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December 08, 2009

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I won't speak for Scott, but I think the impression he had is part and parcel of the "pin angel" discussion you highlight above. It stands to reason that Venezuela would have done well out of a massive hyrdocarbon boom, culminating in better than a tripling of the price in the blow-off top at the end of the decade. The only reasonable points of dispute are:

a) How did they handle the increased revenue?

b) Did their policies enhance or detract after controlling for the secular boom?

c) Did they prepare well for the pretty well inevitable bust?

I can't see that Hugo comes out particularly well on any of those measures, but I agree that it's impossible to argue that Venezuela as a whole saw and benefited from a (windfall) boom.

Yes, it grew fast, but a good chunk of that was recovery from the previous collapse. The economy fell close to 20% between 2002 and 2003. Total real GDP in 2004 (when it grew 18% in one year!), was still lower than in 2001.

If you assume a 2% drop this year average real GDP growth from 2000 to 2009 will be about 4%, nothing to write home about.

I suppose I find myself thinking of stories like this:

http://www.guardian.co.uk/world/2007/nov/14/venezuela.international

Is a shortage of eggs and milk a sign of supply not keeping up with rising demand? I can't see how that would be, though apparently it's what Chavez would claim.


I am not surprised to learn that Venezuela boomed on surigng demand for oil. I am just curious how this works out long run, and if the ground was laid for sustainable growth after oil runs out. Your comments on housing suggest no, though we'll see.

Incidentally, now that the public option has failed and Snowe's still bailing, do we have another sign of the failure mode of the United States?

(Mind, recent events in New York have illustrated the GOP are still far, far better at party unity than the Democrats, so maybe the failure mode just results in GOP predominance in Congress).

Oh, and I'm glad you're feeling better.

Scott re failure modes: I find the tone of your comment completely impenetrable. Sarcasm? Sorrow? What? Drives me f**kin' nuts. Either way, I'd prefer it if you'd keep comments as on-point as possible, thread-wise. The comment indicator on the right will allow people to follow, even if the discussion is on an older, more relevant thread. Mind continuing this on one of those?

Scott re the shortages: the shortages were due to price controls (as the story made clear) and were found mostly in the subsidized shops aimed at the poor (which the story does not). I'm not sure that I understand the source of your perplexity about the causes. Would you mind rephrasing? I do, however, understand why stories like that would create a notion that conditions on the ground in 2007 were very much unlike the actual reality of the time, which felt dramatically (if unsustainably) prosperous.

Scott re illness: It is nice to feel better. Today it took 800 mg to Vitamin I to kill the sinus headache, but hey, it worked.

John re growth: very true about the scale of the recovery in '04; the strike crushed the economy the year before. Still, growth between 2004 and 2008 averaged 8.3% per year, which is pretty damned high. Entirely due to the oil price boom that coincided with those years, of course, but respectable nonetheless. And the consumption boom really was breathtaking. But don't take this as a paen to Bolivarian macroeconomic management! I agree with your main point, even I would be hesitant to pin the economic stagnation of the early years of the decade on Chavista economic policy.

Bernard re the bust: the truly sad thing here is that a good case can be made that Venezuela didn't have to prepare for the normally-inevitable bust. As I argued here and elsewhere, oil prices weren't going to stay around $140 for very long ... but even when they crashed, they stayed well above 2003 levels, and they have since recovered to a healthy $70 per barrel. Of course, that reinforces your point! It is a sad sad thing that the Bolivarian Republic cannot balance the books even at that rather elevated price, not to mention what a real oil price bust would have looked like.

Sure, apologies.

I suppose my concern was that price controls do not, at least to me, seem indicative of prosperity. When I read about shortages of imports or meat, I think the Third Reich (which was running out of hard currency), or stories from Eastern Europe in the 1980s (enough said).

And then, reading things such as:

http://www.telegraph.co.uk/news/worldnews/southamerica/venezuela/4938993/Venezuelas-Hugo-Chavez-tightens-state-control-of-food-amid-rocketing-inflation-and-food-shortages.html

Is another example of why I'm concerned. Yea, it's post-recession, but there have been articles about inflation for the past few years. So the impression I've gotten was an economy with unsustainable growth, and (from what I could tell) no investment in basics like education. So I am pleasantly surprised.

You should only be surprised in the sense that you'd formed a picture in your head based on a false syllogism, that price controls = wartime deprivation. The reports of shortages are far overblown without context --- not in 2007 and not now did Micky-Dee's stop serving --- especially in the Torygraph. (Would you trust a paper that botches up the exchange rate in its story? I wouldn't. Not a reliable news source; stick to the NYT and the Guardian, or the English version of El Universal.)

That said, even after tossing out the false syllogism, the Venezuelan economy still looks quite troubled.

Inflation is running very high, and it's only going higher. The budget is a wreck. Non-oil exports have collapsed. The agricultural sector has been demolished. Even oil production may be falling: I had a long conversation with Francisco Monaldi where we tried to reconcile the data from Venezuela's export markets, the apparent lack of internal shortages, and the data on the number of rigs in operation, and we just couldn't.

