On Friday afternoon, my dad sent me a cryptic text: “Anabella. Sábado A Las Ocho. Leche En Polvo. Nuestro Gama. Cédula Tuya y Mami”.
(Anabella – Saturday at eight. Powdered milk. Our Gama (local grocery store). Yours and your mother’s ID card day)
When he sent that text, my dad was leaving a supermarket that is pretty close to our home, and a cashier told him that they would sell powdered milk the next morning to those con el número de cédula que toque – with the scheduled ID numbers. The Saturday winning ID numbers are those ending in 0-1-2-3-4.
On Saturday morning, my mom and I got to the supermarket at 8:00 am, and there was already a line with 40 people more or less. We got into the place by 8:18 am, got in line for the milk (2 bags of 900 grams per person) by 8:19 am, and they told us we could also get 2 kilos of Harina Pan per person.
We got our quota and arrived at the check-out line by 8:25 am. We left the market by 8:56 am.
It took me 56 minutes to buy 2 bags of milk and 2 packs of Harina Pan. I was ecstatic, and also slightly unnerved.
Pure gold
I already talked about the struggles of doing la cola. Now I would like to talk about an expression I heard on the check-out line:
Esto nos vuelve delincuentes… O al menos nos hace sentir como delincuentes.
“This turns us into criminals… Or at least it makes us feel like criminals.”
In spite of the joy from getting my allocated quota, something did not feel right. I don’t know if it is knowing that I am getting these goods for much less than what they cost to produce, or if it’s the fact that there are millions of Venezuelan mothers that haven’t gotten milk for weeks. The fact is that my good fortune left me feeling a bit … icky.
Everyday should be YOUR DAY. Going to the supermarket generates the same feeling as handing in a Cadivi folder. You’re nervous and uncomfortable. It’s your day, but you still ask over and over just to make sure, because you wouldn’t want to feel like you’re doing something wrong or … gasp … even illegal.
Then you ask over and over about the quotas. And when you get your quota, you hang on for dear life.
And this is a regular (extraordinary) day at the supermarket.
Lines, order and quotas. Lines are set to guarantee order and fairness: the first ones to arrive should get in first. But in Venezuela, lines are also set to guarantee quotas.
For example, should we let old people cut line or should they get in line? They are old and shouldn’t be standing in lines, but if they cut in, they could get the quota of someone that’s been waiting for hours.
If we let old people cut lines, are we sure they are buying for themselves? Or are they part of a group of bachaqueros – the informal vendors that buy at regulated prices and sell in the black market?
When we got in at 8:18 am, we saw an old guy fighting with security. He didn’t get in. My mom told me she knew him and wasn’t bachaque-ating. But if she didn’t know him, how could we be sure? Or anyone else, for that matter?
No matter what each of us might think is the right answer, the truth is that a senior citizen that should be getting a preferential treatment is getting treated like a potential criminal.
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I would also like to comment about the bachaqueros.
We economists don’t judge a specific behavior –even when we personally might not agree with it. We tend to ask ourselves: what motivated said behavior? And if it’s not the desired behavior, then we ask: what can be done to change the motivations behind the behavior?
On November of 2014, Luis Vicente León said that 65% of people doing lines were resellers. I’m not sure that 6 or 7 of every 10 buyers are reselling, but many are. Some are living the bachaquero way. Some are buying what they can to barter for what they need.
And many others (including me and my family) are standing in line just to stretch our income. No matter what your salary might be, if you charge in bolívares, you’re losing purchasing power every single minute.
US$ 26.5 at Cadivi/Cencoex rate or less that US$ 1 at Simadi rate
Buying regulated products is still a good investment, even if you’re not a bachaquero. I spent BsF 166.98 on 2 bags of milk and 2 packs of Harina Pan.
My mom had heard that you could get a bag of powdered milk for BsF 240, but someone in line told us that you could get it for up to BsF 500 in Valencia. Also, you could buy a kilo of Harina Pan for up to BsF 70. So I could have spent BsF 1,140 if I had bought the milk and Harina Pan from a bachaquero, spending 7 times more.
I must say, it’s pretty annoying to notice that many buyers are bachaqueros, and that they get tips and help from the supermarket clerks to cut line or buy over their quota. After some time, you tend to see the same faces over and over, and start to recognize bachaqueros from a mile away.
But even if I don’t agree with the bachaquero way, I must ask:
What motivates the bachaqueo? Simple enough: It’s one hell of a business.
I could easily resell my purchase of BsF 166.98 for up to BsF 1,140, leaving me with a profit of BsF 973.02 for an hour of “work”.
Let’s not forget that minimum wage translates into BsF 42 per hour. And I have a couple of jobs and don’t make anywhere close to that.
It’s no surprise that many are leaving their formal jobs to get into the bachaquero business. In the end, it’s all about incentives.
Caracas Chronicles 
No vale, eso es puro marketing…
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condorito-style “plop!”
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Fascinating stuff, just like the “6th generation meme war”
http://www.panorama.com.ve/politicayeconomia/Psiquiatra-habla-de-la-existencia-de-una-guerra-de-memes-de-sexta-generacion-20150511-0005.html
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15 seconds after watching that page, I had to scrub clean my browser’s history…
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Really, chaburros’s issue isn’t that the problem EXISTS, their issue is that somebody else KNOWS said problem exists.
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“Este video es privado”
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ditto on IE, and “please sign in to view this video” in Chrome.
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I’m on Chrome, I am signed in, but video is not public, I cannot see it
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You didn’t miss too much, the video basically started with the guy walking the street, and instead of going to his job, he stopped at the line “because he saw people forming a line” like he was some sort of stupid sheep, the narrator continues claiming that if the guy never saw the line, then he wouldn’t stopped there, and because that, lines are a weapon of the demented fascist ultra exxxtreme right wing to terrorize venezuelan population, raise sales in tiny “chino markets” and to overthrow maburro and bring back the 4th adecopeyanismo from the grave.
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Bienvenidos en la Union Sovietica. Los buenos comunistas saben hacer colas sin quejarse.
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Arbitrage is simply the biggest business and job provider in the country today, employing the vast majority of the population. Its rules and strategies for survival are practiced daily by most people trying to stay one step ahead of the authorities. Two packs of Harina Pan for 38 Bolivars, and two cents per liter of gasoline, when the black market rate says 288 Bolivars to the Dollar, are just two of many absurd examples. Who wouldn’t partake in that kind of an incentive? Arbitrage is the official business of Venezuela. One day soon, however, the government may be forced to implement a rational currency system. What happens then? Unemployment rates will be staggering…
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^exacty thay.
Why I never bitch abot $10,ice after a storm
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Stupid high profits in stupid short time spans at the expense of others, where did that idea come from?
Mmmm, yep, viveza criolla strikes again.
Also, this proves again that bachaqueo itself is a mafia created, sponsored and maintained by the regime itself, like the gasoline and dollar ones.
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“In spite of the joy from getting my allocated quota, something did not feel right. I don’t know if it is knowing that I am getting these goods for much less than what they cost to produce, or if it’s the fact that there are millions of Venezuelan mothers that haven’t gotten milk for weeks. The fact is that my good fortune left me feeling a bit … icky.”
I hear you, Anna, every time I’ve gotten my cupo cadivi, to travel, there’s first been this free money-related elation, followed by a much more subtle, and hard to explain, feeling of wrongness.
Wrong on two ends: 1- “estos reales no son míos” / illusion-of-wealth kind of feeling and, 2- the I’m trapped in the system and, to escape its grasp, to make a stand, I need to stop taking their charity.
But, of course, every year I took my cupo and enjoyed my trip… smiling, thanking the system for its kindness.
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Like it or not you are now an official and recorded active member of the Revolutionary imbeciles directing our country towards oblivion.
You might consider growing a pair of cojones.
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Gracias por el consejo
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It inhuman to expect people to forego the benefits that bachaqueo allows , specially since inflation makes survival (specially of the poor) ever more difficult . One of my kins servants , a good mother and worker , now spends half of her week doing bachaqueo to help her family cover their necessities , she does it together with a group of organized family members. It isnt just venality but need that motivates bachaqueo, how else is a persn to survive a 130% inflation.!!
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We call it “bachaqueo” in the rest of the world is called “commerce”.
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OMFG! Ignorance is the fodder of despots
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“It took me 56 minutes to buy 2 bags of milk and 2 packs of Harina Pan. I was ecstatic, and also slightly unnerved.”
“The fact is that my good fortune left me feeling a bit … icky.”
Wow..
Guess longer lines and more escasez, more inflacion, and worse economic conditions are in order.
Whatever it takes for the zombie-pueblo to wake up and get pissed off.
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@Floyd it won’t. It’s worked for 50+ years in Cuba. It will continue to work with Brain-addled Venezuelans.
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I think they’ll finally get pissed off after the Presidential elections are stolen, but the MUD Crap that follows will be almost as bad, for a couple decades.
Of almost 2 Million people that left Corruptzuela during Chavismo, 90% were Professionals, the few educated people we had. So do the math..
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Well, there is something extraordinarily useful in having everybody and his dog jump the “law” and make something “illegal” to survive.
You can always crack down on them later.
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“Bachaquiando”.. Me tumbaroon la idea de una “Bachata del Bachaco”.. Juan Luis Guerra, pilas!
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Gloria al Bravo Pueblo!
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Off Topic:
Moises Naim will be the guest speaker at a book launch in Washington on June 10th for a book entitled Oil to Cash.
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Yeah, here’s a video about that from the previous post:
http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/?_r=0
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Its tender how the same person adopts two assummed identities , The use of heteronyms was a device employed by Portuguese poet Pessoa to write in two contrasting literary styles , now its done to give the impression of numbers , scratch a curse of oil paradigm and get a free cash for every one hallucination !!
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Bill Bass, I get the risible impression that you think Floyd and I are the same person.
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He does, but I don’t think so–different styles–Saludos.
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NET., I wonder if he’ll think Moises Naim and I are the same persons if he says anything in favor of direct distribution of cash? Denial, much?
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Well if they are two different persons , they are like siamese brothers , bound by their ass !!
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oh, extorres and Floyd could not be more different.
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Better bound by the ass, than ass bound.
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Incentives…and control. Above all, control, power, dominance. There is no economic justification for an multi-tier exchange rate. The gap between the lower tier, 6.30 and the higher one, 288.14 as of this morning, May 11, is absurd, worse, it is criminal.
Bank of America’s economist Francisco Rodriguez refers to the exchange control as the most important problem to solve in order to improve Venezuela’s economy. “If you sell 30 dollars for 1, there will be a long line of people ready to buy dollars on the cheap.” He has presented his analysis to the government but no one listens.
The carrot of CADIVI dollars hypnotizes people. I have no hard evidence but I suspect that Ricardo Sanchez, Maria Corina’s substitute deputy, smelled the aroma of cheap dollars and adjusted his political behavior accordingly. Or any of the current enchufados know well that pissing off the government means no more access to cheap dollars. It becomes a magic wand to enforce compliance among the current elite and a dazzling allure to prospective turncoats.
The delta between subsidized prices and black market prices is a result of exchange controls. So people stand in line, fight among themselves and perform the alchemy of transforming time-in-line into profit thanks to the exchange rate.
An absurd waste of time and energy filling out forms and seeking permits creates channels to direct people’s time and concerns. My son ordered two boxes of Cocosete for his mom. Maria loves Cocosetes. The package came and along the Cocosetes there was a form filled out by the vendor, with a copy of his Cedula de Identidad, his fingerrprints, and a ridiculous declaration of value. Can you fathom the wear on the economic engine of such cumbersome procedures? Instead of facilitating commerce, the exchange control acts like a break, making what ought to be a simple transaction a complicated one. Exchange controls become, above all, control.
In a zero sum game, what one party loses in freedom, becomes a gain of control for the other party.
If the government were to eliminate exchange controls and adopt a single rate, it would loose more than 50% of its power to control Venezuelans. So, it is not only incentives, it is servitude.
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He has presented his analysis to the government but no one listens.
Perhaps this could be rephrased: “He has presented his analysis to the government but no one in power wants to lose access to those insanely cheap Evil Empire Dollars@ 6.3.”
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This is, more or less, exactly what I thought when I read that line.
Telling the fox, guarding the henhouse, how to be more efficient at protecting those chickens.
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This has happened before in many countries. All trying the same system called socialism. This should happen in a poorer country, not in Venezuela that has revenue from petroleum. Socialism works if the private sector is strong and could work in Venezuela.
This is happening because of a useless and corrupt government.
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“Socialism works if the private sector is strong and could work in Venezuela.”
Of course. The problem is not the utopic system. It’s the people who manage it.
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Cuanto hay ‘pa eso?
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Could you imagine waiting in the midday Sun for hours to hopefully buy one package of Harina pan and a pint of milk (or whatever) and having to stand next to a massive mural of Maduro’s face? Good god.
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I think the last part of your comment really makes me dizzy. It is more valuable in Venezuela for a person to stand in line for an hour for a couple of bags of flour and dried milk than to, say, lecture on economics to a group of aspiring young minds who are the country’s future.
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OT, kinda. Google this: “U.S. Conditionally Backs Shell Arctic Drilling Plan”.
Vzlan oil production on yet another downward slide?
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Everyone is missing an important psychological component to this that is very important to the Regime. They WANT you to cheat the system. They want you to feel “icky”. They want you to feel humiliated. And most of all, they want you to feel GUILTY. It is very important that everyone be forced to cheat the system so that NOBODY feels any moral superiority. Sure, the people in the regime are ripping it off for tens and hundreds of millions more than you. But, that is just a matter of magnitude. You are still guilty of the same corruption as they are. How can you honestly drum up any honest moral outrage? After all, you are doing the same thing as they are?
This is how you create a passive and pliable public. By forcing you to break the rules to survive, they are robbing you of your moral compass, and breaking your will to resist.
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That “psychological component” you allude to is not missed by numerous Economists, as one of the attributes of excessive Oil-dependency, or the Resource Curse.
It has been extensively studied, you can find many links posted yesterday. The Historic findings are that such countries, like Nigeria and Venezuela (yes, that’s how bad we are) soon develop a pervasive “slave-master” relationship between heavily Corrupt Governments and their tamed populaces, that end up even “feeling guilty” of their participation in the mess, as many here confess.
The mechanism at work that is observed here by economists and scholars worldwide is not complicated:
Since the “State” gets to handle enormous amounts of easy-flowing wealth, Oil or Mining, or both, usually, tremendous amounts of Cash that is easy to Steal (unlike other income from other private industries), invariably the greedy politician Sharks arrive for the feast. Time and time and time again, in modern history/.
You get all kinds of pseudo-socialists, populists and totalitarian regimes grabbing that Huge, Juicy Coroto, hard. And they won’t let go, often for decades at a time, on every continent.
The way it works, they really don’t need to Tax the people. They have more than enough Cash to start giving out Freebies, Subsidies, Mision Vivienda Crap, all sorts of ruses.. And they don’t TAX, as all civilized nations do since way before the Romans.. When poor, alienated people like the Venezuelan majority after decades of abandon from other corrupt Governments start receiving these Gifts, of all sorts, they feel vindicated, even thankful and indebted. Especially since they do not pay taxes. It has been demonstrated that when people pay taxes in civilized countries, there is a strong sense of entitlement, pride, and more importantly, Accountability that develops: You worked hard, paid your taxes SO you now demand from Your Elected Oficials to Serve You, and do their Jobs for You, as they promised. And if things don’t work, if the economy sucks, then you have a right to get pissed off, and throw them out.. They even Resign, as we just saw in the UK.
