The Return of Depression-Inducing Economics

Reading N24′s sad little write-up on the virtual impossibility of finding a Vergatario (rough translation: penis-phone) in Venezuela these days, it strikes me just how soul crushingly depressing the very existence of the problem is. Venezuela is busily reliving a morass of planning-induced multiple production and distribution bottlenecks that was already thoroughly analyzed, discussed, dissected and put to bed in the economics profession roughly 75 years ago. In fact, some of the key citations in this literature are now almost a century old. 

Do students even read this stuff anymore? Maybe in history class: the writing is way too old-timey for an Economics curriculum.

It really is dusty, musty stuff by now. Cuz think of it, the role of prices as information lynchpins in coordination mechanisms was already well established back when Maisanta was busy rustling cattle in Barinas. People who’ve cared to find out have had the full complement of analytical tools it takes to understand why the State is never going to be able to keep the market for Vergatarios supplied since roughly 50 years before the cell phone was invented. Yet N24′s hack still informs us that Vetelca has “apparently” faced unmanageable production and distribution bottlenecks as though that was news of some sort.

It’d be nice if it were. It’d be nice if there was something new to learn from the massive economic dislocations, from the colossal waste of it all. It would be comforting somehow to think there was a meaning – or at least that, at the end, the world would know something it didn’t know at the beginning.

No such luck. We’re going to learn about as much from the Nth catastrophic relapse into Central Planning as we would from putting our hands on a hot stove and refusing on principle to lift it.

It’s very simple: distort prices enough and they stop functioning as carriers of the information producers need to coordinate production and distribution decisions efficiently. Soon, shortages develop. Central planners are unable to amass sufficient information to overcome these bottlenecks not because they’re corrupt or bad at their jobs, but because the task isn’t actually achievable in principle. Hugo Chávez can no more keep the market supplied with Vergatarios than he can order the rain to fall upwards.


Now can we please move on? Please? Pretty please?

75 thoughts on “The Return of Depression-Inducing Economics

  1. I’d like to apologize in advance for derailing the discussion so early, but for some reason I chose to be nitpicky about this.

    I can’t believe I’m posting to NOT bash on the Vergatario, but I think it’s worth pointing out that a better rough translation would be optimal phone, or even “the best phone”. Are you done laughing? good, because I want to elaborate on that, let’s get started by looking at the definition for the word “vergatario” from The Royal Spanish Academy-an authoritative source- first.

    Vergatario, ria. 2. adj. vulg. Ven. Dicho de una cosa: óptima.

    For those who don’t know Spanish, all you have to understand is that vergatario in Venezuela is just a vulgar adjective for something great; more specifically though, it’s a superlative for good, and because the word is applied to a phone, the word is meant to convey the phone’s greatness while at the same time making it sound like “the people’s phone”. I’m not being too picky with the definition either. In fact, I’d argue that the other definition on the list is pretty flattering too, and I’ll add the link to the definition so whoever’s curious can check it out.

    I have no intent to troll, but some English speakers may read your blog and trust your translation to be somewhat accurate, when it’s really not. I don’t think that should be the name chosen to market a phone, especially considering how it’s low price makes it a decent option for younger kids (although, if I put on my “let’s get real hat” for a second, I suppose most Venezuelans are exposed to much worse already), but that’s not the point.

    I also want to be clear and state right now that I am in no way endorsing the use of that phone. I have yet to see one and as far as I know it could be vaporware. Waaaait a minute…. did I just bash on the vergatario? I guess it can’t be helped.

    Again, I apologize for hijaking the thread so early on.

  2. Pantabulosin is right. But it will end being now as the Dick (or Prick) Phone, because a Dick who is not named Richard introduced it (there, in the photo of N24, holding it) Dick-Head and Dick-Phone.

    Just read about the phone’s characteristics. Quico; most seriously; no way that phone is going to cost to produce 55 BsF. , the price they quote. The Dick who “invented” it, no manager, accountant or salesman himself, but a rather deluded flimflam man, probably told his minions to include this and that because he saw another phone (maybe the property of one of his soldiers), and to sell it at a price coming out of the top of his head, again because he thought it sounded right, or he liked the number.

    The economic calculation associated with this “economic” enterprise, but to a much lesser degree, like the economic calculation associated with Venezuelan gasoline (and natural gas) prices: Void, Nothing, Null, Nada sprinkled with the droppings of a feverish mind. Financed with oil… as long as mismanaged oil holds.

    I once joked that Economic Calculation in the Socialism, might be painted by Surrealists and Expressionists. To paint Economic Calculation in the Petrostate, you need the most extreme Dadaists.

    • Sorry, it’s more plausible that the flimflam man probably decided to license a cheap enough telephone offered by others, he is no engineer either.

      But the price tag is surely the product of his imagination.

  3. Quico, if Central Planning is bad and was their arguments were put to bed many, many years ago, Chavez’s system of planning and price control is much worse. It is exactly like loboferoz described it.

    Now, let me tell you what is worse: the huuuuge (Imagine the late Steve Irwin saying it), repeat, huuuge amount of people believing in it. I know many, many people, who are antichavistas and when a product or a service is too high for their expectations (let’s say 1000 cc motorcycles or Blackberrys or IPhones), they say “the government should put a stop to this. How high will these speculators go?”, or something like that.

    I repeat, many many people whose antichavismo has nothing to do with opposing central planing, price control or the state as the big distributor of wealth and poverty.

    • Maybe it would be good to remember that there was a time in Venezuela before Central Planning, and before 1976, before CAP, 1st. Period. It was fueled by oil revenue that’s sure, but it was not determined by pure demagogy, populism and grab-all-you-can that Venezuelans mis-characterize as Socialism.

