Venezuela

Brazil will not become Venezuela

Bruno Gonçalves Rosi Current Events, Politics , , , , , , ,

Judge Sérgio Moro has left the Bolsonaro government. Chosen to be Minister of Justice, Moro achieved prominence for leading the Carwash operation that took several corrupt politicians to jail, including former President Luiz Inácio Lula da Silva. Moro’s departure exposes a very serious weakness within the Bolsonaro government, and in the medium term, it will lead to the weakening of the government and the country. According to Moro, his departure is due to attempts by President Bolsonaro to unduly interfere with the Federal Police. Bolsonaro countered the accusations, but the scenario remains shaky for the president. If Moro is speaking the truth, and if he can substantiate what he said with material evidence, this can lead to impeachment and even arrest of the president.

It is important to remember how Bolsonaro came to power. Going back a few decades in the past, Brazil emerged from a military dictatorship in 1985. The years since then have been called the New Republic by Brazilian analysts. One of the most relevant leaders of this period was Fernando Henrique Cardoso. As finance minister (1993-1994) of the Itamar Franco government (1992-1994) and later as president (1995-2002), FHC led a series of reforms that made the country’s economy, previously marked by developmentalism, freer. FHC was succeeded by Luiz Inácio Lula da Silva (2003-2010). Historically a radical socialist affiliated with the Workers’ Party, Lula came to power in 2003 promising a moderate government. To a large extent, this promise was kept, but the Lula government was soon hit by serious allegations of corruption. These complaints continued under the government of his successor, Dilma Rousseff (2011-2016), who ended up being impeached in 2016. Because of his corrupt actions as president, Lula ended up arrested by Sérgio Moro in 2018. Despite the moderate tone of Lula and Dilma as presidents, throughout their time in power, both signaled measures that resembled their party’s most radical years. This nod often sounded like a threat that both could trigger the bases of their party to take radical measures as was seen in other South American countries that had elected left-wing governments, especially Hugo Chavez’s Venezuela. Lula went so far as to declare that in Venezuela under Chavez there was an “excess of democracy”.

It was in the face of multiple corruption scandals and the threat of a radical turn to the left that Jair Bolsonaro gained prominence. For many years an inconsequential politician from Rio de Janeiro, Bolsonaro gained fame with his stripped-down and even pimp language. As early as 2014, he began to be welcomed throughout Brazil under the shouts of “myth” for the open way in which it criticized the “left”. He soon became a popular phenomenon. Although many analysts doubted his viability as a candidate, he ended up winning the presidency.

Unfortunately, Bolsonaro is far from a classic liberal or a Burkean conservative. A retired army captain, he entered politics to defend the interests of his fellow soldiers. In addition, he has always defended Rio de Janeiro’s military police officers, who are constantly accused of human rights abuses. Finally, Bolsonaro has always declared himself an uncompromising admirer of the Military Dictatorship (1964-1985). Although he showed no signs that he would like to extinguish democracy in Brazil (as many analysts on the left feared), he was also unable to see the many damages that the military did to the country during their years in power.

In his practice as president, Bolsonaro shows himself to be an impatient man, unable to respect the bureaucratic procedures of a liberal democracy. Worse than that, if Sérgio Moro’s allegations are true (and there is good reason to believe that Moro is not a frivolous man), Bolsonaro is trying to control the Federal Police to avoid investigations against his eldest son, Senator Flávio Bolsonaro, accused of corruption and involvement with militias. There are good reasons to believe that, with the departure of Sérgio Moro, the Bolsonaro government has come to an end.

