Venezuela’s economic implosion is complex, and it’s easy to get lost in the weeds. Earlier I explained why economists are so worried about default. And it’s true, failing to pay foreign debt could have genuinely catastrophic implications. There are lots of good reasons the government is frantic to avoid it.

But it’s important to hilar finito. It’s easy to get the idea that the basic problem is not-enough-dollars: oil prices fell, and there just aren’t enough dollars coming in, that’s why you can’t find food in the shops.

That would be the wrong lesson to take from all this. Venezuela’s problem isn’t too little income, it’s too much waste.

Let’s go back to our analogy: yes, we’re like a credit card holder who borrowed too much, saw his income fall, and is now very close to missing the next minimum payment. That would send his credit rating down the toilet and the repo man knocking.


Venezuela is like a house where all the heaters are going at full blast and all the windows are broken.

All of that is true, as far as it goes. But it doesn’t go far enough.

We have to prod deeper. Why did we get into so much debt? What was all that money for? Where did it go? Where is it still going?


Extending the Analogy

Venezuela is like a credit card holder who lives in a very cold country. Sweden, maybe, or Canada.

When you look closely at his bank account, you realize a crazy proportion of his spending is going on heating oil. It’s like 60% of his budget: way, way more than normal.

Then you go to his house, and you notice all the heaters are going at full blast. And all the windows are broken, letting all the heat out again.

So yeah, our guy is frantic. He knows he’s about to miss a big credit card payment, and he knows it’s bad. He’s desperate to pawn something, anything, to avoid that happening. He’s sizing up his wife’s wedding ring. The family jewels. Anything.

But notice what he’s not doing. He’s not mending the freakin’ windows!

Last month, Maduro half patched-up a couple of the broken windows in one of the rooms of the house with some duct tape and a bit of cardboard.

It’s crazy!

It makes no sense to spend all your money on heating oil if you’re going to let all the heat out. Not only do you end up broke, but the house is freezing!

The broken windows in our case are exchange controls, price controls, and subsidised gasoline and electricity: senseless policies that use up jaw-dropping portions of the nation’s income for, in essence, no benefit at all.

Everybody has been telling the government it needs to fix those damn windows. It’s a relatively minor expense. A trivial expense, compared with what they’re spending on heating oil. Even people who spent years and built careers out of enabling the government’s craziness are now beseeching it to quit screwing around and mend the  damn windows already.

Last month, Maduro half patched-up a couple of the broken windows with some duct tape and a bit of cardboard. He did a piss poor job. The windows he worked on still let tons of heat out, though maybe a little less than before. And all the other broken windows he just didn’t bother with. That’s what the famous announcements we spent three years waiting for amounted to.

Now, you could get conspiratorial and say “well sure, they keep the windows open because one of the people in the house likes the breeze and is benefiting from keeping them drafty.”

But it only takes a second’s reflection to realize that that’s nonsense. Even if there is one enchufado in the house who likes it a little cooler than everyone else, accommodating that person by busting every window in the house wide open with the heaters on at full blast is just idiotic. There are tons of ways they could satisfy that person without making life intolerable for everyone else. They could give him his own room and keep the windows open there, while shutting off that one heater. They could crank up the air-conditioner in one room only. They could easily meet all of that person’s desires without bankrupting the whole household.

But they don’t.

And that, in the end, is what makes Venezuela’s collapse so maddening and so hard to fathom. All of it is self-inflicted. None of it is necessary. Not even if their overwhelming priority is to keep a handful of enchufados growing enormously rich.

Even if that’s what they’re mostly devoted to, even if corruption is their top priority, they could still do it in ways that don’t screw up everyone else’s ability to get by with a minimum of dignity and comfort. And it would be better for them, because it would help ensure they could keep stealing for longer.

But they don’t. For some reason, they don’t.

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  1. Let’s remember a little nugget of information that proves the crisis is not – as Quico explains – caused by the drop in the price of oil: the Venezuelan economy sank into a recession in the first quarter of 2014, with the price of oil still very high. During the first three quarters of 2014, GDP shrank by -4.8%, -4.9% and -2.3%. The price of Venezuelan oil averaged $96 in the first quarter, $97 in the second, and $92 in the third. So plenty of dollars, but too much waste.

    It was never an oil crisis. It’s been a “partying too hard, wasting too much” crisis all along.

    • y’know I thought about the partying analogy but I discarded it, because parties are at least *fun*. They produce some benefit. But the policy framework we have is only wasteful…it’s a deliriously inefficient way to make a handful of people quite rich while everyone else pays. But the amount of wealth that’s just flat out destroyed in the process absolutely overwhelms any “fun” those beneficiaries might be having.