I don't think this is going to end well, although there is still time for the government to pull out before it crashes.

The only real takeaway here is that price controls and spot shortages of some commodities are not inconsistent with a rapid rise in incomes and living standards. That isn't a bad lesson, it shows the very real dangers of historical analogies, but it is a limited one.

I like this guy for Vene-gossip:

http://devilsexcrement.com/

He ain't bad. A little hysterical (understandably!) and a bit hard to follow without some background knowledge. But really good on the details, if you can ignore the editorializing.

Funny how Hugo has managed to alienate his supporters, no? I think cynics like you and me now have to rely on Correa for inspiration. That's a smart fellow, knows how to play the game, a worthy adversary. Mr. Chávez, he's just winging it. Winging it well, he's got good instincts, but winging it nonetheless.

No?

I dunno, man. Granted, if you're going to play hardball with your creditors, Correa's got the right way to do it. But doesn't a lot of the other stuff seem counter-productive or even random? No relations with Colombia, arms deals with Iran? Accidental shark hunting? Very Hugo-lite.

I admit that I might be misinterpreting and that a lot of this is for domestic consumption, in which case it's working like a charm.

Also, while the buy-back-bonds-after-you-crash-the-price stunt was admittedly brilliant and well executed (practically a Hollywood movie; Correa's 12?), it seems like that old Daffy Duck cartoon where he blows himself up. It's a great trick, but he can only do it once. Where do his loans come from now, if (when) he ends up needing them? Maybe Hugo gets the last laugh.

I'm not sure that we disagree, Bernard. Correa takes what are pretty clearly calculated risks; it's easy to decipher the logic behind his decisions, even if they aren't the ones you would take. Take all three examples. Colombia gets you friendly with Venezuela, who can give you money and ideological support, at little cost. Calculated risk? That the Colombian government wants to avoid war. Tweaking the U.S. gets you domestic support, while posing no threat to American security at all. Calculated risk? That the current administration in Washington couldn't care less about empty symbolic gestures. Screwing your creditors lets you buy off certain domestic interests and look good at home. Calculated risk? That with a debt-to-GDP ratio around 10% and a boatload of oil income, you won't need credit in excess of what myopic creditors will be willing to lend to you.

None of those are risks I would take; all are decisions that could go wrong. But they all are also eminently rational, given Correa's revealed goals and tolerance for risk.

Hugo Chávez, different story. Badly-designed renegotiations over oil, unnecessarily frozen electricity rates, weird nationalizations, pointless foreign adventures ... it's hard to rationalize as a strategy. This isn't to say that Chávez is irrational, or that he isn't a great politician, but he gets himself into all sorts of bizarrely unnecessary trouble. It's hard to see the upside in some of Chávez's actions even in terms of building socialism or expanding Venezuelan power.

Again, that's not the same thing as saying that Correa's objective function and risk tolerance are the same as, say, yours. It is to say that his actions are consistent. In that sense, I don't think that your objections to Correa's policies are inconsistent with the observation that Correa recognizes his limitations and believes that risks should be attached to rewards. It isn't always clear that Chávez recognizes either.

A more colorful way to put it might be the following: Correa doesn't play the game you would, but he recognizes the game being played. Chávez, however, sometimes seems to forget the rules.

Thankfully, I don't think Correa shares Chávez's ambitions; if he did, he would be rather more worrisome than Hugo, although I wouldn't want to exaggerate that.

Make sense?

Ok, you've convinced me. I'm willing to buy that he plays the game better than Hugo does, though the shark fin incident still seems weird to me.

(On your last comment, would it matter? Ecuador just doesn't have the natural potential of a Venezuela. Fidel sort of had the same problem. He played his game well often enough, but Cuba is ultimately just Cuba.)

True that on the last comment; ambitions that merely seem extravagant for a Venezuelan leader would be downright megalomaniacal for an Ecuadorean one.

About shark fins: well, Correa is an environmentalist, and wants to keep sharks from being fished to extinction to feed some sort of strange Asian demand. On the other hand, a ban wasn't the sort of thing the Ecuadorean government has the capacity to enforce, so you wound up with a very Latin "obedezco pero no cumplo" sort of arrangement. Right? Or is there something I don't know about the incident?

It looks more complicated (or confused) than that. Highlights:

a) Correa ousts and tries to deport the director of a conservation agency that's working with his own cops, then reverses himself after a private interview and on noting that the guy's married to an Ecuadorean.

b) Judge in Manta releases all the poachers the guy in a) helped catch and then give's 'em their shark fins back.

c) Correa says that, despite having overturned the ban on sales, it will remain illegal to catch sharks on purpose. Road-kill is apperently ok, tho.

Now, far be it from me to complain about what Ecuador chooses to do with its sharks. I'm not much of an environmentalist. But the whole thing just struck me as a very cheesy sort of pandering. And what's the point of the accidentally-caught shark rule? Is either of the interested parties supposed to be fooled? It seems to me that the Ecuadorean government could make life quite difficult for the shark fishermen if it so chose, but that it does not so choose for fairly transparent political reasons. As a cynic, I'm not bothered so much by the intent as by the comedic shenanigans.

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