Caracas Chronicles

Over on the Washington Post’s Monkey Cage, Dorothy Kronick has a fun piece exploring the catastrophic economic policy blunders that have brought PSUV to the verge of a historic defeat. I’ve spent a long time trying to figure out how best to explain the key problems in a digestible way for a worldwide audience, and I’ve never seen it better done than this:

Venezuela has long subsidized imports by allowing importers to buy dollars on the cheap. This meant that, for years, Venezuelan importers could purchase $10 from the government for about $7 worth of Bolivars (the Venezuelan currency). The importers then had to spend their bargain-basement $10 on foreign goods, bring the goods to Venezuela, and sell them to Venezuelan consumers for, say, $9 — the maximum price allowed by the government. This was probably not the most efficient way for the government to hand $2 to importing firms and $1 to consumers. But under former Venezuelan president Hugo Chávez, the system was at least minimally functional.

Under Maduro, Chávez’s successor and the current president of Venezuela, that minimal functionality broke down. Instead of selling $10 for $7, Maduro’s government now sells $10 for about a dime’s worth of Bolivars — and then caps the retail price of a $10 import at fifteen cents. This gives an importer two options. If she follows the rules, she spends a dime for a product she can sell for 15 cents. Great. If she cheats, she spends a dime to buy $10, never imports anything and keeps the $9.90. Sure, some people cheated under the old system: that same importer could have bought $10 for $7 and never imported anything, pocketing the $3 profit instead of the $2 she’d make by following the rules. But cheating is costly and, as it turns out, many more importers will break the rules for an extra 9,850 percent profit than for an extra 14 percent. Economist Francisco Rodríguez estimates that, of approximately $40 billion dollars Maduro sold to importers over the past year, only $20 billion translated into goods sold domestically. The rest was stolen.

One takeaway – and a sobering one it is – is that the state really has been completely captured now by a handful of white-collar types stealing money in quantities normal people can barely begin to visualize. If I didn’t know any better, I’d call it Kleptozuela.

But the other conclusion – also sobering – is that it’s not quite true to say this whole mess “is Chávez’s fault.” Chávez, for all his mannnny faults, never let economic distortions reach the insane, dadaesque levels they’ve reached in the last couple of years. It’s easy to scoff at people who say they’re chavistas, but not maduristas.

Maybe it’s too easy, though: the mess we’re in now is Maduro’s doing, not Chávez’s.