      That’s why I liked the broken-windows analogy better. It’s not even fun. It’s just waste.

      • Well, parties are supposed to be fun, but that doesn’t mean they’re always fun. And most times they’re fun for some, but not all. We’ve all been to some terrible parties.

        I still believe there was a party, but most people didn’t have fun. Like a bachelor party with 50 guests, but only the groom got to see the stripper dance. While he enjoyed the stripper, he drank the best champagne and ate lobster off a silver plate. His guests – who paid for everything – were left in another room, with a few stale beers, a week-old pizza, no music and no air conditioning.

  2. In my experience, the idea that energy is expensive and must be conserved just struck most of my friends and relatives in Caracas as insane. Trying to get my wife to turn off lights and close windows when the air-conditioning was on was an almost impossible task. I was treated as a sightly demented person by many as I turned lights off, put weather stripping on our windows and generally tried to conserve energy. Only when my friends and relatives now come to visit us in Canada and I have them pass their cadivi loaded cards to pay for a tank of gas do to they seem to slightly comprehend but it is mainly to think we are insane to be charging so much for gas and energy when it should be free.

  3. They’ll say that those windows are open since last summer, and that they are praying god to provide an early summer this year and some rich uncle dies (he’s kind of sick right now), the bill will be still high but noone will freeze to death.

    Plus, the last owner left a manual on how to run that house, so…

    Maybe camimpeg is the room for the people who love cold AND also have a gun.

  4. I also entertained the “orgy in a hotel room” analogy (you call it party) before, and after all was said and done, the waiters had to come in and clean all the mess.

    For a while I was only seeing how the irresponsible behavior of our ad-hoc ruling class, bent on stealing for the now,-never mind the long term, played nice with this analogy.

    But after incorporating many other signals and fact from our story into the analogy, I think that is is very limited in explaining the main plot line. the main drivers of the waste is not our home grew chavista apparatchik, rather the external opportunistic players.

    Noways, my preferred analogy goes like this:

    A guachiman has been handed some custody of an hacienda, and some of his “friends” have found about it.

    They have convinced the poor man to kill some terneras of the owner and have a party with everyone they know. Whomever else complains about it is either invited to the orgy or ostracized and kicked out of the premises.

    Word is out there is a party/orgy en “venezuela” and is free for all.

    Some oce in and sell the booze and the drugs, others, make a killing helping those who want to leave by buying them on the cheap or moving their stuff and setting them some where else.

    Once the flock of cattle has been decimated, the grain-store depleted, the lands rendered a waste and the caja chica spent, the friends decide to set fire to all the outbuildings to cover their crimes…

    No one is going to go after the guilty and the responsible parties when all is left is brazen land, and a survival economy. It is going to be extremely hard for any institutions to survive and initiate justice claims against all the criminals involved in the “saqueo del siglo XXI”…

  5. Quico, most of the public utilities are subsidized not only gasoline and electricity. You have to include water, natural gas and waste management as well. And to add insult to injury, if the government don’t subsidized they control the price with a decree. That’s whats happening for example with public transport (which is not technically public; except for metro).

  6. I could say a couple of adjetives to describe them, but my comment could get offed, so I’ll go for the slightest one.

    They are marginal-minded, where “marginal” describes a ravenous, foolish person that is obsessed with getting a short-term benefit even if it comes to bite her ass later.

    Another choice could be mor conspirational: They’re doing it on purpose, it’s much easier to rule over a bunch of starving uneducated paupers rather than over mid-class annoying people.

    Just look at cuba and norkorea, a couple of hellholes where low-caste people are almost shambling zombies.

  7. Waste is a result of mismanagement , of people being appointed because of their ideological credentials to jobs they dont know how to perform , to prioritizing the political and showy and expedient over the rational and productive and efficient . of covering up failures and frauds because they politically embarras the bosses , of using public resources and authority to reward political clients allies and cronies and not to achive the tasks of government with optimum use of such resources. of prizing granstanding blablermouth leadership over team work and organizational culture , of improvising opportunistically rather than planning systematically , of the hubris which fills the heart of the ideologized megalomaniac so full of his own omnipotence and omnicompetence . of paying twice what something is worth out of sheer negligence or to make one self or a friend some money……!!

  8. Argument by analogy can often be seriously flawed, but what the hell… I like this one. So, at the risk of compounding whatever errors exist in this one, part of the problem is that the “enchufado” is the only one in the house with a gun and no amount of peer pressure or family intervention is going to convince him that the windows really need to be fixed.

