The international media have provided a constant fusillade of stories and editorials (not always easily distinguished from each other) about the collapse of the Venezuelan economy for some time now. Shortages of food and medicine, hours-long lines for basic goods, incomes eroded by triple-digit inflation and even food riots have dominated press reports.
The conventional wisdom has a set of predictable narratives to explain the current economic mess. "Socialism" has failed -- never mind that the vast majority of jobs created during the Hugo Chávez years were in the private sector, and that the size of the state has been much smaller than in France. The whole experiment, it is said, was a failure from the beginning.
According to this narrative, nationalizations, anti-business policies, populist overspending during the years of high oil prices and the collapse of oil prices since 2014 sealed Venezuela's fate. Adherents to this explanation say the downward spiral will continue until the chavistas are removed from power, either through elections or through a coup (most pundits don't seem to care which).
The reality is somewhat more complicated.…
Given this situation, it is clear that serious reforms are necessary in order to restart the economy. The Union of South American Nations (UNASUR) has assembled a team of economists, headed by former president of the Dominican Republic, Leonel Fernández, which has presented a set of proposals. (Full disclosure: I am one of the members of this team.)
The most obvious change that is needed is to unify the multiple exchange rate system. This should be done quickly, and in one step. The government can auction a fixed amount of dollars each day, with the price determined by supply and demand. Although allowing the currency to float seems scary to many people, the price of the dollar would undoubtedly stabilize at something considerably less than the current parallel market rate of about 1,000. A floating rate is also the only way to avoid wasting scarce foreign exchange reserves in a futile attempt to maintain an overvalued fixed rate.…
This means that the hard part of the adjustment -- the one that often requires people to reduce their living standards in order to sharply reduce imports -- has already been done. It is relative prices now that have to be adjusted in order to recover. The result is that Venezuela can return to growth rather quickly, without the prolonged recession that neoliberal adjustment normally creates.…So what are they waiting for?
Much of the left -- including people inside the government and among the base of its party, the PSUV -- rejects these economic reforms. They think it is a "paquetazo" (package) similar to International Monetary Fund (IMF) or neoliberal reforms that increased poverty in the past. They see the fixed exchange rate as socialistic and a floating exchange rate as a "free market" reform. But in reality, the informal economy for dollars constitutes one of the most destructive "free markets" that exists; it is the "capitalismo salvaje" ("savage capitalism") that Hugo Chávez used to denounce. (Chávez himself successfully floated Venezuela's currency in February 2002, and dollar reserves actually increased despite serious political instability.) And we can recall that the IMF supported fixed, overvalued exchange rates with disastrous results in Argentina, Brazil, Russia and a number of Asian countries in the last years of the 20th century.
There is nothing neoliberal about a program in which the government creates employment, protects wages from inflation (which has not happened since inflation began to skyrocket nearly four years ago), subsidizes food and essential items on a large scale, and protects people generally from the burden of the adjustment of relative prices.
Yet there are those on the left who seem to think that Venezuela can recover without fixing its most fundamental and destructive imbalances.….The problem is that the traditional left is clueless.
Truthout
Venezuela's Economic Crisis: Does It Mean That the Left Has Failed?
Mark Weisbrot | Co-director with Dean Baker of the Center for Economic and Policy Research in
Washington, D.C
"the left is clueless..."
ReplyDeleteTom they are clueless about material matters...
the left is just more people oriented rather than material oriented...
They are clueless about people too if they believe they will tolerate incompetence indefinitely.
ReplyDeleteWell maybe they should just concentrate on keeping the right honest... rather than trying to take over...
ReplyDeleteThe big problem is that there is nothing "left" about the left. Example, Hillary Clinton has surrounded herself with economic reactionaries that make Wm McKinley and his sponsor Mark Hanna look enlightened by comparison. And the folks who call themselves "left" like Weisbrot are still hung up on Marx. The problem with this is that economically, Marx was barely different from Ricardo.
