collapse of the rule of law and a generalized official contempt for private enterprise, but you’ll be lucky to find more than 2 or 3 who’ll mention out of control budget deficits and runaway money creation by a captured Central Bank. Turns out we’re obsessed with the crazy that doesn’t matter.

A counterfactual or two can help sharpen this point.

Take CADIVI. It’s obviously terrible policy. But what is it that makes it so destructive? Well, imagine how CADIVI might play out in an alternate universe where Venezuela never ran a budget deficit in a high oil year and BCV successfully kept the lid on inflation. In that universe, all the CADIVI-crazy in the world couldn’t generate the massive and destructive misalignment between the fixed official rate and a parallel street rate, because there wouldn’t be any reason for the parallel rate to climb. CADIVI is dumb policy, for sure, but what makes it destructive isn’t its CADIVI-ness, it’s the macro framework.

That’s a point you basically never hear made in the opposition public sphere. The real drivers of the Venezuelan crisis are too remote and technical seeming to grab the attention even of what passes for an opinion-forming elite, particularly when they’re competing for attention with such a juicy array of headline grabbing imbecilities.

And then, we get to the mother of all counterfactuals:

Just imagine where Venezuela would be today if, on February 2nd 1999, Hugo Chávez had made two simple vows to himself: never to allow the government to run a deficit when oil prices top $40/barrel, and never to mess with the  running of the BCV. Imagine he’d kept the ceteris good and paribus – same crazy ideology, same wrecking-ball approach to the separation of powers, same unhinged hatred for private wealth, same fanatical sectarianism – but had just taken those minimal steps to ensure against macroeconomic chaos.

Where would Venezuela be today?

In a much, much different place…

1 COMMENT

  1. “…but you’ll be lucky to find more than 2 or 3 who’ll mention out of control budget deficits and runaway money creation by a captured Central Bank.”

    That’s a fundamental economic truth that resonates around the world as well. Politicians elect themselves to office by promising everything to everybody. Once they come to office they grab hold of the treasury and begin dispensing funds to their constituency. Plato saw this coming centuries ago. Politicians in Europe, for instance, have been doing this for decades. They have stagnant economies in Europe today because ‘previous’ politicians had saddled many of the larger economies with ever growing entitlement programs. They’ve maxed out. There’s no more money left to spend. Just ask Hollande and his 75% tax proposal. Right. That’ll work. The consequences of short-term politicians and their economic actions, budget deficits and runaway money creation by a captured Central Bank, are usually NOT felt by the general populace until well after they’ve left political office. Then all hell breaks loose, and everyone starts pointing fingers. But the actual perpetrators have long since been forgotten. It’s interesting to watch how Maduro and company are contorting themselves into virtual pretzels trying to blame someone, anyone, for their economic mess/catastrophe. It’s NOT OUR fault! It’s an economic war! Capitalists! There are secret plots behind every tree! One can only tap these imbeciles on the shoulder and remind them that they’ve been in power for 14 years now. Really. I am not kidding. You can check the calender if you want. Now, aren’t you kinda glad that Capriles had that April election stolen from him? They even screwed that up as well…..

  2. Those counterfactuals are extremely powerful. I used to be a hardcore Libertarian, convinced that governements can’t run a bussiness withouth lossess or clientelism.

    Then I traveled to Medellín. I learned that over there water, power, phone, internet, subway, buses are public owned. And they all work! On top of that they are all owned by the same corporation (Empresas Públicas de Medellín), which is run by the city (not the Department or the Country) and it turns a huge profit! Also I got to ride on tighly regulated cabs, that happened to be clean, efficient, nice and cheap.

    • J. Navarro, it’s not whether they can; it’s whether they should. Even in your example, just because the government is doing all those things efficiently the doubt remains whether businesses in a competitive environment would be doing it even more efficiently. Similarly, it’s not whether a single person can wisely, and successfully dictate over a whole nation; it’s whether a single person should.

        • Kepler, you project. Imposition/obligation is only one of the definitions of “should,” not the one I’m using. The one I’m using is the one relating to correctness, and in this case, based on what defines democratic principles. In a democratic system, one person *should* not hold too much power, nor for too long. Similarly, in a capitalistic system, government *should* not compete with or replace business, but rather help increase and protect business and competition. Those are the reasons for my reply to J. Navarro.