In Corruptzuela, and many other Populist countries, sick to death from the “Oil Curse”, that’s the psychological aspect that has been extensively documented. Corrupt governments in turn bribe and corrupt their own people, there’s a sickening sense of “complicity” and even “guilt” that develops, which helps subdue the masses and extend the Regimes’ Psycho-Domination of the often under-educated population.
Of course, the “leaders”, the educated professionals, and the “aspiring young minds who are the country’s future” as someone just wrote, as in the meantime repressed (estudiantes), jailed (Leopoldo..) or kicked out or just leave, massive Brain Drain phenomenon, 90% of those who left, about 2 million, are the educated professionals).
So there you have it, entire whatever is left of Cities like our beloved Caracas become hordes of Zombies in line for harina pan and diapers. And they feel guilty about it!
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Not guilty , ambivalent , on the one part they are happy at finally getting what they need , at the same time the sense that having to queue and go food seeking to many places is not right , an imposed hardship, the stricken conscience at buying cheap what others buy dear or cant get is simply self delusional moral self . flattery. People who write for a living have all kind of literary emotions , not spontaneous but chick.
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Thats not Ricardo Haussmans take on the so called resource curse , he wrote a paper on the subject analyzing its causes and operation in very technical terms . Punctures a whole bunch of myths on the consequences of resource abundance . It isnt as simple as you make out , the results are sometimes paradoxical . It creates specialization inefficencies which sometimes are good for the economy but which generally should be avoided if there is a potential for economic diversification because economic diversification protects economies from the volatility of depending on one source of income . His statistics on the behaviour of Venezuelan economy during the 70’s and 80s is very revealing , there was growth even where dependence on oil income was very high.
Fukuyama analyses the penchant of pols to use patronage and populist corruption fed by state resources as a phenomenon tipycal of all inmature democracies , only remedy the institutionalization of civil service and public activities so they cant be used by the pols to promote its own electoral popularity . The US had the problem upon General Jackson becoming president and only managed to resolve it late in the XIX century. If you read Venezuelan history you will learn that the same kind of corruption was endemic for the whole of our political life . Having oil wealth makes it worse but doesn cause it , it not a problem if you have the institutional restraints of a srong independent civil service .
He suggests that the creation of a strong institutional system to stem the corruption of populist politics fed with state resources is more difficult in a democracy than in an authoritarian regime , but that it can be done in a democracy albeit with greater difficulty. This is a difficult topic where its easy to stray by the adoption of simplistic explanations and magic bullet solutions like suffocating the state by taking away most of its income. Hausman argues that sometimes straight taxation is not the best alternative for keeping the economy healthy. because a government can use many means of getting the resources it needs and use them to the best advantage of its people and a country’s economy . .
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Bill Bass, I get the risible impression that you think that money that is injected into an economy at the consumer level would not achieve economic benefits and that it would never get back to state hands.
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I think that you have the laughable impression that the state by giving away money for nothing to all and sundry will automatically change the mentality and ethos of people who will them use the money responsibly wisely and profitably .in buying domestic goods rather than imported frivolities , also laughable that you think you understand how royalty payments work ( and are defined) in a healthy non state controlled economic environment , while the truth of the matter is that there wont be enough of them to make a difference. !! I can explain it to you in simple enough terms but it wll take me a full page or more , are you interested ??
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By the way what happened to the oil curse rant , was that only an excuse to get to the siver bullet solution of an open pinata party to magically solve our problems .!! If we shut down the oil industry where is the money to distribute the pinata gifties going to come from .!!
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BB, I agree with some arguments against the unconditional distribution of oil money to the general public, but it has its virtues:
* transparency
* simplicity
* it dilutes the purchasing power of any single individual, it therefore reduces the ability to purchase costly items without setting up a savings account.
* it makes for a great policy to advertise during an electoral campaign
* it shifts the burden of making decisions on where to allocate money to the consumer, rather than requiring transparency on the part of those allocating funds through various alternative subsidies (even bachaqueo can be regarded as a rather opaque form of indirect subsidy)
* it erodes the political clout of those handling oil money by transferring the funds anonymously, rather than through targeted means.
Of course transparency is not ensured. It is still possible to cheat the system by setting up accounts for deceased or non-existent individuals, or other means. But such cheating occurs elsewhere too (there was a recent story of a japanese woman who had been stealing her parents social security checks)
There are other immediate downsides (although some could be argued to have positive effects too), of course, a main one is that such a scheme increases reliance on a taxation system to cover the states budget, which also enhances the size and the bureaucratic clout of the tax agency. It makes it more difficult to plan expensive infrastructure projects in the absence of lump sum financing from the oil sector. It also leaves a large burden on the oil company to continue transferring funds to the public. But this is not significantly different from the current situation.
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I should add one more benefit: it automatically provides participating individuals with access to the banking system, and opens the door to increased financial literacy.
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And an additional potential benefit: it allows dollar accounts to be set up, permitting a transition to a dollar based economy
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gro, love your points. I only differ with one: “It also leaves a large burden on the oil company to continue transferring funds to the public.” The oil company, nor any private business, should not be transferring funds to the public. The oil company should pay the state for the oil it extracts; the state then distributes the funds to the public. This should also apply to any natural resource.
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Bill Bass,
Sorry, I didn’t see anything in your reply to correct my impression as to whether you think there is any economic benefit in money injected at the consumer level, nor whether you were aware that the money does get back to the state when it is injected that way.
As to your impressions, I will attempt to correct them:
1) the state would not be giving money away. Firstly because it’s the recipient’s money. When a bank gives me money from my bank account, it’s not giving money away to me; it’s giving me my money. Just because a state is charged with the administration of our money, it doesn’t make it the state’s money.
2a) For some people who already have the mentality and the ethos to use the money responsibly, wisely and profitably, but don’t have the money, they will finally get to do so, with no mentality or ethos change necessary. For others who don’t already have the mentality and ethos, they will at least have socio-economic incentives to change the mentality and ethos, so, given time, will tend to change. For example, the lower prices of domestic goods versus imported will be the incentive, not just for the buyer to buy domestic, but for the provider to sell competitively.
2b) Don’t get hurt coming down from your high horse when you try to understand that the purchasing choices you make may seem like frivolities to other adults the same way their choices seem like frivolities to you. Venezuelan adults have a right to spend their money any way they please, and no one has the right to keep their money from them just because you think you would spend it better for them, ironically while keeping them hungry.
3a) As to royalty payments, I’m always interested in explanations, please provide.
3b) While you’re at it, my biggest question isn’t how others have done royalty payments, nor how they currently do it, nor how they suggest for them to be done; I’m trying to find out why royalty payments cannot be done the way I suggest. Please, include in your explanation why the way I suggest won’t work.
4a) I have nothing to do with any oil curse rant. I agree with JCN’s latest position that oil is a godsend, not a curse.
4b) I have never suggested shutting down the oil industry; I have always suggested privatizing it and overseeing a safe and competitive environment for it, as with the extraction of all natural resources. Just keep government hands out of running businesses.
4c) Again, not gifties; this is money from the sale of oil which belongs to the citizens.
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One thing at a time , here goes an explanation on royalties in Venezuela :
Where a country is rich in natural resources and the State owns those resources to extract wealth from them and use it for the benefit of its population it often happens that the State grants a business entity the right to exploit such resources against payment of a royalty which is calculated by multiplying the amount of resources exploited by the business times the price that is normally obtained from the sale of such resources regardless of the profits or losses that the business produces by exploiting them . It is therefore a royalty on revenues and thus more stable that an income tax on net profits that shifts with changes in the profitability of the business.
Because business profits are exposed to changes and price volatility the State prefers to receive a large royalty rather than a large income tax from the exploitation of the resources as a way of protecting itself from the fluctuations in income which result form the fluctuations in the price of the resources and the business entity prefers to pay an income tax which reflect its changing profit loss situation depending on changes in market prices.
Traditionally the trend where prices are neither too high or too low is for the business entity and the owner of the resource to strike a bargain where royalties represent some 17% of the gross revenues and income taxes are paid on the net profits that the business makes depending on whether the profits are high or low .
During the whole time Venezuela oil resources where exploited by international investors and during most of the period during which state owned entities took over the exploitation of the resource the royalty rate was maintained at 16 2/3 % and the income tax rate at 67% of their net profits.
This meant that when prices fell the effect on the states revenues were affected by the loss of income tax such price drops produced by reducing the companies profits and the state had a hard time trying to cover its costs which as usual had grown during the time in which the prices had been higher .
When the net income to be obtained from a particularly expensive type of crude exploitation wasn’t as high as that obtainable from the exploitation of conventional crudes , the 17% royalty could make its exploitation un economic . This was the case when Venezuela opened the exploitation of its extra heavy faja crudes to mixed companies formed between Pdvsa and certain international investors. Thus the decision was made that these mixed companies would not pay royalties during the period of their development and would only be paying a lower income tax for the whole life of their activities .
Later the oil prices rose so abnormally high that it became possible for these mixed companies to pay their normal royalties in full without affecting their viability of the exploitation.
After Chavez came to power , it was the pet idea of Prof Mommer , one his most trusted oil advisors , that it was unfair for the state oil revenues to be exposed to the instability typical of business cycle fluctuations and that therefore , the oil industry being controlled by the state it should impose on it a different system for the collection of revenues, one were income taxes were lower but royalty revenues were much higher , thus where price fluctuations might affect the oil profits of Pdvsa and thus the size of its income tax payments to the state, it should be the job of Pdvsa to assume the risk of such drop in prices and not the state whose income would thus be made much more stable .
This advise was implemented into law , the income tax lowered and the royalty rate raised to 30 odd % . Of course this occurring at a time of very high prices there was not great difficulty in Pdvsa implementing it without great hardship to its finances.
In time the regime decided to receive this royalty in kind , in the form of oil bls which it then sold on the market to finance (securitize) the huge loans which were negotiated with the Chinese govt to fund the pet social and industrial projects of the govt.
As Oil prices fell and the mismanagement and waste of Pdvsa caused its operations to become less and less profitable while the state took on more and more debt to fund its social programs and extravagant subsidies both at home and abroad the whole system unraveled and the state became for all practical purposes broke or at least broke enough that it can no longer meet the basis import needs of its populations.
If somehow the oil industry is restored to a normal form of operation it will be important that the businesses that take up the operation of the oil industry be they wholly private or partially private and state owned see the system of state revenues also restored to more normal forms of functioning , i.e where the business pay the state a royalty in keeping with normal interntional custom ( 17 to 20%) or even lower to help finance the higher costs and lower income which now affect its operations and maintain it as a profitable business.
The business will have to contend with huge investments to make up for the deterioration in the installations and resources from years of neglected maintenance and mismanagment , with much lower oil prices , an enormous debt load and the need to manage the shift in the economics of going from conventional crudes to extra heavy faja crudes (something with a very large price tags) .We can foresee that the business ( whether private or private and public) will not be as profitable as it has been in the past and will not be able to pay the amount of royalties it could pay in th past
Such drop in royalty rates means that the govts take as owner of the resource will be much smaller and that once the money owned China for the loans made to advance the govts past social and industrial programs are paid , the amount of royalty received by the govt will be much smaller than previously (same as will happen to its income tax revenue) requiring it to perhaps have to use much if not all of that royalty income to fund basic public functions . (to be continued )
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When you own shares in a company you dont own the assets of that company , not even the income from that company, you only have a right to the part of its net profits which are declared as dividends. The assets and the income are legally owned by the Company not by you (The company is not you individually but an incorporated person separate from the sum of its shareholders ) . Same thing with a state and its citizens , If you go to a registrar to register your title over the 30 millionth part of a recently built highway he wont recognize you any right of ownership to a fraction of the highway . Surely you can understand this , if not get a friendly lawyer to explain to you.
You assumme that consumers are going to buy local stuff because its cheaper , thats crap , usually imported things are cheaper or prettier so they get bought . You have to create conditions where local manufactures are prefferred to the imported ones, it can be done upt to a limit but thats a different story .
The royalty payments using a 17% rate and assumming a production of 2,350 K per day and an export price of $55 per bl would result in sum of 8 billion USD per year , because the real exportable volume ( after deducting local consumption) is 1.6 kBD and the per bl cost of production is 24$ (excluding refining costs ,the heavy investments needed to make up for the deterioration to the industry caused by so many years of mismanagement and neglect and the heavy cost of shifting from producing conventional crudes to lower priced more costly production of extra heavy faja crudes plus a 50 Billion $ international debt) or 14 billion $ per year , that would leave the exploiters of the oil 10 billion of $ per year with which to cover all the above mentioned costs and investments and if any thing remains to pay the taxes on which the govt depends for running schools , hospitals and generally to pay its expenses .
The net effect of distributing the 8.000 $ in royalties would almost assuredly be for no oil company to cover all the costs it must face , and thus remain profitless , for the govt to be deprived of any income from the oil industry on which it depends to cover a large percent of its expenses (even if reduced to its strictly legitimate expenses) . Just paying its debt alone require the expenditure of some 80 billon USD . There is no business which would be willing to accept such conditions to take up the oil industry in the state its in . My own estimate is that the oil industry to be turned into a normal profitable business will need a yearly extra funding in the 15 to 25, Billion dollar range
This means that in practice the application of 17% oil royalty rate or the use of it to distribute to the whole of the Venezuelan popultion will make the oil industry unappealing as a private business or even feasible without a total breakdown in the govts provision of essential services to the population and the payment of its external debt.
Same as happened when the international oil companies joined Pdvsa in the 90’s to start exploitation of the faja at a time of low prices , they will insist on an abrogation of royaty payments and a special lower than normal tax rate as a condition to become investors in the production of the faja crude .
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Bill Bass, I won’t have a chance to read and reply to your extended comment until tomorrow. Please, excuse the delay.
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Ex going deeper into the causes of state sponsored political corruption (which is why you may feel attracted to a pinata style distribution of state resources) thought you might be interested in reading the following piece. http://www.un.org/esa/desa/papers/2007/wp55_2007.pdf. . They look into a number of studies which appear to show that inmature democracies, absent institutional constraints and Rule of Law tend to foster corruption even more than traditional authoritarian regimes . The piece is entitled Corruption and Democracy and is authored by a Michael T Rock .
I’m curious that in Spain Podemos is proposing a guaranteed minimum hand out for all citizens without any conditions , which most responsible people appear to oppose , probably because they think that such public money can be better used by professional civil service acting within the purview of an institutionalized system of governance . In your response will you please consider the Podemos proposal and whether you would support it and if not , why not ??
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Bill Bass,
Oil royalties)
Thank you for your explanation. We have a different understanding of how the royalties work. My understanding is more along these lines:
“The federal government is compensated via royalties, which are paid by the mixed company to the state at a rate of:
“30 per cent of extracted hydrocarbons volumes;
“surface tax, paid for by the mixed company to the state and is levied over the surface of oil fields;
“income tax, levied at 50 per cent on the mixed company’s net income;
“dividends, paid for by the mixed company to its shareholders, including the state or PDVSA; and
“windfall tax, levied on export volumes when international oil prices are above certain thresholds.”
