The Naïve Economics of Speculation-Led Inflation

So I have this morbid fascination with “speculation” as an explanation for inflation. It’s one of those shibboleths that gets thrown around the Venezuelan public sphere all the time, and it usually goes unchallenged. People sort of nod knowingly, as though the whole trope wasn’t – how to put it politely? – totally insane and moronic.

Sometimes – usually in the middle of an insomnia attack – I’ll sit there trying to puzzle through the implicit economics at work here: the widely shared but never clearly stated understanding of what-causes-what in economic life that accounts for the baffling fact that people who blame inflation on “speculators” aren’t immediately laughed out of the room, out of their careers, and out of any possibility of holding a role in public life.

My best guess starts with a fallacy of aggregation: “speculation” sort of makes sense, intuitively, when you invoke it as the reason why one good might get unduly expensive in one shop, right? The damn portu down the street can mark up a good or two outrageously at his abasto in a speculative bid to see if some shoppers still bite. And if that’s good enough to explain any one price rise, why wouldn’t it be a good enough explanation for every price rise?

Even to pose the problems in those terms is to think at a higher level of abstraction than the followers of the speculation school of inflation seem capable of, but let’s just follow the logic down that rabbit-hole for a second here – which, conveniently, is about how long it takes for the whole flimsy edifice to come crashing down.

For speculation to account for inflation, it’s not one or two portus who have to be speculatively trying to see if they can make some extra cash – it’s every portu, marking up the price not just on one product, but on goods in general.

Now, there are only two ways prices can stay above their equilibrium level for any length of time. The first involves monopoly, where sellers face no competition and so can pretty much name their price.

As a general description of the Venezuelan economy, that one really makes no sense. Even now, after 13 years of trying to stamp out competition, there are thousands and thousands of sellers of most mass consumption products.

And so we’re left with the alternative explanation: a massive, sprawling portu conspiracy, a sort of generalized cartel of all those thousands of sellers plotting secretly to raise their prices above the equilibrium price, in tandem, forever.

The key thing to understand is that a conspiracy such as this would also need to be perfect.

Any single defector could bring the whole thing down in a moment. If it’s possible to sell a given good at a profit for Bs.10, but all shopkeepers conspire to hike the price up to Bs.11, any single shopkeeper willing to buck the conspiracy could make off with basically the entire market, making huge windfall profits in the process.

The conspiracy would be inherently unstable.

Set aside from the moment that, in this hypothetical portu conspiracy world, you would have excess supply of goods piling up on store shelves finding no willing buyers (rather than the shortages we actually live with) and ask yourself this: what would a real capitalist speculator, motivated by profit and profit alone, do in a world where he could sell profitably for less than Bs.11, but all his competitors are selling for Bs.11? What speculative price point might he speculatively try for, just to see how it goes?

The answer is more than obvious: Bs.10.99! When he does that, he breaks the cartel, capturing huge rents to himself, all through a speculative bid to test the prevailing price.

Of course, los portus tambien juegan. Eventually, one of his competitors, seeing the bottom falling off of his sales, is going to try to go one better, pricing at Bs.10.98, only to for his competitors in turn to take up the baton and drop the price to Bs.10.97…and so on and so forth until the prevailing price in the market comes all the way down to Bs.10 … all through the speculative behaviour of heartless, capitalist shopkeepers!

For reasons clear to exactly no one, though, the possibility of this form of “speculation” simply never enters the Venezuelan public sphere. The notion appears to be too sophisticated for us, even though the whole thing was first worked out by a 19th-Century Frenchman. In chavenomics, speculation only ever puts upward pressure on prices, never downward pressure.

“Speculators”, in the chavista formulation, are a very queer breed of “capitalist” indeed: one gripped by an obsessive, single-minded mania to raise prices at all places and all times, regardless of what the competition is doing. In other words, a speculator in the chavista mould is somebody willing to lose money to indulge his price-raising obsession, or at any rate someone unwilling to cut prices even when doing so would make him more money.

Another way to see this is that the naïve economics of speculation interprets every market as monopolistic and every capitalist as enjoying monopoly rents…just because. The assertion doesn’t stem from any kind of examination of what actually goes on in markets, but from a kind of definitional conviction that capitalism is monopoly.

The irony, of course, is that chavismo has managed to brand all capitalist as “price gougers” even though one of capitalism’s chief attractions is actually just the opposite: the way competitive markets make price gouging generally unprofitable. In any event, the proper response to speculation is certainly not more controls, but more competition!

There’s an element of setting-up-a-shooting-gallery-at-a-barreled-fish-market to this post, I realize, but I’ve just never really been able to get my mind around what exactly chavistas – and Venezuelans in general – have in mind when they blame inflation on speculators. It’s a view so primitive, so childish, so trivial to debunk you really have to pinch yourself to believe you’re still having to argue against it.

And then, as I’m sitting there tossing and turning at four in the morning, that lurking question just won’t go away. Is it really imaginable that the people who run our economy, people like Finance Minister Jorge Giordani and BCV chief Nelson Merentes, don’t understand the first-semester economics outlined in this post? Or is it that they do understand it, but have chosen to pretend not to in a bid to further their careers?

I honestly don’t know which it is…and I honestly don’t know which I’d find scarier.

185 thoughts on “The Naïve Economics of Speculation-Led Inflation

  1. Quico, this goes beyond understanding economics, it’s also game theory and common sense. This is a much more common trend, it is a bit conspiracy theory, and exists in many places.

    This is pretty much the same scenario than the conspiracy about the engine that works with water, or the pharma companies that don’t wanna cure cancer but have the miracle drug to do it. Yes, in our public sphere the conspiracy theory is just folk wisdom, but essentially is the same trend than elsewhere.

    • Oh, yes.

      I was trying to find out from my crypto-Chavista aunt how come Venezuelan shoppers are
      so inherently evil, how come they are such shameless speculators,
      more than anyone else in the Western Hemisphere. She was lost for words.
      I reckon she might have thought something on the line of “that’s why we have Chávez”
      but she might have suspected there was something wrong with that or I might somehow
      laugh at that.

  2. Listen: if these people control every port, every airport and every customs post in the country, plus many of the imports themselves, you can’t rule out the effect of the bribe, commission, or whatever you may call it, in the makeup of Venezuelan prices. This comes way before the portus put their hands in any merchandise.

    On the other hand, have you seen the price of any of the scarce commodities at the buhoneros? I know there’s a reason for this in the artificial, imposed nature of current prices, yet the buhonero price is probably higher than it would be if the goods were freely, filthy, capitalistically priced in a market-led economy.

    • Juan is very right: importers and anyone with a gun between Diosdado’s men in Puerto Cabello and the shop in Valencia/Caracas make for an increase.

      One of the most frustrating things I find about all this is how our leaders don’t go and
      start challenging Chávez: Chávez, and how come we have such speculators here more than anywhere else? etc…or they can tell people at a press conference: let’s see how Chávez and Diosdado answer to this? Then we will answer to that.
      Or am I being naive?

      • OK, thanks. Now, I am an absolute layman but: is there any chance Chavismo could even think about reducing money supply before the elections, even if they knew?
        My impression is those Chavistas somehow in charge of the economy belong either to the group of former guerrilleros without a clue or people with some idea but with more stronger political instincts.

        And one of the problems is that we don’t know how to let the public in general start asking the right questions…something in the sense of what I was asking my crypto Chavista aunt: how come are our capitalists so evil?

  3. “Speculation” could not cause inflation, as you say. But maybe (I am speculating) the broad acceptance of the word as a term of abuse is connected to Catholic doctrine, in which only works lead to salvation, while investment is disparaged as usury or speculation. In any case, the idea of speculation-as-immoral is deeply ingrained
    in people of the most rustic type.

  4. The main reason for higher prices is lack of supply & higher wholesale prices than the controlled price.

    The local meat & chicken market is a prime example.
    The vendor goes for days with no supply & then when the supply arrives the cost to him at the wholesale level is higher than the permitted retail price.

    So what does he do. He has no prices published. You order your chicken thighs or 500 grams of meat & you pay the price. There are no details. Either that or don’t buy it. He’s busier than ever.
    The pueblo that buy there know that if they denounce him there will be no meat or chicken, so they pay the price.

    If he’s caught by INDEPABIS he will be branded a “speculator” because some government official in Caracas has set the nationwide price for meat & chicken here in Margarita without taking into account problems with the ferries and other production & shipping problems.

    Price controls do not work!

  5. Quico,

    You are trying to rationalize something that is not rational. From the perspective of the average Jose on the street, he sees it like this:

    I want something and you have it. Last year I paid X for the same thing. Today, you want X plus! Therefore, you are trying to cheat me!

    And that is as far as they get. The don’t know anything about economics. They don’t understand the concepts of money supply. They don’t understand the supply chain that results in that product arriving at the shop for him to buy. All they can see is that which is directly in front of them: The price went up.

    For them to understand the monetary causes of inflation would require far too much abstract thought. Instead, they grab what, to them, is the simplest explanation: “They are trying to cheat me!”

    And this is not just in Venezuela. Populist politicians have been taking advantage of the economic naivete of populations to grab more power for themselves ever since the invention of money.

    • I sort of get it from a man-in-the-street point of view but the last two paragraphs of my piece still stand. Can it really be that the people running the economy are operating on this level too?!?

        • That is it exactly. It fits into their overarching “morality” about creating
          the new empire..Rationalized as being part of their “strategic mission”
          to hurt the yanquis for example even if it hurts Venezuela.

      • Quico,

        It is hubris on a grand scale. They actually believe they can “control” the economy. That is the ideology. Never mind that it has never worked in all the attempts throughout history. This time, they tell themselves, we can really do it. Because to admit they can’t would mean questioning their core values and contradicting their Comandante. So, they keep on believing it, in spite of all evidence to the contrary. Pathetic, really…

        • My impression is that Chavez truly believes this, and anyone in the administration who knows better is wise enough not to argue that. And of those who do understand the way things truly work, they may well believe that by pushing the point with the “man on the street,” it gets them political support (votes, and otherwise).

          So while speculation is completely irrational, promoting it is not. At least if your primary goal is something other than improving the economy.

          • My impression is that what they truly believe is that their system would work if all the people in it would simply limit themselves to earning comparably to what others are earning. Failure, they deduce, is not due to their system, but the people. So they give people the choice: convert, or leave, or be forced, or worse. chavez has sent this message consistently countless times over the years.

            Of course, a system in which everyone is honest has no corruption. In this case, a system in which everyone limits their earnings to the average has hardly any inflation.

