Grading Luis Salas's Application Essay

Andrés Rondón's deep dive into an instant classic of Marxist-Dadaist Economic doctrine.


The memo that got Luis Salas named vice-president in charge of the economy is front-page news on Aporrea today. Though published as an op-ed piece, the little screed looks very much like an application essay for the post of Master of the anti-Economy in the next cabinet reshuffle.

It seems Maduro loved it: in parts, his cadena yesterday echoed its bizarre rhetoric almost verbatim. It’s easy to see why: it has just the right mix of paper-thin autocrítica and furious denunciation of nefarious scapegoats. It’s the kind of pap aggressively economically illiterate leftist extremists fall for every. Single. Time. You can just about intuit Maduro’s hard-on as he pictured the author of this masterpiece spearheading his economic huida hacia adelante.

In its own, insane way, Salas’s memo is a must read.

The lengths it goes to try give some intellectual grounding to its galactic ‘join-the-dots’ theorizing are hilarious. The document, dotted with quotes from Proust and sophomoric illustrations of Game Theory puzzles, only really hits its stride in the sixth paragraph (before which, dear anthropologist, you can find epistemological digressions on why Good and Bad should be typed ‘Good’ and ‘Bad’ or downright cursilerías on why love is more beautiful than hope) when Salas starts talking about the role expectations play in the economy. Brace yourselves, for this is the backbone and only tenet of his proposal.

Expectations, he says, can be irrational. According to his theory, one can only form expectations through empirical hindsight (the sun will rise tomorrow because it rose today, etc) or the prognostication of the future based on available information (you know, what us economists call rational expectations and spend most of our time analyzing). But for Salas, this second route is much less rigorous and uncertain. It’s this second method he has a problem with, and it’s on the back of this beef that he wants to launch a grand project to tame our current inflation and unemployment by dismantling the science of Economics altogether.

Lest you think he’s out of touch with recent discussions in economics, he starts with a dissection of 2002 Economic Nobel laureate Daniel Kahneman, of Prospect Theory and Thinking Fast and Slow fame. No recent student of Economics can have missed his seminal Behavioral Economic insight that classical expected utility theory is flawed because, as the man himself says, us Homo sapiens, unlike the idealized Homo Economicus, “underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty… (which) contributes to risk aversion when in choices involving sure gains and to risk seeking in choices involving sure loses”.

O.K., Salas, so now you’ve found América in a glass of milk and slayed Homo Economicus thirty years too late.  Yes, sometimes our expectations can be irrational. granted, also, it matters how questions are framed (are we losing everything or gambling to win it all?). But where is this going? How do you propose to reshape Prospect Theory into a solution to the economic quagmire we’re in?! Your memo is almost ending for God’s sake!

Turns out our economy is in free-fall because, wait for it, the country as a whole is making irrational decisions based on irrational expectations. To the devil loss aversion and game theory (which is, after all, as far as the scope of Prospect Theory can lead us to) here we have a new Theory of Value and Growth by the magical concoction of the Pseudo-Economic War and Daniel Kahneman in a memo!

Turns out if only people realized an apple is really worth 1k bolívares nowadays and not 2k as they are incorrectly lead to believe by imperial brainwashers, then the apple would truly be worth 1k bolívares.

Yes! Inflation is a flawed expectation! GDP contraction is a flawed expectation! Lack of toilet paper is a…wait a minute. No, lack of toilet paper is because of the Guerra Económica – almost forgot.

What this amounts to in practice is a Speculation Theory of Inflation Based on Prospect Theory (with some Proust thrown into the mix). Funnily enough, his insight into the chavista delusion is that el pueblo is innocently speculating away too because they are lead to falsely expect the price of things will rise. Meaning that the plan of action, the ‘reseteo’, is to reinforce a psychological campaign to convince al pueblo that the price of things isn’t going to go up anymore while enforcing existing controls more strictly.

Out of control fiscal deficits? Unobstructed Central Bank debt monetization? These things are bourgeois subterfuges, obvs. Myths and manipulations spouted in the cause of rank class exploitation. I mean, por favor.

The economic plan of 2016 will be nothing other than the attempt to resell the economic plan of 2014-2015 more effectively. The trouble isn’t just that Maduro is unable to grasp even the bare-bones basics of economics, it’s that he has no clue how to tell a marginally competent economist from a complete charlatan. So he’s now found his very own Lysenko and in the process become the Caribbean twin of one of Dostoevsky’s most poignant and ridiculous characters. Digging a hole underground while refashioning a loudspeaker, his only logic is to do with marketing what he could not do with the markets.

Andrés Miguel Rondón

M.A. in Economics from the University of Edinburgh. Madrid based. Wealth management, roots in banking and microfinance. Voracious reader of Classics, specially the Russians, and History. Caraqueño and Caraquista, inescapably a lover of Salsa, wheat talk and Rum. Fascinated by South America's indigestion of modernity, owes his political understanding mostly to Octavio Paz, Ivan Karamazov and dad.