      People saved and bought housing and cars and got education, even traveled, but did not go round the world like the most vulgar noveau riche. Gas was cheap enough, but not given away.

      The biggest problems with a lot of people who don’t like Chavez is that they agree with him too much, or rather seem to think that the petrostate, without Hugo Chavez, his quirks and his strange friends, would actually work. It actually did not, and will not. And they cannot hope to be more populist than Hugo.

  4. What you don’t seem to know is that most of the Vergatarios are brought from China by the back door and only a minority manufactured in Venezuela

  5. It would be interesting to know how many Vergatarios have been sold and how many have been destimned to Misiones, damnificados and so on. This figure could then be compatred with the cheap Huawei phones. The other thing is what is the production capacity for the Vergatario at the assembly plant in Paraguaná?

    If anything costs Bs.55 then it will sell out before the retailers unpacks the box arriving from the factory of who ever sends it.

    David Figuera is right o mention speculation since there is far too much of it in Venezuela and I agree that the government should step in.

    • I saw the 4 downvotes and wondered, why? (I think Arturo is being sarcastic, or is it ironic?)

      • Steve,

        Arturo is the pseudonym of a Chavista troll. He will always blame someone other than the Chavista government and conclude that the government must “do something”. He has a knack for missing the primary point of a post and engaging in ancillary speculation to attempt to undermine the legitimacy of any anti-Chavista arguments.

        Many will give him down-checks simply because of who he is.

    • Errr, little secret bud: It doesn’t really cost BsF. 55 to build and distribute a Vergatario…

  6. Yes, people do repeatedly try central planning, which has repeatedly failed. So why this stupidity? Why this insistence?

    Isn’t it because the price system, which “works”, is based on the idea that demand expressed in dollars or bolivars will generate production to meet that demand? And if you have no money, you have no impact on the system?

    So, if money were distributed equally, the system would respond democratically by producing what the people need and want. But the distribution is not equal, so many many people cannot affect what is produced because they have no dollars/Bolivars to vote/demand with.

    There are many more things wrong with centralized planning than with a market resting on unequal distribution of purchasing power. Nationalization would be seen for what it is–a method to liquidate sources of opposition to authoritarian rule–if people were more dedicated to addressing the weaknesses of a market system for the poor who cannot participate in it.

    • “Isn’t it because the price system, which “works”, is based on the idea that demand expressed in dollars or bolivars will generate production to meet that demand? ” Not at all. Actually, as stated, that doesn’t even make sense.

      A (competitive) price system is based on the idea that prices convey all the information necessary to achieve an efficient allocation of resources in equilibrium. In principle, this has nothing to do with the (initial) distribution of resources (wealth). That a competitive price system is able to allocate resources efficiently depends on many assumption. In particular, it assumes away market failures such as externalities (good or bad), information problems, public goods, etc. These market failures lead to misallocation of resources.

      • “A (competitive) price system is based on the idea that prices convey all the information necessary to achieve an efficient allocation of resources in equilibrium. In principle, this has nothing to do with the (initial) distribution of resources (wealth).”

        Should rethink that. Price has to do with both, the buyer and the seller. The buyer needs to have something to buy with and the seller needs to have something to sell, and they both need to agree on a price. Seems to me that this inevitably implies that price conveys information that has a lot to do with distribution of wealth.

        • Torres, that the allocation is efficient under a competitive price system has nothing to do with wealth distribution. That’s the only claim I made before. There are in general many efficient equilibria. That’s obviously very different from saying that equilibrium prices do not depend on the initial distribution. Equilibrium prices do reflect (again, in general) this initial distribution.

          • Then I’m not understanding you. How can a price system have nothing to do with wealth distribution if wealth distribution affects pricing of goods and services in a price system? If only a few rich people have all the initial wealth, the equilibrium of pricing is very different than if the wealth is initially evenly distributed amongst many. Please, explain.

          • Ok, let me explain…First, I haven’t said that “a price system have nothing to do with wealth distribution”. What I said was that the resulting equilibrium for any given initial wealth distribution is (Pareto) efficient. This is assuming a bunch of stuff like no externalities, no public goods, etc. Therefore, efficiency has nothing to do with wealth distribution. All equilibria are efficient in a perfectly competitive price system!
            Second, I also said that each equilibrium allocation and prices, in general, DO depend on the initial distribution. Therefore, when you say “if only few rich people have all the initial wealth…”, you’re right. I’ve never said otherwise.
            Check this out:

          • Your link didn’t work for me. But I think I still don’t fully understand how the equilibrium can be efficient in the following case: Assume a perfectly competitive pricing system. Assume an initial uneven wealth distribution such that a significant percentage of people below the critical poverty line. If the critically poor never get to “vote” with their dollars on the market goods, the perfectly competitive pricing system will reach an efficient equilibrium only for products that the wealthy purchase. That means that products that the market still needs, but because of the initial wealth distribution, won’t be produced in sufficient quantities because they are not of profit interest. That doesn’t seem like an efficient equilibrium from a whole market perspective.

            Are we perhaps using different definitions of “efficient”.

          • Thanks, Quico.

            The Pareto concept seems to support what I’ve been stating. Given great inequality, markets do *not* exist for all possible goods, so at least one assumption for the proof that free markets will lead to a Pareto efficient outcome is not met.

            Also, though the link does not mention it, I see income as a future good. It is a fungible good that can be traded for other goods. So the basic premise of the Pareto concept regarding an initial allocation of goods among a set of individuals is clearly dependent on the initial allocation of wealth, too.

          • “Pareto Efficient” means something closer to “non-wasteful” than to efficient in the everyday sense of the word.