            The flaw in their goal, however, is that one cannot make everyone a monk, a whole country a temple, let alone the whole global market. But instead of accepting this reality and redesigning the system so that it works with all kinds of people and not just the converts, they declare war on non converts, and nations that aren’t attempting the same thing.

            The flaw in their declaration of war, however, is that the ones against which war is being declared work more efficiently in a freer, more competitive system, so the system of the “revolution” is invariably left eating dust.

            The crazy thing is the level of denial that leads them to keep blaming the freer, more competitve systems for the failure of theirs, instead of accepting the inherent flaws with their system. All the while, the “good intentions” of their system fall on ignorant ears, so they keep capturing new converts, in a loop, until poverty is eliminated and inequality reduced…

          • AIO – I’m not sure that he truly believes it. I’m more inclined to believe your second approach of “something other that improving the economy”. I think he just uses what people believe in to his favour and to portrait himself as their “saviour” in order to stay in power.

      • “Can it really be that the people running the economy are operating on this level too?!?”

        The people running the economy see outcomes like real poverty reduction as counterproductive to their mission of staying in power. For them to spout illogical economic theories makes perfect sense.

  6. I love the post, and feel guilty about part of me wishing you had insomnia more often.

    The explanation regarding the word “speculators” may be in semantics. Most people that I’ve heard use “speculators” the way you describe seem to really mean “profiteers” with “too high” a profit margin. The idea that they espouse, that people should only make enough to live well enough but no more than well enough, implies that anyone who lives better than most others is someone who could have and, therefore, should have lowered his prices to lower his profits. If he doesn’t, Speculator!

    Aside from that, my insomnia induced thoughts on inflation explain inflation from a much less interesting angle than the Alice in Wonderland ride of your post. I simply imagine producers and merchants in a free, competitive market reaching their respective econ101 supply/demand price point, then spending the rest of their sleepness nights thinking of ways to *lower costs* either to increase their profit margin at market price, or to be able to lower their own price to beat the market price thus increasing sales. This lowering of prices through increased efficiency implies that deflation can be a measure increased efficiency, which would in turn imply that its opposite, inflation, can be a measure of decreased efficiency. What could possibly cause a generalized decrease in efficiency? Clearly, lack of either of the two capitalist market requirements: freedom or competition. That is, government controls and interventions diminish the market’s ability to maximize efficiency in a free, competitve environment. So, a government wishing to reverse inflationary tendencies should seek to free the market as much as possible and to create as competitive an environment as possible.

    Which brings us to taxation, a form of intervention in the market that directly increases costs, but also indirectly through its complexity. The more complex the tax system, the costlier it is for businesses to minimize the amount they pay in taxes. So, a big part of a government plan aimed at reversing inflationary tendencies should include lowering and simplify taxes, since they are a market inefficiency factor. (This is precisely how a series of long transportation rides and sleepless nights led to the “eliminate taxes” proposal, but that’s the forbidden story…)

    But taking the taxation them one step further, governments competing as meta producers/merchants in the global market should be trying to do as producers and merchants do, thinking of ways to lower their costs, which implies lower taxes than other countries and lower times and costs of setting up business. Any action that governments take that make it more costly or cumbersome to do business locally decreases local efficiency which will tend to increase imports and reduce exports.

    There is only so much, then, that “speculators” can do to improve efficiency and lower prices; in Venezuela, currently, I see the biggest burden to be government. Didn’t chavez say he would decrease the number of ministries?

  7. Quico, this is excellent food for thought, or lemonade, at the expense of your insomnia. Thank you.

  8. “but I’ve just never really been able to get my mind around what exactly chavistas – and Venezuelans in general – have in mind when they blame inflation on speculators. It’s a view so primitive, so childish, so trivial to debunk you really have to pinch yourself to believe you’re still having to argue against it.”

    The key to understand chavista “thinking” is this: it’s all about Projection. No matter what it is, if a chavista claims something is true about someone else, most likely it is because he knows it’s true about HIM. If he thinks that prices go up because of speculation it is because, if he had anything to sell, he’d invariably be trying to sell it at 10x its actual price. If he thinks that all who sell products are evil monsters who’d sell their own mothers for a profit, it invariably means that HE would sell…

    Let’s leave it there. Let’s just say it isn’t about not understanding economics, but about understanding themselves a little bit too well, and assuming that everyone else is as rotten on the inside as they are.

  9. Thanks Quico. Finally a post about issue #1 or 2 in Venezuela. This is it. Inflation of the money supply, not portu speculation, is the cause. Variation in the prices (commonly known as inflation) is the consequence.

    The portu who raises prices doesn’t speculate. You left out something very important in your analysis, inventory. As the portu is left with no merchandise and useless paper everytime he keeps his prices steady, then it is harder for portu to replace his inventory. All portus that survived so far have to know this. If the free market is good for something, is for getting rid of those who lack strategy and planning, and don’t learn from lessons of the past. This is not called “speculation” this is efficiency of work.

    Moreover, another problem with inflation (of monetary supply) is estimulating demand while supply remains the same. If there is not enough production to account for that increase in the money supply, then it is just plaine and simple devalorizacion of the currency with respect the internal market and other currencies as well, prices are marked up accordingly by market players.

    Thankfully, the portu probably has a supply chain that can adjust prices quickly, but what about employees?? Employees that work more and more everytime to bring money to his family they get more paper but the paper has less value.

    The worst problem about inflation, and I fear this is why the MUD doesn’t put inflation in the agenda, is that inflation (of the money supply) is the greatest power that a government has and the greatest power leads to the greatest corruption. They print tons of money, they give it to their friends in forms of loans, or handouts, they get to spend the money first, when it hasn’t triggered the price variation consequence yet (what we commonly refer to as inflation) and then the Venezuelan worker bears a 30+% inflation rate every year.

    So my opinion is that the MUD has no political will to control inflation in case they win, they want this power for themselves to keep raping and scavenging on the people that actually produce on this nation like they use to do in the 90s. 100% inflation in one year by the chest!

      • Beware master DOA. You’re loosing your cool. Trying to involve other people in your frustrating and arrogant rant may cause you serious thumbs down.
        (I’m sorry VSalomon for using your thread for this response).

        • Like that worries me at all. Surely, I won’t sleep tonight or the following ones … Grow up!

        • See, the difference between you and I is that I confront people with logical arguments and do not need to thumb down people’s arguments, whereas you can only resort to thumbing down, How pathetic!!!

            • i hope the fight is invigorating for both of you, because it looks a little bit silly from the outside. Carolina, you should address DOA’s issues, which are deserving of serious reflection and response, instead of mocking him (or her) °a la° fifth grade (in some of your posts the adult in you takes over and tends to do so: bravo! But alas, not in most).

              DOA, posting is different than talking. What could constitute, in a normal conversation among acquaintances, a touch of irony and humor, may come as a little rude, or even mean, in writing. I don’t know if it was your original intention; I say it because it has happened to me. Irony sometimes looks like an insult when it is not intended to.

              Anyway, Carolina has shown that she ultimately agrees with you, so I think the fight could now take a turn for the personal. An animosity may be developing which is not necessary among rational people located on the same side of the talanquera, who insist on polarizing even if both have admitted to agree with each other (look in your posts and you will see).

            • If you read carefully my posts, you will realize that at the beginning I was trying to set right a very mistaken notion, doing so much in agreement with the line of thinking of Mr. Toro. All along this thread, I haven’t got any argument to counter the ones that I have put forward. All I got were personal attacks. I was called “frustrating” and “pretentious,” among other things. I will not go over again the explanation of why I think these people don’t have the slightest idea about basic economic theory. I did that in another post. But I am not Jesus, so I won’t present the other cheek. Thus, I could not care less if someone that attacks me personally because he or she is utterly unable to counter my arguments with a logical and educated line of thinking, feels “insulted” by a “touch of irony and humor,” not that I can see where I have insulted anyone, mind you. And to prove my point, here you have it in its entire splendor the last post concerning the discussion:

              “En el momento del viernes negro, muchos automercados subieron su precios de la noche a la mañana, es decir, remarcaron lo que estaba en las repisas (por que lo hicieron y que motivos los llevaron a eso, ME TIENE SIN CUIDADO para efectos de lo que quiero decir).”


              “They became the bad portus, the speculators trying to rip off people (and they were, actually).”

              “Amieres – Just in case is still unoticed, I have NOT said at any moment of this tread that the merchants were right or wrong in their actions and I would like to point that out.”

              There you have it. The lady couldn’t care less of why business people needed to raise prices after a devaluation (essentially in order to not go out of business), and she thinks that grocery store owners were very bad people. Therefore, she has not shown at all that she ultimately agrees with me, not that I was seeking that at all. What I was trying to do is to induce an informed line of thinking, but alas, it didn’t happen. She has just placed herself in the same category of people that irrationally think that grocery store owners are just speculating to make more money. Do you still have any doubts of why I think this lady does not have the slightest idea of what she is talking about?

              I understand that you want to keep the peace in your blog, even resorting to Salomonic means. But ultimately said peace rests on the fact that people should realize that they are entitled to disagree with a line or arguments, but not to shoot down the messenger because they do not like what he or she says. That only belongs to fifth grade, if so.

  10. Venezuelan shoppers see evidence of illegal tollgates (from the offloading wharf all the way to the store attendant/street vendor) in every distribution channel they interact with.
    Venezuelans rationally think that price controls could force out some of these parasites out of the distribution channel.
    The problem is Venezuelans do not think of alternative solutions to this problem in part because their attitude to problem solving is non-confrontational to an extreme degree and in part because the government’s decision to give a free pass to criminals, petty or large, makes it impossible to have any other solution, and the public knows this intuitively.
    Venezuelans of all social levels have a culture of solving problems by going around and conspiring behind a person’s back (whenever that person has power), never communicating about the problem directly with that person because doing so goes beyond their levels of tolerance for confrontation.
    Price controls do not force officers to confront the actual criminal agents. Instead, officers wind up confronting the final victim of the chain of tollgates: the “immigrant” shop-keeper, the one least likely to pull out a gun and shoot.
    So, given the Venezuelan frame of mind, price controls are the most rational solution to an economy dominated (in the public mind) 90% by pirates, scalpers and mafias.
    I am not saying all this to put down the Venezuelans. In fact, I am saying they are acting rationally. And they are not the only ones with a non confrontational culture which leads to problems. However, the combination of non confrontational culture with wholesale lack of respect for law and order (as in Venezuela) rationally leads to irrational solutions.

