January 16, 2009

Hey, what's one little Order of Magnitude between friends?

Quico says: Hat tip to Miguel for remembering that, at one point in 2006, the government was boasting that the "Bolívar Fuerte" would bring inflation down to 3% by 2008. In the event, they almost hit that target...it's just that they just got that pesky decimal point in the wrong spot, that's all.

In recent years, inflation forecasting has...erm, not been a government strong suit. For the record, back in 2004, they said inflation would come in at 26%, and then actually got it down to 19.2%. Good going! In 2005, the official inflation target was 15% - and again they came in just under that, at 14.4%.

But then, the wheels started to come off. In 2006 the target dropped to 10%, but the real number came in at 17%. Oh dear. In 2007 the inflation target nudged up to 12%, but the actual number came in at 22.5%. Last year, the official target (once they'd come off the quaaludes and ditched the 3% thing) was set at 11%, and they came in at...31%!

Are you noticing a pattern there?

Bringing down inflation is hard...but bringing down inflation targets? Dead easy...

Of course, it's easy to make fun of all this - and, needless to say, we will - but there's also a serious point here. The really terrifying thing isn't just that inflation is out of control. It isn't even that forecasts and results diverge more and more year by year, making the 2009 official target of 15% look, already, like an impossible chimera. What's really scary is that the government plainly has no idea why any of this is happening, or how the whole process even works, much less how to respond to it.

Finance Minister Alí Rodríguez, who for reasons that escape me is seen as some sort of chavista eminence grise on economic issues - así serán los demás! - recently blamed the whole thing on "speculators", adding that "only by making a huge effort in production and in cost reductions" can you fight inflation.

It's the kind of reasoning you might expect to overhear in a carrito por puesto: if prices are going up, that must be because people are putting up prices. There's a kind of raw intuitive appeal to that line of thought that, for a split second, almost manages to mask the circularity of the whole argument, its essential meaninglessness.

But remember, this isn't some guy on the bus talking. We're not dealing with your dear old Aunt Petunia, who "means well", even if she's evidently clueless. No. This is your Minister of People's Power for the Economy and Finance talking: one of the guys with primary responsibility for solving the problem. And he's pissing so tragically far away from the pot, you couldn't begin to establish a serious dialogue with him about what inflation even is, what causes it and what one might usefully do about it, because he simply lacks the conceptual tools you'd need to have a minimally reasoned debate about it.

Be very, very afraid.