          The question remains, what’s behind your projection.

        • The “should” is up in the air depending on circumstances which contribute to the “can” element. For example, if the government doesn’t receive enough in tax or other revenues, the government is limited. If private companies are out of control and don’t have any competition, they simply don’t have to do a good job. If voters are not educated or not well-informed, they can’t hold government accountable. There are many factors, and it is no simple ideological solution.

        • Kepler, thinking further on your “It is what works” comment, that’s really loaded. It implies the ends justifying the means, an idea I hope that you do not espouse.

          So, putting the quibble of words aside regarding “should”, my contention is that, even if a government system is providing a successful and quality public good or service, such as the example J. Navarro put forth, it is an undesirable government system if there exists an alternative with a higher probability of success and quality, or if the government system has a higher probability than an alternative to someday begin deteriorating its good or service. Consider that when a politician names the person in charge of the goods or services, the politician will not always leave out political agendas, whereas in business that is less likely.

          The reason I put the example of a dictator, is that you may have a dictator that “works”, though I would not recommend a dictatorship to anyone; I hope you wouldn’t either.

          Borrowing from systems analysis, it’s not whether something works that makes something desirable, it’s more about whether it can fail that makes it undesirable. That a government competing with or replacing free market business “works” does not prove that it will always work, nor does it prove that business does not have a higher likelihood to do it just as well or better, and more consistently.

      • I know where you’re coming from. But some competitive environments are inferior to non-chavista governement regulation. For instance healthcare in Australia or Canada is way saner than in the US, college education in Europe isn’t a financial burden like in the US or Chile.

        Seeing the Venezuelan culture, I’d like us to go the way of privatization-tight regulation. Like single-payer in healthcare, school vouchers, college scholarships, etc. Full-on privatization might lead to exclusion from services, but public ownership is financially unsustainable.

        • You see, Navarro: one of the problems with our opposition leaders and talkers is that they are mostly seeing the US as measure of all things: it’s either that or the mess Chavismo and previous governments have put us in. Así que terminan haciéndose más gringos que los mismos gringos con respecto a la salud, la educación y otras cosas.

          I don’t ike school vouchers. They are what you got in Chile and look at the dissatisfaction they have now. What we need is transparency and a long open discussion about where all the money is being spent in education.
          Then we need accountability but before that we need to create public awareness about the need for accountability, less teachers and thugs pretending to be teachers riot as they did in Mexico or Ecuador. And then we can give the money currently stolen from teachers to real good teachers and to public libraries and so on.

          The US has a lot of the best universities on Earth and definitely a huge amount of the best research centres but I would say even their system is not sustainable. Those universities can only keep up thanks to the flow of well-educated students from abroad and that will be less so in the future. A radical improvement in the public education is necessary even there.

          • Yes, the old reactionnary streak… Oh noes! These guys are commies! we need us a Pinochet or a Nixon.

            I think the source of inefficiency in public services is over-administration. Health bureocracy with 15% doctors, 35% nurses and 60% managers/lawyers/accountants etc. Education bureocracy with 15% full time teachers, 20% substitute teachers or part-time teachers, 20% “sick” or retired teachers and 50% managers/lawyers/accountants etc.There are countless governement institutions where 40% is doing what the organization is supposed to do and 60% are in administrative duties.

            We need to cut administrative positions to around 5% or 10% of the staff.

            Counterintuitivly decentralization is a way to do this since it trims the chain of command. You’d have: mayor – education secretary – principal – teachers. Currently you have president – social vp – min. education – viceminister of whatever – regional education zone – municipal something – principal – teachers.

            Another way to do it is privatization, and trust private enterprise to rid itself of the dead weight.

            Reform within the system is always a political nightmare.

        • “For instance healthcare in Australia or Canada is way saner than in the US”

          Because waiting months and months for an MRI is more sane than walking into an MRI clinic today? Because waiting months and months to get surgery makes sense? Because towns holding lotteries to see who will get a primary care doctor makes sense?

          Check your premises.