    • I was about to write a very similar post to yours, so given that you already said many of the things I wanted to say, I will just add a little story related to the prices of fish in Venezuela. Many people have wondered why those prices are so high in a country with such a vast coastline. You would think that it being so, fishermen should be very rich people, but everyone knows that’s not the case. I have a friend who comes from the eastern coast of the country, and he tells me that fishermen get peanuts over there for each kilogram of fish they can catch and sell to the local distributor, compared with the price the final consumer pays. There is a huge margin between what the distributor pays to the fishermen and what he charges later when he resells. A few of these distributors control the refrigeration and transportation of these products to the rest of the country.

      The story I wanted to tell is this: Given the situation explained above, the family of my friend saw a business opportunity and decided they would become distributors and pay a little more to the fishermen, so that they would all sell their fish to them instead of the other guys, and they wanted also to resell cheaper. If what F. Toro described in the original post worked so simply in Venezuela, this should force the other guys to change their prices so they could compete. You can guess this is not how things worked for my friend and his family. The only thing they achieved was that they got very serious death threats and had to stay away from that business, as the local authorities did nothing.

      You can be sure there are many other similar stories in Venezuela with other products other than fish.

      In any decent country, this is the kind of things the government should fight against, instead of trying to control prices. Just fight the mafias and their monopolies, and let competition work its magic.

      But in a country with no rule of law…

      And a country where the dominant ideology dismisses ideas like competition…

      I just wanted to finish saying that this kind of things have been happening since long before Chavez. Look in google for example about a brand of soda drinks called Grappette, and what happened to them back in the sixties and seventies in Venezuela.

      • Fascinating story. I know people that did exactly what you are suggesting. Bought a refrigerated truck and started bringing fish to the city from the coast. He didn’t get any death threats though.

        My understanding is that transportation in Venezuela is very fragmented. Given the state of roads, safety, lack of spare parts and high cost for insurance. Turns out that in spite of gas prices, it is a tough industry to be in. I doubt that there is such a thing as a fish transportation cartel. How much market share could your family’s friends have taken away with that truck?

        I can tell you another story. I was driving from Pto La Cruz to Ccs and struck a major traffic jam in front of Boca de Chavez (irony). Turns out that a chicken truck (carrying live chicken) broke down and the people from the town were looting the truck. It was a tragic scene to watch a grown man (the trucker) being withheld and crying at what was happening. There were 2 police men, that could do nothing against the crowds. But that’s one story.

        I do think that some merchants have disproportional gains in relation to their added value, but that is just a consequence of the barriers that are in place for commerce, production, imports, and overall, CADIVI. I believe that the government can do a lot more to lower those barrier and somehow they seem to be doing just the opposite.

        • I don’t know how much of a market share they would have taken away, but it clearly was more than the thugs could tolerate. I don’t remember at the moment if it was only one truck or more that my friend’s family wanted to use. I would have to ask him.

          Your story and mine come down to the same thing: Lawlessness, and a culture that seems to favor it.

      • I agree totally with your story and I have a similar one to contribute. I happen to know the owners of a well known ham and cold cuts manufacturer in Venezuela. They wanted to distribute their products to cities in the interior of the country. However, at each checkpoint or toll booth, the truck driver had to bribe the national guard officer with a smoked pork leg to avoid being detained indefinitely. In the end, the cost of “doing business” made distribution to places other than a few major cities unprofitable. That is why you can’t find these specialty products in most of the nation’s territory. So prices are “sticky” in Venezuela because there is no flow in the distribution channels, only barriers set up by pirates. People know this is happening, they see it every day, with 80% of the population participating in this sort of thing in one way or another. So they throw up their hands in the air and support price controls.

  11. “Venezuelans of all social levels have a culture of solving problems by going around and conspiring behind a person’s back (whenever that person has power), never communicating about the problem directly with that person because doing so goes beyond their levels of tolerance for confrontation.”–So, this is what we have been doing with Chavez in power?
    Not working to well,…

  12. There is a simple alternative explanation for how speculation can produce inflation, which Quico does not address. Indeed, speculating by raising prices is pointless. However, in a situation of generalized inflation, you could speculate by simply withholding your products from the market for a while, in the confident belief that the prices are not only going to rise anyway, but if you have a significant market share your withholding of products will decrease supply and therefore raise prices even more, at which point you could try to cash in a little later when the price is much higher than it was when you produced or imported your products. This strategy would only work, though, if other importers/producers could not raise supply rapidly enough to make up for your withholding of your supply. However, since imports require lots of red tape and since production is generally anemic in Venezuela, your speculation that others will not make up for your withholding of products is a good bet. And, voila! you have more inflation due to speculative hoarding – which is, more or less, the explanation of this process that I have heard some ministers make about how this works.

    • Sure, this is just a more complicated version of the Monopoly Power account. Without monopoly power, hoarding is a speculative strategy that may or may not pay off, but won’t affect the overall price level either way.

      If I have Bs.100 worth of widgets in stock, and I hold them until I can sell them for Bs.110, I only “make money” if inflation is below 10% between now and the time I choose to sell my widgets. If inflation in that time is 12%, my widget stock is essentially devaluing while I wait, since my Bs.110 then will buy less than my Bs.100 buys today. Ex ante, I can’t necessarily tell if witholding is a winning or a losing strategy – and in aggregate, you’d expect the winners and the losers to cancel each other out.

      Either way, how any of this contributes to the overall rate of inflation is hazy in the extreme.

      In reality, ministers more often refer to hoarding in the context of scarcity, not inflation: shelves are bare because the stock is being kept in warehouses. To the extent that this happens, what people are speculating about isn’t really the future rate of inflation, but the likely shift in official controlled prices: If I think the official price control is going to go up 15% next week, I’d be a fool to sell my stock today.

      But the shortages that this kind of “speculation” engenders is a direct outcome of the price control regime itself!

  13. I get it. “Speculation” of the type that the chavez government is talking about is impossible, unless you belong to a monopoly or a cartel that can control the supply of a commodity like, for example…HEY, chavez is a speculator!?

  14. I would add a last explanation to “the plan” exposed in the last paragraph (although pretty out there, as far as explanations go):
    I’ve had exchanges with certain hard-core militants who think the “transition to socialism” passes through a complete and total destruction of “capitalistic values” and “the markets”.
    So, as far as cuckoo-conspiracies go, let’s say option number 3, would be they understand all these mechanics perfectly but think they are *necessary* to the achievement of the “new man” in the “new” fatherland.

  15. “Is it really imaginable that the people who run our economy, people like Finance Minister Jorge Giordani and BCV chief Nelson Merentes, don’t understand the first-semester economics outlined in this post? Or is it that they do understand it, but have chosen to pretend not to in a bid to further their careers?”

    Actually, it is both IMHO. They, of course, need to keep their posts so they would not do anything that could anger the master of the country. Chavez may be a somehow astute individual. One with enough chops to destroy political opposition. But, he is very brute and ignorant. He is not really an intelligent person. So he must be placated by reinforcing his magic thinking. That is what these thugs do to further their careers. On the other hand, there is also the damned everlasting mania of Venezuelans to “invent el agua tibia.” It would not surprise me if somehow these idiots think that supply-demand economics, aka eco 101, does not apply to Venezuela. Talk about staring at your belly button.

  16. To me, that the speculation argument still holds any credibility with the general public is directly related to said public’s inability to draw and follow a simple line of reasoning.

    If “Speculation” is practiced by almost everybody involved in selling anything, and it has been going on, along with high inflation, for decades… What can (and should) you say about whoever says and at times brags that they run and control the national economy?

  17. It is simply amazing how things like this are discussed in Venezuela. When we talk about inflation, Chavistas go over and say that during Caldera times, inflation was much higher. Even their mercenaries like Weisbrot et alia would point at that fact…
    and nobody seemed to have remarked that back at Caldera times, inflation in most other middle to big economies in Latin America was way whigher.
    En fin…que a los venezolanos los parió su madre el día de ayer…más memoria que esa no parecen tener…

  18. You make it sound like this is particularly Venezuelan, but it’s not. I watched The Battle of Chile the other night and heard Allende saying the same thing — blaming speculators for inflation that was actually caused by market panic and hoarding in the face of his nationalizations and other populist moves.

  19. I believe there is a certain historic moment that changed the market that ties with the concept chavistas have about speculation. If someone remembers it differently please correct me.

    Before the viernes negro back in 1983, prices were somewhat semi stable with just small increases that people barely noticed. On that Friday the bolivar devaluated so drastically for the first time in years, and the very next day (maybe I’m exaggerating) or just few days after, everything went up 10 times in supermarkets, and most of the products, bought at 4,30, were simply marked up.

    People went bananas and started to protest to Indecu, and to be honest, it was the very first time I’ve heard about this institute in my life. The question was simple: why they raised prices if these should be a “precio viejo” (old price)? Anybody remembering the “comprelo doñita, que esta a precio viejo” thing?

    So I think that there is a certain ingredient in this chavista way of tying speculation with inflation, which is just feeding in the social anger of back then, and now they portrait themselves as the “protectors”. I don’t think it has to do with economics.

    • “Why they raised prices if these should be a “precio viejo” (old price)?”

      Actually, the answer is very simple. If you are merchant and need to re-stock your merchandise, you would not be able to so at “precio viejo.” Let’s say, you sell imported washing machines, and you have a stock of about 10 that sell each for Bs. 2000. So, you have Bs. 20.000 worth of washing machines. The exchange rate at which you acquired these washers was Bs. 10 per dollar. Skip the profits part just for the sake of the argument. Now, imagine a 100% devaluation as the one that occurred in 1983. You now have an exchange rate of Bs. 20 per dollar. That means that you can only buy about half of the washing machines that you had before to re-stock your merchandise. Thus, you, as a merchant, ends up loosing a lot of money. Your costs are more or less fixed, so your profits plummet.

      The problem does not really reside with merchants. It resides with failed economic policies like the one that led to that monstrous devaluation. The problem resides with the inept economy ministers that we have had since … forever!

      • I’m not talking about that.

        Back then some merchants were trying to get advantage of the situation and marked up products already on the shelves, not even caring about removing the old labels. It was not about washing machines, it was about mayonaisse, oil, and canned tuna. They became the bad portus, the speculators trying to rip off people (and they were, actually).

        Chavistas just want to make people think that all merchants are like those back then.

