Steve Hanke’s recent post arguing Venezuela is already in a hyper-inflationary spiral strikes me as wrong in a strange, evanescent kind of way. Even as Hanke accepts the standard definition of hyperinflation as prices rising at more than 50% per month, he argues that Venezuela is
already nearly there – basically because of how fast the Voldemort dollar has been rising this year.
It’s a weird understanding of hyperinflation, and of the role of the parallel market. For one thing, using the black-market dollar as some sort of objective measure of the real underlying equilibrium exchange rate is seriously problematic. That market is seriously distorted, extremely opaque and – lest we forget – illegal. By definition, the Voldemort dollar rate includes an unknowable (but probably large and imaginably growing) illegality premium. Using that price as your marker for implied inflation strikes me as fanciful, for the same reason that it’s fanciful to think that if cocaine were legalized, current street prices in the illegal market would just carry on after legalization.
There’s one sense in which Hanke is sort of right, though. The only reason prices aren’t rising much faster than they are in Venezuela these days is that the government has decided bare shelves are a suitable substitute for faster rising prices. But here the conundrum only deepens.
Without the elaborate price control raj Chávez pioneered and Maduro has been “perfecting,” prices would likely be going up much faster. A toaster that cost 10 last month would cost 15 this month. But under the control regime, a toaster that cost 10 last month is price-controlled at 11 this month.
Trouble is, no sane trader is willing to sell it to me for 11 – among other things, cuz his costs just jumped to 13. And so the government’s policy stance turns up in my life in the form of empty shelves where the toasters should be.
The question then becomes, what’s the impact of that empty shelf on the inflation figures?
Here we’re almost outside the realm of economics and entering that of philosophy. I imagine the BCV books toaster prices as having risen 10%, but for me, the consumer, toaster inflation is no longer really capturable in percentages. My reality is that I can’t find a toaster at any price.
At this point, I have to either pay an illegality premium to buy it in the black market, or I can pay a different premium in the form of time wasted standing in line when I hear a rumor that such-and-such Bicentenario just got a shipment of toasters in. The reality is that there isn’t any evident way to render these realities into neat inflation percentages.
I imagine Hanke would argue that his method of putting a percentage figure to the inflation that doesn’t get recorded because it’s been displaced by an empty shelf is neither more nor less arbitrary than any other, and has at least the virtue of being grounded in an actual price indicator, however flawed. I guess that’s a defensible point. But it still seems to misstate something important about the kind of macro chaos we’re facing.
High as inflation is, what’s really pissing people off isn’t that prices are rising out of control, but that key things on their shopping lists aren’t on offer at all. Hanke’s is a funny kind of hyperinflation: sort of like trying to measure the extent of gangrene that would’ve developed on a limb you’ve already amputated to prevent gangrene.
[Hat tip: DTC]