            Saying that controlled economies are “inefficient” is a slightly unclear of saying that they’re wasteful: they consume 5 bolivars worth of lemons to make 4 bolivars worth of lemonade.

            Do enough of that and you end up with huge unmet demand and massively misallocated resources all throughout the economy. The argument is about waste, not equity.

          • Quico, the Pareto argument was brought out as a counter to an equity-related comment.

            The argument was about people that are part of the market not having equity enough to impact the pricing system. Pareto fails to counter that.

            The point was stated that if the poor cannot affect demand through purchase, their demands will not be met with products. This lack of inclusion of all market products is precisely one the renders Pareto concepts a misapplication in this case.

          • In other words, I’m not arguing against Pareto, I’m claiming it is an invalid argument against jeffry house’s comment. It is, according to your link, self-precluding.

    • Jeffry House,

      You are engaging in the same fundamental error that causes people to try central planning. You are assuming that “success” is an “equal distribution” of goods. However, the market applies to people as well as to goods. Not all people are equal, in their ability to produce. The free market (allowed to function) rewards those who produce more with higher wages, salaries, profits, etc. If you meddle in the labor market to equalize incomes, it is as damaging to the information flow as setting price controls on goods.

      I do not oppose the existence of safety nets, to try to reduce poverty. Excessive poverty creates social inequalities with damage the cohesiveness of the society. However, ANY attempt to control the market will always produce unintended consequences. We must carefully weigh the economic cost of any manipulations of the economy for social purposes.

      • “If you meddle in the labor market to equalize incomes, it is as damaging to the information flow as setting price controls on goods.”

        Not quite. Think about standardizing data. The properties of the data and the relation between datapoints is not changed with standardizations. In the case of unconditional cash distribution, you could raise everyone’s income by a fixed amount. This would keep people from being left out, making the market *more* information rich, not less, since they are necessarily part of the market even when they do not produce.

        • Torres, that analogy makes no sense at all. Moreover, unconditional cash transfers have nothing to do with policies aimed at reducing wage or earnings inequality. Many of these policies tend to distort the labor market. That’s part of what Roy is saying in that sentence. I should add that not all of these policies are damaging as Roy claims. Some may have a positive impact on the labor market. For instance, if there is some degree of discrimination in the labor market (i.e., women tend to earn lower wages than men given the same experience, education, etc.), certain policies (say, allowing paternity leave) may reduced the negative effect of discrimination on earnings.
          Again, unconditional cash transfers have nothing to do with this. Cash transfers are part of the redistribution policies (as well as taxation). Of course, this type of policies may have an impact (positive or negative) in the labor market and, in particular, on labor income. Btw, have you thought about the possible perverse effects of well-intentioned cash handouts?

          • Manuel: “unconditional cash transfers have nothing to do with policies aimed at reducing wage or earnings inequality.”

            As far as I know, the GINI coefficient is a very acceptable measure of inequality, and it is very directly improved by policies of unconditional cash transfers since it depends on measures of income, so I have to disagree with your claim that they “have nothing to do”. On the contrary, they have very much to do.

            As to your mention of “some” of these policies being damaging and others possibly positive, I would have to ask where does the one I’m talking about fall? The example you mentioned about paternity leave is not even a cash transfer, nor is it unconditional. I’m talking about taking all the revenues from natural resources and distributing them equally amongst all citizens on a daily basis, with a stabilizing fund in between.

            And again, the cash transfers I’m talking about do *not* fall under the “redistribution policy” category, because it was never taxed. It is not money to which the government has the right to decide how to spend, because it wasn’t the government’s to begin with. If you don’t believe me, ask yourself if what you are considering a policy is that for every 30million barrels of oil sold, 100USD be taken away from each Venezuelan, for the government to spend on something or other.

            As to whether I’ve thought of “the possible perverse effects of well-intentioned cash handouts”, I have to start by repeating, the cash distribution that I’m talking about is not a handout; it is simply letting the rightful owners cash out, at will. Aside from that, yes, I have, and the most recent and varied studies point to the positive far outweighing the negative. See the links I posted.

          • By the way, as to the analogy, all it means is that the information flow of a price control system changes the interrelation between the prices of various goods, unless all prices of all goods are changed in a fixed fashion. An unconditional cash distribution, equal for all, would be akin to the latter, therefore not affecting the information flow at all.

          • Torres, I’d love to discuss many of this issues with you but honestly we speak different languages. It’d be difficult and time consuming to make you understand what I’m trying to say because you’re lacking many fundamental economic concepts and definitions. For instance, when you say “the cash transfers I’m talking about do *not* fall under the “redistribution policy” category, because it was never taxed”, you show you don’t have a precise idea what redistribution policies are. Please read (the introduction of) this paper: from the Int’l Institute of Labor Studies and you’ll see a definition of redistribution policies.

            Anyhow, let me try to make myself clear. When I say that UCT have nothing to do with policies aimed at reducing wage or earnings inequality (i.e., compressing the wage/earning distribution), the key words are wage and earnings, which are related to labor income. That is, paid labor services. You seem to ignore what we economist call earnings. By definition, UCT do not fall in this category. UCT, however, aim at reducing (total) income inequality. That’s why it affects the GINI coefficient. Of course, UCT may also potentially affect the wage/earning distribution due to general equilibrium effects. This doesn’t mean, however, that UCT policies aim at that. Maybe I should have simply said that UCT do not have as objective to *directly* reduce labor market inequality, which is more in line with what Roy was saying.