        • Sorry, but you miss the point entirely. The problem is not one of speculation but of the rising price of money. Whenever there is a devaluation, the price of money goes up exactly in the same proportion as the percentage of the currency devaluation. This affects not only washing machines, but every good produced or not in the country, especially one like Venezuela that depends heavily on imports to maintain its meager industrial production. And since the cost of money increases for everyone, everything that you need to produce something there will reflect a price increase commensurate with that percentage of devaluation. For instance, if you produce mayonnaise, you will need eggs, oil, spare parts to maintain your industrial machines, etc. You can be sure that after a devaluation, the cost of producing eggs and oil will increase, to say nothing of the spare parts. It is a chain, because industrial production is heavily interdependent, that is, whoever produces something depends on another guy producing something else, and so on. And it occurs with every product produced or not in the country, even Harina Pan. Of course, price controls can contain the final price that the consumer pays, but only for so long. And we have seen this even during this dictatorship. Thus, price increases just reflect the new economic reality: the cost of money has increased. So, just for the sake of argument. Why on earth the portu from the panaderia would want to dramatically increase the prices of his goods when he knows full well that a lot of people would be unable to pay for them, when what he wants to do is to sell, sell, and sell? The only reason is that he cannot afford to do so.

          The problem with a devaluation is that is a very unfair tax imposed on society thanks to the mismanagement of a few. Venezuela is a glaring example of that, not only for the last 14 years but ever since the 1970’s. And it is very unfair because although everyone feels it, not everyone is well guarded against it. In fact, the majority of people aren’t. Those who are rich or have businesses fare well because to maintain those businesses they are left with no choice but to raise prices. Those who depend on a salary are fried. All this reflects the spectacular hypocrisy of the ruling classes for the last 40 years: they are crucifying those that they have promised to defend, that is, the middle class and the poor.

          • DOA – the one missing the point is you and it’s quite frustrating. I understand all the DOA- the one missing the point is you!
            I understand the things you say and they are true, but it is not what I am talking about. I am telling the story of what happened with some supermarkets just few days after the viernes negro.

            What I am saying actually happened, I was there, I saw it and I lived it. Some supermarket owners went to their shelves and marked up the products that were sitting on the shelves. No extra cost to production, no restocking costs, nothing. Simple remarcaje! I am talking about the guy putting a sticker over another sticker!

            And people got very mad. Portus became the bad guys forever.

            • That happens everywhere, though. Here there is a big discussion in Germany about the price of petrol. The oil companies wait until the holidays start and swoop, raise the prices in a way that doesn’t have anything to do with the rise of oil prices.

            • It is clear to me that you do not have the slightest idea about economics and market forces, and that you do not even understand what I wrote. But, I am not frustrated: your frustration is your problem. And, I also lived what happened, by the way. That does not make your conclusion about it true. You keep mentioning the supermarket thing when I have tried to explain to you ad nauseam that every business is confronted with the same problem, but you cannot understand, choosing instead to blame the “portu.” (By the way, I concur with someone else: hideous expression, denoting an utter lack of culture). If I owned a supermarket during black Friday and the price to re-stock my merchandise DOUBLED as it did (Assuming a 100% currency devaluation), I had no choice but to raise my prices to be able to re-stock! Otherwise, my capital to do so would have been reduced by HALF in a few days after said devaluation and would have been unable to re-stock my supermarket adequately because I only would have been able to re-stock HALF of the products. That leads to scarcity, does it not? And, I said in my previous post that my other costs are fixed, but that is not true. They will also increase! That you totally ignore the dynamics of the business does not mean that you have the right to engage in the same attitude as most people do of labeling business people as speculators just because they raise prices. Blame the government for its economic policies and you will hit the mark. Everything else is “monte seco.”

              And about “Germany.” Do you even understand what is supply and demand? And, how does you example compare to what we are discussing here? In the US, prices of gas also go up during “driving seasons” even when international oil prices are stable.” Do I really need to explain to you why???

            • Wow DOA. Wow.

              My posting was not about economics at all. I am not blaming the merchants either, and I chose reluctantly to use the term “portu” because Quico used it in the posting.

              All I said is what the chavistas do nowdays is not about economics but more about a social policy of revenge.

              I will leave it there. You better cool it down.

            • Paragraph No. 1: “Some supermarket owners went to their shelves and marked up the products that were sitting on the shelves. No extra cost to production, no restocking costs, nothing. Simple remarcaje! I am talking about the guy putting a sticker over another sticker!”

              Paragraph No. 2: “My posting was not about economics at all. I am not blaming the merchants either…”

              Paragraph No. 2 BLATANTLY contradicts paragraph No. 1. But, I will leave it to you to solve the issue that led to this contradiction.

              Furthermore, paragraph No. 1 es CLEARLY about economics. The behavior of people as it relates to goods and money is totally the purview of economics. That you do not know that, does not make it less so. I have patiently tried to explain to you the falsity of arguments in paragraph No.1 to no avail, so I rest my case.

            • And by the way, I do not need to cool anything down. My posts were written with the calm afforded by my scant knowledge.

            • Master DOA -
              Thank you so much for explaining me what I wrote and what I meant with what I wrote. It was awesome.

            • Besides the fact that you and the other one have been engaging childishly in thumbing down my posts, you now show your true colors by doing exactly what chavistas do: shoot down the messenger without providing a shred of an argument to counter what I have written in my posts. You use disguised sarcastic contempt to refer to me because you are incapable to accept the contradictions and fallacies contained in what you wrote. In other words, you “lost” the discussion because you failed to even provide a plausible argument. So, again, you need to shoot down the messenger. It was the only thing that you had left to do. As the saying goes: “el que se acuesta con chamos, amanece meado.” Good Bye.

          • DOA, you are really pretentious. I suppose you believe in fairies and the Invisible Hand of the Market.
            This does not have to do with supply and demand. Before just repeating ad nauseam yourself what they tell you in 101 Economics, try to understand what kind of supplies they have with petrol.
            Competition, free markets? My foot.
            Some introductory information

            • First of all, I have not engaged in name-calling with you, so you will address me with due respect, sir. If you do not believe the german oil price hikes have to do with supply and demand, then there is nothing more to discuss. Due to the nature of the business, there is almost no room for competition between oil companies in terms of pricing. Supply is not nearly as elastic as demand. Ask the Chinese. If demand increases, the price of oil goes UP! period. Also, you can be sure that German anti-monopoly authorities are very vigilant of “undue” price hikes as they would seriously slow their economy. Germany does not have oil, so what you see at the pump is what you get. And, finally, even though I regularly read Spiegel in English, I am unable to do so in German.

            • You can at least put the url in Google MT engine.
              The big five has by far the great majority not only of petrol stations and transport facilities but the largest amount of containers. There is very little if anything the rest of the companies can do. Of course it’s extremely easy for those big five to go monitor the others and change prices every so many minutes.

            • And yeah, technically that is not “cartel forming” or price agreements but “extremely efficient follow up of price evolution by the competition”…by the other four, that is..minute by minute…or rather second by second.
              When is it speculation?
              They just want to guarantee safe of principal and a wee bit of profit?

            • From what I understood of the lousy translations of those magazine pieces you hurriedly sought to try to counter what I have written, I can only conclude that your lack of understanding is even worse than I thought. Clearly, the issue discussed in those articles do not refer to the root cause of the high oil price in Germany. What they are discussing is a difference of a few cents and how the price varies each day, which would not even be considered if the price of oil was low. Furthermore, there is no proof whatsoever that those 5 companies are engaging in monopolistic behavior. The price of oil – unlike in the US – is very unstable in Germany because it does not produce a meaningful amount of oil. Germany is heavily dependent on imports, and the oil market is now very unstable due to political reasons. Ask Spain. So you have ended up feeding the same reasons that uneducated and ignorant Venezuelans use to brand business owners as speculators. I guess there is nothing else to discuss with you. By the way, I guess I won’t be getting any apology in the near future.

            • Kepler, just a reminder, usually in econ101 oil is used as an example in discussions regarding inelasticity, so it should not really be brought up in a discussion pertaining the general principles of supply/demand behavior of free markets, you know, those places where fairies go buy their pixel dust. :P

    • “the very next day (maybe I’m exaggerating) or just few days after, everything went up”

      I don’t think you’re exaggerating. It may seem outrageous that they wasted no time to raise prices, but put yourself in their shoes. Imagine you own a grocery store and a big devaluation catches you by surprise. It wouldn’t take more than five minutes to realize to you have to mark up everything and fast! As waves of people come to your store trying to buy practically all your merchandise you can easily see that by the end of the day your store is going to be completely empty. You’ll be full of cash and as you call your distributors they’ll tell you not only their prices are already up but they won’t supply you for weeks as their stock is disappearing fast as well. So in the meantime you could ponder
      … should I close the store until I got something to put on the shelves?
      … where I’m goint to get the money to fully restock my store again now that the money I got so fast will only buy half of what it used to?
      … Exactly what happened? You sold todays product for yesterday’s money. It’s not that prices went up it’s that the value of the money went down. No es que es el “precio viejo” es que la moneda vieja no existe.

      In the end you would see clearly that your finances took a big hit in just one day. Next time you won’t be caught off guard.

      • Which is exactly what happened after the “viernes negro.” Business people learned and they will not forever be caught off guard, lest they stupidly want to risk going out of business. There is just some people that cannot understand logical thinking.

      • Amieres – Just in case is still unoticed, I have NOT said at any moment of this tread that the merchants were right or wrong in their actions and I would like to point that out.

        All I am saying is that there was a social reaction to their actions though, that’s a fact.
        And then Chavez came along, sympathized with the social reaction, and won the elections, and in order to keep winning, he has to stick to his plan, regardless of the economical disaster his policies have caused.

        Going back to the relationship between speculation and inflation that Quico wonders at 4 am, for me is non-existing and I believe we all tend to agree in that one. The link is purely and simply political.

      • “They became the bad portus, the speculators trying to rip off people (and they were, actually).”

        “Amieres – Just in case is still unoticed, I have NOT said at any moment of this tread that the merchants were right or wrong in their actions and I would like to point that out.”

        Verbatim with grammatical errors and all. Priceless. For everything else, you can read an Eco 101 book!

  20. Hey Quico, it’s actually pretty easy to understand. Especulador is just another convenient bad guy that Chavismo can use to make his followes feel like victims. It’s a really great bad guy, actually: abstract and faceless. Nevertheless, a Chavista would be sure to sort of know an Especulador if he ever sees one, but he won’t because an Especulador is everyone opposite, and no one in particular, at the same time. It’s the same as Imperialista, Capitalista, CIA, etc. They are just useful bad guys on which you can blame everything bad that happens. They can’t defend themselves because they are no one in specific and so, through their silence, create a sort of victory for Chavismo every time Chavez et al mention them.

    • Imperialista, Capitalista and CIA are the Emmanuel Goldsteins of the Bolivarian Revolution.

      Resentment based movements need a scapegoat at all times.

    • Cesar, I was about to write what you wrote. My grain of sand:

      When a Chavista encounters a problem he first and foremost finds somebody or something to blame, sadly he never tries to find a solution to the problem.