ReplyDeleteThanks to this site for bringing back some of the serious non-Marxist progressive economists like TBVeblen. If the USA public knew anything about their economic history, they would be laughing the neoliberal slime out of the conversation. As for the Marxists—please just GO AWAY! You guys screwed up millions of lives already and NOTHING suggests there would be a better outcome if we tried your stupid ideas again.
The South American left seems to be stuck in the gold standard era and mentality.
ReplyDeleteAnd not only Venezuela. Look at the Brazilian case: Dilma Rousseff was the first to introduce austerity (right after being reelected on a non austerity platform) in a country that a) is a currency issuer and has thus zero default risk on local currency public debt and b) is a net creditor in dollars - with the $ 350 billion held by the central bank largely exceeding the dollar denominated debt of the federal government and the public sector corporations - and thus at no risk of default in dollars as well as Reais.
Of course those austerity policies only helped to undermine the already shaky support for Dilma's government. They paved the way for the opposition's successful move for impeachment. Unfortunately, even after this ignominious end to a period of 14 years in government, there are zero signs of the local left being ready to embrace the theory and workings of modern Fiat Money.
A lot of the hardcore left are Marxists, and for Marx money was reducible to gold as a commodity.
ReplyDeleteLK, Marx’s Capital, Volume 1, Chapter 3: A Critical Summary
In a sense, Marx can be "excused" for his muddled thinking about Money: after all, he lived in the heyday of the gold standard era.
DeleteThe 21st century left has no such excuses: the last remnants of the gold standard ended half a century ago and it even has at its disposal (with just a couple of clicks on search engines and web pages) the clear MMT description of how modern money works. If despite all this the left stubbornly chooses to remain ignorant, then it does not deserve to be in power.
At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible. But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
ReplyDelete— J. M. Keynes, General Theory, ch. 24, sec. V. (This is in the closing paragraph of the GT.)
The fact is many people on the hard, right-wing side of the aisle know very well how modern money works. People like Cheney, Rumsfeld or - for a European version - Bernard-Henri Lévy. Just read this recent excerpt from BHL, writing about Trump:
ReplyDeleteConsider his (Trump's) idea, floated in early March and probably inspired by his private bankruptcies, of renegotiating the US national debt. The idea was idiotic (the American government, which holds a monopoly on issuing the world’s leading reserve currency, has nothing to “renegotiate”).
(https://www.project-syndicate.org/commentary/trump-national-security-threat-by-bernard-henri-levy-2016-07)
Let's face it: today's ignorant left, stuck somewhere in the past, afraid of public debt, of "spending too much", of allowing currencies to float, etc. is no match for those realistic fellows. To paraphrase Keynes, the left is still the slave of too many wrongheaded (and not all of them defunct) economists.
"The fact is many people on the hard, right-wing side of the aisle know very well how modern money works."
ReplyDeleteThat simply isn't true. If you follow this blog, Bill Mitchell's blog or any other MMT blog, you will observe that everyone is clueless about modern money.
Prople have some limited insight once in a while, but soon they go back to their gold standard ideas.
"and it even has at its disposal (with just a couple of clicks on search engines and web pages) the clear MMT description of how modern money works"
ReplyDeleteThis is obviously not true...
The 'with a couple of clicks' part is true but the 'clear description of...' part is NOT TRUE... their pedagogy is FAILING...
"their pedagogy is FAILING..."
ReplyDelete100% agreed.
But how to solve this problem?
"If despite all this the left stubbornly chooses to remain ignorant, then it does not deserve to be in power."
ReplyDeleteUsing that standard, the right doesn't "deserve" to be in power either.
good article find,ive been wanting more info on this for a while.Venezuela is just an embarrassment for anyone who might associate with the term "socialist".
ReplyDelete@Jose Guilherme good point I was aware that austerity was being imposed by dilma,it explains all those protests.
it is strange that the Venezuelan left are so attached to fixed exchange rates and gas subsidies and price controls.(regarding price controls,ill always remember joe firestone on mike normans podcast saying that they were effective in USA WW11.....but generally they have always been a disaster.