            Finally, on a slightly different point, the problem I see with you pushing so vehemently your UCT proposal is that you seem not to be ready to answer fundamental questions about the effect of this policy. I know that you said that you’ve thought about those indirect effects but honestly, and I mean no disrespect, I don’t think you’re prepared to do that. If you were, you’d be capable of answering, for instance, why is your proposal superior to one where oil revenues (the same you would use to finance UCT) are use to finance large (income) tax cuts for the poor. Or why would UCT be superior to any other politically viable alternative use of oil revenues? In my opinion, a proper answer should be based on a reasonable economic model where you have some kind of social welfare function in order to be able to compare both policies in welfare terms, which is what we care about in the end. Anything else is mostly blah-blah-blah. Let me finish by saying that I think that your UCT proposal is in principle a nice one that deserve to be thoroughly analyzed. However, that doesn’t mean we should be blindly supporting this idea before doing our homework right.

          • Manuel, Sorry to have wasted your time, and sorry in advance for wasting it again, but I would point out that this is a blog with non economist readership. PErhaps it may be you forgetting how to write in non jargon.

            My reply to “Anything else is mostly blah-blah-blah” does not need jargon because that money *belongs* to the people and not giving it to them is a form of theft. You’re wrong if you consider that argument “blah-blah-blah”, because it’s not a about whether a different policy would be *economically* better, it’s about economists not having the right to decide what to do with the money. No jargon needed.

            Earlier You mentioned Pareto where it was self-precluding. This time you back-pedal by stating that you should have stated that UCT don’t have the *direct* effects as *objectives*.

            You then point me to the definitions of “redistribution policies” in a document to demonstrate that I “don’t have a precise idea what redistribution policies are”, and that’s as one example of my “lacking many fundamental economic concepts and definitions”. Yet, by the very definitions to which you point, the document supports my statement, contrary to your reason for pointing to them.

            The document mentions three categories: “Redistribution can be pursued through taxation, social transfers and social expenditure.” It then defines each of those three redistribution policies.

            Clearly, UCT are not a form of taxation. Though I have pointed out that, in effect, government spending of oil revenue is a form of taxation in which 100USD are being taxed from every citizen for every 30MM barrels of oil sold.

            Also clearly, UCT do not fall into the “investment in education, health and other social services” policies category. Though I have mentioned the studies that point to improvement in education, health and other social measures with conditional cash tranfers.

            That leaves “social transfers, including social
            assistance benefits and social insurance programmes”. Yet, UCT can’t be considered social assistance because money that is taken away to give right back is not really assisting in any way. It’s not a social insurance either since it’s unconditional.

            So I stand by the statement that UCT from natural resources revenue does *not* fall into the category of a redistribution policy, even by the definitions you referenced. The key is the prefix “re-” in “REdistribtion”. Revenue from oil has not been distributed to begin with, so it can’t be considered a REdistribution. The crux of the discussion is that I believe it needs to be initially distributed to the citizens, whereas you keep focusing on what the government should do with it.

            We need economists to decide how to best spend taxation money to help improve whatever negative effects oil revenue in people’s hands may cause, but we don’t need economists to decide if we give people their own money to them. So, you’re wrong about my needing to learn economic jargon to discuss this. If anything, I need to learn civil liberties and constitutional law.

            Once again, sorry to waste your time and effort.

          • I’m not wasting my time, don’t worry. Actually it’s kinda fun. Otherwise, I wouldn’t even bother to reply. You’re right, I probably should keep to a minimum economic jargon. Honestly I thought you knew it.

            Anyway, first, oil revenues don’t belong to the people. As far as I know, they belong to the State, who is the solely owner of the oil. Hence the State may decide to keep the money to finance gov’t expenditures. That ain’t theft. Of course, the gov’t may decide to use the oil revenues to do UCT. That’s obviously legitimate. However, as the gov’t have alternative uses for the oil revenues, we should seriously think about what the best option is.

            For a moment, let me even follow your line of reasoning and assume that, as you put it, “that money *belongs* to the people and not giving it to them is a form of theft”. If that money (i.e., oil revenues) belongs to the people, then the only legitimate owner of the oil itself (and you can push the argument to include PDVSA as well) is the same people. Now I ask you why don’t you argue in favor of distributing ownership of the oil (and PDVSA) itself, instead of the oil revenues in the form of UCT only. Why don’t we go all the way and distribute property rights over the oil and shares of PDVSA to every Venezuelan? Anything in between, like UCT, is still a way of theft. In my opinion, that’d be the ultimate conclusion of your flawed assumption.

            As for our earlier discussion about the efficiency of a competitive market economy, it was a completely different context. My point was a theoretical one in a very abstract level. In that discussion I never mentioned UTC. So, I don’t understand when you say I back-pedaled. You lost me there.

            Finally, I don’t agree with you about the type of policy UCT are. Broadly speaking, UCT are part of redistribution policies. In any case, it doesn’t matter. That discussion is mostly semantics. Really, it’s immaterial for the fundamental discussion and analysis.

          • You seem to be using State and government interchangeably, but there is a distinction. Governments are temporary, while States are endless. As it applies to our discussion, the State is composed of all citizens, but not all of them are comprise government. So by stating that the oil belongs to the State, it implies that the citizens own it. chavismo has taken this interchangeability to an extreme by also using “chavez” interchageably with government and State, as well. The more government’s use of oil monies blurs the distinction between State and government, the more the use of these monies clearly approach governmental graft. chavez clear personal gains show that the use of these monies has undebatably reached the term graft. As I said, it is a *form* of theft, that may not have been so clear before, but thanks to chavez, it is very clear, now. That money belongs to the people, and just because the laws of the land (that government created) allow it to dictated the spending of said money does not make it right. But even if you don’t agree that it is the people’s right to receive it, I still believe UCT is the best economic option.

