From Prosperity to Poverty

Ricardo Hausmann writes,

Income poverty increased from 48% in 2014 to 82% in 2016, according to a survey conducted by Venezuela’s three most prestigious universities. The same study found that 74% of Venezuelans involuntarily lost an average of 8.6 kilos (19 pounds) in weight. The Venezuelan Health Observatory reports a ten-fold increase in in-patient mortality and a 100-fold increase in the death of newborns in hospitals in 2016.

Pointer from Tyler Cowen.

Justin Fox blames the resource curse.
Pointer from Mark Thoma. I think that Fox, like too many economists, wants to look at material factors and ignore the role of ideas. Venezuela is cursed more by socialism than by oil.

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8 Responses to From Prosperity to Poverty

  1. asdf says:

    Venezuela is cursed by genetics. All these Latin American countries blow up now and again. Sometimes socialism. Sometimes some tinpot rightwing dictator. The ideas are simply a function of the raw material that contribute to them. If they were Norwegian they would have found a way to manage their oil wealth correctly, even if they were a bunch of “socialists” like the Scandinavians.

    The lesson we should learn form Venezuela is that if our population ever becomes majority NAM we too could easily end up like that. In the Bell Curve they noted that in South American conservatism consists of the people on the hilltops trying to keep the people from the barrios from taking over the government and wrecking everything. We can now see just how correct a view that is.

  2. Handle says:

    There are plenty of obvious “resource curse counterexamples” to include US States like North Dakota “exporting” to other states, “lucky country” Australia, Canada, and Norway. The Netherlands is also an important net-exporter of natural gas to other European countries. And Fox even mentions the Norway counterexample.

    China has enormous coal deposits which it has been exploiting to create wealth at a simply incredible growth rate over the last 40 years and a level that now exceeds that of the rest of the world combined. Has China’s government and the condition of its people gotten better or worse over that time? I seem to recall something about the greatest and fastest lifting of people from poverty to prosperity of all time, hundreds of millions of them in mere decades.

    And some of those countries are pretty Socialist / State-dominated too, so that alone isn’t it either. It’s more like a rapid increase in Socialism, nationalizing expropriations, central planning, price controls, and all sorts of arbitrary and capricious political predation on private business. The “Road to Serfdom” as instruction manual instead of warning.

    The so-called “resource curse” hypothesis is like the “democracies don’t go to war” claim, it’s one of those impervious zombie theories that keeps stalking the minds of our chattering classes despite being obviously erroneous and opponents shooting perfectly good ammunition at it every time it gets backs up. It just won’t die!

  3. Charles W. Abbott says:

    I was pondering this issue about a year ago, when getting ready to teach a course on “the Geography of Sub-Saharan Africa.” I was tempted to write up brief mini-lecture to the effect that

    “Macro-economic mismanagement kills.”

    Even a year ago I would have directed my students’ attention to Venezuela.

    Here is the scenario–I write it with near total ignorance about current Venezuelan conditions. It’s not a country I have direct experience about. (The case I know the best is Nigeria 1982 to 1986, which happened before I started studying that country )

    WHAT HAPPENS

    Especially if you have a small open economy and a relatively “non-hard” currency, you can start mismanaging the economy (especially the price of foreign exchange and agricultural commodities, urban food prices, and sometimes exports). This works for a while and it’s done for political reasons, especially driven by “patron-client networks” which have to be fed with money or “Specific material inducements.” If your luck runs out, your economy can sustain external shocks that bring about a near collapse.

    The collapse (or serious problems) can come with suprising suddeness.

    The next thing you know, you may see things such as this:

    People die in the hospitals for lack of electricity during surgery, and non-availability of medicines.

    Wholesale and retail trade slows precipitously. Shortages emerge for all sorts of mundane but entirely crucial items (automobile and truck parts for example).

    The urban poor, which is highly dependent on selling their labor to buy food staples, is hit by a double whammy:

    1. The derived demand for their labor dries up at roughly same time that

    2. staple foods increase in price from inflation, currency instability, and disruption of trade networks.

    None of this was intended, we might charitably suspect. Probably there is no evil genius who, like V. I. Lenin, is sitting in room chanting “The worse, the better. The worse, the better.”

    But it happens. It’s not just socialism in general, but particular forms of mis-management justified by “We are practicing socialism to make society more fair.”

    Many people are surprised when this syndrome emerges. Mostly they have no experience of watching small open economies that don’t have hard currencies, and often the country is dependent on a few commodity exports.

    To complicate matters, the IMF and World Bank become involved in providing loans for “adjustment.” That’s another topic

  4. collin says:

    The of from Prosperity to poverty seems a little extreme.

    And of course it was socialism and a lack of respect for investors interests.

  5. dve says:

    Socialism is a form of magical thinking. An unimaginably bountiful resource is the rabbit
    that sustains the illusion.

  6. Tom G says:

    Most economists are employed by organizations supporting some form of economic planning — whether in private companies or gov’t funded orgs. They mostly support more, not less, gov’t economic “planning” — meaning control and restriction of alternatives.

    It’s not just “socialism”, it’s no-choice gov’t planning. Scandinavia most often has market-capitalism & choice combined with high taxes and social safety support. This really is different than gov’t control of most economic decisions or gov’t ownership. (Choice in school, for instance.)

    Haven’t you read the smear job against Buchannon & Public Choice Theory? It should be called Government Choice Theory, because the gov’t is NOT the same as the public. In a free market, the public does choose. In the gov’t choices, it is bureaucrats, more than the public, which choose — and these bureaucrats act in their own self interest, more than in the interest of the public. This and other books are trying to deflect honest discussion about the ideas which Venezuela’s gov’t has been pursuing for 20+ years, and has “progressed” from the richest to the poorest country in South America.

    This is the biggest economic story of the last 3 years, or more.

  7. Salem says:

    Sure Venezuela is cursed by socialism. But why did the curse strike Venezuela so hard and leave Chile relatively unscathed? Materialists don’t argue that ideas are irrelevant. Rather, they argue that which ideas “win out” is determined by material factors. Or as Fox puts it:

    Oil -> “petro populism” -> poverty.

    Without the oil, or some other source of free money, the socialism wouldn’t look nearly so appealing.

    Or at least, that’s the argument. I’m with you (and McCloskey), that the ideas have independent causal power, but the position doesn’t seem nearly so well worked out as the materialist one.

  8. hanmeng says:

    As a historian might cite Ricardo Hausmann,

    “Income … increased from 48% in 2014 to 82% in 2016, according to a survey conducted by Venezuela’s three most prestigious universities. The same study found that 74% of Venezuelans … lost an average of 8.6 kilos (19 pounds) in weight. The Venezuelan Health Observatory reports a ten-fold increase in … newborns in hospitals in 2016. “

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