February 14, 2009

The Predictions Thread

Quico says: So, what's gonna happen tomorrow?

February 13, 2009

February 12, 2009

Deep Impact

Quico says: Everyone loves 90s disaster movies, but before we get to that, a little Thought Experiment.

(Stop me if you've heard this one before...and if you've spent more than 20 minutes in a microeconomics course, you have heard this one before.)

Imagine your house is a mess: laundry hasn't been done in ages, the kitchen sink is overflowing with dirty dishes, mop-to-floor contact hasn't been achieved in like forever. You really need to clean. But you're lazy. You value having a neat house, but you also value laying around watching TV.

Now, what is the optimal amount of time you should spend cleaning your house today?

The scientifically rigorous answer is, it depends.

When you're cleaning your house, what you're doing is trading off enjoyment in the present against enjoyment in the future. You're saying that a little bit more enjoyment in the future (from having a clean house) is worth a little less enjoyment in the present (cleaning sucks.)

Your optimal trade off point will depend on how much you value enjoyment in the future relative to enjoyment in the present. If you're more future oriented, you'll invest more time cleaning. If you're more present oriented, you'll consume more TV.

Now, imagine that as you're laying around watching TV, a NewsFlash comes on saying NASA has just discovered an asteroid hurling towards the earth, big enough to kill everyone instantly, and due to hit in 20 minutes.

What is the optimal amount of time you'll spend doing dishes now?

The point of this slightly hackneyed little parable is that the solution to any intertemporal optimization problem hinges critically on one thing: your time horizon. Economists call it your discount rate, basically: how much consumption you're willing to forgo now in exchange for how much in the future. The shorter your time horizon, the more heavily you discount future consumption's value relative to current consuption. In fact, those are just two ways of saying the same thing.

Now, the thing to grasp is that the Consumption/Investment tradeoff facing the Venezuelan petrostate is, in principle, not that different from the dilemma facing our lazy housekeeper. The fundamental decision to be made about any given dollar that reaches PDVSA, Venezuela's public oil comglomerate, is whether they invest it to yield more production capacity for the future or they consume it right now. The balance between the two is at the heart of petrostate politics.

In fact, much of the struggle over control of PDVSA from 1999 to 2003 can be rendered in the language of intertemporal optimization, as a violent disagreement over the appropriate discount rate for the oil industry.

In 1975, when PDVSA was originally nationalized, everyone could see that elected governments were hard-wired to have relatively short time-horizons, and that if they could control PDVSA directly, they would tend to choose more consumption and less investment than is optimal over the long run. The experience of Pemex, Mexico's bloated, dysfunctional state-owned oil company, was widely seen as a cautionary tale of what could happen when politicians' hands are allowed to get too close to the honey pot.

That's why PDVSA was consciously designed to be functionally independent of the government, and overseen by a weak regulatory agency (MEM). If, before 2003, PDVSA invested more and generated a smaller revenue stream than the government wanted, that's because it was designed to do precisely that: optimize the revenue stream over a longer time horizon than any one government would prefer.

Theoretically, at least, chavismo had a point: it's possible to be too farsighted as well as not farsighted enough. In the housekeeping parallel, you might imagine someone with Obsessive Compulsive Disorder, cleaning house all day, every day and never stopping to enjoy their spotless house. In effect, chavismo's claim was that PDVSA had developed a case of institutional OCD, adopting a time horizon so long it had essentially become more concerned with endlessly expanding capacity than with producing a usable revenue stream for the government.

Of course, there's always something a bit artificial about translating Cháveztalk from the ranting of a lunatic into economically meaningful positions. You're forced to reverse engineer his train of thought, working backwards as you ask yourself: "if, instead of Chávez, it had been a sane person making this argument, how might the argument have come out?" I think what would've come out is something like this:

As of 2002, PDVSA's discount rate only made sense from the point of view of middle class people. Long-termism is a privilege that only folks who are reasonably certain they are going to get three meals a day can afford. But the "right" discount rate for the poor is higher than the "right" discount rate for the middle class: when you're hungry now you need to eat now. So there are good reasons for the poor to have a shorter time horizon than the middle class, and a responsive, democratic government needs to be attuned to the needs and preferences of the poor and reflect that shorter horizon in the management of the oil industry.

There's nothing wrong or contradictory about that argument. To retort something like, "but that only makes poor people poorer in the long run!" is to miss the point spectacularly: the whole point of the exercise was to refocus PDVSA on the short run, to make it more democratic in the sense of adopting a time horizon more congruent with the majority's.