            “why don’t you argue in favor of distributing ownership of the oil” There is no need, since the premise is that we already own it. What better title of ownership than the constitution?! Keep in mind, citizens come and go, States remain, and future natural resources at future prices will belong to all the future citizens as they come and go. The moment, however, that a natural resource is converted into monetary revenue, it becomes fungible. And that fungibility belongs to all, equally. That is my reason for stating that each citizen should get his/her share of the revenue obtained from each barrel sold. How do you reach the conclusion that giving people the money obtained from the sale of the things that belonged to them is some way of theft?

            As to PDVSA, remember it is the oil that is inherent to the State; PDVSA is merely an acquisition made in its name by government. A big blur comes from whether the government purchased PDSVA from taxation money, that is money the people have given to the government for functions such as this, or whether the government purchased PDVSA from oil money, which belongs to all the people, equally. Further blurring comes from the distinctions between ownership in the sense of being member of a state, and private ownership of a share. Even further blurring comes from the distinction between the value of a share and the value of money. I suggest we get on the same page regarding oil before discussing PDVSA.

            “My point was a theoretical one in a very abstract level.” I claimed you back-pedaled when you went from “unconditional cash transfers have nothing to do with policies aimed at reducing wage or earnings inequality” to “UCT do not have as objective to *directly* reduce labor market inequality”. But I get what you meant, now. No problem.

            “That discussion is mostly semantics.” Even the examples further in the document you provided are nothing close to Unconditional Cash Distribution. And you insist you still disagree. Sorry, but I have to ask, if not by the definitions in that document, then how are you still concluding that the Unconditional Cash Distribution of money that has never been distributed are part of “REdistribution policies”. Please, explain.

          • I’m not using interchangeably State and gov’t. I know the difference, trust me.

            Second, even if all citizens owns the oil according to the constitution, defining and giving clear property rights over that oil which people could trade if they want (even if under some conditions) have very different implications than UCT.

            How you implement the distribution of those property rights is another issue. I have no idea about the legal details here. I’m no lawyer. I imagine that part of the implementation could consist of distributing PDVSA shares. That’s why I mentioned PDVSA.

            Finally, UCT can be considered a redistribution policy because it’s a TRANSFER from the gov’t to people. Government transfers fall in this policy category and they don’t need to be conditional. This is consistent with a broad interpretation of the definition found in the document I provided. Government transfers have direct redistribution effects. That’s what make UCT a redistribution policy. To be honest, I don’t want to discuss more semantics. Again, how you call it is not going to make its effect any better or worse.

          • “That’s why I mentioned PDVSA.” Then just consider UCT part of the Keeping it Simple category, unlike shares or other transactable intruments of ownership.

          • Wow, this back-and-forth took a life of its own.

            I think there are three basic objections to the whole UCT proposal, as Torres puts it forward: one technical, two political.

            1-If you transfer the oil industry’s revenue stream to citizens, you’re transferring the oil market’s volatility directly into private households, the people least able to bear it. Cuz oil markets will continue to gyrate wildly and collapse occasionally. So the economic dislocations would be very serious indeed if transfers to households sort of dropped off a cliff every few years when the oil market tanked. Serious and pro-cyclical to boot, imposing sharp cuts in private consumption just when the economy needs stimulus. (Plus, politically, can you imagine having to be the president to go on Cadena Nacional to explain to people that while their UCT was worth 100 last year, they’ll get 30 next year? Suicide!) So any UCT would need to be coupled with some sort of smoothing mechanism to address peaks and valleys, but that already weakens the “Keeping It Simple” aspect of establishing a direct, unmediated link between what comes out of the ground and what gets transferred to people’s accounts.

            2-Unconditionality is Politically Unfeasable. Barreda’s gut rejection of the idea is extremely widespread when you poll on the issue. Normal voters don’t buy it, don’t think it’s fair, and don’t trust it. I happen to disagree with that, but that doesn’t change the fact: a policy that most people think unfair is not sustainable in the long run. Conditionality makes transfer policies sellable.

            3-Mucking around with the concept of property. In an election cycle where what’s really at stake is the ongoing validity of Private Property in our society, do you really want to muddy the waters by presenting a kind of watered-down, conditioned version of property to voters? In saying “The revenue stream from the oil industry is yours…but you can’t sell it” aren’t you just confusing the issue? Isn’t this kind of hemmed in chucuto version of private property rights precisely what we criticize Chávez for?

            If ownership means anything, it means the ability to sell. If I’m not able to sell the future rights to the oil revenue stream (by selling you my PDVSA share) then you’re giving me gato por liebre, much in the same way Chávez does when he tries to tell me “collective” property is really mine in the same way real property is.

            We need an aggressive transfers policy, but we need to get it right.

          • Thanks Quico. As you know, I agree with what you present: that those objections are very real.

            Regarding the first one, you know from past exchanges and from other comments in this very thread, that I’ve always included a FIEM-type fund serving as a buffer/shockabsorber between the oil sales and the distribution itself. Even if something with a FIEM is closer to the mouth of the Keeping it Simple bucket, it is still inside the bucket. The real question then becomes, are there alternatives in the bucket that don’t require a FIEM? From what I’ve seen, no. They all do. So the FIEM complication is not a valid argument against UCT because CCT and alternatives have the same argument against them. And the alternatives that I’ve heard without a FIEM are outside the KIS bucket. In each of the cases, it’s simpler to explain UCT+FIEM than any other alternative. So, that objection, though valid, is moot.