[ http://latinlawyer.com/reference/topics/47/jurisdictions/24/venezuela/ ]
Shares)
We also differ in our understanding or shares. My understanding is that 100% shares represent 100% ownership of 100% capital of a company. Then, to keep their roles as directors of the company, the directors must make money with the capital for the shareholders. All things that belong to the company *indirectly* belong to the shareholders, including debt. I emphasize “indirectly” because for all daily purposes the company uses all its assests as its own, but at any time that the company has to close its doors, all assets get converted, commitments paid, and the remainder is distributed to the shareholders in the precise proportion of their share ownership. So if a company owns desert land that turns out to have a water well in the center, the shareholders could then close the company doors and each get their portion of the new value of the land. But no single shareholder can cash out on his portion until the company is disbanded. All a single shareholder can do is hope that the market value of his shares will reflect the new book value of the company. So, though I understand your example about not being able to cash in on the 30 millionth part of a highway, you should also understand that you own it even if you can’t cash out on it.
Consumer behavior)
I am sure we’re on the same page here, but seem to be having a communication breakdown.
A) When given a choice of two identical items under identical circumstances, consumers will buy the least expensive one. Agreed?
B) A good produced with higher costs, such as higher pay workers, or more expensive packaging, will tend to have a higher price. Agreed?
C) Given an item for sale, having to add a shipping cost to it will tend to increase its price. Agreed?
Therefore, a good produced locally, in Venezuela, will have the opportunity to be less expensive than a good produced abroad with higher costs, which translates to consumer preference for the local good. Other than creating social consciousness about the social benefits of buying local and ensuring a fair and competitive market, the government has little else to do in the matter.
Oil income)
We differ in our assumed income from oil. My impression is more along these lines:
“In 2011 alone oil income amounted to over US$ 60 billion, the equivalent of US$ 2097 per person (see Figure 1).”
[ http://www.cgdev.org/sites/default/files/1426486_file_Rodriguez_et_al_Venezuela_OTC_FINAL_0.pdf ]
Also from the document at that link, Oil revenue represented 62% of government revenue from 2004-2009. Using 60% of 60billion USD gives 36billion USD, which is very different to your 8billion,
By the way, please note the reference made to the “windfall tax law” in figure 5 of that document. (Is this the Monaldi paper to which you’ve made reference in the past?) This reference supports my views of oil royalties.
But regardless of our calculations, you still did not address what I told you was my big question. I’m not as interested in how it is, or how it has been, or how others propose it to be, as I am in why it can’t be the way I propose. So, why can’t it?
Cash distribution)
The distribution of oil royalty should have nothing to do with how appealing the oil industry is to any private business. The only concern of the oil industry should be the amount of the royalty and whether it is too high to then turn around and make money after paying out the royalty. What the state does with the royalty should be irrelevant to the oil business. If I own a shoe factory, I know I have to pay fees and taxes. I take those payouts into account when pricing and negotiating. On what the government chooses to spend the collected fees and taxes should have no bearing on how I run my factory.
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Bill Bass, my mistake in the paragraph: “Also from the document at that link, …, which is very different to your 8billion,”
I had been looking at other numbers before and mixed them with the new ones. What I should have written was that total revenue must have been 100billion for the oil income to be 60billion, given 60% of total revenue comes from oil.
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Ex torres below is my response to the first part of your comments of today, than you for taking the time to prepare them .
Oil royalties)
What you describe as ‘royalties’ , is the current Venezuelan Law which as explained in my text is not a normal royalty as determined in the real world ( for instance in the US where oil is treated in alignment with business realities) , The law was enacted by Chavez following the advise of people who are doctrinaire communists and don’t believe in treating oil as a business but as an adjunct to the States Political Agenda . Also at a time when State Owned Pdvsa owned or controlled almost the whole of the Oil Industry and couldn’t talk back.
In the real world , were oil is a business , the royalty is set at a level which allows for the oil companies need to continuously invest in the upkeep and growth of the business and where if the taxation is too high and don’t allow for normal profits in time of ordinary prices the company simply shuts down the business and takes its money somewhere else.
I mentioned to you the fact that when in the 90’s Pdvsa created 4 joint ventures with international companies to begin exploitation of the faja extra heavy crudes and prices where not at an abnormally high level, they insisted and got a 10 year royalty holiday plus a much lower tax rate than was payable by Pdvsa as conditions to bring their money to the joint ventures .After the holiday they expected the royalty to be 16 2/3 % which was the royalty applied during the whole life of the Venezuelan Oil Industry until the early 2000’s when the Law was changed as mentiond above.
Why was this? Because otherwise the likelihood was that they wouldn’t make any profits , and they are not intereste in entering a business venture where they don’t make good profits .
Later when prices rose to abnormally high levels in practice they appeared to be willing to pay more royalties because the business allowed them to pay them
Currently Venezuelas deposits of conventional crudes are becoming increasingly depleted and their production has to be increasingly replaced with the production of extra heavy Faja crude which is much more difficult and costly to produce and brings in considerably less income per bl. Also in the meantime prices have fallen considerably from their all time high of the last 7 years . This means that conditions which prevailed in the 90’s for the explotation of extra heavy faja crude have not only come back but are becoming more generalized than they used to be . To pretend that a private or even a public business ought to pay a 30% royalty is nonsense , the royalty has to come down or even be dispensed with for a long period , same with the existing income tax rate .
I chose a 17% royalty in my text because that’s that the average tax rate in the US , but as explained above it may come down even lower than that . Please reread what I wrote on this subject and internalize it , it’s the intellectual honest thing to do .
The basic thing on which we both agree is that the oil industry has to be treated as a real business not as a kind of magic and limitless dispenser of easy money.to feed the ideological dreams of the radicals. !!
Shareholding :
You are correct in stating that “no single shareholder can cash out on his portion until the company is disbanded.” , the corollary to that principle is that unless the state is ‘disbanded’ you as a citizen have no personal right to receive a portion of the royalties collected by the state from the exploitation of oil reserves in cash..!! Since no one is proposing the disbanding of the state , that means that no one citizen individually can purport to demand that the state give it a propportionate share of the royalty money it receives from the exploiters of natural resources,
Consumer behavior
The world is full of goods produced elsewhere which are cheaper and of better quality than those produced where they are consumed . Prices are a function of costs and costs are a function of the advantages each country has in producing said goods or in the efficiency of the business producing them which means that the locally produced goods don’t always have the advantage . Also exchange rates have their role to play in favouring imports above locally produced goods .
Im sure we agree with the idea that we should strive to create conditions that make locally produced goods more price competitive and attractive . The important thing to remember is that its irrational to produce things others can produce better and more cheaply , you could concentrate on producing those goods where you have a competitive advantage , make money from their export sale and import the rest . It’s a difficult equation . I saw it on a business visit to Finland which is what we in Venezuela call ‘una tasita de plata’ , and where you see no cars built or assembled in Finland but mostly german makes . They explained to me that they were great at producing forestry products and shipbuilding and cutlery and some other stuff and that what they did was export those things they produced well and cheaply and with the money from such sale import what they could not produce themselves with equal efficiency and lower costs .
Oil income)
Please forget official statistics from the past , most of them come from the government and they are full of tricky accounting manupulations or down right lies. Also prices are not what they were ( which have been abnormally high ) and are not likely to rise to their old level . Just make your own calculation based on what we can know from independent sources about Venezuelan oil production , the kind of oil which is now being produced and will be produced in the future , the cost of production of each kind of barrel, the number of barrels actually exported at prevailing international market prices and domestically regulated prices, the current state of disrepair and the costs and investments which we know will be needed in the future if the oil industry is to function as a business . Trust that calculation more than any figure from the past .
Cash distribution)
As explained before royalties are a factor of the economics of the exploitation , size of royalties are a function of the profitability of the business which exploits the resources and pays the royalties , profitability and productivity of an exploitation can vary with many changing factors but cannot be set apart . Read again what I wrote about the 4 faja projects , check whats the average oil royalty rate in the US , remember what was the average royalty rate for the Venezuelan oil industry until around 2002 when the state could impose on the oil industry a royalty rate which was both abnormally high and un economic unless you controlled the business and prices were abnormally sky high . (which if the oil industry is to become a business again will not be the case.)
What also you don’t know is how the govt even when royalties were 16 2/3 % and lower prices made its finances difficult would go behind closed doors and negotiate deals for getting more money ( by artificially setting the prices which would be used to calculate the royalties) . The law itself provides for a lowering of royalties in respect of certain oil fields when their low yield or productivity makes the payment of the statutory royalties uneconomic.
In final instance , Royalties to the extent they are needed to cover the legitimate cost of performing necessary government functions cannot be used to distribute indiscriminately among the general population if the result of that is the inability of the state to perform necessary functions
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Bill Bass,
Your piñata analogy is quite off, by the way. In a piñata, it’s a free for all grab. The cash distribution proposed is an guaranteed equal share to every citizen on a daily basis.
As to the paper to which you provide the link, it is very interesting. Nothing in the paper goes against cash distribution, and much of it even supports the benefits of cash distribution, namely the the factors of transparency together with per capita income.
Regarding Spain’s Podemos, let’s separate the forest from the trees:
The tree is in the right direction as far as the unconditional, cash distribution to all citizens.
The group of trees in the immediate vicinity start showing misdirection as far as their formula for calculating the amount of distribution, which is based on “La escala de equivalencia de OCDE modificada”.
[ http://www.luisvivesces.org/actualidad/noticias/_cual_es_la_formula_estadistica_para_saber_si_un_hogar_se_encuentra_bajo_el_umbral_de_pobreza_.html ]:
“El primer adulto cuenta como 1
“Los demás integrantes del hogar se contabilizarían de la siguiente manera:
“Mayores de 14 años cuentan 0,5
“Menores de 14 años cuentan 0,3
“A título de ejemplo y teniendo en cuenta que, según la Encuesta de Condiciones de Vida 2008, el umbral de pobreza es de 7.753,30 euros anuales (646,10 euros mensuales), el cálculo para saber cuál es el umbral de pobreza de un hogar español con dos adultos y dos menores de 14 años es el siguiente:
“El primer adulto = 646,10
“El segundo adulto = 646,10 x 0,5 = 323,05
“Los 2 menores = 646,10 x 0,3= 193,83 x 2 = 387,66
“Total = 1.356,82 euros
“Esto quiere decir que un hogar con dos adultos y dos menores de 14 años que ingresase 1.356,82 euros al mes se situaría bajo el umbral de la pobreza.”
Finally the forest is in the complete opposite direction as far as their whole premise being “anti-capitalist”, which implies that the rest of the policies will not support the freedom and competitive requirements for a proper cash distribution to succeed.
So, though I would support the discussion of their cash distribution proposal, I would argue against their implementation, while fighting vehemently against them, given that I am a firm believer in capitalism with zero poverty, not what they stand for which seems to be zero poverty at any cost.
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Ex Torres this is in reponse to the second of your messages:
The paper I referred for your study , was meant for your general education in the kind of topics which interests you , but going a bit deeper than you usually go . I think there is a lot in them to chew on , but nothing in them to support the free distribution of public cash to all and sundry as you propose . Of course we can always interpret general statements as supporting our favoured views.
Regarding the Podemos initiative I am in total disagreement with it , for many reasons , most of which I am surprised you dont mention , one is that the free cash is to come from extra taxation to people who produce things , willi nilly without thinking fo the consequences of such kind of taxation on the economy . I thought you only favoured distributing the cash from the royalties on the natural resources owned by the State , yet here you depart from your past reasoning about these things . You make it the burden of business to support a free cash distribution for the whole of the population which may not be either fair nor wise nor economicaly feasible.
I called your proposal a Pinata because its the image that comes to mind , for the state as the pinata master to shower the general population indiscriminately with free trinkets as they freeload on munificent state that we prsume has no better use for that money for the collective good .
It may surprise you that I also sympathyse with the notion that the government , understood as that part of the state which concerns itself with basic political decision making , with decisions that go beyond the capacity of the experts to take should have no access to the expenditure or use of public moneys for the public benefit . That where the use and handling of public resurces required the use of organizational expertize a career technocracy should be entrusted with such use and handling of such resources in the most effective proffessional manner possible . That you shouldnt allow leaders uneducated in the use and understanding of functionla or expert activtties to run them . This sounds kind of nutty but it reall isnt . If you look at history and comparative study of political systems youll find many examples of this sort of thing . The barrier is conceptual or mental we cant think of government except as a kind of demigod or earth and thats the original sin . We think of pols in govt as having the free run of things and that really the approach that does us in because it fosters having those imcompetent pols handling the money on populist terms to further their political agendas which are sometimes obscene,
You see ex I share with you being something of a dreamer , except my dreams a somewhat different from yours , in future opportunities I hope youll allow me to describe my dream to you in more coherent terms .
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Bill Bass,
Oil royalties)
We agree that the current law is a nonsensically unsustainable royalty/tax structure. I have never agreed with it, which is why I have always been suggesting to change that structure to something very similar to what you are describing that oil companies want, which makes me wonder why you’ve been so derisive so many times in the past. Perhaps it is you needing to read my proposals with more intellectual honesty. I am happy with a 17%, 20%, 15% or whatever percentage or amount, so long as it is arrived at in the context of an openly fair and competitive market. I also believe that an oil industry income tax should not be custom made. This is what I have been supporting since I started showing up at this blog. Where we seem to differ greatly is in that you seem to think that the government should be taking a front and center role in running the oil business, whereas I say the government should let oil business people run it, freely and competitively against other oil business people.
Shareholders)
A single share holder cannot make a demand for a dividend payout, but a majority of shareholders can, and do so in real life, without disbanding their company. The directors make proposals to shareholders as to their reinvestment/payout decisions, but it is the shareholders, as owners, who vote in favor or against the proposals of the directors. The same applies to a democratic nation. A single citizen cannot demand his portion of the natural resource royalties, but a majority of citizens can, which is why I have proposed, in lieu of a party platform pushing for the cash distribution proposal, a referendum that forces the government, regardless of the party, to distribute all income that is not a result of taxation.
Consumer behavior)
You seem to think we’re not on the same page, perhaps because you missed that I emphasized *identical* products under *identical* circumstances. Your reply was based on higher quality and cheaper products. Obviously, the higher the quality, and the lower the price, and the more convenient the purchasing circumstances, and the more positive the branding, then the higher the tendency to choose a product over its competitors. What I was pointing out is that producing locally has transportation and other related advantages that tend to increase competitiveness. If said increase in competitiveness due to local factors is an insufficient advantage to beat out the imported products, then perhaps that product should be imported. So we agree, not just in the consumer behavior, but also in the local business decisions regarding whether to produce or import.
We also agree that the market environment affects the decision to produce or import one way or the other. Where we may disagree, as with the oil industry, is in how much the government should butt in. I think the role of the government should be in creating an efficient, fair, competitive environment. This will tend to eliminate market distortions, such as those caused by special taxes or fees, price and exchange rate controls, or almost all kinds of subsidies. I also think that the government should be creating an inviting environment, for examples, by lowering crime and improving infrastructure and human development. This will tend to welcome foreign business as well as retain local business. I think the government should *not* be taking roles in competing against other businesses.