Another way to get at this dynamic is to borrow the language of the "principal-agent problem". They may not have known the academic terminology, but when it came to the Old PDVSA, chavismo had no trouble understanding that when a "principal" - the Venezuelan people - delegates authority over a common resource to an "agent" - the old PDVSA - getting the agent to act the way the principal wants will always be a problem. How can the Venezuelan people exercise their authority to make sure their agent really is acting on their behalf and doesn't gradually start to focus on its own interests, instead?

This, when you overlook all the scatology, is the "sane chavista" rap against the old PDVSA: the agent forgot all about the principal. The Old PDVSA was all about imposing a time horizon on the oil industry that didn't match the principal's own, much shorter, time horizon.

Whether it makes sense to force the agent to be just as short-sighted as the principal is another question altogether. Personally, I think that's crazy and counterproductive, but for now, all we have to do is concede that this re-constructed, "sane chavista" argument is not internally inconsistent or self-evidently wrong.

But of course, there's a catch: good as chavismo may have been at noticing the principal-agent problem with regard to the old PDVSA, it catastrophically fails to apply the same insights to itself. Now that the "agent" that effectively controls the oil industry is Chávez himself rather than a technocratic elite, the possibility that he might strike off and start working in his own interest, rather than the people's interest, never seems to occur to them.

Partly, the inability to see this is ideological: years of "Chávez es el pueblo" propaganda have totally blinded some to the possibility that Chávez could have one set of interests and the people another.

But the agent-control problem is, if anything, far worse now than it was before. The whole strategic stance of PDVSA, in terms of the investment/consumption trade off, has been molded to the needs, indeed the whims, of a single human being. If the old PDVSA's time horizons were, arguably, longer than the principal's, the Chávez controlled oil industry's time horizons are insanely, suicidally shorter.

In effect, Chávez is treating the referendum just like our lazy housekeeper would treat the Deep Impact asteroid! Just as there'd be no sense in cleaning house 20 minutes before an asteroid destroys the planet, Chávez seems to have decided there'd be no point in keeping the oil industry able to function if he can't have indefinite re-election. And so, he's focusing all of the oil industry's resources on the economic policy equivalent of the next 20 minutes. That his time horizon doesn't match the pueblo's is neither here nor there because the principal has lost all control over its agent. Chávez se olvidó del pueblo!

It bears noting that, in acting this way, Chávez is showing with some precision why the 1975 nationalizers were wise to keep PDVSA at some distance from its political masters. The thinking back then was that, if allowed, politicians were sure to try to manipulate the oil industry's revenue stream to try to swing elections. The principal-agent problem was very much front and center in policy-makers' minds back then; everyone understood that there's no easier way to wreck the oil industry than injecting it into the electoral game. Their warnings, our reality.

Just as the most outrageous kinds of delinquent housekeeping - say, tossing old chicken bones on the carpet instead of taking the trouble to walk them to the garbage bin - become "rational" if an asteroid is about to vaporize the planet, the absolutely craziest ways of managing the oil industry - failing to pay the people who run the drilling rigs, for instance - become "rational" if you decide all you care about is winning the next election.

Now, this is a conceptual post, so it's not really the place to go into a long litany of complaints about what's been happening inside the oil industry. "Tossing chicken bones on the carpet" is about the size of it, though: a form of extreme, kamikaze short-termism that completely boggles the mind.

My sense is that PDVSA is now approaching a series of critical thresholds where the sticking plaster that's been holding it together is bound to give way. The company is just too far behind on too many payments to too many critical service providers. We're not talking catering or la Fuller here, we're talking core payments to core contractors without whose help PDVSA cannot lift oil out of the ground. It's reached such an extreme that what's news - man-bites-dog-wise - is no longer when PDVSA doesn't pay its bills, but when it does!

how far to the left we are on that Investment/Consumption trade-off chart.

Distracted by yet another pointless vote, nobody's paying attention to the Tsunami of Piss brewing in the oil fields - truly the leading edge of Hurricane Feces. Because, lets be clear here, a petrostate can just about muddle through when oil prices are merely low, but it absolutely can't function if it can't lift it to begin with.

My sense is that this, and not the referendum result, is going to be the story we'll remember about 2009-2010. In the big scheme of things, the referendum will be remembered as an asterisk, not an asteroid: "that crazy campaign when Chávez spent all of PDVSA's money trying to amend the constitution right before the Great Oil Collapse of 2009."

February 11, 2009

A vote about nothing

Juan Cristobal says: - I've been in a funk lately.

The inspiration to post about the upcoming referendum has been harder to come by than a kilo of sugar at Mercal. Maybe the reason I'm not inspired is because this really is an election about nothing: it doesn't change anything, it has no real consequence on the balance of power in Venezuela. Mostly, it's an unnecessary distraction.

