On the brand new FiveThirtyEight.com, Friend of the Blog Dorothy Kronick does the kind of demolition job on Bolivarian Socialism’s record usually associated with a wrecking crew. Eye-opening stuff, even for those of us who know this material well.
I enjoyed, in particular, the way she developed Omar Z’s Bolivia parallel. It’s just brutal. If it was a boxing match a ref would step in to stop the carnage.
Caracas Chronicles 
So, here is something a macroeconomist has to explain to me: how vulnerable is our debt to GDP ratio? Is that calculated using nominal GDP? If the price of oil goes down by half, will the ratio surge? Sure, now it seems kind of low, but if the price of oil goes down to $50, say, the nominal debt stock stays the same, but nominal GDP will go way down.
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To answer my own question: it appears as though, yes, the debt-to-GDP ratio takes GDP in nominal terms. A sharp drop in oil prices and that ratio goes through the roof. http://en.wikipedia.org/wiki/Debt-to-GDP_ratio
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There are some faults in using the debt-to-GDP ratio to determine how stable an economy is. I would concur that a shift in oil prices could be devastating for the one-trick-pony economy of Venezuela, but not because of the GDP issue, but rather because so much of governmental revenues (60ish%?) are derived from oil.
I’m not arguing that the metric is invalid per se, but that it might be misleading. I believe that even a moderately developed (i.e. diversified) economy can have a much higher tolerance to the debt ratios simply because a setback in one sector has minimal impact on governmental revenues, barring said government putting metaphorical eggs in one basket.
It is also entirely possible to have a high debt-to-GDP ratio and maintain a reasonable debt servicing coverage ratio, since everything pivots on the interest rates at which the funds are borrowed (e.g. Japan).
Taking a page from the corporate finance world, debt-to-GDP is simply a leverage ratio. What should be considered far more critical is the coverage ratio and the trends therein. Coverage ratios are the measurement of a corporation (or country) to meet its debt obligations (in multiples calculated from EBIT/Interest or /Servicing costs – although admittedly the T in EBIT wouldn’t really apply at the macroeconomic level, unless you wanted to consider transfers guaranteed to citizenry). This is done typically along two lines: interest coverage and debt servicing coverage; the later being more apropos here.
This is overly simplified, but…imagine if country A had a GDP of $1 billion dollars and issued $1 billion in debt at 6% interest. Interest requirements would be $60MM year and the debt to GDP ratio would be 100%. Ew, scary! But imagine if in the interim, through reasonable fiscal policies, the government was able to borrow at 2% interest, retires its $1B in debt and issues $2B more by borrowing again. The interest coverage requirements remains the same although now the debt to GDP has ballooned to 300%. Astronomical territory outside of even Japan.
Now, how does this really apply? Well, if your (easily) calculated ratio is below 1…you have some problems. If it is above, but near 1 or below 2, you will have some problems; sooner, rather than later. Beyond that, the three things to watch are A) trend line, B) companies/countries in the same sector/region/development group C) policies/decisions that impact earnings/revenues – the last of which oil prices would certainly have an effect upon specific to Venezuela. Why? Because at this point, you are looking at near-term (24-60) months rather than short-term issues.
Again, this is overly simplified, but… more relevant as a metric than the debt-to-GDP ratio. (Of which, as of 2012, Venezuela was 3/12 in SA). This is why I chuckle when our resident chavistas bring up that the debt to GDP ratio is soooooooo much less than that horrible economy in the EEUU or Europe and how, just judging by that ratio, they must all be living on Spam and condiment sandwiches. *cough cough Arturo below cough cough*
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In general, results using nominal values during hyperinflation of 56% per annum are meaningless.
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Nice cherry picking by all concerned. Remember what Chavez said in 2008 – he was not interested in GDP growth but on seeing poverty levels decline. Lowering pocerty has been the aim of the revolution as well as literacy, number of students in university, more kids in school, more free health and subsidized food, number or pensioners receiving a pension and other social programs.
The chrats, as such and in the context of what the Revolution is about are just set for the trash can of more CC propaganda from Quico, who cannot even retire as he is so obsessed after almost 12 years of failures in pordicting the doenfall on the revolution.
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ROFL…TONS MORE MONEY THAN ANYONE ELSE, TONS SHITTIER PERFORMANCE. Even Evo did better!
The fat lady sang, took a bow, went off stage, came back for an encore, sang again, bowed again, went home, took a shower and is fast asleep in bed dude…
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Dammit, FT, you beat me to it!