Oil income and Cash distribution)
When I discuss without numbers, you ask for numbers. When I provide numbers, you tell me that they are wrong and that I should read a paper by Monaldi for which you never give me a link despite repeated requests. When I quote numbers from a paper coauthored by Monaldi, you tell me to forget them. You now tell me to make my own calculations, but only as per your indications. If what you really mean is to only “trust” *your* numbers, then just say so.
The way I see it, we differ greatly in how important the numbers actually are. To me, the simple principles that
A) a government needs to create a capitalism-friendly environment, and staying itself out of any business competition, which implies that you and I don’t need to be discussing the internals to any business (including the oil business, which you’ve also stated should be left to oil industry experts), only the non business spending of government.
B) a government needs to spend from a budget that is strictly limited by taxation monies, no other source, which implies that you and I only need to be discussing what should be included in such a budget and whether taxation monies are sufficient to cover it.
C) a government needs to have a line item in the budget for topping off any non taxation cash distribution that is insufficient to keep all citizens above the poverty line, which implies that you and I only need to be discussing whether non taxation monies are sufficient to keep citizens above the poverty line, which would make this line item usually zero.
D) a government needs to have a line item for budget stabilization instead of ever going into debt or leaving government responsibilities wanting, which implies that you and I only need to be discussing how to optimize the remainder of the budget so that Venezuela can reach such a developed stage.
E) a government needs to have a line item for discretionary spending of the elected official so that no previous government can leave a current government handicapped with 100% earmarked income.
As you can see, to discuss my proposal with any intellectual honesty, you have to separate the taxation income from non taxation income, then frame your response in the context of the economic effect on *taxation* income, *given* a cash distribution of all natural resource income. How would having a nation with zero citizens below the poverty line, a percentage of which choosing not to work, affect the budget? For example, how much would the income taxes increase and how quickly? Also, to how much do current poverty reduction programs add up, line items that could be eliminated from the budget in such a context?
It is discussing these matters and in this context that you would be able to convince me against supporting this proposal. Quite simply because this is a system. And systems are analyzed by how they function, not by the values at any particular moment. And some things are for certain: we know capitalism works, we know consumer markets are extremely efficient, we also know that lack of income is how poverty is defined. Put the three together and you’ll have a difficult time arguing that a cash distribution in a capitalist environment is less efficient than anything else you can propose that diminishes any of those three.
Corruption and Democracy paper)
“but nothing in them to support the free distribution of public cash to all and sundry as you propose”
“we can always interpret general statements as supporting our favoured views.”
Well, you can always ignore statements that support non favored views, as well:
Example 1. “At the theoretical level, Mohtadi and Roe (2003) model corruption as the monopolistically competitive behaviour of private sector agents who can either invest in productive activity or in rent-seeking (corruption). In their model, young democracies suffering from insufficient checks and balances and lack of transparency, provide rent-seekers with greater access to public officials and hence greater opportunities for collecting public sector rents, at least up to a point, without making the corrupt acts of
rent-seekers and officials open to public scrutiny.”
Cash distribution reduces government control over the sought rent while increasing the transparency of the use of natural resource income. In fact, after the cash distribution, the rent is in the hands of the consumers, providing incentive for productive activity instead of rent-seeking.
Example 2: “Goel and Nelson (2005), Fisman and Gatti (2002) and Ades and Di Tella (1999), among others, find corruption to be negatively related to per capita income (YN).”
Cash distribution directly and linearly affects per capita income, thus corruption would be negatively related to cash distribution.
Example 3: “Triesman (2002: 404) argues that income per capita is a good proxy for a host of other factors—including “…the spread of education, literacy, and depersonalized relationships—each of which raises the odds that an abuse will be noticed and challenged.”
Thus, again, cash distribution would be a good proxy for the spread of education, literacy, and depersonalized relationships, and a host of other factors, …
Example 4: “The level of economic development may well be capturing one other equally important aspect of development—the government sector wage—a variable that Van Rijckeghan and Weder (1997) argue affects corruption. There is some evidence to suggest that income per capita may be a reasonable proxy for the government wage.”
Thus, again, cash distribution would may be a reasonable proxy for the government wage, which Van Rijckeghan and Weder argue affects corruption.
And the list can go on. So I reiterate: “Nothing in the paper goes against cash distribution, and much of it even supports the benefits of cash distribution, namely the the factors of transparency together with per capita income.”
Podemos initiative)
I did not make mention of the cash coming from extra taxation because I thought you were clear that my proposal is one of no extra taxation. I described above and emphasize again: governments should distribute all non taxation monies, stabilized, to all their citizens equally, unconditionally, and daily, and only if such a distribution is not sufficient to keep citizens above the poverty line, then taxation income must be used as a top off.
I have repeated this over and over, and you still ascribe straw man proposals to me.
I disagree regarding “a career technocracy should be entrusted with such use and handling of such resources in the most effective professional manner possible.” I don’t share that trust, certainly not in Venezuela. And even if I did trust, I still would not support such a model, not only because it could be corruptible, at any moment, but because there is a more efficient system. The same way the human brain has the performance of a super computer through the use of decentralized neuronal processing, so can a nation produce super computing economic efficiency through decentralized citizen spending. Distributing cash and having each of 30 million citizens looking out in the best way possible for their own interests will outperform any group of experts trying to take into account the optimization of all 30 million at once.
If you look at the history of computer chess, you will find that there were the same two finalists in the yearly competitions for 6 years, straight. One believed in bringing each year a faster mainframe to process more and more moves per second. The other believed in improving the software to process fewer and fewer moves per turn, but with increased quality. They one alternately. When the seventh year came around, the tie-breaker, no one doubted that they would again be the finalists, the only question was which one of them would win. The first one, the one with the ultimate mainframe performance, was taken out in the first round by the one that would also end up beating all others. It was a pair of students who had a puny PC with a shoe box sized attachment. The attachment merely contained one PC chip for each kind of piece in chess. Each chip would process what the best moves were for its kind of piece on the board. The results were passed on to the PC, which would then simply choose from the top moves for each piece, given by the attachment. It wasn’t the best algorithm, but the decentralized, parallel processing is what outperformed all other systems.
Cash distribution is the most direct way of reducing the GINI coefficient. It respects the individual. It eliminates having to trust the historically untrustworthy. It has easy implementation, high transparency, low corruptibility, few loopholes, low overhead, and low costs. It is fair, it is democratic. And it is a decentralized, parallel processing system of 30 million supercomputers. I don’t think you can beat it.
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Thanks for the time spent reading my comments , the following is my response , item per item :
Oil royalties)
Happy you are OK with the reasoning that royalties may in future be needed to rescue the Venezuelan oil industry from its morass so that there may be not much left of it to distribute if such task is to be accomplished without having to shut down schools , hospitals and other essential public services.
I follow Annah Arendts view that political processes should not concern themselves with running activities where the main factor of success if technical or managerial , they can provide basic guidelines and general policies prepared with the advise of experts , but not engage in business themselves . However I see not reason why a public or private organization equally competent and effective should not participate in business activities if they act following accepted business paradigms . The primary problem in Venezuela was that the political agents ultimately refused to treat the oil industry as a business and instead used it as vehicle of power and patronage to favour their corrupt political or populist agendas. By the way who owns Statoil ??.
Shareholders)
As you now present your argument the right to a quota of participation in the royalties by each citizen would not be a natural right but one born of a legislative act where the mayority of the members of parliament decide to create such a right . Same way they can decide to use the Money in building a bridge to Europe or some other nonsensical way . What you are saying is exactly what I had mentioned to you before , there is no moral right to receiving such share in the royalties , its just a legislative construct. Nothing more !!
Consumer behavior)
Broadly in agreement except you don’t take account of the fact that sometimes the country needs things done which private parties lack the capacity of willingness to undertake and which can only be carried out with the initiative and sponsorship of the state . There is much published material on how state investment and initiative has contributed inmensely in many countries to the development of its business economy . So I have no dogmatic hang up with the state participating in some business or another here private initiative is wanting or insufficient.
Oil income and Cash distribution)
The Monaldi piece is easily accessible and can be found in internet , I don’t always make a note of where the piece is specifically located , because I read and write every day as a private intellectual exercise I simply make a note of what I read and who wrote it . The Monaldi piece which I quoted from was not the one you mentioned but one he wrote much more recently . You can still find it .
The numbers you quote are patently wrong , embarrassingly wrong , please do the calculations following the indications I gave you , they are all clearly reasoned and you can do them by yourself .!!
Don’t engage in a kind of shadow boxing to convince your self of your boxing prowess , just process the numbers by yourself and the conclusion you reach will be identical to mine.
As to the principles :
A) If your proposal has potentially destructive implications for the economy of a country which is totally dependent on its oil income to claim that you have no need to understand the oil industry and how it works is irresponsible and a sign that you have entered the realm of the delusional . You are not dealing with fools here . Making out that you are one wont serve your argument . Try and understand it to determine whether it is feasible under the countrys economic circumstances .
B) The country has many sources of income to make up the amount that it needs to perform the functions and meet the goals its set for itself through the political decision making processes , where the money comes from is not as important as the sufficiency of that amount to carry out the goals that it has set for itself . Whether the money comes from taxation or from other venues the important thing is that it be well and effectively spent in fostering the long term welfare of the population . The taxation vs royalty source of the income seems highly artificial .
C) False , the govt cannot take responsibility for ensuring that all its population rises above the poverty line , only that it will create the conditions for such rise to ocurr to the maximum number of people possible , with the resources it has and depending on the capacity of such population to raise themselves above the poverty line though their own efforts,
Quite another thing is for the govt to take every means practicable to attempt to protect the poorest from the worst hardships of poverty . Take note of the difference.
D) Taxation is decided through a political decision making process , it should take account of the productive and distributive functions of society and the state to remain in balance .
E) Desirable but how do you implement it ??
My concern is not whether distributing money to every citizen is good thing , of course its bound to be popular with the less responsible elements of any population . but it can only be assessed as both impractical and inconvenient for a country in our situation .
Corruption and Democracy paper)
Example 1. There are many different ways which allow for the rent seeking phenomena to be controlled , some of which are suggested in the paper , which doesn’t say that the free piñata style distribution of govt funds is in any way the most desired bet .
Example 2: See above comment
Example 3. The quoted comment does not relate itself to the solution you propose, many other solutions are proposed or discussed in the paper .
Example 4: Once again the example has no direct relation to the argument which you propose , it can be used to support a hundred different ideas about how to go about developing a country.
Podemos initiative)
First you say that you don’t favour using taxation to fund the piñata , then in the end you say the opposite , that if the taxes aren’t enough to fund the piñata then taxation has to be increased . Make up your mind Ex . you sound unbalanced.
.
On the subject of the need for a greater role of technocratic organizations to institutionalize the operation of the state and make it more effective and clean Im afraid there is nothing I can do for you , if you believe that the mass of the mostly uneducated people spontaneously will solve the problems of corruption and underdevelopment simply by spending the money the govt gives them for nothing, then you are more than naïve, starkly delusional as to the reality of the world in which we live. Metaphores taken from the way Chess games are played are a frivolous way of approaching the complex topic we have been discusing . Life whatever literary leanings we may have is not a chess game. !!
I appreciate your effort to continue discussing this subject with me , despite the many times Ive brought to your attention facts and data and reasonings that dispels the dream that feeds your very generous and credulous imagination , but I have my own lines of enquiry to follow as to the same human problems which so upset you . Best of luck !!
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Wonderful exchange!
Just two observations:
– Piñatas are disorganized, free-for-all, unfair distributions of low value trinkets. Torres’ proposal is just the opposite of that.
– I always find very dangerous in a discussion to accuse the other one of being naive/delusional/etc.
Mainly because even though the assertion is probably right to a certain extent (meaning probably someone is more wrong and the other one is more right) one can never know to whom the epithet really applies.
Besides is not really an argument.
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Bill Bass,
Oil royalties)
If you see the primary problem in Venezuela being “that the political agents ultimately refused to treat the oil industry as a business and instead used it as vehicle of power and patronage to favour their corrupt political or populist agendas” what safeguard do you propose to prevent that from happening as an alternative to what I propose, which is to try to keep government out of running businesses?
As to the owner of Statoil, if it’s government, then government should get out. No matter how well it is performing, you never know if at any time decisions have been influenced by that ownership, nor if they will be in the future. The relationship will be vulnerable to government bias and market rent seeking temptations. If you point to a successful dictatorship, I will still argue that a dictatorship form of government is not the way to go because of the potential for failure. Same here.
Shareholders)
The members of parliament cannot say no to a result of a referendum demanding the right, as per the constitution. If you still call that forced distribution of royalties a “legislative construct”, then yes, it is. That does not take away the fact that the shareholders, like the citizens, are the owners.
Consumer behavior)
A state can invest and act in ways to help business in a country without participating in the business itself, precisely what I support. Going back to the argument of Oil royalties, above, even if you point to successful implementations of a model in which government does involve itself in the running of businesses there are many more counter examples, as well as clear explanations for how such models can fail, especially in Venezuela.
Oil income and Cash distribution)
I have found many Monaldi pieces, four of which were published in 2014, and none of them seem to be the one to which you make reference. Interestingly, in 2013 he published an article in which he stated: “El costo de producción de un barril de petróleo generalmente no supera los $10 …”
[ http://gumilla.org/biblioteca/bases/biblo/texto/SIC2013760.pdf ]
In the same article he also states one of the reasons I’ve been mentioning for keeping government out of business: ” El control sobre los ingresos petroleros posibilitó una concentración de poder, sin precedentes, en las manos del presidente, quien manejaba a su discreción una porción creciente de las rentas a través de Pdvsa y de los fondos extra-presupuestarios.”
What numbers of mine are “patently wrong, embarrassingly wrong”? How about if I’m going to reach your same numbers, let’s just use yours: if oil royalties were 16% (and no other oil income) and the government had gotten out of all business and had stopped all subsidies and price controls, how much money from oil would the government be getting yearly?
Principles)
A) A gasoline station sells me gasoline. In the simplified model, a gas station owner does not need to know for what I use the gasoline, only at what highest price I’d keep coming back for more. In a less simplified model, the gas station owner would of course investigate the market needs and uses to best adjust his provision of services, but by no means should he get into my car with me, nor have anything to do with where I drive.
B) The “artificial” separation of taxation versus royalty is based on the premise that a government of a nation without natural resources must be able to perform its functions and limit its goals with a taxation only budget. Because natural resources can be seen a pure bonus to such a premise, it is reasonable to consider the spending of income from natural resources as extraordinary, precisely because they cannot be an assumed part of a successful model. Since, historically for Venezuela, the model you propose of simply adding the natural resource income to the same bucket of taxation income has failed, the justification for separating those two incomes is increased. Besides, the money from the natural resources would end up getting to the government through the taxation system, anyway, so your insistence on adding the two incomes at the government level is what you’re going to have to justify.
C) How can the principle of my proposal be false? It’s my proposal and I assure you that it is one of my principles. Really. It’s true. What you call “create conditions… [for the] population to raise themselves above the poverty line…”, is what I call “take responsibility for ensuring that all its population rises above the poverty line”, which you say a government cannot do. You see, if the end goal of a government is that its population manages to raise themselves above the poverty line, then cash distribution can be a means for achieving that goal. Note that if you assume that the population will be able to raise itself out of poverty thanks to the government spending on creating the conditions so that the population can do so, then clearly there must be sufficient money in the economy, so your counter that the government does not have enough money for a cash distribution is false. Either the economy can support zero poverty or it doesn’t whether it is by way of money trickling down from government spending, or up from cash distribution, the sum of money is the same.