            Regarding the second objection, I disagree. Primero Justicia proved you wrong. Here you have the political opposition party at the top selling the concept of distributing oil monies out. That doesn’t sound like the idea can’t get anywhere politically. I agree with you that there is a gut reaction to this idea that sometimes seems unsurmountable, but you have to agree that 10 years ago you would never have guessed that JC was himself considering versions of this. Besides, when you say “politically unfeasible”, that usually means strictly amongst the “haves”, because against the “have nots” this a political nobrainer.

            “The revenue stream from the oil industry is yours…but you can’t sell it” I’m not sure how this is an objection to UCT. This seems more of an objection to PDVSA shares. The UCT message is, “we just converted 30MM barrels of oil into cash, here’s your share, do whatever you want with it.” Or, if you want to get precise, “we’ve been converting 3MM barrels of oil into cash for the last 6 months, here’s your daily share of our daily average, do whatever you want with it.”

            “You wish to sell your future revenue from this source? Sorry, we don’t know iif you or how many others are going to be live Venezuelans in the future to be transacting based on future revenue. For now, your option is to transact with your cash. Enjoy.”

            But, again, these thoughts of property and future are non poor mindsets. The mass of chavez population aren’t having any of these thoughts. They’re not wondering if the government giving oil cash to all falls under redistribution policies or not. They just want their cash, with no added complications in their lives, and without being cheated out of any, nor without anyone else getting more than they do.

            This is where you are wrong about the “political infeasibility”. It’s really only “infeasible” amongst the dinosaurs.

  7. I would say less than 1% of Venezuela’s population has some clue about history.
    Everybody in Venezuela knows what Bolívar declared when he farted upon arriving in Quito or whose breasts Bolívar sucked at what time. Most people, though, ignore very basic stuff about Venezuelan and world history. I don’t mean they ignore names or dates but very general ideas about causes and origins of events that have greatly influenced us.

    A lot of people have heard – I don’t mean most of your friends, my friends, our neighbours, but the average – there was something called communism in the Soviet Union, there were dictatorships, Cuba is something like that, the Soviet Union collapsed, there were red flags. Period. The 35-year-old + remember Elton John’s song Nikita.

    Many less remember the concept of central planning. The average teacher – if you were lucky to go to a private school and some others- mentioned the term “central planning” at the end of the 7th school year. Millions who got to 7th yeardid not get to that point if we consider the levels of absentism for public schools.

    It is not that average people outside Venezuela know a lot. They don’t, but the general picture is not as fuzzy as the history mondongo most Venezuelans have in their minds.

    Journalists at Globovisión – a news channel – know less about basic ideological principles or history than Sarah Palin during her year as beauty queen. The same goes for many other journalists. “What do you think about what Marx said on love? Do you believe in Marx?”, Carla Angola asked Varela. “I believe in Bolívar”, answered the Tachira deputy.

    I tried to read a bit what self-styled writer Britto García thought on why communism failed. He is a “tarifado”, a payed thug, but I have the strong suspicion he believes at least some of what he writes. And that shows he doesn’t know a lot of what happened in spite of spending half his life reading communist and socialist stuff, going to Cuba, to that Soviet Union. I am not talking about ignoring things on human rights or such “details”, but details on economic policies and political structures and the mechanisms of power back then.

    If the most we get on this topic in Venezuela are articles written by Petkoff (porque era comunista y sabe del asunto y leyó más y mejor que Britto), if the other people who discuss this theme are the likes of María Alejandra López, who complains about the “castro comunismo” while shopping at Sambil, what can we expect?

    What do we do if we don’t move a finger to help inform the average citizen?

    No wonder we are like that proverb: “As a dog returns to his vomit, so a fool returns to his folly”.

    • “What do we do if we don’t move a finger to help inform the average citizen?”

      Start by teaching them that they can trust you in not continuing to steal their natural resources money as has been happening for almost half a century.

      • Just so Kepler doesn’t have to say it, start by giving kids textbooks from the oil money, there are some things the state should buy. A modicum of safety and functional literacy…. then split the pie.

        • HalfEmpty, if you are talking about taking the kids’ money to buy them books and then giving them the books instead of their money, then no. Now, if you are talking about taxing those who made the most money to pay for books to give them to the kids, then yes. Oil money, however, is not taxed money, it is the kids’ money, so I disagree, give the kids their money, then only tax those with high incomes.

        • Or what if the textbooks get trashed, or used for building ranchos. Would that still be a good investment? Priorities. When you’re hungry, you’ll use books for cooking. Giving books does not get rid of the Petro-State, which is what brought us chavez. What is your proposal doing to get rid of the Petro-State model?

          • Torres, we have discussed this a zillion times. I think Francisco wrote here better arguments that make it clear: even if your idea is nice, it could, just as it is, be unfeasable. As for my ideas, I have written quite some of them in my blog. It is not a single formula. I don’t believe in magic, in one magic formula that solves it all, as if “our power shall be unleashed” just by believing in one single principle.

            As for the books: you can do exactly as you do in Texas or Bavaria, you do not own the books, you have to give them back at the end of the year if you want to get books for the next year. That’s simple. I tell you: if you have not spent years, years and years in a real public school in Venezuela, specially in a poor area, you have no idea how dramatic the situation on that is and what those parents think. Providing books for all school goers is absolute peanuts.
            I don’t want to discuss that further.

          • from “we have discussed this a zillion times” to “I don’t want to discuss that further” in two paragraphs demonstrates how open you’ve been in any of our discussions…

          • Kepler, after all those discussions, what was your answer regarding justifying expropiando the poors’ oil versus expropiando their land for the social good?

  8. Arturo does not kid, he comes from the Dimension Desconocida. Vergatarios are good because the Vergatario Man himself said so. Give them away, give everything away, that is the model. Why charge for gas? Give it away? Why charge for cars? Give them away?

