Venezuela: Response to Trolls

August 23, 2018

En español

I have rarely responded to trolls because ? well, what’s the point? It’s not like they care about facts or logic.

For example, Francisco Toro, a blogger who fulminates about Venezuela and appears in the Washington Post, has been trolling me for years and I have almost always ignored him. Dany Bahar, an economist at the Brookings Institution, actually trolled me on a TV show, excitedly holding up to the camera a Guardian article that I wrote nearly five years ago, to castigate me. Cathy Newman, a news presenter for Channel 4 ? one of the top three most-watched TV stations in the UK ? did the same thing in the middle of a newscast in which she was supposedly interviewing me. And now Brian Ellsworth, a journalist  for Reuters who reports from Venezuela, has joined the latest avalanche of trolls, bots, and blowhards who swarmed me because I dared to mention on BBC World TV, on Friday night, that Trump’s financial embargo against Venezuela makes it more difficult for any government to stabilize the economy ? a fact that no economist would dispute. Indeed that is the purpose of the embargo.

Let’s start with what all of these trolls ? including the more educated ones noted above ? have in common.  They all rely on one article (out of dozens) that I wrote about Venezuela. Not one of them challenges a single fact in that article. That tells you a lot right there about the weakness of their “argument.”

Their glorious “gotcha” is not about any facts but rather a prediction. I wrote that Venezuela was not facing any serious threat of hyperinflation. That was certainly true in November 2013, the date of the article. Economists most often define hyperinflation as a rate of inflation that exceeds 50 percent per month. Although we don’t have official statistics for inflation in Venezuela since 2015, available estimates (from the opposition-controlled National Assembly) do not show Venezuelan inflation at that level until November of 2017, four years later.

The trolls imply that I should have known in November 2013 that Venezuela would eventually reach hyperinflation. At the time, as I noted in the Guardian article, Venezuela was facing a dynamic in which there was a significant parallel market for the dollar, and the price of the dollar in that market was rising.  This increased inflation (by increasing the price of imports). The inflation, in turn, drove more people to buy dollars, which pushed the black market price of the dollar up further. If such a spiral is allowed to continue it will eventually lead to hyperinflation.

However, I assumed that the government would at some point break this cycle by unifying the exchange rate, thereby getting rid of (or reducing to irrelevance) the parallel market.  That assumption turned out to be wrong, but it was a reasonable assumption at the time. In fact, economist Francisco Rodríguez, then at Bank of America Merrill Lynch, made the same assumption at that time. Rodríguez knows more than probably anyone in the world about the Venezuelan economy; and he has repeatedly been proven right about the Venezuelan economy while almost all of the sources that the media quotes on this subject ? especially on government finances ? were repeatedly proven wrong.

But most economists would have made the same assumption at that time. Hyperinflations are not that common; there were only about six episodes in Latin America in the twentieth century. And as I noted at the time, Venezuela had more than $36 billion in international reserves, a sizeable current account surplus of $11 billion (2.9 percent of GDP) and was not facing any imminent balance of payments crisis. There wasn’t any reason for thinking that the government would ride its overvalued fixed exchange rate all the way to hyperinflation.

On the contrary, there were other reasons to assume, in November 2013, that the government would take the necessary measures before reaching hyperinflation. In 2002, for example, despite serious political turmoil (including a military coup and devastating opposition oil strike), then president Hugo Chávez floated the currency. Central Bank reserves actually increased during this period. And in 2014, the government announced that it was going to unify the exchange rate, although it did not follow through. In May 2016, as Toro noted, a team of economists from the Union of South American Nations (UNASUR), went to Venezuela and proposed a plan, which included unification of the exchange rate and other measures that could reasonably be expected to stop the acceleration of inflation. I was part of that team. It was not at all clear at that time whether the government would adopt the plan or not.

The trolls would say that they predicted disaster, and indeed they did: they predicted it every year ? ever since Chávez was elected in 1998, even when the economy was booming and inflation was falling. But that is the accuracy of a stopped clock, as the saying goes, that is right twice a day.

Unlikely events happen every day: if you flip a coin eight times, the chance of getting all heads is less than 1 in 250. But it can happen, and when it does, that does not mean that before the event, observers had reason to consider it likely. The trolls are trying to argue that, simply because it eventually happened, observers in 2013 should have seen hyperinflation as a likely outcome. This is not a logical argument.

If I had, like 90+ percent of the economics profession, completely missed the two biggest asset bubbles in world history (the US stock market bubble of the late 1990s, and the $8 trillion dollar housing bubble of the 2000s), the trolls would have a case against me. These bubbles were clearly identifiable and were in fact identified at that time. Their bursting was basically inevitable, as were the recessions that resulted. Venezuela’s hyperinflation had no such inevitability in 2013, or even much later.

The trolls are also taking advantage of the headline, which, as most journalists know, is not written by the author.  The headline stated, out of context, that “this economy is not the Greece of Latin America.” While I did make the comparison to Greece, people who read past the headline would see that it was only to explain that because Venezuela had its own central bank and currency (unlike Greece) it could change its macroeconomic policy and resolve its worst economic problems ? which was also true, even after oil prices crashed in 2014.

The trolls also benefit from the profound and systematic bias on Venezuela in the major media over the past 20 years ? for a nice recent academic study, see here.

Part of the way this one-sided and often misleading public discourse is maintained is through the trolling, harassment, and punishment of anyone who presents a view ? or even inconvenient facts ? that fall outside the dominant narrative. This narrative happens to coincide with a more than 16-year effort by the US government to bring about regime change in Venezuela.

That is why the trolls piled on like a swarm of army ants in response to my simply stating the publicly available facts about the Trump administration’s financial embargo on Venezuela, in a discussion of hyperinflation there. None of the other major media reports over the weekend bothered to mention this highly relevant information, and the trolls don’t want it to happen again.

That’s why I am responding to the trolls this time. It is important to show that they cannot intimidate everyone. As FDR famously said, “I welcome their hatred.”

Of course, if any of the trolls who have some knowledge of Venezuela would like to have a public debate on any of this, they are invited.  I’m sure it would get a large internet audience because there is so little public debate about Venezuela, or US policy in Latin America generally. My invitation extends to any of the non-troll journalists, academics, or others who write about the subject matter. I don’t expect any of the trolls ? or those who share their beliefs ? to have the courage to defend their views in a debate. But if you do, bring it on.


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