D) I have a different view of taxation to what you describe, but I didn’t see what it had to do with what this principle is about. This principle is about a government never going over budget, so that a government never incurs debt, nor leaves important responsibilities undone.
E) To implement, a constitutional article indicating the percentage of budget that must be allotted to elected officials for their discretionary use.
You sidestepped the crux of the matter: *given* a cash distribution of all natural resource income, discuss what the government could do with the increased income from taxes and the savings from having to spend on poverty alleviation programs?
Corruption and Democracy paper)
Example 1: I never said cash distribution was the most desired bet in reducing rent seeking, only that it did, and that it promoted productive activity. Thus, the studies support the expectation that cash distribution would reduce corruption.
Example 2: Again, I only pointed out that study supports the expectation that cash distribution would reduce corruption.
Example 3: I never said they had cash distribution in mind, nor that they didn’t propose other solutions, only that their study supports the expectation that cash distribution would serve as a good proxy for “the spread of education, literacy, and depersonalized relationships, and a host of other factors, …”
Example 4: You’re wrong, the example has a direct relation to cash distribution. Just because it supports other ideas, too, does not exclude that it supports the cash distribution idea.
It seems like you did not catch the tie-in between cash distribution and income per capita. Any positive effect related to an increase in income per capita is by default also a positive effect related to cash distribution because cash distribution and income per capita are directly and linearly related.
Podemos initiative)
You need to read more carefully. I do not favor *extra* taxation to fund cash distribution. I do favor *non extra* taxation to top off natural resource income when this latter is not enough to keep people above the poverty line. I only sound unbalanced if you don’t read correctly.
I’m not surprised that you are bowing out after, first being derisive, then claiming that it is I who is upset; you’ve done this projection and about-face several times before. I’ll reconsider my respect for you.
—
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Im having great fun answering your texts but am growing a bit tired of correcting you again and again , I have other fish to fry and your obsession with the dogmatic stato phobic free cash distribution pinata idea is not one that merits my dedicating my life to . So this is my last attempt at making you understand where the idea becomes inviable or inconvenient . I feel as if Im teaching grammar to Tarzan !! very futile !!. This time I will touch on each topic once at a time and will take my own good time so please be patient .
Oil royalties:
Before Chavez the Venezuelan oil business was run with exemplary success and professionalism for 24 years . The pols understood that for the countrys good they had to hold back from interfering in the business .
Chavez was an exceptional political phenomenon and disaster as had never befallen Venezuela during its whole history , its not likely that we will have another Chavez for at least a hundred years , but he happened and he decided that he would break with the established paradigm that pols didnt intervene in the oil business ,
He also broke with many other paradigms as to the role of sectarian partisan politics in shaping the life of many public institutions , the army , the judiciary , the Central Bank etc. Its this penchant of Chavez -the walking historical catastrophe-for breaking the paradigm that radical politics shouldnt interfere in the life of technocratic or proto technocratic institutions what has led us to the situation we live today.
What we need is to create institutional bulwarks and constitutional or other rules that prevent the populist appetites of the govt pols from detroying the meritocratic institutional functioning of these important sectors of the public sphere , moreover which strenghnten the meritocratic and institutional un partisan pursuit of those public activities and protect them from the interference of partisan populist considerations .
The problem is that we view govt as totally wrapped up with partisan political issues and populist policies and the fact of the matter is that in todays world many of the tasks of goverrnement are best performed in total dissociation from that kind of partisan political populist factors , strictly as technocratic operations .
If you look at it , the modern corporation work so well because they are run not by their owners but by their professional managers as technocratic operations, the owners give the organization a general goal , which is specific and measurable , and has to do with the money it makes for them and then leave management alone to pursue those goals. This should also be the case with the operation of many govt organizations , let the political bodies give them goals , give them policy guidelines , give them a budget and have them prepare and implement technocratic , corporate fashion the activities which need be used to accomplish such goals .
This is the way public services and function operate in the developed world . Our goal should be to become like them . This is all very general I will try to be more specific later.
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Bill Bass,
“Teach me to speak the language of men.”
― Edgar Rice Burroughs, Tarzan of the Apes
—
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Actually, the psychological aspect I was referring to has been a component of all Communist regimes. It is not applicable to just “recourse curse” countries. There is also a threat component. Since everyone is breaking the law in one way or another, anyone can be jailed or threatened with jail at any time the Regime cares to. I am not saying that this regime is Communist, but the Cubans have been — shall we say — instrumental in developing the architecture of the internal security apparatus.
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I never thought it that way but it does make sense!
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http://www.caribnewsdesk.com/news/9852-unasur-visits-33-polling-stations-recommends-more-for-elderly-handicapped-to-witness-ballot-counting
…meanwhile in Venezuela….
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I think that the govt did not plan or desire this situation to happen , they were reckless and irresponsible and created these queues and shortages without meaning to , now they are forced to impose all these controls which have caused their popularity to plummet as never before .
People say and I believe it that if we had free elections there is no doubt that the regime would lose heavily , in large part because of the crisis which is hitting everybodys life . They could not have wanted that . Their response to a crisis is always a measure that gives them an ostensible sense of power and control because their besotted with the trappings of power and might . Thats what fed Chavez megalomaniacal narcicism , his thuggish talk and gestures. !! His succesors are no different. The more insecure they feel the more controls and abuses they will incurr.
Of course people being unhappy doesnt mean their throwing themselves to mass acts of street violence , however macho and heroic that may seem . people have an instnictively natural respect for their self preservation and a threshold of collective anger has to be crossed before the go for overt acts of spontaneous rebellion . In time of course they may seem to become accostumed to their situation but there is usually a festering feeling of discontent that can turn violent very unexpectedly , for reasons that may seem trite and relatively unimportant . Reading the psychology of the masses is a tricky thing. The best rule expect the unexpected !!
All the shylly shalliying with the Parlatino elections , and with the forthcoming parliamentary elections is a sign that they are fearful of popular discontent making a shambles of their illusory claims to being the representatives of the people . We will see more of that in the coming months .
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Bill, the Queues and racionamiento are part of Cubazuela’s plan.
Chavez learned from the best:
http://www.rpp.com.pe/2013-07-10-cuba-libreta-de-racionamiento-cumple-50-anos-noticia_612188.html
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http://ijustsaidit.com/libreta-de-racionamiento-cubana-en-venezuela-video/
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Floyd : Not logical , rationing is making the regime very unpopular , dangerously unpopular , we still have elections however much the effort at manipulation , conspiracy theories are melodramatically charming but usually false , they are risking a social upheaval . also inconsistent with past behavior of desperately keeping people happy by flooding the streets with goodies ( remember Daka) . Why the sudden shift in policy . doesnt make sense !!
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It IS logical.
You keep people busy searching for food, busy trying to avoid getting killed by choros, that way people won’t have time to protest or to even complain about their shitty lives.
Stop dreaming about that “caracazo-style social upheaval”, where the “the cerros will come down to burn everything” idea only shows how great is the ignorance of the average person about that event.
I have explained it before, there are several methods to control and subdue the population. Why they gave away cheap goodies in the dakazo? Because they had dollars to get them. Why they have to resort to bullets now? Because 1) Bullets are cheaper than plasma TVs (Too much kleptocracy depleted all the dollar reserves in the country) and 2) Seeing someone killed by colectivos is a much more dissuassive measure, otherwise the april 11 slaughter by richard peñalver and the death circles wouldn’t have been so effective.
Violence is the most powerful dissuassive, but is the riskiest of all, because when it fails, the consequences are the worst of all.
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Ralph , are you a troll or what ?? all Im saying is that they didnt want the crisis to happen because it hits their popularity hard and that doenst help them , it can transform into many things , maybe into a social explosion (you dont think the regime fears that ?? are you a martian ??) or in masses of people formerly their followers becoming their enemies and either abstaining or voting against them . Of course coercion is always a backup to avoid losing their power. but never a preffered alternative . It also hurts their international image and riles up government bodies to take stand that erodes their formal legitimacy already in shreds .
Why follow floyds game to distract the attention from oppo’s main current phocus of attention . You should perhaps know more about whats happening inside the power circle , you only know what you read in the papers or hear on TV . ou have no friends or relatives inside the whale. you dont know how much they fear the way the crisis is eroding their popular support ??
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“…are you a troll or what ??”
Not every comment that disagrees with your viewpoint makes someone a troll.
“…all Im saying is that they didnt want the crisis to happen because it hits their popularity hard and that doenst help them , ”
Think again, the corpse provoked the pdvsa 2002 crisis that lead to april 11 and many other bad stuff, and later was boasting about having “lead the oppos right to where he wanted”
For their “popularity” they always have compansated with tons of brain-destroying propaganda, which is cheaper than actual investment that would increase their popularity, just look that there are many non-chavista people that openly agree with some of the most convoluted and idiotic stuff made by this regime such as the dollar cupos (first and foremost reason of the economic crisis), the rationing and many other chavista thoughts (such as tossing shit whenever they can to anybody who dares to protest because “that would lead to cabello coming to power to kill everybody”) or just trying their hardest to BLAME THEMSELVES AND EVERYBODY BEFORE PLACING ANY CHIP OF RESPONSIBILITY INTO THE CORPSE.
“… it can transform into many things , maybe into a social explosion…”
That’s what propaganda is for, it’s not that they’re beginning now, they have been gnawing people’s brains since 16 years ago, many uneducated ignorant people have reached north-korea levels of stupidity and believe blindly in whatever a chavista officer claims, do you remember the “trilogía del mal” hate campaign? Yes, the “pueblo” has been reduced to such an idiotic state that they actually believe that crap.
“…(you dont think the regime fears that ?? are you a martian ??)”
That’s what colectivos and choros are for, you keep people busy trying not to get a facefull of bullets, that way they won’t think about protesting or revolting (That’s the method they’ve been using by 16 years, by the way)
“…or in masses of people formerly their followers becoming their enemies and either abstaining or voting against them…”
That’s what blackmail is for, do they have any mission? Threaten to take it off if they don’t vote red; do they work in public office? Threaten to fire their asses if they don’t vote red, and so on.
“…Of course coercion is always a backup to avoid losing their power. but never a preffered alternative…”
That’s why they go first giving away stuff for free (dakazo) or just promising that (misiones). In any case, the hate they’ve stuck in chavista brains is enough most of the time, chavistas have been taught to hate with every fiber of their beings anyone who doesn’t agree with them, so they’ll believe any bullshit the fat fish tell them (They’ve claiming that ONLY THE MARGINALES WAITED ON LINES IN THE 4TH, so that makes the lines of today a GOOD THING, BECAUSE NOW THE HATED OPPOS ARE DOING IT NOW)
“…It also hurts their international image and riles up government bodies to take stand that erodes their formal legitimacy already in shreds…”
As long as they’re holding elections, be those legitimate, botched, cheated, fraudulent, fake, rigged or whatever, the “international image” will always be of a democracy to just keep them immune to any outside intervention that might hurt their staying in power.
“…You have no friends or relatives inside the whale.”
I can’t care less about someone that openly supports this fucking disembowelment and dismembering of Venezuela, and to those who are not supporting it, I’ve told them “duck and cover when the shit starts flying, also, don’t ever mock anybody about their disgrace provoked by chavismo”
“you only know what you read in the papers or hear on TV ”
I don’t watch tv for news since many years ago, because most of the news are the same, fucking depressing stuff like “100 people got killed by underage choros this last weekend to steal from their corpses”, “diablodado threatens to kill everybody in another tantrum” or “maburro screwed it up once again”
“… you dont know how much they fear the way the crisis is eroding their popular support ??”
Again, I’m no friend of any fucktard that openly mocks any victim of this gangrene, so I’ll just point and laugh when shit hits them.
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Ralph : Chavez was a narcicist of the first order , even if he made a mistake he would disguise it as a thriumph . , he didnt seek the oil strike , he bungled into it . I am loath to believe in melodramatic dark sinister conspiracy theories not if the overwhelming evidence is that they are born bunglers and incompetents , Once in a fix they will be deliberately malicious and engage in plots , I agree with that , but to believe that all along (for 15 years) they have been following a comic book villains elaborately sinister fienly woven agenda seems to be the sort of thing childrens and adolescent minds go for , not credible for a more mature reasoning mind.
Of course you are too pure to acknowledge having any contacts with people who are inside the whale , isnt that great of you , bet your arent one bit proud of your moral purity . Well in Venezuela, of you have enough friends and relatives its hard not to have contact with people who have a link to whats happening inside , Venezuela is a sieve , and the fact allows you to be better informed even if no public media dares publish the information . That perhaps is were I come from . I like being as best informed as I can.
I take less pleasure in displaying my heroic indignations and glamorous angers than you do , in loudly venting my spleen (not that I always succeed) , but the thing I really like is getting to understand things from collecting as much information as I can gather from private observaton or from talking to others.
Im less keen on feeding my epically enhanced passions that in using my mind to try to understand realistically the world that surrounds us !! a question of personal preferences not every one has to share .!!
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“…he didnt seek the oil strike , he bungled into it . ”
If that makes you so happy, keep believing that every bastard that’s been in control of the destruction of Venezuela in these 16 years is a blind idiot that couldn’t wipe his own ass, maybe that’s one reason they’ve been holding the power for so long, because they’ve projecting the “ignorant uneducated idiot” image, so people won’t blame them for anything wrong they do, because they’re suppossedly too stupid to have thought on it.
Getting into power to plunder as much as you can is a conspiracy, but, keep believing that everybody who doesn’t agree with you is automatically a stupid idiot, maybe that feels better.
“Of course you are too pure to acknowledge having any contacts with people who are inside the whale , isnt that great of you , bet your arent one bit proud of your moral purity ”
What does the eyelash have to do with the ass, dude? I don’t consider myself superior to anybody, if that’s your attempt at trying to invalidate my comment.
One thing is to know someone who works at SAREN or SENIAT or any government place, who does it even though they are against chavismo, and another is to be friends with a boliplasta or any chaburro, I’m the former, maybe you’re the latter, and yet you still contain the nausea when your chaburro friends start their usual bullshit asking for a punch to the kisser.
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“I think that the govt did not plan or desire this situation to happen…”
Old saying… “The road to hell is paved with good intentions.”
I agree that it starts that way. It always does. And people convince themselves that “The end justifies the means.” But eventually, as power becomes more and more concentrated and the people in power become accustomed to it, the “means” become the “end”.
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1.8 Kilos of powdered milk for 130 Bs
1.8 Kilos of Bachaquiero powdered milk: 480- 1000Bs
A four pound container of powdered milk- rather close to 1.8 kilos- in the US costs $16 at Wal-Mart- online price.
The supermarket price yields a Dollar at about 8 Bs- close to the 6.3 gimme rate.
Bachqaquero prices yield a Dollar at ~30-60 Bs.
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Good. I’m starting to love Bachaqueros. They seem to be the only ones left with a true Capitalistic Spirit!
(And If that’s what it takes to wake the Zombies up, so be it)
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“…1.8 Kilos of powdered milk for 130 Bs
1.8 Kilos of Bachaquiero powdered milk: 480- 1000Bs…”
Milk is sold in 900g cans and packs, not in 1,8Kg.
So, those prices are actually the double.
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So, those prices are actually the double.