    Only then, will we finally destroy the country and start rebuilding as Arturo moves to Nicaragua. Or is it Bolivia?

  9. I would like to point out that although the “free market” economies are inherently more efficient than centrally controlled economies, they do have significant vulnerabilities. For one thing, they need competition on a level playing field which does not happen automatically. Anti-competitive practices raise prices, bloat profits, and slow economic growth, all of which hurt the people. How do the people protect themselves and insure fair competition in the market?

    Chavismo-styled centralization is not meant to create an efficient market, it’s purely meant to “control” the marketplace for political reasons. For one thing, how does one create a socialist system within an existing free market system?

    Obvious to me, it’s not “Socialism vs Capitalism” that is the issue here. It’s not economics. Instead, it is simply a matter of keeping what works and improving what doesn’t work by allowing “fair competition” to run its course. However, “fair competition” also means allowing government to compete with private enterprise when it needs to, especially in health, education, public infrastructure, utilities, welfare, etc.

    Perhaps, I’m more pragmatic that the rest of you. Ideology and philosophy can help somewhat, but they don’t provide the specific tools for the specific problems. When you get the right tool for the right problem, it doesn’t matter which ideological or political or philosophical approach found the tool. Does it?

    • “For one thing, how does one create a socialist system within an existing free market system?”

      Free market with zero poverty? Sorry for this, but the answer is unconditional cash distribution. It allows for the advantages of a highly competitive, free market system, while ensuring that no one falls below a certain income.

      • No form of socialism will ever have zero poverty. Bread lines and inefficiencies are inherent.

        • Agreed. We’re talking socialism. We’re talking capitalism with an unconditional cash distribution that guarantees that no one will ever fall below a certain income level. No bread lines or inefficiencies. In fact, greater efficiencies than any current or historic implementation of capitalism I’ve seen.

          • Waitaminute… UNCONDITIONAL cash transfers? I thought we were talking about CONDITIONAL cash transfers, which is an entirely different animal.

            Give money to kids for going to school, no problem.
            Give microcredits to entrepreneurs, I’m cool with that.
            Giving money to any idiot just because he’s lucky enough to be Venezuelan? I’ll have to pass…

            I get the point of cash transfers: the State can get rid of the useless bureaucracy and put the saved money in the hands of people so they can make their own choices. Trickle-down effect on stereoids and all that.

            But, like my granma used to say: de lo que no te cuesta, has fiesta. If you make the cash transfers unconditional, the regular Joes will actually believe that State has infinite amounts of cash, which is not the case, and will never be.

          • Conditional cash transfers is what most others are talking about, so relax. Here, I was answering a specific statement: “No form of socialism will ever have zero poverty.”

            A form of “socialism” that would have zero poverty is a capitalism in which every single citizen receives an amount equal to the poverty line income, unconditionally. It’s not strictly socialism, but it is a “form” of socialism. Strictly, it is capitalism with zero poverty.

            As to your idea that unconditional would be so wrong, data seems to contradict your position:


            or, more recently and more thoroughly:


          • A. Barreda, also, and more importantly, the money is not a giveaway, it is our money. The money derived from oil sales (and all other natural resources) belongs to all citizens. It’s not money that the government got progressively through taxation. It’s money that the government is using regressively through graft.

            My position is that it should be *unconditionally* distributed evenly to all citizens, for life.

          • Thank you very much for the links. They are very compelling, especially the second one. Two things, though, have called my attention:

            1. “Even the oldest of the programs are barely more than a dozen years old, not enough time to see whether they can effect intergenerational change”
            There have been another trendy economic policies before. CT seems to work nicely, but they’re quite new. Will they work in the long term? What will happen when we run out of oil?

            2.”Cash transfer could in theory also have a negative effect on labor supply”
            They say that there are ways to mitigate them, but they are not proven yet. The only case I know is Germany, where some of the beneficiaries spend their money on alcohol and lottery tickets…

            I think the most compelling reason for the CT is the evident incapacity of our State to administer it wisely, especially this one. Nobody, not even an idiot drunk can do it worser than this regime. So, what the heck, let’s give each and every Venezuelan a chance to do it. That would be real participative and protagonic democracy…

            Nonetheless, I wouldn’t rule out the use of some special saving fund a la Norway. I think one idea don’t necessarily rule out the other, right?

          • And another thing:

            Shouldn’t the guys from the MUD be talking about this kind of stuff? Someone should be translating this articles to Spanish and bringing it to every media outlet out there!

          • “Will they work in the long term? What will happen when we run out of oil?”

            Whether they work in the long term or not, or whether the natural resources runs out or not, to me, is irrelevant because giving each rightful owner his/her money is the right thing to do. Anything else is a form of theft. So any problems arising from distributing the cash should be dealt with by other means, not by simply expropiando their money.

            “The only case I know is Germany, where some of the beneficiaries spend their money on alcohol and lottery tickets…”

            Are we going to stop giving people their money just because *some* people may mispend it? Mispend it according to whom? And, if it’s a legal activity, is it not class discrimination to allow rich adults to take part in some activities, but not poor adults? Besides, reread the studies; they show that the tendency is to spend more wisely than anyone predicted.

            “That would be real participative and protagonic democracy…”

            hear, hear!

            “I wouldn’t rule out the use of some special saving fund a la Norway”

            My fear with such a fund is the fund managers… (just look at the PDVSA workers’ fund for experience and all). I prefer a straightforward FIEM type fund for shock absorbing purposes, but not for investing.

            “Shouldn’t the guys from the MUD be talking about this kind of stuff? ”

            YEEEEEEEEEEESSSSSSSSSSSS! Aaaaaaarrghh! What’s a matter with them?!

