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.