      Problem solving is not something that Chavistas encourage, they encourage blaming problems on third parties.

      • My sentiments exactly. Of course Chavistas are to blame for most problems Venezuelans face today.

        • Haha! Best comment & a hundred likes, the irony is priceless.

          Chavistas might be to blame for many things. But MOST of the problems Venezuelans face today can be blamed on MOST of the Venezuelans.

  21. I get the impression that followers of hard-core socialism are forever reacting to economic events having in mind a world order true of early free market societies. They hardly recognize the advancements in liberal economic thought and policies that have been made ever since. For example, it’s cogent to say that the outcome for some industries, because of economies of scale, is for an oligopoly and hence most probably collusive behaviour to ensue, but competition regulation/enforcement is nowadays a basic public service in any modern state.
    However (and following Toro’s train of thought) the nature of the “grocer around the corner” business, presumably the average grocery retail business in Venezuela, might not even comply with the above tendency. The “grocer around the corner” industry’s nature is to be constituted by a large number of participants, which precludes collusion. If grocers behave similarly (e.g. they all increase prices at the same time), what theory has better odds of being true: “grocers secretly meet and carry out an unnoticed conspiracy of thousands” or “grocers react to the same economic signals (inflation, supply shortages) and have the same goals (profit making, business continuity) thus is their behaviour (pricing, storage) similar”?
    After all, do people massively aiming for the exits in the event of a fire must have first discussed their reaction with each other?

  22. I get the impression that followers of hard-core socialism are forever reacting to economic events having in mind a world order true of early free market societies. They hardly recognize the advancements in liberal economic thought and policies that have been made ever since. For example, it’s cogent to say that the outcome for some industries, because of economies of scale, is for an oligopoly and hence most probably collusive behaviour to ensue, but competition regulation/enforcement is nowadays a basic public service in any modern state.
    However (and following Toro’s train of thought) the nature of the grocer around the corner business, presumably the average grocery retail business in Venezuela, might not even comply with the above tendency. The grocer around the corner industry’s nature is to be constituted by a large number of participants, which precludes collusion. If grocers behave similarly (e.g. they all increase prices at the same time), what theory has better odds of being true: “grocers secretly meet and carry out an unnoticed conspiracy of thousands” or “grocers react to the same economic signals (inflation, supply shortages) and have the same goals (profit making, business continuity) thus is their behaviour (pricing, storage) similar”?
    After all, do people massively aiming for the exits in the event of a fire must have first discussed their reaction with each other?

  23. If you don’t understand this fact you’re talking to your hand: for many Venezuelans, speculation-led Inflation is as easily believable a concept as saying the sky is blue. It resides in the intuitive part of our mind and no rationalization will help fight against it.

    We need a strategy, not evidences.

  24. I wouldn’t try to decipher the chavista obsession with speculators in a logical fashion. Speculators are the perfect bogeyman because they are so cartoonishly evil. Besides, they MUST be out there doing their awful things otherwise prices wouldn’t be so high. The average Venezuelan is not an economist and does not have a clear grip on economic matters so, like any other citizen in any other country, lets other people digest this information for them. Speculation is a nice, neat explanation because it casts blame on someone else, a chivo expiatorio if you will. In creating the specter of speculation chavismo has created the perfect straw man for those who have little to no sense of how an economy works. And what is disturbing is how they get away with it.

  25. Good post, economy 101. Though I feel it relies a lot on people acting rationally. And for rational actions to be uniform the information upon which people act must be equally uniform. With the level of bureaucracy in Venezuela where it currently stands there is no way anyone could make an educated guess about the cost structure of their competitors which I think is an integral part of the self balancing system that Quico describes, please correct me if I am wrong for I am not an economist. Could any of the more economy gifted explain what consequences this imperfect information availability would have in the example Quico puts to us?

    Now, commenting on a field where I do know a little more than economics, I find the use of the ‘portu’ adjective odious. Not because it is not factual that Portuguese immigrants have traditionally owned shops in Venezuela but because the amount of labeling that Venezuelans engage on is perhaps one of the principal impediments to social cohesion and only serves to legitimize the Governments’ discourse of polarization.

    Think about it, when we talk about niches, sifrinos, portus, chinos, etc. we build walls around our identities and those of our neighbors. I read a little slogan this morning that summarized this neatly: ‘Labels belong on clothes, not on people’

    • Funny, I was about to comment on how I enjoyed Quico’s choice of word “shibboleths” in his post.

      “In the Old Testament, shibboleth was a password used by the Israelites. It was chosen because their enemies could not pronounce it.

      “Note : By extension, a shibboleth is an often-repeated slogan. It also means an arbitrary test to prove membership in a group.”

      • …which reminded me of a passage in an Independence War-based movie (or was it on a “Sangre Azul” episode on TV?). After a battle or ambush, the criollo liutenant would snuff out and execute those war prisoners who could not say “naranja” without dragging the “J.”

        • Which reminded me of a passage in a Venezuelan Conquest based movie: after a battle between the slave traders coming in from Cubagua and Margarita and the slave traders from Valencia, the Valencians asked the Orientales “do you swear you are not from Margarita?” and killed those who said “zi zi zi zi”.

          • Which reminded me a story that my dad used to tell us about the Mexican revolution and Pancho Villa: “Fusilenlo, despues veriguamos”.

    • It all boils down to this, doesn’t it? “Us against them.” By the way, I agreed completely with your post “Venezuela Opposition Primary: An exercise in Futility, and I do not think that conditions to have a fair election – as you enumerated in your follow up post – will ever be met. And the candidate is really a lame duck, IMHO. Furthermore, I would like you to check this piece from a guy that I respect a lot, despite the fact that he writes in a crappy newspaper. Here is the link: Tell me what you think of this.

      • Hey, sorry for my belated reply.

        What do I think about Andres Reynaldo’s piece? Well, he’s clear about the relevance of the Castros in our affairs. The opposition, IMO, continues to underestimate the other, and overestimate its own capacity. The recent turnout in the primaries has them, erm, deciding who will get afterwards. 3 million votes in a primary, and, voilá, we have defeated Chavez in 7O.

        Historically, the oppo has anywhere between 2 and 4-4.5 million votes in the bag. Regardless of whether we engage in “buscate uno” or not. Regardless of who is the chosen candidate. Another thing is the oppo seem to be, firmly, leading vote count in urban Venezuela. At this point in the game I don’t think there are undecided voters in Venezuela. Furthermore, I don’t think HCR wishy-washy, populist rhetoric will win chavistas over: we have what we have, and we *must* worry about what happens in places where we have no eyes and ears: rural Venezuela. 7 million votes in there. Chavez’s vote kitty we can call it.

        Another problem, huge, the biggest in fact, is the meagre resources than the combined oppo movement has when compared to Chavez. Chavez’s most powerful weapon, aside from the fact that he’s the best politico Venezuela has, is that he has unrestricted access to Venezuela’s monies. The 2 trillion dictator we can call him. Is it any wonder that he is, still, popular? Is it any wonder that availability of unending resources is what makes him almost unbeatable?

        And yet, we could force his hand. We could ensure that every polling stations is monitored, so that rigging, if it does take place, will have to be so blatant that the tide turns in our favour. We should be offering amnesty deals to rangos medios, to chavista governors and leaders outside Caracas. We should be talking to the Chinese, and saying that no goodies will ever materialise with chavismo in power. We should be building a database of Fidel’s trusted operators in Venezuela. We should be identifying milicos in business with FARC, and where/how are FARC and other organized crime operatives and terrorists carrying out their dealings.

        I mean, I see a lot of kissing viejitas, and talking to amas de casa in fucking Barlovento. That is not going to win us the election I’m afraid.

        Another thing is the MUD leadership. I heard Ramon Guillermo Aveledo the other day in Globo, saying that the electoral system has been “suficientemente auditado.” When? How? By whom? Following what procedure/standards? Nowhere have I found any information pertaining to recent thorough audits of the electoral system and the Smartmatics. I can understand that the guy is desperately trying to convince people that voting is safe, that votes are properly audited, and that only by participating we can win. But what’s the need of lying? If the MUD did audit “sufficiently” the electoral system, how come no one has heard about it?

        Aghh, dunno man, mucha paja, mucho pajarito preñado, mucho pan con ñema…

    • Speculators may be the ultimate straw man. Not only is the position indefensible, they can’t defend themselves because there literally are none. When point has no counterpoint (and point is repeated loudly and ad infinitum, by numerous “authorities”), it’s easy to see what people will believe.

  26. If you think of it, speculators are the biggest cause of inflation in Venezuela. chavez proudly acts to increase, speculatorly, the price of oil, which is very inflationary, especially in a country of so many imports. Then he takes that money and puts it on the streets, which is also inflationary since now there’s more money to chase the same goods (again, mostly imports). Because it’s money for which the government didn’t really have to work hard, they don’t even spend it efficiently, which is also inflationary. Also, because it’s centralized spending, the money causes monopolistic advantages in the market for those who sell the goods and services to the government, which is also inflationary.

    Inflation *is* being caused by speculators — greedy, capitalistic speculators in leftist disguise…

  27. Interesting discussion between DOA and Carolina (and Kepler), name calling and short tempers aside, it clearly shows that for most people Economy 101 is really hard to understand. That’s because it’s counter intuitive and that’s why “the speculator” is such a famous villain that people love to hate. Most people just don’t realize that each one of us is a speculator one time or another.

    • And you decide who is the one for whom Economy 101 is hard to understand, right?
      After you understand what is really happening with the distribution of petrol in Germany you will see it is not a clear-cut case. The cartel authorities cannot trap them, but whether those five companies completely act as one here…and they better do. The market is bloated with oil, Peak oil one way or the other. I am very aware of the elasticity of the oil market. This is NOT the bloody point. You have to find out a bit about what happens from the moment oil ships arrived in Rotterdam…not just quote from your E101-book.

      • Yeah, I’m not getting into a German oil discussion.
        Know nothing on the subject and not interested.

        Sorry Kepler

        • Without getting into that German oil discussion. What point were you trying to make by bringing that subject here? That companies speculate?
          Of course they do, all of them, we all do, all of us. That’s what makes an economy move. And it’s not necessarily a bad thing. Of course monopolies will make it a bad thing but that’s not the example Carolina was mentioning.

      • Kepler, do not cartels fall under the monopolistic behavior category that Quico mentions? If they do, then their resulting market behavior does not truly apply in a discussion about freer and more competitve markets.

    • Ok guys. Since apparently what I said was interpreted as I don’t understand economics, I am going to write it in Spanish. In my last attempt to make it clearer, I should say that my post is closer to what Alek B. wrote, only with some reference to the events in the past.