  9. I would think that what World War II did to Europe might serve as an analogy. Enormous waste and destruction. However, no army of New York lawyers.

  10. I wonder, how much of the impossibility to roll back on the waste is an issue of self-perception and the role of the “Venezuela is rich” mythology in being the justification of the whole chavista movement. Because being a sober administrator that goes to great lenghts to save money clashes with the narrative of how the revolution finally sized the incredible power of the Oil Money and now can remake the country at will.

    In this sense being a responsible manager is the same as being a Roman Emperor that doesnt go to war; it may be the best course of action but people look at you like a failure. Same with dismantling the whole machinery set up to “give the oil money to the people” and actually use the oil money wisely for the people. It may be more sensible, but it doesnt look like you are doing it.

    • This is a very good point. The “Venezuela is a rich country.” myth has been responsible for a lot of very bad decisions, especially because it is false. There are dozens of nations in Africa that have an abundance of resources that no one would claim are “rich”. They are poor because they lack infrastructure, education, culture, etc… Venezuelans thought that it would be impossible to kill that Golden Goose, no matter how badly they treated her. They were wrong. In terms of real real GDP per Capita, Venezuela is now one of the world’s poorest countries.

  11. If you consider looting as waste, I will go along with your post. When you have that Chavez asshole looking at the national treasury as his piggy bank what do you expect: Chavez vive, el robo sigue.

  12. waste can exist even in honestly run administrations , if the offcial is ignorant and inept he will mispend public resources so that they dont produce the results they are meant to produce , evenif personally he is not corrupt.

  13. This gentleman, Diputado Montoya, backs you up with a list of “fraudes destacados.”.I mean, hundreds of millions of dollars at a time, sometimes over a billion.

    I don;t know if this guy’s politicas lean socialist or capitalist, and I can’t verify any of it, but even with a discount for exaggerations, you have to have a calculator handy to add the numbers up. And he was only going over the ones over $100,000,000 – not the endless $100,000 “small change” stuff. Amazing.

    Looking at what you said, and what Montoya listed out before the AN, Venezuela doesn’t need “cambio” it needs “exorcismo, ya!”

    Man ….

  14. You didn’t understand. There are tons of countries that have married rampant corruption with rapid, sustained economic growth that has brought millions of people out of poverty. Think China. Think Indonesia. Think Brazil. Think Vietnam. Think Bolivia. Even India – corruption cesspools with relatively sensible macro frameworks.

    The problem is *not* theft.

    • “The broken windows in our case are exchange controls, price controls, and subsidised gasoline and electricity: senseless policies that use up jaw-dropping portions of the nation’s income for, in essence, no benefit at all.”

      It’s one elephant and then another and another, not leaving room to breathe. If the government would step out of the picture, the free market (already in full swing operation, but “illegal”) would find a way to resolve things. Heck, if capital could be sure it wouldn’t be expropriated, Venezuela is a proverbial gold mine. But to me, the biggest elephant is what you say, or what you implicitly ask:

      “They could easily meet all of that person’s desires without bankrupting the whole household.

      But they don’t.

      And that, in the end, is what makes Venezuela’s collapse so maddening and so hard to fathom. All of it is self-inflicted. None of it is necessary.”

  15. A well known adage runs “‘dont atribute to malice what can best be explained as the result of stupidity. ” , Similarly we can say “dont attribute to corruption what can be attributed to incompetence ” . In actual fact both go together , what is common to both incompetence and corruption is a dysfunctional disordered system for the control and use of resources , where such system exists its easier to control corruption and to be more competent and effective in the control of resources….

    • Corruption is never the direct cause of a crisis like this. As Francisco says, is literally impossible to steal that much.

      But it has a correlation, because when your government is full of people whose only real competence is how to suck it up to the leader and how to make a guiso, you get waste, you get bonehead policies that dont work but are tried again and again, you get failed projects because nobody was really in it for the project but for the cut, etc..

    • It can go either way! Incompetence makes waste. That’s easy to understand. However, what becomes of competence when it is an island in the midst of incompetence? Probably begins with disillusionment, followed by frustration, followed by hopelessness, followed by temptation, followed ultimately by corruption!

  16. The biggest waste of all are the armies of Venezuelans with ideas and energy, who are ready and willing to take risks and work hard to create progress and wealth, but are festering without the opportunity and support they need to get started. In fact, those who seized opportunities and became successful are trapped in Venezuela by an ideology that frames them as criminals! How can there be a bigger waste than that?


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