Let's walk through the scenarios. Suppose that the No wins. Can we really expect this to be the last time Chavez is going to try to eliminate term limits? Will it represent a turning point in our decades-long struggle?

Not a chance. If the No were to win, Chavez would keep insisting until he got his way. In fact, it's amusing to hear him promise he will accept the results when this election is the consequence of his refusal to accept the will of the people.

A Chavez loss would only mean he will try again, and again, until some way or another he does away with term limits. Who can honestly picture him not running in 2012? Who or what is going to stop him?

If the Si were to win, on the other hand, the government will claim a huge victory, but is it really? It doesn't change the imbalance of power in the country, it doesn't put us any closer to unseating him, but it doesn't put us further away either. Does the government really gain anything by winning?

In fact, putting the amendment behind us means we can focus on building a platform to take the National Assembly in 2010. It will also shift the focus of public opinion to the government's serious failures, and a looming Hurricane Feces that we're utterly unprepared for. Just today, the Planning Minister basically admitted the government's only hope is for the price of oil to rise by 150%. Good luck with that, Haiman.

The government has flexed its financial and logistical advantage more than in any previous election. In a way, Chavez is right - this isn't an election, it's a battle within a war. We're not fighting a party or an ideology - we're fighting a state.

The threats being hurled at voters and the torrent of lies being told about the opposition have reached unheard of levels, even for a government that lies in its sleep. Chavez is a guarantee of peace? Has he not checked the statistics on violent crime? No, he hasn't. Are we supposed to believe Antonio Ledezma and Cesar Perez Vivas are doing away with the Misiones? Please. They can barely get to work every morning without being attacked by chavista gangs.

The sad part about this is that by repeating these lies day and night, surely some people believe them. In the face of all of this, is it all that surprising that the Si is running neck and neck?

So we've come to this, an election we didn't want, where nothing really is at stake, where the only thing we have learned is that the Revolution has finally fessed up and admitted this is a one-man show. That aside from Chavez's obvious charisma, his sheer willpower and his ability to sign checks, the Revolution is just an empty shell; that without Chavez, there's nothing. How sad.

In 2007, I wondered about the positive side of eliminating term limits. I wrote,
Sometimes, to cheer myself up, I think of the day when Chavez himself, in power, is no longer popular nor wanted. When we finally see him leave power, it will be that much sweeter to see him do so as a result of a voter revolt rather than by force of nature or the Constitution preventing him from running again. So indefinite re-election may not be such a bad thing. At least it leaves the door open for Chávez's last election to be one where he loses badly.
If going through Chavez himself is the only way this is going to end, so be it. Getting over the uncertainty will let us focus on the important stuff.

Punked by a Pebble

Quico says: Readers may be shocked to learn I don't really keep up with the ins-and-outs of the weird and wonderful world of gun-toting para-revolutionary chavistoid vigilante street gangs-cum-rebel community activists in el 23 de Enero. I always get confused somewhere between Colectivo Alexis Vive, the Tupas, the Coordinadora Simón Bolívar, the Fuerzas Bolivarianas de Liberación, the Vega Warriors, and these Pebble people. Who can keep up?

The whole scene is baffling and vaguely upsetting. In a way, it reminds me of nothing so much as this classic bit from Monty Python's Life of Brian:

If anything, our home-grown paras are even more bizarrely self-parodying than this lot: at least the People's Front of Judea had the decency to be against the government of the day. The whole concept of a pro-government guerrilla makes zero sense to me...if you want to take up guns to defend the revolution, why don't you just join the army?

In the ideological grab bag that is the ultra de la ultra de la ultra de la ultra, flavor of the month is obviously La Piedrita (lit: "the pebble") a group that, whether due to uncommon bravado or excess stupidity, seems to have gone too far even for Chávez. In effect, La Piedrita broke the cardinal rule of chavismo: thou shalt not get too specific when talking about the illegal shit thou gets up to.

In talking openly about La Piedrita's various attacks and threats against opposition activists to Quinto Día, their leader Valentín Santana - who apparently has had an arrest warrant out for murder for over a year - broke the unspoken agreement that sustains chavismo's entire relationship with its own para-police arm: "you pretend not to attack our enemies, we pretend not to know you're attacking our enemies."

If he'd taken 10 minutes to read my handy How-To Guide, he would've known that chavismo needs to keep this sort of thing tacit. What Santana did, when you get down to it, is admit that he'd punched Marcel Granier in the face, and - worse - that he would do it again. Rookie mistake! Nothing destabilizes chavismo like unplanned truth-telling.