      En el momento del viernes negro, muchos automercados subieron su precios de la noche a la mañana, es decir, remarcaron lo que estaba en las repisas (por que lo hicieron y que motivos los llevaron a eso, ME TIENE SIN CUIDADO para efectos de lo que quiero decir). La gente se volvió como loca porque primero, el shock de encontrarse precios al doble al día siguiente fue grande, así que empezaron a llamar a protección al consumidor” y a aparecer en la televisión quejando de la “especulación” de los dueños de los abastos y supermercados.

      Como nota aparte, algunos comerciantes hicieron algo al contrario y aprovechandose de la confusion, en vez de remarcar, promocionaron sus productos “a precio viejo”. Vale la pena comentar que esta practica duro bastante tiempo y la gente se acostumbro, y realmente pensaba que estaba haciendo un negocion cuando conseguía algo a precio viejo.

      El termino “especulador” se le adjudico en ese entonces a los comerciantes y ahi se quedo para siempre, y para mi, los chavistas de hoy dia, solo se estan aprovechando de esta circunstancia en particular, de este factor psico/sociologico si se puede llamar de alguna manera, y lo usan como un instrumento para manipular a las masas y culpar a otros, en este caso a los comerciantes.

      En resumidas cuentas, Alek dio en el clavo. Espero que ahora todo este mas claro ahora.

      • Reminds me of one of Kohlberg’s scenarios for determining moral development: What would you do if the (speculator) pharmacist with the medicine to save your partner’s life jacked up the price to a quarter million dollars, knowing he was the only one to carry it, and that you were desperate for it?

        Which begs the question, what would we call the merchants that slash the prices in half, or more, when a new version of an old product is about to come out? They simply go around their stores putting a new sticker on top of the old prices. Speculators, too?

        • Hum. Good questions. First things that come to mind:

          2. it would be interesting to ask Indepabis.

          1. Call Indepabis. LOL!!

      • Ok, thanks for clarifying.
        You may very well be right. That could have been the moment when the “portus” we’re all branded speculators in the public’s mind. A convenient scapegoat to distract the attention from the actual culprit.

    • “That’s because it’s counter intuitive and that’s why “the speculator” is such a famous villain that people love to hate. Most people just don’t realize that each one of us is a speculator one time or another.”

      I agree that for most people Economics is hard to understand, but I think this occurs mainly to the man or woman in the street, not because they are dumb but because for whatever reason they don’t have the information. However, I don’t think it becomes counterintuitive for the intellectually curious once he or she reads about it. Then he or she will discover why things in an economy happen. Seriously, it is not difficult if you read about it, if you like to read. Of course, when you offer an opinion based completely on zero knowledge, you enter the realm of those who think they know, despite the glaringly obvious fact that they do not know at all: it is purely an emotional response, driven by the need to assert a belief because such a belief allows them to direct their anger towards the immediately available receptor of that anger. For instance:

      “They became the bad portus, the speculators trying to rip off people (and they were, actually).”

      Of course, the true culprit of the whole situation is almost left untouched: the government. Years of mismanagement, stupid economic policies, blatant corruption, and of engaging in the practices of a Limited-Access Society (Douglas North) get to be swept under the rug. In short, the dynamics of the petrostate are left out completely. What a self-defeating attitude.

      Again, I can understand that people on the street are unable to grasp simple economics concepts, so that “speculators” will always become the target. However, it is sad that even these people cannot apply a little common sense to their line of thought. When you try to sell you car in the used car market, are you not trying to sell it for the maximum amount of money that you can get? Are you not speculating? How many panaderias are there in the greater Caracas? Did they all collude to bring up their prices at once and in fairly the same percentage after the “viernes negro”?” To the informed, the answers are very clear.

      Nonetheless people who purportedly have an education should not be given a free pass on this, because they should know better if they want to produce an educated opinion. Even more so if their points of discussion include zero knowledge and quite a few ad hominem attacks.

      You can both go back to keep thumbing down, now (You know who you are).

      • There you go. I gave you your thumb down.
        And I did it simply because you are absolutely unable to move on.

      • Reminds me of the correlation and causation relation: even when highly correlated, not necessarily the cause…

        Or the random sample conundrum: even when chosen randomly, not necessarily random…

        Or the riddle,

        What single thing can be implemented in Venezuela to:

        win the election,
        eliminate poverty,
        reduce inequality,
        improve the effects of education,
        kill the petrostate,
        increase the value the currency,
        lower interests,
        increase the number of jobs,
        and more?

        (sorry, estaba de bombita…)

        • Chavez!

          He won the election – more than one
          He eliminated poverty (among certain subsets of rojo, rojitos)
          He reduced inequality (by eliminating what middle class there was)
          He improved education (because now people better understand the dangers of socialism – nothing like an object lesson versus theory)
          He killed the petrostate
          He increased the value of the currency (when I lived there, it cost thousands of Bolivars to get a dollar, now it’s only a few)
          He lowered interest rates (by force, and only after they got jacked up high to account for the inflation he caused)
          He increased the number of jobs (in new bureacracies that wouldn’t even exist with sound economic policies)

          (I don’t even know what estaba de bombita means, but I think I was too…)
          (And by the way, I do know the real answer to the riddle: .)

          • This is actually quite funny and I think it just shows what I have been saying all along: this is all about politics, and Chavez is very well aware of that.

          • I think the origin of the phrase comes from things like badminton or volleyball, where a slow, high birdie or ball near the net is ideal for a slam. When something is said that allows for a “slam” that is too good to pass up, one can say that the lead was “de bombita”. Since I’ve been criticized for bring up cash distribution too often, I was suggesting that the lead into mentioning it was too good an opportunity to pass up. I may be using the phrase incorrectly, but that’s what I meant.

            • That doesn’t mean anything close to what I thought it might mean…but it still fits! :D

              Feliz Semana Santa, y Felices Pascuas a todos. I’m out!

            • Actually, I think – if I am not mistaken- that the expression “estaba de bombita” has its origins in baseball. I have used it since I was a kid. It means basically that the pitcher throws at you so softly that you have to be really a bad hitter not to hit it hard and long. So, when you do, you exclaim “estaba de bombita.” I have even heard Chavez use it as a metaphor, and I am pretty sure he used it with and has baseball connotations, because I cannot imagine this guy playing – of all things – Badmington! That should be something, LOL!

              Notwithstanding this, I do not understand how I led you to your cash distribution scheme, which, by the way, may be a sound economic policy in a civilized country, but I have serious doubts that it may work in Venezuela.

            • I do not understand how I led you to your cash distribution schem
              You did no (lead). Like spontaneous combustion, ET’s pet theory of cash distribution needs no lead.


            • Oh, Okay, I get it. Well, they say that to be a genius is also to be somewhat crazy. Who knows? May be it is an idea that can really cure all of our ailments.

              • “If at first the idea is not absurd, then there is no hope for it.” [Albert Einstein]

            • Syd, funny, again you conclude before asking…

              DOA, You presented an example of counterintuitive basic knowledge in economics, I presented two in statistics, and couldn’t help but think how counterintuitive the unconditional cash distributioin system seems to be, especially for the more educated. Reminds me of a puzzle For your interest, here is a link explaining why UCT would apply particularly to Venezuela, written by Quico:


            • Your UCT would get every Venezuelan a paltry $3,500 per year at most and that is before taxes! I need a better explanation of why this would work. Talk about counterintuitive.

            • DOA, thanks for taking time to consider this.

              Looking at the poverty alleviation angle, *critical* poverty is defined as the amount of money necessary to cover a minimally balanced local diet, which in Venezuela comes to about 2USD/day. *non critical* poverty is defined as double the critical poverty, so 4USD/day. 3,500USD/year comes to almost 10USD/day, five times the critical poverty level. For a family of 5, that’s 50USD/day. Hardly paltry, especially for those at or near poverty, a majority of Venezuela.

              Looking at ease of implentation and maintenance angle, think how low the overhead costs would be, and how few opportunities for corruption it would have. Consider all the current laws and programs (fertilizer for inefficiency and corruption) that become redundant with this implementation, not to mention that all the people currently working for these programs would then rejoin the market in more productive roles.

              Looking at the winning the presidential election value, talk about an easy sell to the very base of chavismo, and a reason for the ninis to get up and vote. It even has bumper sticker simplicity: Dame mi plata!

              Looking at the inequality angle, inequality is defined using the GINI coefficient, which is directly and linearly affected inversely by this distribution. In fact, this single distribution amount is more than sufficient to meet the (was it) 10 year goals set by UN.

              Looking at the legal angle, the money already belongs constitutionally to all Venezuelans. It’s not a favor or a handout that the government would be considering; it has been and continues to be graft not to distribute it. What makes this worse is that the spending of this money by the government is regressive because it is equivalent to having had a tax that taxes each Venezuelan an equal amount, which comes to a 100% tax bracket for the poorest and close to 0% tax bracket for the richest.

              Looking at the killing of the petrostate model angle, all the corruption associated with that amount of money disappears, quite simply because all the people currently skimming (understatement) from it would cease having access to it.

              Looking at the market reactivation angle, banks, having about 290,000,000 cash being deposited daily into savings accounts, would have to lower interest rates, which increases loans for business and construction, which increases job availability, which increases incomes, which increases consumption, which increases business, which causes further expansion…

              Looking at the inclusion angle, many businesses would stop having the government as their target client, since the economic power would be in hands of the citizens; we’d start seeing countless goods and services directed at the currently poor.

              Looking at the social values angle, no Venezuelan would have to put up with abuse for financial dependence reasons anymore. They could just pick up and leave, being guaranteed to never fall below the poverty line. Neighborhoods would be less willing to look the other way at petty thieves because their excuses for stealing out of necessity go down the drain.

              Looking at the education angle, education would go a longer way being immersed in a society where the poorest base wields so much economic power. Persons can start businesses directed at those in their immediate environment because everyone in their immediate environment has and will always have cash in their pockets.

              Looking at the international angle, imagine the news: Venezuela goes from 40% poverty to 0% in one year. Dang!

              And the list goes on. Hardly paltry effects, I think.

            • ET,

              I am still concerned that if that policy is made, people will vote for who offers more cash and governments will push to increase production at a large environmental expense. I think you are suggesting to walk over really thin ice.

              I understand the positive effects. Specially the effect that now everyone would have to pay taxes and less corruption. I understand all that. But from a long term perspective, it will be a system with weird incentives, incentives that can lead to long term destruction with perhaps short term prosperity. I still think that a better long term perspective would be a intergenerational fund, not to save for the future, but to make us less dependent of oil income and perhaps make that a secondary aspect of our economy.