I doubled to make an easier equivalence to a 4 pound container of powdered milk in the US. Four pounds are about the same as 1.8 Kg. [In making quick and dirty estimates, a.k.a. ballpark
estimates,”about” is better than exactly, as “about” is a lot faster.]
If you look at the picture of the receipt, there are two payments of 64.49 Bs for two containers of 900 g of powdered milk, which I rounded off to 65 Bs. 65 Bs. for a 900g can= 130 Bs for two of them, which total 1.8 Kg of powdered milk. Which is how I came up with 1.8 Kilos for 130 Bs. which is a much easier comparison to the 4 pound package of powdered milk at Wal-Mart, as 1.8 KG ~ 4Lb.
A comment on powdered milk prices in the US. Time was when powdered milk was about half the price of fresh milk. Today prices are about the same. More profit on powdered milk, whereas fresh milk is sold at not much above cost.
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I do not believe, as some have stated here, that the vast majority of the “Pueblo” (Venezuela’s majority minimum wage poor) feel at all “icky” about queuing for price-controlled basic foodstuffs–“icky” is for the very minority upper-educated/socio-economic classes still left in Venezuela, and of those, only that segment that might have a broader sense of morality/fair play. Nor do I think they even feel ambivalent–most feel gratitude, some degree of good fortune that they caught the cola at the right time that day before the scarce products were sold out, and maybe some molestation if the cola was too long. A libreta de racionamiento, if the basic foodstuffs were free, although limited, would actually be well-received by Venezuela’s vast majority poor. I speak from personal/family experience. Many on this Blog can only theorize about the poor on this Blog, without seeing it daily up-close and personal. As for taxation building social responsibility/political accountability, there is no question that this works, although Venezuelans pay a high 12% sales tax actually on most items, not to mention higher luxury taxes on high-alcoholic content alcoholic beverages/cigarettes/et. al, which are somewhat hidden from the relatively uneducated typical Venezuelan point of view. Finally, in large part due to their complacency/poor education/Petro-State dependence, don’t expect the Parliamentary elections to be lost by the Regime (“UN’s” headline today–“Parliamentarias Blindadas” by the CNE, and we all should know what that means), and, if even with fraud their is a fear they would be lost, then they well could be cancelled/postponed, and even if they were lost, the effectiveness of the Asamblea will probably be countered by Executive decree/TSJ decisions/etc.
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That kind of consumer Tax doesn’t work for accountability and to piss people off. In under-educated countries like Corruptzuela, most people don’t even know they are paying it, much less where it goes, much less in what it is being spent, by whom.. Zero clue.
But force the Pueblo every April 15 to pay 30% of their yearly income to the Government… Ay Papa!! eliminate loop-holes and ways to cheat, punish those who cheat.. Masburrismo wouldn’t last another year.
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“…Venezuelans pay a high 12% sales tax actually on most items…”
Don’t forget the infamous 35-40% nationalization that’s charged on most imported goods, which are like 90% now.
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Net I agree with your assesment of the ickyness being a rather artificial thing limited to very few people , still if you do the queues (as i do regularly) you know they are not making the govt popular , far from it, even if rationing makes things a bit easier for the very poor , its still much worse than the time when you simply entered a store and bought what you wanted . there is an undertow of anger at the hardships that people now face to get what they need, also prices on many other items have bevome prohibitely high and that hurts the pockets . I also believe that the govt is engaged in a campaign to convince the oppo not to vote and for their disgruntled former followers from becoming so incesed that they cause a social explosion , to do this you create the impression that whatever the size an depth of the discontent they will steal the election through fraud coercion and other like means , The UN headlines are part of this campaign , forego hope all who think of voting oppo in the parliamentary elections. What I see is that even if the parliamentarly elections get formally stolen a good showing by the oppo can erode the thin margin of legitimacy which the govt attempts to maintain , this is a long term struggle and you dont expect to win all battles , you must be ready to cause the maximum damage on the regimes credibility every time you can , the elections are part of that even if they are ultimately stolen . the next time round you are in a better position to strike a bigger blow. Its like a guerrila warfare you strike non lethal blows again and againt until a point comes when you have a greatr chance of making the regime crumble .
On the tax responsibility issue , I somehow feel that its a gringada , the kind of thing that sounds neat but doenst reflect deeply our rooted cultural feelings and beliefs , numbers count and the govt will not allow allow the most popular segments to pay direct taxes , and if what you tax is given to you for free not earned thorugh your own effort then the effect on the attitude of people would be minimal . I pay my taxes ( and they are not insignificant) and even I have no particular sense that my condition as taxpayer gives me any privileges where most of the countrys income comes from something that people themselves personally dont help produce. The tax culture doesnt exist in Venezuela and most likely it never will .
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Beneficios del Bachaqueo Bolivariano (Benefits of Bolivarian Bachaqueo):
– Keeps the Spirit of Capitalism and Free Enterprise alive.
– Promotes and Reinforces the fundamental laws of Supply & Demand.
– Invigorates the free, non-regulated economy with substantial profit margins.
– Reminds the Dictatorship and its participating Zombies about the true cost of products.
– Sharpens everyone’s negotiating skills, math skills and powers of persuasion
– Allocates additional income for the poor, while the rich enchufados are stealing at work.
– Prevents violent crime, kidnappings, murders and such by keeping everyone busy in daylight.
– Re-injects its profits into an parallel sub-economy for less regulated product/service interchanges.
– Fortifies our Import/Export informal trade with our neighbors.
– Beefs-up the Zombie Lines, even Masburristas get pissed off in the Summertime in Maracaibo..
– The longer the lines, the better: Internet news and other Imperialistic goodies are shared.
Que viva el Bachaqueo, coño!!
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You forgot the most important one of all for chavistas:
“We are pissing off the oppos.”
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Beefs-up the Zombie Lines, even Masburristas get pissed off in the Summertime in Maracaibo..
Not too many people like spending Maracaibo summers standing on a shadeless sidewalk.
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Pinatas are a way children are pleased by being showered with free things , they like having , for doing nothing at all except being invited to a party i.e for being a friend of the child whose birthday is being celebrated. It has a cost and no return for whoever puts up the pinata , who if in a situation of financial hardship may need the money for use in something more important .like putting food on the table .
Every one is a natural consumer , no one has to be taught to consume , we consume like herds , and tend to be incontinently , frivolously when our consumption is funded by gifts , not by money we have earned through our own work and effort. Studies have demonstrated this.
Being responsibly productive in contrast is something that must be taught and incentivated , people are not naturally productive , specially where certain cultural traits make people admire the acquisition of easy money through tricks an deceit . The fact of the matter is that if you cant consume if you dont produce , so it serves a country better to spend money on making its people productive than in inventivating them to consumme more , thats why distributive policies , in countries which are unproductive are irrational , first you have to spend in making the country more productive, in organizing its productive capacity and only later worry about distributing the rewards of such productivity among those which social conditions dont allow to share in the wealth such production creates. Putting distribution first may alleviate some of the symptons of poverty but not get people out of poverty for keeps . Making a disorganized country such as Venezuela productie is going to take a lot of money , wasting it on goody goody distributive policies in that sense is a waste .
In my view , putting indiscriminate distribution of state resources ahead of targeted investment of resources in increasing the countrys productive capacity reflects an ignorance of reality which I have no qualms in qualifiying as delusional. The intent is not to offend but to describe !!
Taking money away from the state to give it directly to people doenst solve anything in the end because the state can manouver things so that in the end the money is used by the state to propo up its political agenda and reward those supporitng it . The idea that people will develop the idea that its my tax money so you better use it carefully is a gringada of the first order , people hear are not gringos and all they want is to get things for free which is what the pinata system achieves .
Mor rational course to reform the way the state operates so that its abuse of public resources using it for partisan ends becomes impossible . There are ways of achieving this which work much better than opening up the state coffers for ndiscriminate distribution among all the voters.
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It’s interesting that you still hold such negative views of a consumer market economy and the cash distribution system that would kick such an economy into high gear when there is an ever increasing amount of data pointing to the opposite of your views.
I wouldn’t want to see you when you’re being dogmatic.
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Ex Torres : The following are a few loose remarks to be supplemented later:
1. If you are a family man and get half your income from your salary and half from some family property you are renting , you dont feel bound to destine this latter half to give to your children as part of their personal allowance. All the money you get you put into a pot and use indistinctly on whatever has greater priority in your familys life . Equally public funds whether paid as taxes or as royalties form part of a single pot of resources for the State to use in meeting the populations priority needs .
When Roman Cardenas established in Gomez time the govts first ever modernly organized financial system, he made a concept called ‘la unidad del tesoro’ the cornerstone of the system , meaning all money recieved by the state was put into a single pot to be used flexibly in meeting such govt expenses as had the greatest priority regardless of their provenance. It was Chavez that did away with this rule to funnel funds to where he could control them to his own political advantage .
The rule that royalty income and tax income must be given a different use is arbitrary and not based on any logical or practical reason .
2. All money when spent has a multiplier effect , it flows into the economy and on being respent again and again , produces an economic multiplier effect that helps dynamize the economy . This is true regardless of whether the money is spent by the govt itself to pay business corporations , or its employees , or anybody else . When you say that giving people free money to increase their consumption you are helping the economy , you are forgetting that the same multiplier effect can be produced by any kind of expenditure , There is no special virtue in the money being spent directly by consumers or by other entities (which money any way will ultimately reach the hands of ordinary consumer ) .
3. The official per barrel production cost figures were given last month by the president of Pdvsa as 19$ per barrel , there is however a $24 per barrel figure given in a work prepared recently by Ramon Espinaza now teaching at Georgetown University (formerly Pdvsa head economist) describing the past and current state of Pdvsa’s finances.
4. There is an article by Fukuyama were he sees the scope of the states activitities as larger or smaller depending on the preferences of the people in different countries , In Europe the electorate likes the state to asumme many tasks which the US electorate prefers to leave in the hands of private businesses , taxation in Europe of course tends to be higher than in the US . He doesnt see this as a problem unles the state is not as institutionally strong, as technocratically competent as needed to handle the load of tasks it takes on , The problem for him is not the size of the tasks the state assummes but its technocratic and institutional capacity to effectively perform the tasks .
My own idea is the same , except that I think it important to prioritize making the state technocratic and institutional organizations functionally stronger so that they can at least be able to assume and perform those tasks as Venezuelans want their State to perform. The current problem is that the state has been entrustted with more tasks than it has the institutional and technocratic capacity to perform leading to massive corruption and waste in the use of public funds , taking funds away from the state to give it directly to citizens without any order or plan is to me not as good as spending it on creating an educated career civil servce institutionally or constitutionally protected from populist partisan political interference.
(more to follow)
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Bill Bass,
Here’s some food for thought that you may choose to consider in your future comments to which I do look forward:
A) I have not said that royalty and tax money cannot be considered within a single pot. I understand the single pot function very well. You don’t need to convince me of how that would work.
The problem seems to be yours in your unwillingness to even consider them as two separate pots. Your statement, “The rule that royalty income and tax income must be given a different use is arbitrary and not based on any logical or practical reason.” sidesteps all the logic and reasons I have provided in the past, implies the unwillingness to consider the logic and reasons I’d be willing to provide if simply asked, and dogmatically states, as fact, what is merely a difference in opinion.
Of course there is logic and reasons for separating the pot; I wouldn’t be proposing the separation if there weren’t.
B) I have not said that money spent by the government does not have a comparable multiplier effect to the same money spent by consumers. I understand very well the the special virtue of money being intelligently spent by government. You don’t need to convince me of how money spent well by government would work.
The problem seems to be yours in your unwillingness to even consider the advantages of money being spent by consumers. Your statement, “There is no special virtue in the money being spent directly by consumers or by other entities (which money any way will ultimately reach the hands of ordinary consumer ) .” sidesteps all the statements I’ve made describing the unique good that spending by consumers would entail, implies your unwillingness to consider the virtues I’d be willing to provide if simply asked, and dogmatically states, as fact, what is merely a difference in opinion.
Of course there are unique virtues to having spending be by consumers rather than government; I wouldn’t be proposing the spending by consumers if there weren’t.
C) In an earlier comment you told me not to listen to government figures, and that a person called Monaldi set some kind of bar. I will keep your 19USD and 24USD figures in mind, but I will also keep Monaldi’s 10USD figure in mind; I hope you do, too.
D) Of course I see the importance of strong, independent, technocratic meritocratic institutions, on which I am well aware your proposed platform is based. I have acknowledged as much many times before, and do so again.
The problem seems to be yours in your unwillingness to even consider that my proposed platform would lead to strong, independent, technocratic, meritocratic institutions, as well.
At least this time, your statement, “taking funds away from the state to give it directly to citizens without any order or plan is to me not as good as spending it on creating an educated career civil servce institutionally or constitutionally protected from populist partisan political interference.” is not dogmatic and acknowledges your statement as an opinion. I happen to disagree with your opinion and would gladly discuss on what I base it, if you would be open minded enough to consider the possibility that I may have a valid opinion, even if it differs to yours.
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Off the cuff some preliminary answers :
A) Where public income is fragmented into different pots , The states capacity for handling of public resources can lose versatility and punch ( as where it needs to be concentrated in large amounts for use in a particularly large project , an expansion of Guris hydroelectrical capacity for example or the 20 billion $ needed to repair the iron ore transportation system for bringing it to the steel mills (now almost destroyed).
Evidently if this money needs to be spent , for the general benefit of the country . it wont be spent by the 30 million cosumers that recieve the royalty hand out . Polar beer may improve its sales , but that wont help the funding of really important public projects.
This is a very basic public finances rule . Roman Cardenas didnt make it the cornerstone of his system for nothing . Remember he was the guy that told Gomez when offered him job of finance minister that he couldnt take it unles he had become better trained in advanced economics , which lead him to being sent to Britain for a year to study with the best economic thinkers of the time before coming back and taking over the job. He knew what he was doing. !!
B) If the average per bl production cost is stated to be $19 by the President of Pdvsa last month ( someone who evidently gains by making the figure lower so as not to put in evidence its mismanagement of Pdvsa operations ) , or the 24$ per bal cost referenced by Ramon Espinaza a person of impecable professional and academic credentials with actual experience working in Pdvsa . I would not go for Monaldis $ 10 figures ((evidently mistaken) unless I was acting in bad faith to make a point to favour my pet ideas .
C) The Romantic fallacy that in the larger schemes of things , ordianry people know best how to spend their money has been disproven in sutdy after study , people are not rational decision makers bent on maximizing their utility as classic economists would have it . People are very irrational and arbitrary in the way they handle their money . Public moneys should be spent in an programmed and orderly way seeking to optimize the benefits to society of its use in public programs and proyects . The fact that our institutions are inmature and dysfunctional means that we must grasp the bull by its horns and grapple with the need of transforming our state bodies into more functionally competent institutions , into real working institution , just weakening their resource base isnt going to do it .
D) There is a basic fact that cannot be ignored , in order for the poorest to raise their living standards in a stable way first they have to learn to be economically more competent and productive , raising peoples income artificially ( and usually temporarily) by giving them free money thru the adoption of generous distributive policies (such as those practiced by the Chavez regime or proposed by you ) can help raise their consumption levels temporarily but it does nothing to change the system so as to transform them into competent contributors to a healthy modern productive economy.