Chávez couldn't let it stand. For the sake of the dominance hierarchy, he had to send an unambiguous message: nobody's threatening anybody around here unless it's me! La Piedrita had to be brought into line.

But how? Santana isn't going down without a fight, and the last thing Chávez needs five days before a referendum is to send soldiers into what is supposed to be his biggest stronghold to pick up some glorified street thug whose underlings have better weapons than the police.

I really disagree with those who think this is a calculated electoral ploy, a repositioning to the center ahead of Sunday's referendum. I think Santana forced Chávez's hand with a spectacularly mistimed interview that left Chávez in an impossible situation: having to spend the final week of a critical campaign running around trying to convince people that the CIA pays people to try to kill Marcel Granier, looking weak if he can't catch the traitors, but having to send out all the wrong signals to his own hard core of supporters if he really does want to catch him.

I mean, picture it: Soldiers. In el 23. Running around trying to catch...a chavista. Madness!

This is not the Chávez who, alone, can safeguard the peace. This does not cast him in the role of sole guarantor of stability he's been so keen to claim for himself. This is a Chávez who's getting punked by a two-bit para who, para colmo, is chavista!

I just can't see how any of this can be good news for him. All it does is stink, this story.

February 10, 2009


Quico says: This Noticiero Digital thread is a keeper.

Most of them document the way Sí propaganda's been plastered all over all kinds of public spaces, but the one that made me laugh out loud was:

H/T: Tank

Hinterlaces Says

Quico says: In their latest set of slides, Hinterlaces (Oscar Schemel's outfit) break down the results of their polling in the second half of January:

Now, Schemel is an oppo pollster, no question about it. Bear in mind that his cities-only methodology unquestionably undercounts rural voters, who have broken decisively in favor of chavismo in every recent election. On the other hand, Schemel's not completely hackish. He actually does poll people at home, in large and mid sized cities spread over 21 states, using reasonable sample sizes: 1190 interviews per week here.

So, whether you buy the absolute numbers or not, the trend should mean something. And the trend here is...there is no trend!

By the last week in January, the Sí resurgence had run its course.

The government is working with a pretty limited ceiling here. Its only hope lies in massive, extremely aggressive mobilization. Buses, buses and more buses. They need to go all out to get every single one of their supporters to the polls and to keep oppo supporters away somehow. They're not short on resources, and it's in no way a foregone conclusion that they won't pull it off. But it's going to be very close.

As always, if you have access to a poll, any poll, please send it along: caracaschronicles at fastmail dot fm

February 9, 2009

Running Against the Petrostate

Playing now on Huffo...

It's a campaign ad, entitled "Hall of Fame". It opens in a computer-generated museum. As the camera pans from one dictator's portrait to the next, we hear a famous passage written by Venezuela's independence hero, Simon Bolivar, all the way back in 1819:
"Nothing is so dangerous as allowing a single citizen to remain in power for a long time. The people get used to obeying him, and he gets used to giving them orders, and that is the root of tyranny."
As the words sink in, we see portraits of Robert Mugabe (Caption: Zimbabwe - 29 years in power), Alfredo Stroessner (Paraguay: 35 years in power), Fidel Castro (Cuba: 47 years in power), and others. As the 30 second spot ends, the camera pans one last time and settles on a blank picture frame captioned "Venezuela". The announcer closes, saying: "it's up to you to ensure that no more Venezuelans enter this hall."

The ad was produced on behalf of the No-camp ahead of Venezuela's February 15th referendum on lifting term limits, a proposal that would allow Hugo Chávez to stay in power for life. You can see it on YouTube, if you want.

Where you probably won't see it, though, is on Venezuelan television.

Under rules set by the pro-Chávez National Elections Council, the Council itself gets to decide at what times campaign ads can go out, and on which channels. They deny that this amounts to prior restraint, but unexplained "delays" are keeping "Hall of Fame" and a series of other "No"campaign spots mostly out of sight. The ads show only on a few channels, and never in prime time.

"It's not that we've gone away, it's that we've been gagged: they've taped our mouths shut," is how No-campaign leader Julio Borges puts it.

As it gets shut out of the air-war via mysterious administrative delays, the opposition's boisterous student movement is systematically harrassed on the ground. In a speech last month, Chávez urged his security forces to "give them some of that good old tear-gas" whenever student protests got out of hand, a green-light that was immediately followed by a spike in heavy handed repression against the kids. Last Friday, he ordered the security forces to "step up surveillance" of the student movement, on vague allegations that they are "plotting to cause chaos".