  10. Whatever, as long as it doesn’t crowd out “fair competition” and allows the economy to grow with better products and/or more efficient production.

  11. A lot of us good upstanding Christians stopped reading at “Penis-Phone” I would bet.

  12. “Do students even read this stuff anymore? Maybe in history class: the writing is way too old-timey for an Economics curriculum.”

    Perhaps here lies the problem of the political speech of the MUD. We, as guys with a few years of formal education and at least a rudimentary knowledge of economics DO know this stuff. I assume that most of the MUD guys also know this stuff. But the thing is, that this stuff is so SELF-EVIDENT to us, that we do not see that Juan Bimba just doesn’t get it.

    Trying to explain why State interventionism to a regular guy is like trying to explain to a guy of the Middle Age that the earth is not the center of the universe. The guy can choose to believe what you say or not, that’s his choice. But if you actually want to prove your point, you’ll have to teach this guy some Astronomy before.

    Because, if you have on one side a guy telling you that you’re going to get everything you want or need at a fair price, and on the other side a guy telling you that he can’t make any promises about that, but that it MAY work if you give it some time, who do you think will get the nod from the people?

    I think that there are many smart ideas out there to solve our economic problems. The thing is how to sell those ideas to a regular Joe that is way too concerned about making ends meet and who sees no further than the end of his nose.

    People love certainty. People abhor changes and the uncertainty of the tomorrow. And price freezing is all about this. Trying to get some certainty amid the chaos of economic unstability. Probably the opposition should be fighting against this fear. Yes, change and uncertainty are scary, but if we work together, we will be prepared for anything, unlike now.

  13. I think somebody needs a course in costing. These idiots probably just added the cost of materials and said: voilá! it costs 55BsF to produce! lol

    Even then, most smart phones are subsidized by mobile phone carriers, they are not all that cheap to make.

  14. It seems clear to me that those below a certain income point have no real ability to express their needs in market-terms, since the market recognizes only those demands which can be expressed in dollars or bolivars.

    Roy says this is a mistake, because the status of the poor is itself market-determined; those who are useless to the market receive no wage-payments from it, and hence have no right to have their needs and wants expressed in that market.

    The problem arises because once the market has thrust one’s family into the outer category, the status tends to be passed down through the culture itself. Barrio children are unlikely to win entry to MIT because their local school will not have prepared them, while the children of wealthier people can receive expensive private school educations.

    Market fundamentalism never comes to grips with this reality, while individuals whose development is stunted can never forget it. If we are looking for a reason for the appeal of state-planning, I’d say it is related to the rejection of the claim that “if you are poor, you deserve to be.”

    • Just some thoughts: most people in Western Europe go to public schools. Those going to schools in secondary cities or villages tend to have as good if not better levels than those from the capital.

      Give Venezuelans high quality basic education, start with the very first years and continue and you will see the first real revolution in Spanish America.
      The rest has been wars and power changes, no further change.

      • State indoctrination through compulsory education? I’ll pass. I’ve learned more from my own independent research than school ever taught me. School, especially history, tried more to persuade me than actual provide me with the fact. For instance, Herbert Hoover intervened heavily in the market and hated capitalism. Roosevelt took sides early into WWII. Lincoln regulated free speech and instituted the first draft. The list of lies go on and on, but none may be worse than the idea that FDR got us out of the Depression.

  15. We can’t expect the poor to work in jobs that don’t exist! You have to provide them at least basic support until there are jobs for them. However, when there are jobs, the jobs should provide better wages than just basic support. Hopefully, there will be enough money to do both: support the poor and create jobs for them.

    • If the market gets reactivated, the market will expand, thus creating jobs. A way to reactivate the market in exactly the areas that consumers need it to expand is by having the consumers have money to spend in the areas of the market of their choice. Unconditional cash distribution gets every single citizen to have an equal additional amount of money to spend in the market, thus achieving the reactivation, the expansion, therefore the jobs, which then increases the income, which translates to spending, expansion, and new jobs, etc..

      • What if their market of their choice is alcohol? Humboldt already complained 210 years ago about how the poor would work hard, get some money and just spend it on aguardiente.

        • Kepler, I’ve answered this to you in an earlier exchange, and to others in other exchanges, from several angles.

          Firstly, if it’s legal who are we (or even Humboldt) to decide on what they can spend THEIR own money?

          Secondly, the related studies (to which I’ve provide links for you) show that the poor spend money more wisely than anyone predicted.

          Thirdly, even if they did spend it on the alcohol market, the alcohol-related markets would then grow, providing jobs and greater competition in those markets, which causes spending in other markets, which would then grow providing jobs and greater competition in other markets.

          Finally, IT’S THEIR MONEY to begin with. We don’t decide if we give it to them or not. IT’S THEIRS. If you want to prevent their spending, do it through product regulation, not by expropiando su dinero.

          How do you defend stealing their money for their own good? Please, how?

          • Ask the Norwegian government. It is doing precisely doing that: it is “stealing” the money of Norwegians and it is investing it in a Fund for pensions, etc.

            The key is transparency and accountability.

            Give people top education and good health system. Give them a parliamentary system and not the crappy presidential system that don’t work for Latin America.

          • I do not know if the Norwegian constitution grants its citizens the ownership of Norway’s oil. So, I’m not sure the “stealing” applies to them. Besides that, the Norwegian fund to which I think you refer only receives *surplus* wealth from oil income, and is mainly from taxation, licenses, interests, and dividends. In other words, it comes from the profits and other monies derived from the oil *business*, not the sale of the crude itself.

            Please, Kepler, don’t avoid the question: how do you justify expropiando Venezuelans’ oil, while not justifying chavez expropiando land for (supposed) social good?

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