People are naturally born consumers , they dont have to be taught to consume , but they do have to be taught to be productive in a moderns economy which includes giving them a chance of becoming responsible role players in such kind of economy , This is not achieved by showering them with gifties but by giving them those things which specifically and productively can help raise their economic competence . good health services , a basic education , vocational training , judiciously administered micro loans . You have to learn to be productive, and this can be done best thru the targeted, well organized use of public funds . It doesnt have to be done by govt bodies , it can be done through private or semi public NGO’s ( FE y Alegria is an example) or even by private companies that specialize in doing that kind of job.and whose pay is tied to performance , to the acomplishment of specific measurable goals.
If Polar offers to hire a 2000 people and train them to increase the production of harina pan to feed the needs of the country maybe the money would be better spent giving them a govt loan than by giving people more money with which to drink their beer and visit beauty salons .
There is much of I what I wrote before which you have ignored or simply skipped in your commentary . But I understand where you come from , maybe I was too dismissive of your position and offended you and that made you dig in your heels . For that I honestly apologize , I am getting a bit cantankerous and grumpy with age. I wish my discussion with you to be less acrimonious , more like a common quest for understanding all the angles of a difficult subject , I dont mean you ill even though I disagree with so much of what you say. I wish the tone of our discussion to be more open and civilized .
Im trying to remember more about the Monaldi piece which I quoted to you , that was several weeks ago and Im not sure by now what was it that specifically caught my attention . I do remember they contained several graphs which told an interesting story. Could you refresh my memory as to when I made the reference so I can look back at it and have a second look at my private notes.??
Even if we both continue to disagree this exchange has helped me (and I hope you) to delve deeper into many interesting related subject . So maybe even if we disagree its both our gain to have engaged in it.
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Bill Bass,
A) I agree with all your logic and reasons for thinking highly of the single pot formulation, but where is your proof that all 2 or more pot formulations are necessarily worse for Venezuela?
B) Ironic that Monaldi’s knowledge of the financial situation of the oil industry is what made *you* bring him up in the first place, and now quoting him on the cost of a barrel is a sign of bad faith! I’m fine with doing all calculations with 30USD, if that’s what you think is reasonable, so just pick the number you want to use, but stop pretending that a number is worth more or less basing yourself on who put it forth.
C) Please link to any of the studies that disprove that ordinary people know best how to spend their money. I have linked several times to a number of recent studies measuring the effects of cash distribution models. All show zero or positive improvements over other models. Not a single study that I have come across shows worsening over alternative models.
D) Your “fact” is incorrect in several ways. Firstly, studies (the ones I mention above) show that the poor are remarkably good at raising their living standards with their current knowledge, given a cash distribution. Secondly, thinking that what I propose is similar to chavismo’s practices demonstrates little understanding of either my proposal or chavismo’s practices (i.e., my proposal is very capitalist, chavismo’s is very communist). Thirdly, their consumption, itself, would change the system because of how the market would need to change to adapt to the new consumption, which includes job training, financial services affiliations, interest rate reductions, etc. Fourthly, social competition provides the incentive to become productive, competition for which the cash provides the seed.
In your Polar example, where the goal is to have Polar hire and train more people, if people were given a cash distribution and they used their cash to buy more beer, Polar would have to produce more beer, which would require that Polar hire and train more people, which comes back to the very goal you stated of having to hire and train more people.
As to Monaldi, you stated:
“”We all tend to talk about topics we dont know very much about , in Venezuela oil is one such topic , there is a presentation made by Francisco Monaldi of Harvard Kennedy School of Government on the status of the Venezuelan oil industry in late 2014 , It touches on the investments which will need to be done in the oil industry to transform it into a healthy well run business, one which makes money. Currently Pdvsa for all practical purposes is broke both operationally and financially and it doesnt have the money or resources to fund either its own essential projects nor any cash distribution system which we might see as the magic bullet to solve the problems of a prodigal corrupt regime . I strongly recommend that people seek and read this presentation to get a feel of how deeply in the red Pdvsa is. (I mean financially not just politically) .”
[ http://caracaschronicles.com/2015/04/12/i-found-the-average-venezuelan/ ]
Bill Bass, I don’t ignore anything that you write. If anything you seem to ignore my replies to anything you state as fact. And you state so many things as fact, which really are just opinions. We’ll see how you reply to the above.
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After following this interesting debate I can see some fundamental differences in the opinions between BB and XT.
BB
– Has a lot of faith in a strong state that decides and directs the funding for the benefit of the people.
– He distrusts very much the capacity of the people in general to make decisions for themselves specially with money that they have not earned.
– He is not convinced that the market is the best arbiter of value in a society. He has more trust in a centralized system.
XT
– Seems to favor a small state focused on the basic functions of the state and one that is dependent on the people to obtain its funding.
– Has a lot of faith in the market to drive the economy.
– Trusts that the best way for people in extreme poverty to improve their situation is by giving them money.
I can see that BB abhors giving money or any kind of gifts directly to people. Ironically a strong state with the mandate and discretionary power to allocate lots of money for the benefit of the people is inevitably under overwhelming pressures and incentives to become populist and have people become dependent on the state. This is the history of Venezuela.
ExTorres position still leaves me in the dark as to how to make that hazardous transition from self funded state to tax-dependent state. The organizational difficulties, fiscal perils and immense political oppositions to such a change make it seem like a chimera.
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amieres
I, too, appreciate very much your participation in the exchange. Particularly, I have been very interested in seeing, out of so many comments, what your takeaways have been. Awesome.
As to the transition you mention, I have not pushed Bill Bass into that area because, in the past, any mention of how he would get to the institutionalization which is the foundation of his platform, he bolts.
In the cash distribution case, my preferred way of getting it implemented would be to do it in conjunction with the elimination of redundant programs/subsidies. The acid test is the gasoline subsidy, so I’ll use that one as an example. Instead of telling people that the gasoline subsidy is going to be eliminated the government announced that the people would be getting the cash in their hands instead of in the hands of the gas stations, the people would not see it as a loss of the gasoline subsidy. This method is not only to please the people, but the politicians, who won’t feel that the money is money that used to be theirs to control.
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Ex : The transition to which amieres refers is the one from one in which direct taxation and royalties fund the state to one where only taxation supports the state not the transition towards the creation of a state where the purely political bodies dont dictate to the technocratically run bodies how they handle the money in the performance of their tasks sames as happens in a modern corporation today where the shareholders approve a budgent but dont tell management how to spend it and achieve their tasks.
As to the use of royalty moneys from the oil used to produce domestically consumed refined product to give the population as a kind of compensation after hiking gasoline prices to more rational levels , I totally agree with the idea you suggest . It was done in Iran with great success. Only I would not make it a permanent thing but put a time cap to it to give the economy a chance to catch up with prices which are commercial and rational. I know it works because at a corporate level I participated in one such program where an employee benefit was substituted by giving people a flat sum which made every body tolerant of losing the benefit.
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Bill Bass,
I don’t think I misunderstood amieres, and I do think my reply is answers well within the understanding.
As to replacing the gasoline subsidy with the direct compensation, I would make it permanent and I would use the same model for all other subsidies and redundant social programs. And that is how I suggest the first part of the transition from a royalty-heavy funded state to a taxation-only funded state should be implemented, though there are other methods I would also support. I’m glad you think the method would work, as per your experience.
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The Monaldi piece shows that if we apply the pinata model there wont be any money left to restore the Venezuelan oil industry to normal productivity and face the challenges that it now faces as heavy crude oil becomes the norm etc . the investment needed are too high . Even if the Pinata model were feasible to apply in better time, the state of ruin which currently assails the venezuelan oil indsutry , infrastructure etc does not allow for such happy go lucky scheme to be adopted . There arent enough funds.
Youve understand my reference to the Monaldi piece to include many things which he didnt even mention , please read my comment in the context I mentioned above.
You can precariously raise the consumptiona and income levels of the very poorest by showering them with free public money , the traditional populist method , but to get people out of poverty in a more sustenable way you have to capacitate them to become productive workers in a modern competitive economy . We are not talking about people in the lowest level of misery here , people on the fringe of starvation , living in a subsistence economy , but of people who despite being poor are a bit over that threshold . their situation is different , specially since our culture doenst necessarily allows many of them to profit from certain advantages arising from a temporary increase in their resources.
The references which I make to studies showing that people are non utilitarian or rational in the way they understand the uses of money , are from studies which have more depth and scope than the ones you mention . Thats why you hace missed the references meaning . Yours relate to cases of people living in primitive subsistence level economies which is not our case at all .and very often the peculiar reading of the results is more important than the results themselves .!!
In any event prioritizing the use of money on well designed and specific projects or programs that give the biggest bang for the buck, are better than those general one size fit all diffuse unphocused uses which means that a lot of that money is wasted or suboptimally used . This again is plain common sense.
This is my last comment on this issue of how the benefits of giving money to the poor without any method or plan is capable of transforming Venezuelas economy because it will make the local manufacturers rich by producing to sattisfy the local market. which if you read Houseman is all boloney . Expertise and inclusion are the real factors of development together with the institutionalization and proffessionalization of public functions on a metapolitical technocratic basis.
If you cant achieve that , the money will be wasted anyway. The only reason you want to isntitute the pinata model is to starve the state of funds which you assumme is always going to be in the hands of profligate populist Chavista like rulers. You dont want to give the poor anything , you just want the money not to go to those stupid populist rulers . This last part I agree with albeit thinking of other ways of achieving the same or better result.
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Bill Bass,
Where is the link to the Monaldi piece?
And where are the links to the studies to which you make reference?
Were you bluffing, and now bolting?!
Besides, your statements regarding the links I’ve provided seem like evidence of intellectual dishonesty. The links I’ve provided were of studies created for the very purpose of measuring effects of cash distribution at many levels, including the non poor. For example, do a quick search on “Mincome” and you’ll learn about a study measuring possible disincentives to work from cash distributions. Understand that it included people *with* jobs.
So no more tap-dancing. Where are your sources?
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The Monaldi piece is the one you quoted last , I cant make up for a life time of lazy reading habits on your part , you have to do your own home work same as I did mine for many many years . Of course my reading habits cover lots more ground than yours do (since 1992) , thats why I have to try again and again to very patiendtly explain the basics of things I studied or observed years ago and which you keep on misinterpreting because you lack the prequisite information and experience ,.
I am indeed bolting from any further discussions with you , more than that I am running away from you as fast as I can , there is no purpose to it , you are not a dolt but have very narrow views of thing brought about by your obsesion with the magical benefits of the pinata model and that makes any discussion with you ultimately futile and boring . You have now adopted a hoity hoity inquisitorial style as if I were a criminal and you the big man in the black robes !! Not falling into your grandiose inquisitorial fantasies. !!
Aside from the many things Ive read in the last 25 years ( and the several thousand pages of notes on what I read) I rely on my own analytical capacity to understand things , to reflect on things. I dont write for an audience I write for my own intellctual pleasure. From your tone and questions you dont appear to have paid any attention to what I have written in this blog , you skip what you dont want to know and prod along with your hallucinatory obsessions . You rely on certain sources read with an extreme bias which gratifies your prejudices , but you do very little thinking on our own , you are enamoured of your reductionsitic mantras.and find pleasure in repeating them again and again .
I suggest you stop wasting your time and mine and stop this exchange as of now. I have other topics to think about and dont have time for you.
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Bill Bass, My last quote was from you, not Monaldi. You have been caught in your bluff. You don’t have the source. The last quote I put from Monaldi was the one with the 10USD per barrel cost of oil production, which you then trashed. Can you be so possibly full of it.
1992? LOL Get back to me when you grow up.
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Amieres : Thank you for paying attention to this exchange between Ex Torres and myself , I fear that some of my positions are not quite what you represent them to be . I do believe that the creation of a COMPETENT , Institutionally developed State is a prequisite for achieving the kind of country most people in this blog favour . Competence and Institutional Maturity are the key factor not merely Strenght . Starving such state of the funds it receives to distribute them willy nilly to every one no strings attached seems to me the height of irresponsability . You are right in stating that I have little faith in the natural wisdom of people lacking in the most basic civic or or social sense of reponsiblity any money to spend at their whim money which might be used more effectively to teach them or their children to be better workers and citizens .) specially as I think that conditions in this country are so broken down that the investments needed to rescue it are going to be insufficient even where the royalty income to remain in the hands of a responsible state.
I also do strongly favour a market economy but dont think that market economies alone by themselves spontaneously and automaically can remedy all the complex and difficult ills which afflict our country, the dream that people are natural capitalist and rational in how they use their money has been disproven in scientific studies again and again. . I would not oppose giving poor people rewards if they take care of their kids and make sure they attend school and join in sports or musical or other character enhancing activities , I would also favour paying women who already have one or two children to accept temporary or more permanent anti conception remedies or implants to reduce population growth and make the handling of social problems more manageable. i would not give any rewards to parents who neglect or abandon their children to follow a life of irresponsible prosmicuity . Following on brazil leads i would favour giving parents prizes for keeping their children healthy and regularly brought for medical check ups. I would also favour giving money to incentivate people learning a trade or skill that might allow them a decent living through programs with selected industrial organizations . Anything that allows people to achieve economic competence should be favoured as much as possible .
Where Ex Torres and myself agree is that public moneys should not be entrusted to proffesional pols for use in advancing their political agendas thru populistic measures . I this regard I follow on the ideas of Hayek and Hannah Arendt and others( also put n practice in many developed countries) where you divide the public sector into two separat parts , one which deals with lawmaking and big collective issues and another with the actual planning and administration of public funds used to advance those state tasks as can be performed thru technicratic politically neutral bodies be them private or public , in a spirit of professional excellence . The best US and British universities are not businesses they work like specialized NGO’s, there is no developed country in the world which has not created a civil service ,a judicial system and an army where careers are not dictated by factor of political expediency. Its true of much of the way in which the US State ( as opposed to its political govt bodies) operate .
I am close to a gentlemen who used to be the second highest career official in the US social security sytem , at the time the biggest state body after the army , under the authority of a politically appointed titutar head whose authority was strictly limited by his inability to mess arround with the way the system was run on a day to day basis. Where any political ‘suggestion’ had to be filtered and approved for its technical feasability of convenience with the experts inside the organization . According to this old gentleman things worked fine , with no complaints and great efficiency. Just being elected by popular vote doenst make anybody good at running or manageing things competently however fine his speeches and public gestures.
This is where I would like future discussions to concentrate , how do you achieve this kind of division of labour inside the apparatus of the state . I ve read fukuyama whose written extensively about this subject .
I suggest you try to do likewise , it a whole education .!!
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“This is where I would like future discussions to concentrate , how do you achieve this kind of division of labour inside the apparatus of the state”
Believe it or not, unconditional cash distribution may be a necessary step to achieve that excellence.
Why?
Because a state that does not depend on the people for funds has no incentives to be efficient.
It is much easier (and politically expedient) to enact populist measures that keep people happy and/or dependent on the state. That would pretty much guarantee a long stay in power.
Even if a very responsible party were to reach power and created a very institutionalized state structure, all it would take is another messiah with big promises and little scruples to revert any progress in that sense.
The state can be efficient only when it depends on the people and not the other way around. That is why giving away all that cash reverses the power relation and gives supremacy to the people over the state. That is why it is a good idea to do it.