More than campaigning, the opposition is just struggling to keep its head above water. Chávez, meanwhile, is going all out to ensure he wins Sunday's referendum "by a knock-out". Deploying the massive resources at the disposal of Venezuela's cash-flush petrostate, he's taking no chances and sparing no expense.

"Evander Hollyfield against a 12-year old kid. That's how it feels," according to one Caracas resident.

Eleven state owned TV channels and hundreds of government financed "community radio stations" broadcast Si propaganda round the clock. All sorts of public buildings, from schools, to state government offices, to Venezuela's IRS to the country's national worker re-training institute are plastered with "Si" propaganda. State owned electric utility crews are tasked with putting up Si signs. Civil servants are strong-armed into "volunteering" and raising funds for the Si campaign. Nearly every government website sports a "Si" banner ad.


Nothing is off-limits. "Si" propaganda gets piped into the Caracas Metro, over the PA system. "The next station is Sabana Grande - please remember to vote Si on February 15th." Even the wording of the referendum question itself is unabashedly partisan, a 77 word long ramble that consciously echoes Si campaign themes by asking voters whether they approve of "broadening people's political rights" without ever mentioning term limits as such at all.

Perhaps most worrying is that PDVSA, Venezuela's giant state-owned oil company, is getting in on the game. At the end of January, a massive caravan of PDVSA tanker-trucks paraded through the streets of Caracas, decked out in "Si" propaganda. Cars parked at PDVSA parking lots have their windows decorated with "Si"s, in big white letters, whether the driver likes it or not. Reuters reports that, on a recent visit to the Energy Ministry, one oil industry executive found the building nearly empty. When he asked where all the civil servants had gone, one of the few left holding the fort told him everyone had taken the day off to go to a "Si" rally.

In effect, Chávez has turned the state itself into an appendage of the Si campaign.
It matters little that this is blatantly unconstitutional. With die-hard Chávez loyalists installed in every key post in the state - from the state-owned media to PDVSA from the courts to the Elections Council - there's really no down-side to flouting constitutional rules. No matter how well documented, opposition cries of foul are flatly denied or, more usually, ignored altogether.

Of course, this kind of shenanigan isn't new in Venezuela: fifteen months ago, Chávez was defeated in his first attempt to abolish term limits after a campaign that saw its share of abuses. But the scale of the Si's advantage this time around is simply unprecedented, especially on the air. It's not just the Ad Gap, it's the Free Media gap too. A study released last week by Venezuelan and Swedish media researchers found that 93% of the news stories in the flagship State-run TV channel, VTV, favor a "Si" vote with the remaining 7% classed as "Neutral". Another prominent State-run station broadcast 100% Si-friendly news coverage. Neither of the two main state broadcasters has aired a single news story favorable to the "No" campaign.

On the other side, neither of the last two remaining dissident TV stations can broadcast free-to-air to a nationwide audience. Globovision (59% "No-friendly" news coverage) broadcasts only in a handful of cities, while RCTV (91% "No-friendly") is available only via cable and satellite, now that its broadcast license has been revoked in retaliation for its critical news coverage. Mr. Hollyfield, meet your opponent.

The extremely aggressive Si-campaign shows a government well aware that large majorities of Venezuelans oppose lifting term-limits in principle. They know only an extremely lopsided campaign is likely to bring those numbers around. So far, it's working: while polls taken in December showed the No-side ahead by 15 to 20 points, polls taken in late January show a dead heat.

Even if the Si camp were to lose again, all signs are that the government will simply keep holding new votes, year after year, until it eventually gets the answer it wants.

The government campaign is centered on a simple message: Voting "Si" does not mean making Chávez president for life. It means giving the people the chance to re-elect him as many times as they want. The proposal would expand people's political rights, they say, by removing an arbitrary restriction on their choice of candidates. Since free and fair elections will still be held every six years, the voters will always get the final say.

It's an argument that refutes itself. The massive abuse of state resources we've seen this year tells us all we need to know about how free and fair those future elections are likely to be. In addition to the natural advantages of incumbency, Chávez's perpetual re-election bids would leverage the full might of the Venezuelan petrostate, just as the Si-camp has: a massive built-in advantage that makes Simón Bolívar's 190 year old warning urgently relevant today.

As one of the other TV spots that the chavista Elections Council is keeping mostly off the air puts it, there's one other country in the region that holds massively unfair elections at scrupulously regular intervals: Cuba. With political speech limited, the state fully mobilized against dissidents and the incumbent enjoying unlimited access to state resources, Cuban elections are about as democratic as the regime whose windows they dress. All signs are that that's the model Chávez wants to follow.