        • J. Navarro, I think we agree, mostly, it’s just that I’m sensitive to certain wordings that can lead many to flawed conclusions. Your wording could lead people to conclude that because a flawed system worked in one case that then it’s not flawed. I’m not claiming private competitive environments are always better; I’m claiming that systems based on private competitive environments have a higher likelihood to be better than the government based systems even if they do work sometimes.

          I believe that ideally a government would constantly monitor businesses to ensure that they feel the market consequences to changes in the price and quality of the goods and services.

          In Venezuela, also focusing on its culture, a consumer market would work very well. First, the system would need to make sure that no Venezuelan is excluded from being a consumer. This implies a guaranteed minimum income. Second, the system would need to make sure that the government’s agenda is to improve the market’s success. This implies eliminating the petro-state model, and this is best achieved with UCT, which ties in perfectly with the first implication of a guaranteed minimum income. The tight regulations you mention would be a mere consequence of a government fulfilling its role and agenda of ensuring a well-functioning market.

          • Yeap, we agree on that.
            The governement doesn’t need to do everything, not even most things, properly aligning incentives goes a long way.

  3. Omar has a great post. The problem with thinking through the Bolivian case is…who the heck knows anything about Bolivia? It reminds me of a Venezuelan guy who got in trouble with the Bolivian authorities while leaving the country, for not having his passport stamped: are you crazy, he said to them, you think I was trying to illegally immigrate here??? So I don’t know. Maybe the grass is greener somewhere else, as they say.

    • And that’s a major problem. Bolivia is named after a Venezuelan. We are inextricably tied, not because of Chavez, he only began an effort to make the obvious reality more coherently represented in formal political-national institutions. With obvious shortcomings. But the idea was good, why shouldn’t South America have a strong supra-national entity to defend its common interests? Why shouldn’t all Presidents in Latin America unite in demanding immediate change to the drug war that is killing thousands of us? By looking to the U.S., our elites have failed us since independence, now the fact that Chavismo has trashed the economy and doesn’t even realize it, doesn’t change that. We need both things: economic rationality AND creativity-solidarity-continental unity.

      • I lived in Bolivia for some time and after the experience I understood that the whole Latin American myth is worth s***t. … Those guys are not even part of the same civilization we live in…
        Did you know that 40% of the population in Cochabamba (Bolivia’s 3rd city) speak Quechuan AND ONLY Quechuan? the same goes for every other major city, particularly La Paz with the Aymara Language, even in Santa Cruz, the richest city of the country, where besides the indigenous mostly Guaraní population there are many communities of foreigner “colonies” closed to external influence that speak German, Japanese, English… and, of course, maintain their culture.
        Of course there are criollos and mestizos. They are very visible because they control the whole system of representations of the society, including the media and the army…. but they’re far from dominating the every day life of each of the cultures within the Bolivian nation.
        Their values, understanding of freedom, justice, community, life and death, status, their relation with nature and their own people is very different from ours.
        Just to give you an example: indios who commit murder end up surrendering to the authorities because their own families and communities consider them a shame and sometimes actually hurt them or even kill them. Compare that to Yubiritzaide defending her malandro son no-matter-what.
        After Bolivia, I was for sometime in Perú, Ecuador and Mexico… the situation is quite similar, particularly if you go away from big cities. Indigenismo totally makes sense there.

  4. Also I can help but noticed that Venezuela is the dumb kid in OUR group, economically speaking.

    Bolivia is apparantly booming, Ecuador is doing well enoug for expats to return and attract some foreign professional and skilled migrants, Brazil is the rising power, Uruguay is having all the great first world debates (equal marriage, drug legalization, etc), Cuba is getting its financial shit together (though not politically), fortunately we convinced Argentina to play hooky too, so we won’t be alone in summer school.

  5. Bolivia cannot be the the CONTROL. For the love of God!. I am sorry. First, the population has more problems due the amount of clashes with the indigenous population. They had variables we don’t have… they have the coca business . They did not have even an onidex before Evo came into power ( So a lot of things that they have know like the identification system was done by the cubans, in Venezuela was taken over by cubans there is a big difference with that)and gave the power to the cubans. These reminded me when they told me that my peak flow was better than the Bolivians living in UTAH , to extrapolate and say that i did not have problems with my asthma and breathing…Do you think you could do that? I am sorry but you are doing that . they were way more rural than Venezuela…

    • There are Bolivians in Utah? I cannot say I’ve ever met any. Tons of Peruanos, Colombians and Venezuelans, and of course more Mexicans, Hondurans, Guatemalans and Salvadorans than you can shake a stick at. Even lots of Chileans and Argentians, but I don’t know any Bolivians. They are the latin unicorns of Utah.

