Caracas Chronicles

It’s a hardy perennial of Venezuelan political divination: "is Chávez losing it?" To answer that, I think we have to refer back to that unbelievably rude but prescient criollo saying: "it’s only if you eat shit that you’re crazy."

In other words, what marks you out as mad is not eccentricity, or volatility or unpredictability: it’s acting directly against your own interests. So…is Chávez starting to comer mierda? Definitely.

In the short term, most of the shit eating is happening in that whole vexed policy nexus where Currency Controls, Inflation and Scarcity come together.

Watching Hugo Chávez try to grapple with the problem is a bit like watching a monkey trying to solve a Rubik’s Cube.

The guy hasn’t the first foggiest clue of where to start, or what’s really involved in the exercise. He knows enough to grasp that runaway inflation amid stagnating wages is a political problem, and that he’s going to need to fix it soon lest it eat his government whole. But his sheer, obdurate, suicidal determination to purge his administration of anyone with the intellectual tools it takes to design a rational economic policy leaves him utterly out to sea: like a monkey trying to solve a Rubik’s Cube by banging it repeatedly against a rock.

The point isn’t merely that the government’s policy is ineffective – the point is that it’s counterproductive. It’s not that price and currency controls are an ineffective way to keep products available at affordable prices; it’s that if you try to enforce them more aggressively you get more scarcity as suppliers exit the market in droves, together with even higher prices as the suppliers left behind demand ever higher risk premiums.

The net effect of Chávez’s inflation and scarcity fighting strategy is…more inflation and more scarcity.

Trouble is, the guy’s a hedgehog, not a fox. Tightening controls is the only trick he knows. And so every day we wake up with a new half-baked pogrom. Yesterday, it was the anonymous blogger posting the price of the parallel greenback. He’s now been intimidated off the interwebs, which Chávez will surely take as a victory, but…with a more opaque parallel market, do you think dollars will tend – on the margin – to cost more, or less? 

Chávez’s utter inability to grasp the actual mechanisms that cause prices to rise and products to become unavailable has become a kind of Self-Fulfilling Idiocy.

Each day a new attack against "speculators" will be launched, and each attack will only worsen the problems it’s meant to address, thus proving the need for…you guessed it…the next day’s attack. Yesterday’s policy failure becomes the justification for tomorrow’s policy failure, in a kind of neverending cycle of shit-eating where, to be perfectly fair, the main dinner guest is el pueblo mesmo.

But remember: it’s the economy, stupid. It always is. More than the crazy ranting, more than the cadenas and the power blackouts and the crime, it’s the government’s performance on the economy that drives people’s perceptions of whether it’s doing a good job. And as we head into September’s election, the government keeps digging itself deeper and deeper into the economic hole it’s in. By banning the parallel currency market, the government has, in effect, tossed away its shovel and brought in a caterpillar to help dig itself into the hole deeper and faster. And the more it realizes how far in it is, the more caterpillar’s it’s going to throw at this hole-digging exercise.

It’s the only trick they know.