Fortunately, as Dilma Rousseff’s impeachment demonstrates, Brazil is not Venezuela. Despite its many setbacks and weak record as a liberal democracy, the country still stands out in South America for its record of solid institutions that survived even during anti-liberal governments. Although imperfectly, Brazil has the institutions expected from a classic liberal democracy: division of powers, a bicameral legislature, a supreme federal court, and (at least formal) independence between the powers. Unfortunately, there are high levels of corruption in all of these spheres, largely due to the great attributions of the state provided for in the 1988 Constitution. Much is expected of the state, and the state controls an immense amount of resources. It is said that a thief was once asked why he robbed banks. “Because that’s where the money is,” was his reply. Likewise, there is a good reason why many people enter politics in Brazil.

There are crucial reforms that need to be made in Brazil if the country is to become a viable democracy. Fortunately, many of these reforms have been made in the past. Since its independence from Portugal in 1822, the country has, at least superficially, classic liberal institutions. Never has a head of government in Brazil dared to govern without a constitution, as was the case in other South American countries. Bolsonaro’s impeachment, if confirmed, will be a major blow, but it will not destroy Brazil. But it also shows that, more than populist politicians, Brazil needs leaders who will lead it to a deeper liberalism. Popular support for this type of reform exists, but it is contrasted by the desire for a “myth”.

Hyperinflation and trust in Ancient Rome

Kevin Kallmes Books, Economics, History, Law, Liberty , , , , , ,

Since it hit 1,000,000% in 2018, Venezuelan hyperinflation has actually been not only continuing but accelerating. Recently, Venezuela’s annual inflation hit 10 million percent, as predicted by the IMF; the inflation jumped so quickly that the Venezuelan government actually struggled to print its constantly-inflated money fast enough. This may seem unbelievable, but peak rates of monthly inflation were actually higher than this in Zimbabwe (80 billion percent/month) in 2008, Yugoslavia (313 million percent/month) in 1994, and in Hungary, where inflation reached an astonishing 41.9 quadrillion percent per month in 1946.

The continued struggles to reverse hyperinflation in Venezuela are following a trend that has been played out dozens of times, mostly in the 20th century, including trying to “reset” the currency with fewer zeroes, return to barter, and turning to other countries’ currencies for transactions and storing value. Hyperinflation’s consistent characteristics, including its roots in discretionary/fiat money, large fiscal deficits, and imminent solvency crises are outlined in an excellent in-depth book covering 30 episodes of hyperinflation by Peter Bernholz. I recommend the book (and the Wikipedia page on hyperinflations) to anyone interested in this recurrent phenomenon.

However, I want to focus on one particular inflationary episode that I think receives too little attention as a case study in how value can be robbed from a currency: the 3rd Century AD Roman debasement and inflation. This involved an iterative experiment by Roman emperors in reducing the valuable metal content in their coins, largely driven by the financial needs of the army and countless usurpers, and has some very interesting lessons for leaders facing uncontrollable inflation.

The Ancient Roman Currency

The Romans encountered a system with many currencies, largely based on Greek precedents in weights and measures, and iteratively increased imperial power over hundreds of years by taking over municipal mints and having them create the gold (aureus) and silver (denarius) coins of the emperor (copper/bronze coins were also circulated but had negligible value and less centralization of minting). Minting was intimately related to army leadership, as mints tended to follow armies to the front and the major method of distributing new currency was through payment of the Roman army. Under Nero, the aureus was 99% gold and the denarius was 97% silver, matching the low debasement of eastern/Greek currencies and holding a commodity value roughly commensurate with its value as a currency.

The Crisis of the Third Century

However, a major plague in 160 AD followed by auctions of the imperial seat, major military setbacks, usurpations, loss of gold from mines in Dacia and silver from conquest, and high bread-dole costs drove emperors from 160-274 AD to iterative debase their coinage (by reducing the size and purity of gold coins and by reducing the silver content of coins from 97% to <2%). A major bullion shortage (of both gold and silver) and the demands of the army and imperial maintenance created a situation where a major government with fiscal deficits, huge costs of appeasing the army and urban populace, and diminishing faith in leaders’ abilities drove the governing body to vastly increase the monetary volume. This not only reflects Bernholz’ theories of the causes of hyperinflations but also parallels the high deficits and diminishing public credit of the Maduro regime.