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Arturo, you are living proof of the failure of the Venezuelan Education System. If you had a shred of critical reasoning or intelectual honesty, you would see from the plots that, not only did Venezuela had an unprecedented windfall during the Chavez years, it was less successful than countries in the region at reducing poverty.
As for literacy, check out the results of the censo.
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Fracaso Misión Robinson!
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“Fracaso Misión Robinson!”
But we will always have El SISTEMA!
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Which by the way is not a revolutionary accomplishment at all! El Sistema formally started in in the middle ’70s. By the time Mr. Chavez arrives to power it was already consolidated. The revolution simply saw it as an opportunity to promote its proselytism, as it has done with several other functional social programs inherited form the “IV Republic”.
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You must have updated to full size iPad, your frequency of fat fingered typing errors has gone down.
Also, back during the start of the great recession Chavez triumphantly declared that Venezuelas economy was doing better than the US in GDP growth, so it is very fair to point out for the remainder of the Bolivarian revolution when it does badly.
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Arturo. Chavez failed miserably. Even according to government statistics, he benefited from an historic oil boom and he was still worse at reducing poverty than the rest of the South America.
The ship has sailed, the myth has been shattered. The days of fooling casual observers, even ones who lean hard left, are gone. When something fails in spectacular fashion, it’s hard to hide or obfuscate forever…get over it.
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Even if you conveniently disregard GDP ratio and good old macroeconomics indicators, and consider only those that suits your political view, your revolution is still under performing compared to the rest of Latin America.
What difference does it make for pensioners to have more bolivares, if inflation is still in double digits?
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LOL come on Arturo. I’m 100% sure that if the charts were good, you’d be parading them as “achievements of the Revolution”.
CHAVISTA STATISTICS INTERPRETATION ALGORITHM
IF SALIÓ BIEN: “Look at our strong economic indicators. A robust economy is a priority for the Revolution. We’re so good, la verga de Triana.”
ELSE IF SALIÓ RASPAO: “These indicators are unimportant to us, we have different goals. Please look at this FAO chart and happiness survey instead.”
ELSE: “Capuskicapubul.”
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To Sir, with Love,
Why would you (or Chavez) not want economic growth but rather poverty reduction when the two can go hand in hand like a cheeseburger and fries in a Happy Meal of economic plenty? Or perhaps, more appropriately given another post, casabe and papelon?
The two are such a win-win for everyone, why wouldn’t the Eternal Comandante want such a thing?
Click to access 43280288.pdf
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Precisely! After all, “to be rich is a bad thing” was one said. Of course, as far as it does not apply to the new political elite, always eager to wear trendy and enjoy capitalist leisure conveniently paid by the national treasure even in the midst of the worse economic turn down in our history.
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Literacy? Don’t make me laugh, Arturo.
Here I plotted the official literacy figures according to INE:
Reality is even worse. And if you analyse the data the INE functionaries could not understand very well, you realise how the main reason literacy decreased in the last 14 years has been that old people die.
The many millions spent in the Robinson programme on their own produced less illiteracy reduction than any other programme ever implemented in Venezuela or elsewhere.
All in all we can say poverty went down since 1999 – on a non-sustainable, totally oil-price-dependent basis- in spite of Chávez. And that is certainly over now.
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But Quico, how can his legacy be pulverized if it was never good to begin with? ;)
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…the crumbling mess has now been powdered.
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Thanks for the great link. This is perhaps the best explanation of chavezonomics results I’ve seen to date.
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But we’ve got to recognize that Chávez had the merits of destroying an oil economy, I mean, it must be HARD AS HELL to destroy an oil economy, so hard that not even Gaddafi, Ahmadinejjahd or Saddam were able do it. You know, the idiot-in-chief just have to pump oil from in-land oil wells, put them inside barrels, transport these barrels to ports, and then just let Chinese and American oil tankers do the rest. Is it too much to ask? For the chavistas the answer is: “YES! You are asking to much.”
What is saddening is that if the Venezuelans had voted right in 1999, Vnzla would have a democratic and liberal goverment today, and the country would be some sort of Dubai of the Americas, Caracas would probably be richer than Miami.
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Hard? For who? Politicians in Venezuela have done that before.
The “Revolution” is the farce to the Venezuela Saudita tragedy, in Marx’s terms. Or well, not, because is even more tragic this time.