    • I’m sorry but this is a really stupid comment. Over 60% of Bolivians live in cities. In the last census, the tables turned from 60-40 indigenous-mestizo to the other way around (admittedly politically motivated self-identification questions in both cases).

      We’ve of course had ID cards for decades, at least since universal suffrage was extended beyond land-owning males in 1952. This is the kind of stupid bullshit that is a clear reflection of failed elites always looking North.

  6. Hmmm, in light of recent events don’t you mean “expensive plasma screens”, or … ?

    But I otherwise think I see the point, it’s quite amazing that Bolivia is doing well DESPITE the nutty ideas of some in control. Luckily some of the more crucial decisions have been left to some people with some knowledge of how things actually work. Then again, in relative terms, it is hard to gauge whether what they have done is not a function of what they can get away with, given the level of government income and expenditures (which translate into political leverage), versus what they really want to do. After all, isn’t Morales’ dream to transform Bolivia into something like a new Inca empire, in much the same way that Chavez wanted to recreate the Gran Colombia (which could lead to all sorts of fun scenarios down the road!)? The whole nationalist mentality just seems very out of whack with globalization, but I guess that is their point.

    Omar could have made his analysis more quantitative by setting up some comparisons of stats for the two countries, in particular of the magnitude of government per capita and relative to the total size of the economy, which would provide a measure of relative government power in the two countries (if not quality of management which is something else).

  7. What the last seven days have demonstrated -at least to me- is that economics is not a straight forward subject and that the majority of Venezuelans really do not understand how incentives rule economic behavior. Even my wife today -who has a college degree- had admitted recommending her mom to go stand in line at some appliance shop to get whatever cheap gadget, just to sieze opportunity! She of course accepts the notion that there are greedy speculators out there making excessive money and that they are somewhat to blame for what has occurred.

    Thus, my whole lengthy but detailed explanation of how prices are set by demand and supply and the inefficiencies created if prices are capped was just plain noise to her. What’s even funnier is that many of her colleagues at work -educated folks as well- think exactly in the same way.

    So I would not even venture into explaining Macreoeconomic policy to her because frankly it would be futile – just as an economics professor would not dwell onto the Macro side until the Micro is correctly understood.

    And same thing with 95% (maybe 99%?) of Venezuelans. If they do not even understand the damaging economic effects of what has occurred recently, how would you even dare sell sound macroeconomic policy?

    • I would argue that Venezuelans understand the nuts and bolts of economics pretty well as applies to their lives. Drawing a supply and demand chart for them may not go terribly far but…

      Imagine receving your pay for a job (that you may or may not actually have to physically show up for, given the state of things) and next week having it buy 10% less as opposed to standing standing in line for an item for a few hours that you could later resell at a minimum of five times what you paid for it.

      The currency has a continually dwindling purchasing power whereas the applicance now acts as a store of value; both instances are based on a lesser future demand for that amount of currency and a greater demand for the appliance.

      The frightening aspect of this is the simple fact that bolos no longer serve one of the primary functions of money and are rapidly falling away from serving as a second function. This bodes rather ill for Venezuela, and I think almost all Venezuelans are aware of that.

      • Oh indeed! People are far from stupid and if they could pack the TV or stereo set they just got for a bargain they would most certainly send it abroad to exchange it for hard currency! (And I wonder if some folks out there have already thought of this).
        But my point is that the nation must understand the value of free markets before we even dream of balanced and prudent macroeconomics. Once free markets are appreciated then governors wil be wisely chosen and the macro side will be handed to independent experts to control.

        And by the way, Venezuelans in general are not only economic-iliterate but also value socialism and government interventionism. So you go tell me if we are ever going to see free markets in this country.

        • Its not just Venezuelans. Its pretty common across LatAm.