Inflation and debasementFigure 1 for Fiat paper

Unlike modern economies, the Romans did not have paper money, and that meant that to “print” money they had to debase their coins. The question of whether the emperor or his subjects understood the way that coins represented value went beyond the commodity value of the coins has been hotly debated in academic circles, and the debasement of the 3rd century may be the best “test” of whether they understood value as commodity-based or as a representation of social trust in the issuing body and other users of the currency.

Figure 2 for Fiat paper

Given that the silver content of coins decreased by over 95% (gold content decreased slower, at an exchange-adjusted rate shown in Figure 1) from 160-274 AD but inflation over this period was only slightly over 100% (see Figure 2, which shows the prices of wine, wheat, and donkeys in Roman Egypt over that period as attested by papyri). If inflation had followed the commodity value of the coins, it would have been roughly 2,000%, as the coins in 274 had 1/20th of the commodity value of coins in 160 AD. This is a major gap that can only be filled in by some other method of maintaining currency value, namely fiat.

Effectively, a gradual debasement was not followed by insipid ignorance of the reduced silver content (Gresham’s Law continued to influence hoards into the early 3rd Century), but the inflation of prices also did not match the change in commodity value, and in fact lagged behind it for over a century. This shows the influence of market forces (as monetary volume increased, so did prices), but soundly punctures the idea that coins at the time were simply a convenient way to store silver–the value of the coins was in the trust of the emperor and of the community recognition of value in imperial currency. Especially as non-imperial silver and gold currencies disappeared, the emperor no longer had to maintain an equivalence with eastern currencies, and despite enormous military and prestige-related setbacks (including an emperor being captured by the Persians and a single year in which 6 emperors were recognized, sometimes for less than a month), trade within the empire continued without major price shocks following any specific event. This shows that trust in the solvency and currency management by emperors, and trust in merchants and other members of the market to recognize coin values during exchanges, was maintained throughout the Crisis of the Third Century.

Imperial communication through coinage

This idea that fiat and social trust maintained higher-than-commodity-values of coins is bolstered by the fact that coins were a major method of communicating imperial will, trust, and power to subjects. Even as Roman coins began to be rejected in trade with outsiders, legal records from Egypt show that the official values of coins was accepted within the army and bureaucracy (including a 1:25 ratio of aureus-to-denarius value) so long as they depicted an emperor who was not considered a usurper. Amazingly, even after two major portions of the empire split off–the Gallic Empire and the Palmyrene Empire–continued to represent their affiliation with the Roman emperor, including leaders minting coins with their face on one side and the Roman emperor (their foe but the trusted face behind Roman currency) on the other and imitating the symbols and imperial language of Roman coins, through their coins. Despite this, and despite the fact that the Roman coins were more debased (lower commodity value) compared to Gallic ones, the Roman coins tended to be accepted in Gaul but the reverse was not always true.

Interestingly, the aureus, which was used primarily by upper social strata and to pay soldiers, saw far less debasement than the more “common” silver coins (which were so heavily debased that the denarius was replaced with the antoninianus, a coin with barely more silver but that was supposed to be twice as valuable, to maintain the nominal 1:25 gold-to-silver rate). This may show that the army and upper social strata were either suspicious enough of emperors or powerful enough to appease with more “commodity backing.” This differential bimetallist debasing is possibly a singular event in history in the magnitude of difference in nominal vs. commodity value between two interchangeable coins, and it may show that trust in imperial fiat was incomplete and may even have been different across social hierarchies.