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Let’s not gloss over her take-home lesson:
“Unfortunately, the opposition’s fleeting unity behind Capriles splintered after last year’s election. To Capriles’ frustration, other opposition leaders fixate on ousting Maduro — just as they long obsessed over ousting Chávez — to the exclusion of positive proposals for governance, thereby throwing water on any nascent convergence between pro-government Venezuelans and the opposition. Worse, members of a small but vocal opposition fringe broadcast their fondness for Venezuela’s pre-Chávez regime, and the loud presence of this faction hardens Chavista sentiment against the political opposition as a whole. Its ultra-privileged spokespeople embody the “they” in “They won’t return.”
The irony of this fringe nostalgia is that old-regime policy mistakes closely resemble those repeated by Bolivarian socialism. What might help Venezuela out of its impasse, then, is a kind of reciprocal learning process: If the cosseted nostalgics could grasp that so much of what repels them in Bolivarian socialism mirrors what came before, and if supporters of Chavismo could see that the revolution reflects so much of Venezuela’s past, perhaps both sides would come around to the wisdom of the data behind the mainstream opposition’s regional comparisons. Absent this convergence, it’s hard to imagine a way forward for Venezuela.”
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Yep. Even with all the graphs, her last two paragraph’s are brutal.
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I dunno. The kids protesting were 5-10 years old when Caldera was president. Nostalgia? I think it’s a fringe of a fringe…
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She’s obviously not talking about the kids. Fringey though the “eramos felices y no sabíamos” crowd may be, they are ready-made to be pointed at by the hegemon, always ready to be used by TPTB to retard progress and lower the level of debate.
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“… fixate on ousting Maduro — just as they long obsessed over ousting Chávez…”
Because it’s impossible to attain a decent government if the head of it is a multiple murderer, a traitor and a thief.
“…to the exclusion of positive proposals for governance…”
There was absolutely zero positives with chavism, every single “positive” thing they’ve done could be done hundreds of times better at a fraction of the cost.
“…members of a small but vocal opposition fringe broadcast their fondness for Venezuela’s pre-Chávez regime”
False as a 3 bolivars bill, no one with mediatic prescense has stated such thing, only people with no media power (that is, “pueblo”) have said such things. What has been said is even worse: Some say that “with the wax doll we were better…” Double facepalm there…
“Its ultra-privileged spokespeople embody the “they” in “They won’t return.””
Wrong again, the “they” there means “any nonchavist faggot-bitch-sifrino-patrialess-traitor”, the expression as whole means “our clique of thieves and murderers will never leave”.
Ah, also, the “poverty reduction” that is so clucked by the reds is yet another fallacy, they just adjusted the parameters to measure poverty, they basically just said “Can you eat at least two times a day? Then you’re not poor.”
They basically cheated there.
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You don’t know when you’re winning, do you?
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What’s the difference between the opposition and chavismo if neither can take criticism? Have you been so infected by Chabe’s venom that you think as they do? It must be “us” or “them”? That there is no space for dissenting opinions or the capacity to use criticism constructively to improve what you have?
“If you ain’t with us, you’re agin us!” – That’s Chavez’s true legacy and I’m glad to see that a large majority of Venezuelans accept it heart and soul such that it will never die.
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Charts 1 (GDP/capita-$6.5M) and 2 (Poverty-30%), key to the Chavista argument of economic improvement under Chavez, unfortunately are apparently based on statistics only through 2012,reflecting in turn an unrealistically high value for the Bolivar currency, due to long-standing exchange controls. Were realistic year-end 2013, or better current 2014, Bs./$ exchange rates used, we would probably see actual declines in these Charts for the Chavez years. Finally, “Half of Venezuelans”, while sympathetic to the street protests, are not in the streets, unfortunately, while many of the other Half, not conent with their continued real-terms impoverishment in the Chavez years, would be in the streets, were it not for threats of physical attacks/murder by the Govt.-paid Colectivos/similar who live in their neighborhoods, which same types of people, then not being paid by the Govt., were down in the Valley of Caracas sacking/looting/burning during the Caracazo.
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Arturo was paying attention to Maduro –> Tropa fight the “fascist”on the internet! I command YOU!
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There is another interesting message coming from these charts and that is that even if the political governance is all BS , it is possible for it to manage its economic affairs competently and rationally , that the political rights issues can be dissociated from the competent economic governance issues. Evo may turn out to be a kind of bolivian MPJ .
I also understand that Ecuador is not doing badly.!! again underscoring the message that people in the oppo have two fronts to fight , one which has to do with the mismanagement and corruption of the govts handling of the economy and apart with its despotic authoritarian agenda , which we see as one but which hypothetically could be viewed as separate.