          This came out about 18 months ago, but compare the view of government, particularly amongst immigrants to the US.

          http://www.pewhispanic.org/2012/04/04/v-politics-values-and-religion/

          A free market can work and be embraced, but the institutions that make it function properly must be in place and viewed as legitimate by the populace, otherwise the free market mechanism will always be viewed with suspicion. Courts, police, property rights and all the other accoutrements that nominally support a free market must needs be functional, else the belief will persist in one set of rules for a the advantaged and another for the disadvantaged.

    • Exactly Alex!
      The problem is that something as basic as the law of supply and demand and formation of prices is so counter-intuitive that even very smart people cannot grasp the concept. These economical laws are as universal as physical laws like gravity or action-reaction, conservation of energy. Some people believe that they only apply to well develop markets or perfect capitalist societies.
      This subject is so important because whole societies time after time fall into these pitfalls. People are easily convinced to support these failed policies of price controls, minimum wages, exchange controls. I think it should be taught as early in life as possible to everyone so that what is normally counter-intuitive becomes common knowledge.

  8. Crazy ? Maybe. But I see it as no more than a heist, a national heist perpetrated by criminals. The inability of the Venezuelan to understand their complicity is in many ways, by genetics, similar to the African failing to understand their inability to progress.
    Comparing Bolivia or an adjacent location to Venezuela is tantamount to comparing southern Europe to sub-Saharan Africa.
    Chavez knew his people and their ‘sensitivities’ very well indeed.

  9. Bolivia and Ecuador are poor countries , their people are accostumed to playing it safe . to forced and habitual austerity , the starting point is very low so a bit of good management goes a long way when things improve a bit (commodity prices rise) . The political noise is just that , so some good measures make things better for a lot of people without much money getting wasted or spent. In contrast Venezuela is a constant wild party , governments (and people) are by habit and inclination spendrift corrupt and wasteful because the opportunities are always there . Chavez was a true over the board hubristic megomaniac , he could do anything , his ignorance and egolatry blinded him to the ultimate consequences of his crazed decisions , he was not held back by any sense of economic reality ..Evo is a clown but the decision to increase the very low prices Brasil paid bolivia for its gas was long overdue . Correa despite his ravings has an education in economics which probably helps him avoid the worst macroeconomic mistakes.

  10. Ecuador also illustrates the value of a few sane decisions: imagine Venezuela had, like Ecuador, a dollarized economy. No Cadivi, inflation at 1.8%, no ability to print money to throw at supporters.

    It is true, as a Chavista might say, that dollarization locates some economic decisions in the Imperio. But because they live by the dollar, too, it is unlikely they will make decisions “just to screw Venezuela.”

    • I’m a fan of dollarization as well. In 1982 4.30 old Bs. bought a dollar now is 70000 old bolívars to get a dollar. In 30 years we’ve been unable to have a yearly inflation close to 10% much less the 2%-5% most people have. During that time we had COPEI, AD, Convergencia and Chavismo.

      I say we outsource it to people who can do a better job. Likely candidates are the dollar and the euro, but since we are paid dollars for oil, it’s a more natural candidate. Convertible currencies (think CUC or Argentinian Peso) are an inadequate protection, since then politicians could pull the Argentinian trick: convertible pesos were convertible until they weren’t.

      People have a right to protect their savings, that’s why they buy dollars as soon as they get some liquidity, bolívares are a worthless currency going the way of the Zimbabwe dollar (they solved their hiperinflation with dollarization).

    • Most countries in Latin America have been able to keep a one digit inflation without dollarization. Is no rocket science, independent Central Banks and fiscal and monetary responsibility and you don’t lose control of your monetary policy as in dollarization.

        • You could in theory. I’ve seen other countries do it. But we’ve been trying for 30 years!
          That’s longer than I’ve lived. In my whole life never has Venezuela had a normal level of inflation.

          We’ve been through lots of IESA graduates in charge of fiscal policy. We’ve been ruled by social democrats, social christians, social christians + socialists + communists, and socialists + communists and nothing. What secret weapon do we have? I don’t think a MUD government full of current and former adecos, copeyanos, convergencia-nos, masistas plus former chavistas would suddenly bring us a BCV like no other.

