Confusing content with details

In 2007, when Barack Obama was in the early days of chipping away at Hillary Clinton’s solid lead in the polls, one of the most effective tools he employed to convince Democratic primary voters to support him was his stance on the war in Iraq.

His main point: he was against the war from the start, but Hillary voted for it in Congress.

Obama didn’t provide many more details than that, but he didn’t need to. Hillary got zero traction pounding away the fact that since Obama got to Congress, their votes on the war were practically identical.

By planting that flag early and frequently, Obama basically told the story: I’m a dove, Hillary is a hawk. If you like war, vote for her. If you don’t vote for me.

Obama’s stance on this issue did not have details, but it was full of content because Obama used it to define himself in front of the voters. That is what effective politicians do.

And while Leopoldo López’s oil policy announcement is not in the same league, it does help define him. In that regard, it has tons of content.

Quico’s flippant response to my post struck me as startingly off-base. Normally, I would just let if fly, but there is a risk of over-simplifying the very real – and relevant – divide between those in our body politick who favor more oil production and those who favor less.

People who know about oil in Venezuela generally fall in one of the two camps. On the left are the people – many of them in the Chávez administration – who think that we should restrict the production of oil so that prices are high. The thinking seems to be: produce little, collect hefty rents, distribute them for political gain, retain power. Rinse and repeat.

This doctrine is enmeshed in the Venezuelan psyche. Its origin is patently Perez-Alfonsonian, born of the 1960s mentality that Venezuela, as a major player in the world’s oil markets, had a key responsibility in keeping the international price of oil high. The thinking was that producing too much oil would so depress world prices, you would end up being worse off: the extra revenue from selling more oil would not compensate the fall in revenue stemming from lower prices.

However, this philosophy feels remarkably out of place in today’s Venezuela, because it assumes quite explicitly that the elasticity of world prices with respect to Venezuela’s output is negative and greater than one in absolute value. Or to put it en cristiano, it assumes that increasing production will mean that prices will fall, and the nation will be worse off.

In order for this to make sense, one would have to buy the premise that Venezuelan oil production matters a ton.

Now, this may have been true in the 1960s, but it’s not true today. For example, in 1960 Venezuela accounted for 33.6% of all crude oil and products traded by OPEC. By 1979, that percentage had fallen to 7.2%. Currently, Venezuelan exports represent 3.4% of world exports of oil. And while the percentages are not exactly comparable to each other, the point remains – Venezuela is not the player it once was.

However, you don’t have to take it from me. It turns out the 2002 paro petrolero provides an interesting natural experiment to test how important Venezuela really is to world oil markets.

In December of 2002, PDVSA’s production was essentially halted and the company was forced to declare force majeur and default on its contracts. Contrary to expectations, the price of oil did not shoot up significantly. In November of 2002, a barrel of West Texas Intermediate crude was selling for $26.27. By March of 2003, the price was $33.55 – barely a ripple, considering the world was headed toward war in Iraq at about the same time.

So if you buy the premise that Venezuela really is a price taker in the world’s export markets, then it makes perfect sense to try and increase oil production. Any barrel of oil we don’t sell at today’s prices is literally money buried underground, ready to be used to provide health care and education for our people. Deciding not to use it … well, it makes no sense.

Furthermore, there are ancillary benefits to increasing oil production. The nation’s capital stock rises as new technologies come in. The regions where the oil is located benefit from increased economic activity. One might even think that, under the right conditions, private Venezuelan oil companies would be created. These companies could, given the right incentives, go out and provide goods and services in oil-related activities.

The thinking behind this strategy is that developing your oil industry is no different than developing a car industry or a software industry. Attempting to gain market share should be good for your industry, good for the economy as a whole, good for the productivity of your workers, and good for the nation.

The emerging consensus in the opposition’s spheres is that Venezuela should lean more toward the latter model than the failed former one. Sure enough, there are many in the opposition who cling to the old ways. But the candidates seem to be coalescing around this proposal, and this is noteworthy, no matter what Quico says.

López’s announcement may lack specific details as to how to bring about increased production, and it’s even doubtful he could pull it off if given the chance. Still, it says a lot about this emerging consensus, and about his own burgeoning political philosophy.

It is the complete opposite of a fluff announcement.