The chinese model is another reflection of this baffling bifurcation of the economic and the political .!!
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And, pray tell, where are the charts?
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erm, you have to click through to 538
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is their website down at the moment? I can’t link.
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In my previous post the email was typed wrong. My keyboard has a sstttutterinnng problem
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Every time I read her stuff, I feel like a better, more improved human being.
Again thank you for existing Dr. Kronick and for the tremendous service you are doing in combating rampant Venezuelan ignorance.
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What would we say if an NGO “Help the poor of Venezuela” had received and disbursed Venezuela’s oil revenues?
http://perkurowski.blogspot.com/2014/03/the-hugo-chavez-revolution-cheated-poor.html
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It’s nice to see this effort at a quantitatively backed analysis, and the final remarks are for the most spot on, although with what seem to me some weak points.
The post assumes that a fiery fringe longing for days past is having an outsized effect on perception of the opposition. Is this a reasonable assessment, or is the government just portraying the opposition this way, and Dorothy bought into it? How much is propaganda? This is my first point of contention with the post.
The post rightly sees people as making a decision – mostly – based on:
(a) whether conditions are currently “good” or “bad”.
(b) whether conditions are expected to get better or worse if the status quo is maintained or the other team gets a shot, based in part on what conditions were like when the home/opposing team was in control.
So the essay starts out by asking, are conditions good, or bad, are they better for some than they used to be, and could they be better yet? This gives us something to compare perceptions to. What are accurate perceptions and what are misperceptions?
Then you have to ask, why do misperceptions occur, and also, why might some of the actors make decisions that might be considered irrational?
This is where the essay also seems to be on somewhat shaky ground. Particularly if you believe there is something called communicational hegemony. A lack of recognition of the underlying truths (that is, education, indoctrination, propaganda) may be the key factor why the other 50% has not hit the street.
Humans have an amazing ability to put up with bad situations – just because! – particularly when they are peppered with explanations for their conditions that support the status quo. They can make terrible decisions if misinformed.
Finally, once the actors have decided on a more specific course of action (demonstrate, burn tires, write a letter to their assemblyperson) based on a perception of circumstances present past and future, how do they choose that particular course of action?
As regards these last points, I list the following lines of argument – which opinion polls as opposed to econometrics might help elaborate:
(1) From the oppostion standpoint, the decision to go actively after Maduro has many potential justifications. It is complicated by the varying concerns, interests, and political opinions of different opposition sectors:
* some might see it as a calculated gamble. More Maduro may mean more Cuban-style repression and a lesser chance of success down the road
* some have hit the streets out of despair. The demonstrations are a candid and desperate exhibit of the diminishing choices of some in the opposition. What would you do if you have no job, if you see no future 1 year down the road (or 6 months, or NOW) ?? It might be oust Maduro or bust…
* some believe that democracy need not mean waiting for the next election. Hitting the streets is seen as a valid vote of no confidence.
* the belief that the regime is unstable and that a push may suffice to convince the government that it needs to “make some corrections”, or that government supporters can be convinced to change sides
* aren’t the fiery demonstrations a valuable strategy to achieve leverage in possible negotiations with the government through civil (or uncivil) disobedience, rather than merely a method of convincing people of the righteousness of the opposition cause?
(2) In the chavista camp, exhaustion with the economic malaise may be just as thorough, but the justification for supporting Maduro may be due to:
* inherent trust in the chavista program, a belief that Maduro deserves an extended opportunity to deliver (trust in the existing institutions)
* fear/communicational hegemony suppressing any willingness to speak up against the government
* the belief that there is no common interest, no common goal for chavismo and opposition, that this is a zero-sum game.
* being plugged in and contented
Note in all cases that there are often opinions backing decisions, there is no magic crystal ball allowing us to see into the future to make an optimal decision. All sorts of beliefs, superficial evaluations, hearsay may play a role. A believer in “the wisdom of the crowd” would argue that the noise will get suppressed by the signal as the sample size gets bigger- but what if communicational hegemony is an important influence in the decision making? There might be no recognition that scarcity, insecurity, inflation are newly emerging symptoms of a disease that’s been spreading for 15 years. Finally, what if social ties play a crucial role in decision making? What if the actors are not independent?
(PS I think data on issues such as the scarcity index and insecurity are missing from the post and also essential, although readers of this blog will have encountered thorough analysis of these subjects here in the past).
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