          I also worry that even if we get normal inflation for 6 years it would all go the way of Campins. El Salvador, Panama and Ecuador prove are doing pretty good. Argentina is not.

    • Wrong, at least in the Bolivian case, the Morales government has successfully reversed the dependency on dollars, savings in Bolivianos have skyrocketed into a stable banking sector, and while the maintenance of a fixed exchange rate may be debatable, certainly one of the key aspects of Bolivia’s macro-economic success is its monetary policy.

  11. Quico, your analysis is spot on. I dont like exchange rate controls but the main issue here is cadivi X monetary financing. There is a vicious feedback loop at play: you print money to finance the government, which generates inflation and paralelo depreciation, which increases the real cost of the CADIVI subsidy because you are handing dollars out almost for free, which worsens the deficit, which then requires more monetary financing, and on and on. The loop turns a “modest” scam (cadivi in normal times) into the most blatant and a disgusting money grab, and it provides the government with a convenient scapegoat: the blood-sucking importer. All it takes is an initial, external, shock for the snow ball to start rolling.

    How to get out of this? Just stopping monetary financing is not enough if the deficits continue (the tight money paradox). The cadivi subsidy has to be educed. So some combination of monetary tightening and a large official devaluation is, I think, inevitable. Will they do it though?

  12. Quico, the problem I see with your argument is the following. Yes, the consequences of the macro instability are easy to see. In particular, it’s easy to see the high inflation. We all perceive it in our pockets even if we never get to see the actual CPI growth rate published by the BCV. It’s also easy to see that running a deficit financed by the BCV with a foreign exchange control in place is simply non-sense.

    The problem is that the macroeconomic consequences of the other crazy stuff (expropriations, insane regulations, hidden taxes, non-sense subsidies, price controls, the deterioration of democratic institutions and the rule of law, etc.) are much more difficult to spot at plain sight, and as a result easier to dismiss. But the negative effects of these policies are real and are quantitatively very important, possibly even more so than the consequences of macro instability.

    These other crazy stuff cause huge distortions that affect the efficient allocation of resources and, ultimately, lowers the productivity of the economy. However, it’s hard to do the counterfactual: what would GDP be if this or that regulation/tax/subsidy (or your favorite crazy policy) had not been put in place? That’s a difficult question to answer even for well-trained research economist. In short, the consequences of these crazy policies are somewhat hidden. Instead making the connection among fiscal deficit, money growth and inflation is as simple as it gets in economics.

    Maybe the counterfactual you should imagine is: If CADIVI were not in place, could the gov’t run those huge fiscal deficits? Or what would the average economy growth rate be in the last 10 years if those crazy policies had not been implemented given the observed path of gov’t spending? I can tell you that Venezuela would be in a much better place today!

  13. If the active ingredient in the craziness can be boiled down to “It’s the deficits, stupid!” then why haven’t all countries that have run deficits found themselves in similar pickles?

  14. Francisco Toro,

    Daily indexation was the macroeconomic measure that stabilized the Brazilian non-monetary and daily indexed monetary economy during hyperinflation.

    Asked to define Twitter someone said:

    Twitter is the essential utility we need – which we only realized we needed, once we actually had it.

    Daily indexing is the FREE essential paradigm change needed in Venezuela.

    Official dollarization is very costly AND you lose independent monetary policy.

    Spontaneous dollarization is also “free” but you will continue to lose independent monetary policy.

    Daily indexation would stablize your economy AT NO COST..

    Daily indexation is a paradigm change. It is a macroeconomic measure.

    • Ok. I’ve seen this idea posted several times. I’m not an Economist but I try have some proficiency. Some questions:

      Is the proposal that BCV or someone should publish a daily inflation rate?

      If so. Is the point that companies adjust their books so their assets appreciate accordingly?

      Is it also the point that wages are adjusted so purchasing power remains constant?

      If all/some of the above. How does this help incentivize savings in bolívares? Everything would remain constant except savings would have a negative interes rate, right?

      Since savings aren’t incentivized, wouldn’t the same spending spiral be in place: people spending like there’s no tomorrow because their currency is a ticking bomb/hot potato, thus self perpetuating the increased demand for goods?

