Wednesday, July 31, 2013

The Venezuelan Scrape

Corina Pons and Charlie Devereux at Bloomberg have an interesting article on the "raspao," or "big scrape," in Venezuela. There is such a shortage of dollars that people go abroad, use their credit cards to get cash advances at the official rate, then come back to Venezuela and sell the dollars on the black market for a large profit (6.3 bolivars per dollar officially and then 29-1 on the black market). Ecuador is the most popular country for this.

The obvious irony here is that the "revolutionary socialist" system is creating significant capitalist incentives, and the rewards are only available to those who a) have a credit card; and b) have sufficient resources/acumen to do international travel and figure out the system. The poor are shut out of a scheme that the government unintentionally created.


Justin Delacour 11:01 PM  

That's a bit of a strange definition of "capitalist incentives." What you're talking about is more akin to rentier incentives, which aren't the same thing.

Anonymous,  8:45 AM  

The Venezuela government fights against the fundamental realities of modern economics--the market sets prices. The monetary situation can only improve when the govt. gets serious about its fiscal performance, inflation and the national money as a medium of exchange.

Justin's point misses the mark as it implies that the problem is the behavior of the citizens rather than the govt. policies that are behind the mess. The "rentiers" are citizens with rational responses to an untenable situation.

Justin Delacour 4:29 PM  

What this is an illustration of is how some people offer knee-jerk responses that have no relevance to the point at hand. Notice how you assume that I'm somehow suggesting that the government is right to have such a system in place. I've offered no such argument. The point is an elementary one about basic terminology. Normally one conceives of "capitalist incentives" as incentives to make productive investments because of the prospect of getting a healthy return on that investment. Rentier incentives have nothing to do with productive investment, however. The government undoubtedly holds some responsibility for a system that creates rentier incentives (although it's also necessary to understand something about the modern history of the country to understand why these exchange controls came into being). But to call such a system of incentives "capitalist incentives" is just not correct.

Anonymous,  1:00 AM  

Justin, If your hundreds of other posts--your knee-jerk defense of Venezuela's policies--can't be considered, then you are asking for a literal interpretation of your comment on "capitalist incentives." Pretty pinched view of my opportunity for commentary. I do not agree with either of you--this is plainly a rational action of human economic behavior. By positing that Greg is wrong you are implying the people are exploiting the situation (breaking the law, hurting Venezuela). I don't think that is the case. They are helping to set the market by undermining the crazy monetary policy of the govt. If enough people did this, there would be one market exchange rate. Governments eventually capitulate. Venezuela is no different.

Justin Delacour 9:31 PM  

By positing that Greg is wrong you are implying the people are exploiting the situation...

More knee-jerk nonsense. You yourself just acknowledged that people were exploiting the situation. To say that they're exploiting the incentives available to them is not a normative judgement about their behavior. Everybody exploits the incentives available to them, to some degree or another.

My only point was that the term "capitalist incentives" doesn't accurately capture the incentives to which Greg was making reference. You haven't offered any real argument to the contrary.

I agree with you that, eventually, such black market activity will force the government to devalue again.

Anonymous,  8:04 AM  

If you are going to describe folks as "rentiers," I think you are missing the point. In fact, following the logic of the term, we should start by describing Venezuela's economic policies as being "rentier" capitalism. The govt. policies are based on extraction, a legally mandated monopoly and who you know politically.

Justin Delacour 3:46 PM  

If you are going to describe folks as "rentiers," I think you are missing the point.

I said the incentives to which Greg was referring were rentier incentives, not "capitalist incentives." You're not even disputing the point, incidentally, but your knee-jerk tendencies compel you to go on.

KevinJ 5:38 PM  

I disagree somewhat. As someone who actively studies the ideologies of these regimes, categorizing Venezuela as "revolutionary socialist" is a bit of misnomer. I don't necessarily see it as ironic. Every experiment with socialism is an experiment with elements of the market as well. It is perfectly ordinary for many socialists to accept a kind of market solution to the problems of supply and demand. One need not consider socialism and capitalism as mutually antagonistic concepts. After all, it's not like Venezuela can cut itself off from the world market. Even the Soviets understood this, or at least Lenin did, and to a large extent incorporated market-friendly policies in the NEP period. A lot of times, socialism and capitalism coexist within the same national or regional system. Anyway, just my 2 cents.

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