So (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…
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