Collapse following Reform

In 274 AD, after reconquering both the Gallic and Palmyrene Empire, with an excellent reputation across the empire and in the fourth year of his reign (which was long by 3rd Century standards), the emperor Aurelian recognized that the debasement of his currency was against imperial interests. He decided to double the amount of silver in a new coin to replace the antoninianus, and bumped up the gold content of the aureus. Also, because of the demands of ever-larger bread doles to the urban poor and alongside this reform, Aurelian took far more taxes in kind and far fewer in money. Given that this represented an imperial reform to increase the value of the currency (at least concerning its silver/gold content), shouldn’t it logically lead to a deflation or at least cease the measured inflation over the previous century?

In fact, the opposite occurred. It appears that between 274 AD and 275 AD, under a stable emperor who had brought unity and peace and who had restored some commodity value to the imperial coinage, with a collapse in purchasing power of the currency of over 90% (equivalent to 1,000% inflation) in several months. After a century in which inflation was roughly 3% per year despite debasement (a rate that was unprecedentedly high at the time), the currency simply collapsed in value. How could a currency reform that restricted the monetary volume have such a paradoxical reaction?

Explanation: Social trust and feedback loops

In a paper I published earlier this summer, I argue that this paradoxical collapse is because Aurelian’s reform was a blaring signal from the emperor that he did not trust the fiat value of his own currency. Though he was promising to increase the commodity value of coins, he was also implicitly stating (and explicitly stating by not accepting taxes in coin) that the fiat value that had been maintained throughout the 3rd Century by his predecessors would not be recognized going forward by the imperial bureaucracy in its transactions, thus signalling that for all army payment and other transactions, the social trust in the emperor and in other market members that had undergirded the value of money would now be ignored by the issuing body itself. Once the issuer (and a major market actor) abandoned fiat currency and stated that newly minted coins would have better commodity value than previous coins, the market–rationally–answered by moving quickly toward commodity value of the coins and abandoned the idea of fiat.

Furthermore, not only were taxes taken in kind rather than coin, but there was widespread return to barter as those transacting tried to avoid holding coins as a store of value. This pushed up the velocity of money (as people abandoned it as a store of value and paid higher and higher amounts for commodities to get rid of their currency). The demonetization/return to barter reduced the market size that was transacted in currency, meaning that there were even more coins (mostly aureliani, the new coin, and antoniniani) chasing fewer goods. The high velocity of money, under Quantity Theory of Money, would also contribute to inflation, and the unholy feedback loop of decreasing value causing distrust, which caused demonetization and higher velocity, which led to decreasing value and more distrust in coins as stores of value kept this cycle going until all fiat value was driven out of Roman coinage.

Aftermath

This was followed by Aurelian’s assassination, and there were several monetary collapses from 275 AD forward as successive emperors attempted to recreate the debased/fiat system of their predecessors without success. This continued through the reign of Diocletian, whose major reforms got rid of the previous coinage and included the famous (and famously failed) Edict on Maximum Prices. Inflation continued to be a problem through 312 AD, when Constantine re-instituted commodity-based currencies, largely by seizing the assets of rich competitors and liquidating them to fund his army and public donations. The impact of that sort of private seizure is a topic for another time, but the major lesson of the aftermath is that fiat, once abandoned, is difficult to restore because the very trust on which it was based has been undermined. While later 4th Century emperors managed to again debase without major inflationary consequences, and Byzantine emperors did the same to some extent, the Roman currency was never again divorced from its commodity value and fiat currency would have to wait centuries before the next major experiment.

Lessons for Today?

While this all makes for interesting history, is it relevant to today’s monetary systems? The sophistication of modern markets and communication render some of the signalling discussed above rather archaic and quaint, but the core principles stand:

  1. Fiat currencies are based on social trust in other market actors, but also on the solvency and rule-based systems of the issuing body.
  2. Expansions in monetary volume can lead to inflation, but slow transitions away from commodity value are possible even for a distressed government.
  3. Undermining a currency can have different impacts across social strata and certainly across national borders.
  4. Central abandonment of past promises by an issuer can cause inflationary collapse of their currency through demonetization, increased velocity, and distrust, regardless of intention.
  5. Once rapid inflation begins, it has feedback loops that increase inflation that are hard to stop.

