There’s been a whiff of 2002 in the air this last week. An acuteness to Venezuela’s instability that we’d grown unaccustomed to. Every day the news brings a wild new twist to the saga and each new twist renders the question of what comes next ever more urgent and anxiety-laden.

It seems more than likely that what we’re witnessing is the death throes of Bolivarian socialism – but while the final outcome is easy enough to guess, there’s a maddening cloud of uncertainty hanging over the “how”. It’s the Underpants Gnomes Theory of Regime Implosion:

  • Step 1: Intractable constitutional deadlock between the MUD-led A.N. and Miraflores/TSJ in the context of a catastrophic economic disorder.
  • Step 2: ?
  • Step 3: Transition.

What makes the situation today so precarious – so much more so than in 2002 – is the now imminent prospect of complete economic collapse. That’s an ingredient that just wasn’t in the stew 14 years ago.

It’s as though the crisis is running on two separate clocks: one political, one economic, each with its own rhythms, logics and dynamics, feeding back on one another in complex and uncertain ways.

The regime responded to its loss of the legislative branch with two actions that dramatically quickened the pace on the economic clock. The first was the plainly unconstitutional and fantastically ill-conceived reform of the Central Bank law, which strips out the last shards of BCV’s institutional autonomy and turns it into little more than Maduro’s Ministry for Debt Monetization and Unbridled Money Creation. That’s the hojilla. 

The second was the appointment of a deliriously economically ignorant sociologist who is explicitly on record claiming there is no link between money creation and inflation to lead the economics cabinet. That’s the mono.

Mono, meet hojilla.

All of this is happening in the context of an inflation rate already running at three-digits – the exact number, of course, is a secreto de estado, though 270% has been bandied about. Venezuela was already on the edge of a hyperinflationary cliff, even before the government announced the appointment of a minister who seems positively bent on pushing us over that edge, but not before empowering him with a new law that legalizes the final shove.

In short, the economic clock is ticking extremely fast now. Worse, unlike in the movies, there is no clear indicator to tell us at what time, exactly, the bomb blows. It isn’t possible, ex ante, to pinpoint when a high-inflation economy will tip over into outright hyperinflation. These are dynamically unstable processes: once all the preconditions are in place we’re reduced to talking in terms of probabilities. We know the preconditions are all in place and that the probabilities are higher than they’ve ever been before.

That still doesn’t answer the all-important question: when?

We know enough to be terrified, though, and partly as a response the political clock has been picking up pace, too. The election of a tough, confrontational National Assembly president has buried any prospect – remote as it might have been – of stable cohabitation between the competing centers of power. And increasing dread over the looming threat of hyperinflation has sapped MUD’s interest in cohabitation anyway.

For good reason. Such a cohabitation couldn’t have been stable. Given the extent of economic devastation now looming, Venezuela is squarely in Phase 3 of Dornbusch and Edwards’s Four-Phase Economics of Populism:

Phase 3.-Pervasive shortages, extreme acceleration of inflation, and an obvious foreign exchange gap lead to capital flight and demonetization of the economy. The budget deficit deteriorates violently because of a steep decline in tax collection and increasing subsidy costs. The government attempts to stabilize by cutting subsidies and by a real depreciation. Real wages fall massively, and policies become unstable. It becomes clear that the government is in a desperate situation.

Phase 4, of course, is orthodox adjustment.

Dornbusch and Edwards, by the way, don’t mince words or play cute Underpants Gnomes games with what comes between Phases 3 and 4. Reviewing episodes of runaway economic populism in Argentina, Brazil, Chile, Peru, Mexico, and Nicaragua, they conclude plainly that “the ultimate dismantling is often accompanied by major political change, including violent overthrow of the government.”

Quite.

In a way, though, that’s just an elegant, ex post way of repackaging the ? in Step 2.  A strong – and strongly suppressed – instinct tells us that ‘?’ is just a polite stand-in for a peo starring guys wearing olive green. I don’t know anyone sane who welcomes it as a possibility, but I also don’t know of anyone sane able to formulate a compelling alternative.

It’s worth reminding ourselves that that’s just one possibility, though, not some preordained inevitability. In any case the exact form military involvement might take is just as maddeningly vague as the rest of Step 2.

What’s disquieting is that none of the cases Dornbusch and Edwards reviewed involved a government as militantly out of touch with reality as ours. The kind of overt militarism, eliminationist rhetoric and necrolatric cult at the center of the Venezuelan regime makes it a strange sort of beast to fight. Cornered, out of options, out of ideas and out of touch, it’s entirely reasonable to expect it to lash out.

Our job now – and, especially, Henry’s job – is to make sure the energy chavismo spends lashing out is energy spent burying itself. It won’t be easy. It’s certainly not safe. If it could be avoided, it should be avoided.

But it can’t be avoided, so it’s best to face it with determination.

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