              As a side note, I don’t know if people would dig it after you have to pay taxes specially because we hate to pay taxes even though we are being taxed on money that was given (Kahneman et al).

            • Rodrigo Linares,

              “people will vote for who offers more cash”
              Firstly, if it is good policy to distribute the oil revenues, then what’s wrong with candidates offering more cash? Secondly, how much more can chavez offer than what I’m suggesting, which is 100%. Thirdly, I differ with your calling it an “offer”; it’s their money. The proposal is not really to start giving money away but rather to stop grafting it from everyone.

              “governments will push to increase production at a large environmental expense”
              At the point that Venezuela is right now, isn’t an increase in production a good thing? By the time Venezuela’s production becomes an enviromental issue, shouldn’t Venezuelans have improved their lives to the point at which environmental issues will be an electoral issue? That is, offering increased environmental protection should be the vote getter then. But, regardless, hand in hand with the cash distribution proposal is the proposal that government get out of production altogether so they would not be able to offer increased production.

              “I understand the positive effects.”
              I’m not convinced of that. I doubt that you are suggesting that having one fifth of the Venezuelan population malnourished falls lower on the priority scale than environmental expense that may or may not occur in “thin ice” future. Or eliminating the whole petrostate model that is at the root of almost all other ills, not just corruption? Or winning the election that almost surely means the difference between communism and democracy?

              “Specially the effect that now everyone would have to pay taxes”
              I’m not sure how everyone paying taxes follows from cash distribution. Quico suggests making the distribution through tax credits ( ), which would make it a must for all to report taxes, but I don’t lean towards such an implementation. Frankly, I’m at the extreme opposite end of the spectrum.

              “it will be a system with weird incentives”
              On the contrary, the lack of cash distribution is what has all kinds of weird incentives. Besides, I differ with your calling them “incentives”; it’s their money. The proposal is not really about getting things to happen as much as it is ending bad things from continuing. Quico touches on much of this in his post:

              “long term destruction with perhaps short term prosperity”
              This makes me again doubt whether you truly understand the benefits, since the benefits of cash distribution are long term in almost every possible way, aside from the obvious short term advantages, which include saving thousands of lives, and keeping Cuba from becoming our zookeeper/prisonwarden.

              “intergenerational fund”
              Are you suggesting continued assignment to politicians in government a power and responsibility over an activity in an area that is not their expertise nor dedication? Aside from the inefficiency resulting from such an assignment, do you see how this can lead to the very corruptions that you see as a benefit eliminating?

              “make us less dependent of oil income and perhaps make that a secondary aspect of our economy”
              That’s exactly one of the benefits of cash distribution, not by controlling oil producition, but by turbo powering all other businesses via a consumer market, as free and competitive as possible.

              “we hate to pay taxes even though we are being taxed on money that was given (Kahneman et al).”
              That’s just one of the reasons why I am at the extreme opposite of the everyone paying taxes proposal with another that also goes hand in hand with cash distribution, but is completely independent to it.

              Allow me to twist then turn the crux of the matter back at you. In a parallel universe with a Venezuela that has 100% cash distribution of all natural riches, would you be suggesting a tax that takes, unconstitutionally, from every Venezuelan an equal amount that when added all together would be equivalent to the value of all the natural riches? That is, would you be suggesting a tax with a 100% tax bracket for the poorest and an almost 0% for the richest? I ask you because that’s what we have, and what you are suggesting we keep. The way I see it, it’s the status quo that should be on the hot seat, not cash distribution.

            • DOA, sorry, but I had a memory lapse there and need to make a correction: critical poverty comes to about 1USD/day, and non critical at 2USD/day. So the 10USD/day from oil would take every citizen to 10 times the critical poverty line, or about 5 times above the poverty line.

            • Torres

              Isn’t it the name “cash distribution” what irks most people that hear it the first time?
              Because it sounds like a handout, a populist offering, a clientelist scheme when in reality is the opposite.
              Do you keep the name because it’s provocative?
              or would you consider rebranding it, like “Ahora si, el petroleo es de todos”?

            • amieres,
              I am quite sure that you are right on both counts, that it triggers the “handout” rejection, and that in reality it is the opposite of a handout.

              I didn’t come up with the terms Unconditional Cash Transfers, nor Unconditional Cash Distribution. I adopted them because I was led to believe they were the generally accepted terms for the activity described. I’d be happy to accept any term that gets the proper message across, and if it increases the probability of acceptance, then more so.

              I didn’t lean towards “el petroleo es de todos” because

              A) that phrase doesn’t quite get the message across that this was different than status quo, which is government doing “gasto social” in name of all. I lean more towards “Dame mi plata.”

              B) the target of that phrase is not those who reject the UCT or UCD terms. Only the middle and upper classes, not the lower classes, reject the terms. Not a single person from the lower classes with whom I’ve exchanged these ideas has rejected them, not even chavistas. So, we don’t really need a phrase to convince chavista voters, we need a phrase to convince the readers of this blog, for example.

              But, again, I’m not emotionally attached to any term, so if you come up with a better one, I’m game.

            • Maybe Quico can organize a brainstorm or a contest for better ideas to give a catchier name to the proposal.
              I kind of like the “Ahora si, el petroleo es de todos” because it has a little barb to the current government “program” (status quo) and it helps contrast the big difference between the two. That may entice people to learn more about the proposal and foment discussion. It also conveys what’s the basic argument of the proposal: that the natural resources (oil and others) belong to the people in the first place.
              For other people to contribute ideas a new post and new discussion would be necessary as this one is already buried too deep in this post.

              • I’m for any post or comment that causes discussion of what I think is the most important issue for the present and long term future of Venezuela, and the easiest way to win the upcoming elections, so you just know I’d love such a post. We need to keep in mind, however, that the meme that you suggest we improve is a different matter than the term that wold describe to what it refers in, say, formal papers.

  28. The real test of success is when people from other countries want to emigrate to Venezuela. This won’t happen with Chavez in control.

    Every time someone worships Fidel Castro, just tell them to move to Cuba and stay. They either shut-up or are totally ignorant of conditions in Cuba.

  29. I’ll tell you what’s really hilarious here: The fact that Toro thinks the government doesn’t understand inflation, when the reality is Toro obviously never even got past the first chapter on in his economics 100 textbook. All he knows is that he read this “monetarist model” and then stopped reading. He’s apparently never heard of what is called “cost-push inflation” which is exactly what happens in many developing economies that have bottlenecks and highly concentrated markets and where the equilibrium assumptions of the monetarist model don’t apply. The irony of this post made me laugh out loud.

    • During Caldera II Venezuela had a higher inflation than now, Chávez mercernaries like you would say. But back then Venezuela’s very high inflation was much lower than that of the other major/middle-size Latin American countries;

      Today Venezuela is completely alone in the Western Hemisphere.
      Now, keep bringing forward theories from Cuba.

      • Yes, cost-push inflation is a theory from Cuba. You’ve just shown that you haven’t read a simple economics textbook either. You and Toro should get together and form a study group.

        • When you have dismissively written posts like Get a clue’s, you ellicit responses such as Kepler’s. Get a clue should try to make his (or her) point without disqualifying Quico, which is tantamount to a falacious argument, or at lest thinly credible. It is not a matter of Quico being black, yellow, red, short, American, Chech, Polish, rich or poor, Keynesian or a Chicago Boy. Come on, Mac, state your argument beyond a childish showoff. And Kepler, you should not call the first Joe who voices an opinion different than you mercenary, even if he could eventually be one. Arguments, arguments.

      • Most of the people here keep thinking like Milton Friedman and his “Chicago Boys” but let me tell you; you can’t explain every single economic phenomenon with the Neo-Liberal’s terms and you can’t qualify an idea as communist just because it isn’t Neo-liberal.

        IMHO the causes of Venezuela’s inflation are more complex and go beyond a simple increase in the money supply as stated in Friedman’s quantity theory of money. Its more related to the structure of the economy, external shocks, downwards stickiness of prices and the expectations of the population, as some have pointed out in the trend.

        I would recommend everyone to inform themselves and go a little bit beyond the quantity theory of money model before ramping about it.

        • Everybody is better informed and reads more books. Somebody call Amartya Sen. He’s missing all of this.

    • I’m not an economist, so I’m willing to learn whatever there is to learn on the topic. Now, according to wikipedia, “Cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available”.

      I would like to ask you what are the important goods in the case of Venezuela that have seen their costs substantially increased? More importantly, to which causes do you attribute those increases? And even more importantly, why have they increased here more than anywhere else in the world (see:

    • And why not tackle the bottlenecks? Why instead do this crazy, uber complicated regulation? For the first time Get a clue we can agree in the root cause, but why attack the symptom and not the cause? Do you really think price fixing is the solution?

      Just curious.

      • Again, its pretty ironic that this post is calling the government’s understanding of inflation “naive” but yet we get little gems like this (and the one above it) that could hardly be more naive.

        You see, tacking bottlenecks in production is one of the central problems of economic development. Raising productivity in agriculture, manufacturing, etc. so that the local economy can produce enough to meet local demand and not have to depend so much on imports is what development is all about. If the government could snap its fingers and do this then it would. Unfortunately its not that easy, so in the meantime price controls are a way to combat price increases while long-term solutions to increasing productivity are pursued.

        • I see we have a spokesperson from the central committee in the house. Long term solutions to increasing productivity “are pursued”? Would that be, the Ministry of Long Term Solutions?

        • Getaclue: How long does it takes to pursue “long-term solutions to increasing productivity”?
          In other words, is a 13-year period not enough time for you and the Venezuelan government? Or did y’all just discover the issue, with those in government just now applying band-aid treatments?

          • Given that economic development has proved to be very elusive for much of Latin America since the 19th century, expecting a government to have solved this age-old problem in only 13 years is laughably naive to say the least.

            • Chris,

              No. The “laughably naive” is you (how much do you love using those terms? Chris, always Chris: Get a Clue, Clueless Chronicles, etc…it doesn’t matter you are just a bourgeois brat who spent nice summer camps with other kids and then discovered “leftism” in US American campus).

              I repeat: The only country in Latin America with such incredible inflation rates is Venezuela.
              And not even Chile, with its terrible dependency of such stuff as copper exports, is so dependent as Venezuela on EVER INCREASING commodity prices.
              Venezuela was going in zigzags and sometimes even backwards for a long time but since 1999 it has been going only one way: steadily backwards.

              That’s what you get when a bunch of military rule, accompanied by such “economy geniuses” as Giordani, who thinks the North Korean economy is an example to follow.