The situation in Venezuela continues to give more lessons to issuing bodies about how to manage hyperinflations, but the major lesson is that those sorts of cycles should be avoided at all costs because of the difficulty in reversing them. Modern governments and independent currency issuers (cryptocurrencies, stablecoins, etc.) should take lessons from the early stages of previous currency trends toward trust and recognition of value, and then how these can be destroyed in a single action against the promised and perceived value of a currency.

Nightcap

Brandon Christensen Links , , ,
  1. Today’s most pressing questions cannot be depoliticized Aaron Timms, New Republic
  2. Views of evil: Game of Thrones and Lord of the Rings Bryan Weynand, Gospel Coalition
  3. What America doesn’t get about dictatorships Raul Gallegos, New York Times
  4. Lost wallets, around the globe Cohn, Maréchal, Tannenbaum, Zünd, Science

Venezuela, still going down

Bruno Gonçalves Rosi Current Events, Politics , , , , ,

Venezuela crisis seems far from being solved, and the country now is entering into actual civil war. Some thoughts on that:

Contrary to leftist conspiracy theory and popular belief, the CIA does not interfere in other countries every other week. The last major US intervention to take down a government in a big country was in Iran in 1953. In the long run, considering the Iranian Revolution of 1979, it didn’t go too well. Therefore, it is understandable that today people in the White House are cautious.

Also contrary to popular belief and leftist conspiracy theory, the US hasn’t interfered much in Latin America in the past seventy years or so. Interventions in Central America and the Caribean were commonplace in the first decades of the 20th century (mostly during the progressivist government of Woodrow Wilson) but mostly cooled down in the 1930s.

Latin America in general and Venezuela, in particular, has little democratic experience, and this has nothing to do with outside forces. The counties in the region simply tented to make bad choices, rejecting classical liberalism in favor of mercantilism and political centralization.

Internationally, I believe that John Mearsheimer presented the most convincing theory to date: all countries desire to be superpowers. That’s the best way to feel safe in an anarchic world. However, given the dimensions of our planet and the current state of our technology, it is impossible for any country to be a global hegemon. Given that, they try the next best thing: to be regional hegemons and to stop other countries from being hegemons in their regions. The US is clearly the hegemon in the American continent. China and Russia are not happy with that and will try anything to change it. In the last few decades, both countries invested heavily in Venezuela, including its military capabilities.

On a regional level, Brazil could balance Venezuela to some extent. But it can’t, because the Worker’s Party trashed the country, while at the same time helped Venezuela. Brazil is too busy solving its own problems.

Sadly, Venezuela is by itself. While Nicolas Maduro has oil to buy his generals, and they don’t suffer from a conscience crisis, the humanitarian crisis will endure.

Relicts of the past? The current challenges for diplomacy

Alexander Albrecht Comments, Current Events, Liberty , , , , , , , , , , ,

The last few weeks were quite a blast for me: I’ve interned at the German embassy in Rome. A new job in a new city. I thought to process the experiences I made here in one (or a few?) articles.

It’s been quite a rough month for Germany’s Foreign Affairs department. First, Daniel Kriener, the German ambassador in Venezuela, was forced to leave the country after welcoming Interim President Guiadó at the airport of Caracas. Interestingly, although plenty of other diplomats joined him, he was the only one to be declared a “persona non grata” for interfering in Venezuela’s internal affairs. A few weeks later, a deputy speaker of the German Bundestag (who is also a member of the liberal party) demands to expel the US ambassador Grenell for the same offence. Prior, the US diplomat has criticized Germany’s plan to break their promise of contributing more to NATO’s defence budget. Albeit I politically agree with both actions of the diplomats in these cases, they delineate the ongoing structural changes in the diplomacy sector. To illustrate this, I will first provide a theoretical framework to analyze ongoing diplomatic challenges before trying to examine the role of diplomacy in the future.

