Archive for January 7th, 2016

Santero Economists Take Over Economic Policy In Venezuela

January 7, 2016

gabinete

Organizational Chart for the new Venezuelan Cabinet named by President Maduro

 In July, I suggested that even with the upcoming elections, Santero Economics, the peculiar form of economic management that has taken over Venezuela since Maduro got to power would not go away with the Legislative elections. Yesterday President Maduro named his new Cabinet (Chart above, there are so many Ministers that it is essentially unreadable) and it is clear from it, that the Santeros have taken over.

What Maduro did, was to make Luis Salas Vice-President for the Economy. Salas is the center piece of the Santero Economic team as he represents one third of the group (together with Tony Boza and Alfredo Serrano, who is not Venezuelan, that has kidnapped Maduro’s Economic mind (yes, it’s meant to be cynical!) over the last three years.

There are some positives, like naming Economist Rodolfo Medina to the Ministry of Finance. Medina is a Professor of Econometrics at Central University, he is no Milton Friedman, but at least he knows and understands traditional economic theory. He is accompanied by Jesus Farias, a communist Economist, who at least has been proposing that there should be a single exchange rate, who will be the new Minister of Foreign Trade and International Investment, a newly created post, which only proves the level of ignorance involved in forming the Cabinet. Uber leftists Ricardo Menendez remains in the post of Minister of Planning.

One of the first problems of this team is precisely the level of incoherence involved. How will Medina, a practicing economist talk to Salas, a 100% Santero Economist? How will Farías argue with Salas, when Salas is against many of the ideas proposed by Farias?

 For the last three years, Salas, Boza and Serrano have imposed economic thinking in Venezuela, despite the fcat that they did not occupy any Ministry. They are the “creators” of the concept of “Economic War” as the explanation fro the large levels of inflation and the scarcity that is present in Venezuela. Their solution to the economic problems is more controls, more supervision, more taxes and fighting the oligarchs who are responsible for everything.

 While the foreigner in the Santero Economic think tank, Serrano, is an Economist, Salas is a Sociologist and Boza claims to be a Popular” Economsit”, whatever that may mean.

What these people do, is to disregard the body of work of economic knowledge, based on theory and experience and construct arguments (not theories) to suggest that body of knowledge is simply incorrect. There are no publications involved, just some self-published pamphlets which contain no equations, only graphs of empirical data, and hyperbolic and false statements to supposedly support their views. I linked Boza’s pamphlet last July, here are Salas’ Economic “postulates” for lack of a better word.

Among the many things that Salas posits, is that the law of supply and demand is vulgar, that monetizing the deficit is not inflationary, that inflation onl occurs because of speculation, that in real life inflation does not exist and that it all is an economic war, much like that waged against Allende in Chile. Thus, the solution is simply to be tougher, increase controls over prices and make the private sector pay more taxes.

 Which means that santero Economics will prevail, inflation and scarcity will accelerate and little will be done by Maduro and his Cabinet to attack the distortions in the Venezuelan Economy. Not only does Santero Economics not work, but those in the Economic team do not have the coherence or managerial capability to accomplish much.

Except for the pain that this implies, what this means is simply the acceleration of the demise of the Maduro Government, who will bring down Chavismo with him. There will be no change in direction now and given the past, those recently named will not exit the Cabinet fast if they obtain no immediate results.

This bodes badly for Venezuela and its people short and medium term, but at the same times sets the stage for promoting an outcome in which Chavismo no longer leads in the country.

(Two questions for the new VP:

  1. If the law of supply and demand is “balurda”, can he comment on why oil prices have come down in the last year and a half?
  2. If creating money does not cause inflation, why not print infinite money so that everyone is very rich?)