            • I dont know much about economics, but using the we are in Latin America argument to explain inflation is a really crappy one. Most countries in the region have managed to keep their inflation in one digit in the last few years. Obviously there are factors outside the fact that we are Latin America that are causing this rate:
              Country Annual inflation(%)
              Peru 1.80%
              Ecuador 2.20%
              Brazil 9.60%
              Chile 4.40%
              Colombia 3.30%
              Suriname 6.40%
              Paraguay 8.10%
              Uruguay 8.10%
              Bolivia 8.70%
              Argentina 8.80%
              Guyana 12.20%
              Venezuela 23.70%
              If anything the Venezuelan government is behind even by Latin American standards.

            • I’m glad you went to the effort to gather information that has nothing to do with the argument being made here. No one said Venezuela has high inflation because it is in Latin America.

            • Its funny how you ignore to answer the argument made by everyone, why Venezuela has one of the highest inflation rates on the world? That would actually mean you having to admit that all the policies of the Venezuelan government aren’t perfect examples of economic analysis. You can support the ideology of a government, hate the US or whatever motivates you, and at the same time not delude yourself and admit that the economic policies of the government have created an inflation which stands out even from Latin American and world current standards, only comparable to African countries. Go ahead, with the clever insult and keep denying the truth.

        • Price controls are one of the main reasons why imports is just about the only way to stock the country’s shelves with goods, and a way for a few Chavistas and profiteers to make themselves fabulously rich in the role of importers. Oh, and this is no coincidence.

          • If this were true, then when price controls were removed in the early 1990′s we should have seen domestic production drastically increase to supply local demand and imports disappear. Oh, and inflation should have disappeared too. What we saw was actually the opposite.

            • No, but in the mid nineties we were actually exporting some radios. Private companies were doing with computers what your so-called Chinese-Venezuelan “joined venture” is doing now – without state support – namely, putting together Chinese parts and offering computers (and even a couple of cables were made in Venezuela, which is not even the case now). In the late nineties I could easily go to a clothes shop in Venezuela and buy many nice shirts made in Venezuela…now it is almost impossible.

              In 1998 96% of RUALCA’s production was already for export and it had plans to diversify.
              Now RUALCA does not exist any more.

              Of course, a lot of damage was done by 1) the Caldera-Stone age lefties we got with the Chiripero and previously with the two bloody coup attempts by the military.

              Where are your Veniran lorries, Chris? Where are your Veniran lorries?

              How is it going with transforming Venezuela into an Arepa-exporting nation, as your military man Chávez wanted to do?

              You quote the human development index. Even as much as Chávez doctors numbers on education – more on that later and you mention how Venezuela’s position “has improved” – in reality 4 or 5 Latin American countries have passed Venezuela in the index since 1998.

            • What we saw is a spike in inflation that then leveled off followed by what it was described as “asian growth” of the economy. The spike on the inflation was something that Moises Naim and Miguel Rodriguez were aware that it would happen, but it was necessary.

            • Spike in inflation? Inflation never went below 30% for 10 years after the adjustment, and got as high as 100% more than 5 years afterwards!!! If that’s what you call a spike, I suppose we could just say high inflation under Chavez has also just been a “spike”.

              As for the “asian growth” that’s just laughable. The growth was characterized by a shift in investment towards natural resource-based activities. This isn’t what happened in the Asian economies whose growth was based on manufacturing. I think its time you stop swallowing Moises Naim’s bullshit without looking at the other side of the story.

            • The spike was the 80%. Next year it came down to 30%, sadly the economics reforms were dismantled after that. GDP went from 7k per capita to 8k per capita then after CAP it went down again. GDP per capita today is aprox 4k.

              You argue that price control is a temporary measure, before you are able to get rid of the bottlenecks. What you don’t see is that price controls is one of those things preventing you from opening the bottlenecks. Also, what you are saying is that it is part of the agenda to eventually get rid of price fixing?

            • To my point Get a clue, the economic reforms didn’t last throughout CAP presidency. The GPD per capita re not absolute but corrected to 1950′s real dollar. But you are riht to correct me, the data I have is not from today but from 2003.

              After that GDP gets funky due to the questions of which dollar do you use to convert the data, official, sitme, parallel?

        • How do you tack a bottleneck?
          Bottlenecks in production are one of the central problems of economic development? Really? Like the one created by your lord when out of a whim he decides to expropriate any business he deems “strategic” whatever that means and then runs it to the ground? Doesn’t that “policy” create the worst of bottlenecks? Raising productivity? Tell me: what have you been doing for the past 14 years? Snapping fingers, extracting your own buggers, and staring at your belly button? Of course you need price fixing: you are showering the country with money due to the elections in the face of low supply, even of essential goods. Cost-push inflation you say? So you go and read something in Wikipedia and try to use it here to counter F.T. arguments? If after I die and if there is reincarnation, I have the misfortune to be born again in Venezuela, I am sure I will have to face that moronic “long-term solutions” policy.

        • I very much think this is the same Chris Carlson who was coming up here and Oil War’s blog in 2009-2010, the one who was always talking about import substitution policies earlier on…the one who said 8, 10 years were not enough but things were about to start improving, the same one who was praising Veniran and who was lalways pretending to laugh because we had proclaimed the economy was going to crumble down soon – he said that when oil prices were at $60-70 a barrel.

    • Ok. So you refuse to answer my questions. Maybe you don´t have an answer? It looks like you looked in wikipedia for inflation, found a few explanations for it, picked one you liked (cost-push) and came here to oppose the one based on monetary policies. It seems that you didn´t even bother to read the corresponding article on cost-push inflation, cos when I asked you how it applies to the Venezuelan case, you simply went slent, having nothing to say.

      Once again, if cost-push is the explanation, why is this problem so much bigger in Venezuela than in other countries in Latinamerica?

      Let me ask you, are you an economist? Because I have a few friends who are, and they all tell me you are full of crap.

      Do you really believe that increasing money supply has no effect on inflation?

      Or is it that you believe the government in Venezuela hasn´t been doing that?

      • The comment above was a reply to “Get a clue”. For some reason It didn´t appear in the right position.

        • Chris, that rich boy who pretends to be a revolutionary by supporting the military in Venezuela will never really answer to your question. He’s just a troll.

          • I think so too. I don’t like name calling too much in these contexts, but I see clear symptoms of Chavism here. He evidently (and laughably) wants to upset the people in this forum, and the tone of the forum itself, mostly by arguing through different, sometimes convoluted ways, that excesses, wrongdoings and stupidities of the past somehow validate the much more appalling excesses, wrongdoings and stupidities of today.

            I, for one, am not interested in validating the past, but surely (the understatement of the year) that doesn’n mean validating this maelstrom.

      • Sorry, but you’re going to have to do a little more than read a 4-paragraph article on wikipedia that doesn’t even discuss the problem in the context of a developing nation.

        In Venezuela, speculators hoard goods in order to create artificial scarcity (or to worsen an already existing scarcity) which then increases the price people are willing to pay for goods. Since there is a concentrated supply chain an increase in the price anywhere along the supply chain can have significant effects down the line. And since consumption has increased significantly in recent years it means consumers are able to keep paying the higher prices. (demand-pull inflation)

        Of course increasing the money supply has an effect on inflation, but it is not the only thing, or even the most important thing that causes inflation. In addition, there is not any real evidence that this is even happening in Venezuela. The government has taken several measures to reduce liquidity in the economy, which wouldn’t really make any sense if they were simply printing more money at the same time.

        By the way, if you were really talking to your friends about me, I think you might be the one who needs to “get a shrink”.

        • I told my friends that there was an interesting discussion on this site about inflation, and I mentioned many of the opinions discussed here including yours. Anything wrong with that?

          And by the way, they are economists (some with PhDs) and they all said that yes, the government has increased money supply substantially in the last 10 years, and that, together with the lack of production of anything other than oil, is the main driver behind the inflation IN VENEZUELA.

          You still cannot answer why Venezuela is the country with the highest inflation in the world. Why were other countries in Latinamerica capable of controlling inflation but not Venezuela? The government policies have nothing to do with it?

          • This is obviously a waste of time since your only answer is “my friends say that you’re wrong!”

            Ask your friends why Venezuela has the higher inflation than the rest of Latin America. Do they really think that it is as simple as “Chavez keeps printing money”? If so, they should put their PhDs in a paper shredder.

            Also, oil dependence by itself can’t explain high inflation. Other oil or resource-exporting countries don’t have the same level of inflation as Venezuela.

            The reasons are structural: consumption has risen faster in Venezuela than elsewhere, and production has been sluggish.

            • And of course, lousy import infrastructure, backwards currency exchange controls, overwhelming bureaucracy, difficulties for company creation, difficulties with labor, private property at risk, poor transportation infrastructure, poor electric infrastructural…. I don’t know… I am no economist, but something tells me that those things can contribute a bit to the fact that the production growth is “slugglish”.

              You said it, they are structural. Other countries in Latam have dealt with it, Venezuela is busy blaming someone else for its own failures.

            • Oh really? Other Latin American nations have solved their low productivity and bottlenecks in production and are well on their way to prosperity?

              Are you trying to be comically stupid or are you really that naive?

            • “The reasons are structural: consumption has risen faster in Venezuela than elsewhere, and production has been sluggish.”

              Do you really think any informed person is going to buy such a trivial argument?

              Doesn’t Chile have much a much more diversified and productive economy as compared to Venezuela?

              Do you really need to use personal attacks to counter someone else’s arguments?

              Why does a Chavista Troll need to post here?

            • I don’t see a reason not to refer to people who know more than me on the subject, but ok if you believe you know more than someone with a PhD, then you are simply a crackpot similar to those that go looking for professors in physics departments to tell them that Einstein was wrong, and they have a new theory, without ever having studied physics.

              You should ask yourself why has consumption increased in Venezuela more than anywhere else without increasing production. Is consumption still increasing a lot? Inflation hasn’t stopped…

              • You try to bring out a rational answer. He will respond with variations on two themes:

                1) Anything you argue, you read it in the first four lines on a wikipedia entry (It reeks of projection, by the way)
                2) Adecos and copeyanos (whom I abhor) did the same; now these folks are doing it on steroids, (and I love them!)

    • So, it looks like you are the one who is does’t have a clue about the questions I asked, judging by your silence.

      See my reply below (for some reason, it didn’t appear here).

      • Damn! It happened again!

        Can someone explain me why when hit “reply” on someones post it sends mine to the end of this page instead of the right place below his post?

        • I think your comment goes to the end if you’re asked to log in after you click the Post Comment button, but not if WordPress considers you already logged in.

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