  15. I guess the differences between Morales and Venezuela go a bit farther, its probably more than just respecting fiscal and monetary realities. I think he is much more open for compromise with relatively better-off people, who follow a lifestyle of:
    a) get up early in the morning
    b) work
    c) get home, often exhausted

    I remember that in July 2011 when I was in Chile I read an article about Bolivia stopped funding of some social programs, which name ended with “Evo cumple”, because Venezuela said that it wasn’t in the position to fund due to crisis. I had two thoughts: first: program should be renamed in Evo cumple, Venezuela paga la cuenta” and second: wow, this guy shows a good sense of fiscal responsibility.

  16. I was writing a long comment on this early in the morning, but my PC went bust. So now I’m writing from my phone (Gosh, I just hope that I don’t have to buy a new computer during this crisis)…

    Anyhow, I wanted to say that what Quico presents is a false dilemma:

    1. All opposition movements have two main purposes:a) to gain power and, b) to survive. In that sense, it has to go through the daily grind of the news cycle -now even more demanding due to social media reactions- and keep its power-reaching strategy in place. This is all the.more difficult under authoritarian regimes, where regular means of power access and message delivery are limited.

    2. Current crazyness, causes immediate gut reactions, and the.inevitable and cummulative search for sound bites and timely tweets. Sometimes -most of the time really- politicians.would pander to a particular public, and thus focus on a particular concern. It might even seem as a scattershot response. But concern needs to.be shown, in an opposition-framed.narrative. What’s that? Government.mistakes are always denounced a consequence of.their mistaken.programs and/or actions; and the government’s achievements should be dismissed as flukes or something contrary to their ideology. That leads sometimes to contradictory statements. Gajes del oficio, and not too consequential.

    3. As for long, deep running crazyness, well, that’s ehat platforms, programs and wonks are for. And they feed both the.long term strategy and policies of the opposition movement. There’s.little.imrpovisation, although that might make it less “dynamic” than.it should.

    4. There should be more.coherence between long winded documets and soun bites, but, ultimately, regular statements can be read in light of general platforms.

    5. Case in point: the.BCV autonomy. That is consistently mentioned.in most major Unidad’s documents. It is an important part of its.lineamientos (it appears in the summary, recap and, specifically, in points 407-409). And those documents were drafted by wonks, but, alas, argued and agreed upon by political leaders. So complaints about current crazyness are also complaints about long, lingering, continued, folly. Which has.been framed and challenged.

    There’s just too much crazyness to deal with at once, and, it should be noted, what the opposition.criticises is usually perfectly rational for a revolutionary and authoritarian government.

    DISCLAIMER (I’ve mentioned this before, but it bears repeating): I do not work for the Unidad, because I was.taught to loathe nepotism, but I support and trust.its political.leadership~~~.

  17. A few years ago, I attended a conference at McGill University in Montreal, Canada on “The Death of Evidence-Based Policy-Making by Political Parties”. A very senior former chief of staff of Canada’s current Prime Minister presented and disagreed with the premis. He outlined how in one election his party had outlined as part of its electoral commitments a comprehensive tax reform strategy and included all of the details in its campaign paraphernalia. The approach was hailed by economists… and they lost. The next election they promised an across the board reduction of a value added tax and nothing more to which the same economists disagreed with in part or in whole (mostly in whole)… and they won. The political party had, based on evidence, embraced a policy platform that people wanted and its candidates could explain easily through loudspeakers.

  18. I personally also believe out of control deficits are a bad thing – but most Western governments seem to disagree! Venezuela’s 25% or so deficit is mere chump change to the Japanese, the Brits or the French, particularly when you take oil reserves in to account.

      • You’ve been saying for 11 years on and off that Venezuela would go down the pan economically speaking and it still has not happened.

        No matter how you spin it your track record on this matter is so abysmal that it points to another wrong-headed prediction of a thousand words or so.

  19. Unfair! Unfair to Venezuela–there is one thing where Venezuela is right up there with the Bolivians–slowest internet service in the Region (but, then again, this measurement was made before recent Venezuelan internet censorship/blocking….).