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The thing is that by crippling the responsible states capacity to perform its tasks by taking away the funds it needs you are making sure that it fails in its job thus opening the door to demagoguery getting the upper hand . Unconditional distribution of public funds alone cannot sustain itself if there is no concentrated effort to phocus resources on needed collective projects and tasks which incentivate a truly productive economy by capacitating the people and organizations on which such economy depends. Productivity enhancing initiatives come first , distributive inititatives in so far as they depend on the former , later. Thats mere logic.
The other aspect to consider of course is that Venezuela is a destroyed country and needs vast amounts of public and private investment to start rebuilding itself , You are overly confident that just by shifting the oil revenue directly into the hands of the general population the multiplier effect of their consumption expenditures will brign about very large domestic business growth . This is a Chimera. Many businessesmen are almost as incompetent and corrupt as the state bodies they criticize , Many private businesses need to be reorganized on a large scale .
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” Productivity enhancing initiatives come first , distributive inititatives in so far as they depend on the former , later. Thats mere logic.”
The point is “Productivity enhancing initiatives” will not happen because the state does not depend on the private economy to get its funding which means it does not care for those initiatives. For a rich state it is easier to have a poor population that depends on the state than the other way around.
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You are very confident that business can support the life style we as a country aspire to , but sometimes however much you allow business to rule the roost without restraint or hindrance it is not productive or competent enough to achieve any great results , in the past Venezuelan businesses have not always been very succesful at what they do thriving on protective tariffs and the exploitation of a captive customer base. they are not always competitive on an international scale which is what globalization imposes on us . You think that local business are going to operate like they do in the US , where the economies of scale are inmmense and allow for corporation , technocratically run corporations to excell in their performance and efficiency ( with a lot of help from the govt) prodedd by the competition which is fostered by a big market where no small group of companies can , by ;aligning their strategies function as veritable monopolies or cartels to abuse their customers. making the countries businesses productive and competitive is no small part of the challenge we face. ,
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You are right that I have much more confidence in the private economy than you do. But that is not my argument either. My argument is that a government that has not earned (taxed) its money from the private economy does not have any incentives to improve that economy or to behave efficiently. When the government has its own money supply the private economy becomes unimportant to it, since its success does not depend on the success of the private economy, just on the price of oil. In turn, the private economy have few incentives to become more productive because attaching itself to the government –and the many distortions it tends to create– is much easier.
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The argument doenst hold up . An institutionally inmature and incompetent govt is as bad using the money it gets from the taxation of businesses as the money it gets from royalties . It thrives by skimming the businesses there are for money to use in the pursuit of clientelar populist distributive policies and by histrionically advertising an epic narrative that caters to peoples primitive conceits and prejudices. There are a lot of government lacking any natural resource royalties which corrupt populist forms of governance are the same as those which do have access to those royalties . Ultimately they all fail , except that the resource rich govt has more mileage to pursue its crooked policies.
Rent seeking by corrupt businesses is as common in countries led by govt laking in royalty resources as it is in govts rich in resource royalties . The whole history of Venezuela and Latin America in the last two centuries offers ample evidence of this.
Also if the idea is to distribute the royaty revenues of govts , its very easy for a govt to reduce the royalties and maximize the taxes on the businesses exploiting the natural resources so as to minimize the amount they distribute . In Venezuela for instance until 2002 Royalty income was 16 2/3 % and taxes 67% (which is the normal propportion in most of the world) , so that distribution after witholding the taxes on the distributed royalties (e.g 30%) wouldn amount to that much .
The problem we face now is that the country is broke , owes a lot of money , needs to make huge inmmediate investments to restore the economy to sanity and there is simply not enough money ( if you were to distribute the royalties pinata style ) to do all these things .
To me amieres unconditional distribution of cash isnt going to help us get to where we need , the problem lies in the form of governance that we traditionally apply which makes the politicians in govt keep control of the state revenues for expending in a wasteful and corrupt fashion . We have to create a form of governance where the actual expending of money and the planning of how money is spent is given to public bodies managed on a strictly apolitical technocratic basis . Its been done before many times and if the political will is there can be done here also. If you are interested in this line of thinking please seek in itnernet an article from F Fukuyama entitled the Two Europes . Its easier than reading the two big volumes he has recently written in connection with how States are built .
My concern with putting all the load on business getting us out of the hole we are in is that even though business is essential to doing anything there is a limit to what they can do because sometimes they have also been corupted by the culture and system where we come from . The number of local business that can offer us a model on how to run things well absent state collymodling and protection ( in the past) is very small . We would have to rely on incentivating large well organized foreign business to come and settle in the country , but that takes time and there is a price to pay if you let them control our business life indefinitely . Still they are an essential part of any programme to rescue our ruined economy.
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I agree with everything you say.
“Its been done before many times and if the political will is there can be done here also”
This is the conundrum of the issue, there is never going to be a political will as long as the government gets its moneys from its own unique source. Don’t get me wrong, it may happen for a while, a serious party may raise to power and strengthen the government institutions. But when the next economic crisis hits, the opposition politicians will find the easiest way to get into power is by promising easy gifts for the people in exchange for their support, then populism will inevitably make a big comeback.
Why wouldn’t that happen with unconditional cash distribution?
– because it is unconditional you don’t get any more or less for supporting the government.
– it strips away from the government the possibility of being politically generous.
– the government cannot attack the private economy because it would reduce its tax income.
– All the above translates to: the government is forced to be fiscally responsible
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From 1958 to 1998 Venezuela functioned as a populist petrostate such as is viewed as the primary obstacle to achieving a healthy working democracy , the royalty was 16 2/3 of the oil being produced ( according to normal international standards where oil is treated as a business) , royalty never represented a large part of state revenues, most of govts revenues consisted of taxes on the profits made by the business corporations ( both private and public) , the tax rate was 67%. . (Lets remember that the anomalous 30% royaty rate was introduced by Chavez around 2003 when the tax rate was cut to 50% when prices where high and the state exercised total control over the oil industry .)
In that period when prices or reservoir conditions made the exploitation of a crude un economic then routinely the royalties were reduced to enable the oil to be exploited . e.g. When Pdvsa tried interesting international oil companies to participate in the development of the faja oil it had to offer a reduction in the royalty rate for those companies to agree on joining in their exploitation . So , royalties represent only a minor part of the states oil revenues under normal conditions .and can become very small when prices fall or conditions make the exploitation of certain type of fields or oil uneconomic unless that royalty is reduced
If we were to cut the states access to oil royalties today using the above parameters then the amount of royalties to be distributed might not be very large , the current production is somewhere arround 2.4 KBD but there is a change in the kind of oil we can exploit , our deposits of conventional mostly light and medium crude are becoming depleted and must be replaced with the production of faja extra heavy crude, which is much more costly to produce , transport and process and which results in a much lower per bl revenue for its producer , at a time of low oil prices it may even become necessary for the govt to grant the business companies that exploit it the benefit of lower royalties . This can reduce very substantially the amount of royalties available for distribution . The full impact of this shift to the production of faja crude is not yet fully felt but will certainly become more important for the future.
Let us assumme that a political measure is taken to distribute the royalties using a 17% normal royalty rate ,using a 2.4 mbd production figure and a 55 $ per bl price, that gives us a royalty of approx 8 billion USD , which if distributed among 30 million Venezuelan inhabitants ( after deduction of a 30% witholding tax) results in 18$ per month being alloted to each Venezuelan .
On the other hand we have an industry which owes some 50 or more Billion USD to its international creditors , has to make very heavy investment to make up for years of deficient maintenance and upkeep (which have affected both crude and refined product productions) , spend money to keep the progressively depleted reservoirs flowing , adapt its infrastructure to the production of faja crude including the building of 6 to 8 Upgraders ( at 18 billion USD each) and generally contribute to the govt the funds it needs to keep functioning , repair ruined infrastructure and pay international debts of some 60 plus billion dollars .
While the industry’s gross revenues hover arround 48 billion USD ( 2,4 MBD of production less 750 KBD of local consumption sold at a loss leaving 1.6 mbd of exports times 55 USD per bl , assumming that subsidized sales to Cuba and other allied countries are suspended ) . The costs and investments it incurrs to meet it risen production costs ( 19 to 24 USD perbl) , amuch lower productivity , its debts to China and other international and domestic creditors , the need to make investment to keep the oil flowing etc leave it with a deficit which can be calculated at 35 Billion USD per year ( the amount of loans it receives from the BCV printing presses each year) .
Looking at these figures its obvious that until measures are taken that allow the oil industry to be salvaged from its current state of ruin and allow it to increase its revenue base to more healthy figures and meet the funding needs of the govt ( while an expanded business growth helps make up for its lost oil tax base) , the notion of distributing the royalty to all citizens seems both impractical and foolish.
Even then consideration must be given to the possibility that if we want to take away the use of royalties from the govt and have people identify with certain earmarked uses of such royalties there are more intellligent ways of doing so , ways that earmark its use in projects or programs which are targeted for their usefulness and popularity or as compensation for the ellimination of undesirable subsidies . For example for use in incentivating the poor or destitute to provide themselves or their children with improved educational or health care services , payment of home loans, improved access to microloans to start new businesses , vocational training , school lunches etc. By earmarking these royalties to be used for these and other popular and really useful programs , to be administered for example by NGO’s , the Church and other apolitical bodies the same object that is sought by the pinata free for all distribution of moneys would be accomplished in a more productive way .
I still feel that even the above improved distribution model can only work as a supplement to other measures whereby the state services are reformed so that autonomous meritocracies are constitutionally entrusted with the performance of certain public tasks on an a political technocratic basis is unavoidable if we are to achieve the kind of country we all aspire to . For examples of how this can be done try reading Mr Fukuyamas many works on this subject.
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Bill Bass, wake up. The gasoline subsidy example already showed you that the money is not being take away from the oil industry. It’s getting taken away from mismanagement, misspending, or misappropriation.
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” You are overly confident that just by shifting the oil revenue directly into the hands of the general population the multiplier effect of their consumption expenditures will brign about very large domestic business growth ”
Notice I did not mention any of this at all.
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Sorry !! the main proponent of free cash for every one policy as the silver bullet to solve or our social and political ills has ben ex torres and I have inadvertently attributed to you some of his reasoning for supporting this idea .since you seem to share it . Perhaps you have a different notion as to how the free distribution of state funds to all produces its magical effects.
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Bill Bass, Please link to any of the studies, which you suggest are plentiful, that disprove that ordinary people know best how to spend their money. A pillar of your stance rides on it.
Also, I note that you keep repeating that the state cannot function, given the current situation, without the monies. That stance is inconsistent with your admission, earlier, that injecting money at the consumer level is the same as injecting it via institutions or businesses, since, as you pointed out, the money would reach the consumers anyway (i.e., sounds like trickle down economics). If that is the case, then this would necessarily imply that injecting the money at the consumer level would get the money to reach the government anyway, as well, which would make the whole premise that the government would not have the money to function is false. It almost seems like you’ve only been pretending to have read Quico’s post: http://caracaschronicles.blogspot.ca/2007/07/torres-in-bethlehem.html
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Bill Bass, I almost forgot, where is your proof that all multiple pot formulations are necessarily worse for Venezuela than a single pot?
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Look for any article on behavioural economics , daniel kahneman etc. , there is a whole school of scientific research on this subject . the studies are well known to anyone who follows the development of economic theory . Do your homework .
I have not said that unconditional distribution policies are the equal of wisely targeted social and economic development programs , but rather the opposite . dont cherry pick my responses to support your position , thats dishonest and you are of course an honest person . Look at the whole thread of my reasonings ,not just at isolated parts. From your perspectiv however you appear to think that if money if spent arbitrarily in consumption by all and sundry then the multiplier effec on the economy is MORE beneficial than it is spent by the state on social or other programs, My position is that the effect of state expenditure is AT LEAST as good as the effect from distributing it indiscriminately among everyone and that if the state expenditure is wise and phocused it can be MUCH MORE benefical for the country .
Example 20 billion dollars will have to be spent just to repair the ruined railway that transports iron ore to the steel mills where its processed or in repairing the power grid system so that it can meet demand , or in improving health and educational services etc If that money is spent by 30 million people in sattisfying their own private tastes and pleasures that money wont be there to be spent on those necessary projects .
Money used in concentrated portions and on targeted programs can be much more effective than the hazy unpredictable effects of spending it on sattisfying thousand and thousand of private gratifications .
If broadly distributive policies where that effective to shore up an economy without doing much necessary production enhancing economic investment then rather than having govt tax its citizens and corporations it should simply reduce its expenditures to a shoe string basic set of expenses and allow the magical effect of a free economy to perfectly meet all social needs and goals . Thats not the way the economy of any developed country works , in fact the taxes are among the highest in the world . What you need is a wise apportionment of what has to be done by a COMPETENT, INStItutiONALLY DEVELOPED STATE , which gives the job of expending the money to its technicratic institutions and limits the way that the pols can spend it on pork and barrel politicking . and what cn be done by the Private business sector.
There is no magic recipe , combining the vairous ingredients is a matter of good judgent , self restrain and comon sense . which of course is never as common as one would wish.!!
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Bill Bass,
I am shocked that you are using a Kahneman’s work on human being decision-making not being optimal as the basis for being dismissive of giving people money. Those same studies can be used to support the idea that even technocrats would not make optimal decisions with the money. In fact, we could use those same studies to explain why you have such an aversion to dropping the status quo instead of adopting cash distribution, which may be the optimal solution for Venezuela.
As to your accusations, you stated:
“2. All money when spent has a multiplier effect , it flows into the economy and on being respent again and again , produces an economic multiplier effect that helps dynamize the economy . This is true regardless of whether the money is spent by the govt itself to pay business corporations , or its employees , or anybody else . When you say that giving people free money to increase their consumption you are helping the economy , you are forgetting that the same multiplier effect can be produced by any kind of expenditure , There is no special virtue in the money being spent directly by consumers or by other entities (which money any way will ultimately reach the hands of ordinary consumer ) .”
Without cherry picking, note that your whole point acknowledges a multiplier effect for all money, including cash distribution, regardless of who spends it. You then specify that “the same multiplier effect can be produced by any kind of expenditure”. You described the multiplier effect as one that “helps dynamize the economy”, and there is “no special virtue in the money being spent” by anyone. That implies that there is no special virtue in it being spent by consumers, or by governmental entities, or technocratic institutions (i.e., all the same). So, if that’s not what you meant, note that it can easily be interpreted so. No need to accuse me of the worst before finding out if it is a simple misunderstanding.
Aside from your accusations, I’ll agree with the rest of your second paragraph. I’ll clarify that one of the reasons for thinking that the people will spend it more beneficially than the state is because of the incentives to spend it more beneficially for the people are there in cash distribution, whereas the temptations for not spending it beneficially for the people are there without cash distribution. You have not explained away the fears of misspending, mismanagement and misappropriation.
In your 20 billion dollar example, the money will be there for the railway and the health and educational services, via collected taxes. Why would it not? Where do you think the money spent by the 30 million citizens will possibly go?
“Money used in concentrated portions and on targeted programs can be much more effective than the hazy unpredictable effects of spending it on satisfying thousand and thousand of private gratifications .” Agreed. Why not use the money from taxation for that?
It’s not a magic recipe; it’s math: the same amount of money goes from top to bottom, risking ineffectiveness and inefficiency, or from bottom to top, very efficiently and effectively.
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