  20. OT but not really. The latest crazy that doesn’t matter:
    Venezuela has requested Interpol to capture JJ Rendon for violence against women:
    http://goo.gl/lhbC7l

    He apparently violated the “Ley Orgánica sobre el Derecho de las Mujeres a una Vida Libre de Violencia.” a law promulgated in 2007. They are contacting Interpol because Rendon has been out of the country since 2006.

    And no this is not political.

    • You are being funny about the “not political” part, right? And if the law was enacted in 2007 and he’s been gone since 2006 something else is a bit off.

        • the guy really pushes his 15 minutes of fame. He posts tweets announcing how many followers he has; organizes a TED talk in English, a language that he speaks poorly, but he doesn’t think so; and loves his cultivated air of mystery. I, for one, am sick of the dude.

          • I understand, he is a little full of himself. That can get under your skin.
            But we should not dismiss his value as a political strategist. To me he is one of the few with the right vision and even maybe a roadmap of how to get out of the mess Venezuela is in right now. Furthermore he has the right set of skills to implement it.

          • Can you tell me where I can read about that roadmap? I have read a couple of interviews with the guy and I am appalled to see we have to use such a mercenary
            (Chavismo also has its mercenaries, but I expect better from our side)

          • I don’t think it is written anywhere, at least publicly.
            I don’t think the term mercenary applies since he is working for free.

          • Agreed. He has been very successful in getting his candidates elected. Those who critcize him apparently have already forgotten the incredible Capriles-Maduro recent election results.

          • amieres, it is possible that JJR is engaging in a Tom-and-Jerry routine with the government. If so, it must be working, given the hue and cry over the lost twitter accounts @ maduro — la culpa es de JJ (qué bolsas) — and the now fabricated pursuit by Interpol (double bolsas). I hope so; it would provide an admirable distraction, which may or may not work in the long run.

            But I’m still sick of the dude.

          • Personally I don’t understand why Maduro gives so much publicity to Rendon. I don’t know if it is a stupid move on their part of if there is a good reason behind it.

  21. I would argue that the actions of the government are not “crazy”. You have to examine what is the real goal, which is to stay in power. It is well understood that a modern economy cannot function in a dictatorship. Since the goal is to stay in power, the modern economy, and the standard of living of the public, must be sacrificed.

    • Roy – you really see thw world from an upside down point of view.

      In the last year it has been the opposition that has been ruining people’s standards of living with maniacidal speculation. It is they who are willing to sacrifice the economy to get into power and appropiate the oil revenues.

      • “you really see thw world from an upside down point of view”

        You hit the nail on the head!
        Now the question is of the two of you who is the one standing on his feet and who is standing on his head?

  22. OT – this is the way to clear up corruption in Venezuela – follow our Vietnamese borthers’ example!

    United States bankers may rarely see the inside of a prison cell, but the Vietnamese are taking financial corruption far more seriously. Vu Quoc Hao and Dang Van Hai have both been sentenced to death by lethal injection after a trial lasting just nine days in Ho Chi Minh City.

    • So, you would effectively wipe out every chavista that is a government employee. A little dark, but it may be your best idea yet.

    • Nine days! What kind of fair trial is that? Do the nine days include appeals?
      Geez they might as well shoot first and ask later.

      • Nine days is just about the right amount of time. If it were less, it wouldn’t be in the news long enough sink in to the rest of the business community. If it were longer, it might appear as though they were actually having a fair trial. It is just the right amount of time to create maximum fear.

      • After reading up on the case in question, while the trial may have been pro forma, there doesn’t appear to be much doubt about guilt. If you want to reduce corruption in government, this is an effective way to do it. If they maintain the policy, in two years, Vietnam will be near the top of the least corrupt countries in the world.

        • If.

          The removal and punishment of a few high officials for flagrants misdeeds proves very little. Yagoda and Yezhov, the hatchetmen of Stalin’s Great Purge, were both executed. That didn’t alter the the nature of the Soviet regime one whit.

          It is very common for a corrupt, tyrannical regime to punish a few flagrant grafters as scapegoats; it placates the public, and removes them as competition for the loot.

          Occasionally, the scapegoating gets out of hand and the regime falls, but that’s the exception.

          I doubt if the two men named were the only important grafters in Vietnam, or even the most important.

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