Principal-Agent Theory and decreasing relevance

I conceive diplomacy as mostly a principal-agent based problem. I believe that many problems in diplomatic negotiations can be traced back to the classic effects of asymmetric information. Since two principals, in this case two states, cannot negotiate with each other directly in most cases, these arbitrations are carried out between various agents. Those agents are of course not always the ambassadors. In a broad meaning, one can apply the principal-agent paradigm to diplomacy by every negotiating process initiated by the state.

Through the lens of the principal-agent paradigm, I perceive the main task of diplomacy to achieve a good negotiating position, for example through an informational advantage. However, due to globalization, state-to-state diplomacy has been drastically weakened. The negotiating game is now mostly carried out within other institutions with lower transactions costs. Two countries want a new trade deal? Just orientate on WTO Rules. Sue another country? Call the International Criminal Court. A few voices made reasonable arguments even for abolishing unnecessary embassies and only keeping the crucial ones. The Trump administration, for example, seems not eagerly committed to fill the around 18 vacant ambassador positions hastily.

Certainly, the globalization combined with the expansion of robust institutions leaves little space for traditional diplomacy as a driving force in interstate relations. This is not necessarily a bad development: As Paul W. Meerts points out, this can be a huge chance for weaker states since negotiating in multilateral rather than bilateral constellations tends to weaken the position of stronger states. Thus, playing out the trump cards in negotiations will be harder for the hegemon. We can currently witness this in the Brexit debate: Even though the strong states, Germany and France, have a vast repertoire of power resources to use as leverage against GB in the negotiations, the can hardly deploy them through EU’s multipolar negotiating structure.

Contrary, there are also recent examples of deploying bilateral traditional diplomacy measures successfully. China’s initiation of Italy’s accession to the Belt Road Initiative (see Tridivesh Singh Maini’s great article here for a quick overview) is a prime example for this. But no other case shows the weaknesses of bilateral diplomacy in a more drastic way: China was able to transpose their tremendous power resources into a deal which heavily favours the Chinese economy. The very ambiguous agreement laid down a strategy of “closer economic collaboration.” The oppositional criticism of the deal coming from the very left and the right is based on economic nationalism and thus misses the important point. Chinese government exerts immense influence on key enterprises like  Tencent, Alibaba, and Badoo: Digital fundamental research topics such as AI were distributed to the firms not through competition but through the state ( I highly recommend Amy Webb’s EconTalk if you want to dig deeper into this.). Once they build sufficient digital infrastructure here in Europe, network effects and technological advantage will come into effect and engender high entry barriers and exit costs. This makes it easy for China to enforce its regulation rather than obeying European ones. Although it is hard to finally determine if multilateral negotiations would have secured a politically better deal, I favour higher short-term transaction cost of multilateral negotiations over the long-term threat showed above.

Embassies as service provider

Of course, taking care of a good interstate negotiation position is not the only task of an embassy. A popular counterargument is that the principal-agent perspective neglects the vital daily business of embassies to help their citizens abroad. Speaking of large and prestigious Embassies though, I estimate that their role as service provider for abroad living citizens will further decline. Most of their maintenance work for citizens living abroad will be redundant due to technological process and further institutionalization. Renewing a Passport, issuing visas and transporting back coffins (yep) are a frequent task, but easy to “source out” to private actors in the future.

But what is the role for ambassadors and embassies then?

This question is where it gets interesting in my opinion. Deeply rooted in international conventions and international customary law, discreet and silent work has been prerequisite for an ambassador. Carefully collecting small pieces of information and building bridges to local actors were the key for a good negotiating position. But as elaborated above, international institutions do the job more efficiently. A new role of ambassadors as advocates for concrete policy measures would be diametrically opposed to international conventions. Based upon the “legality creates legitimacy” premises, a further politicization of diplomacy seems not at present having a majority and thus is unlikely to be buttressed by legal means.

However, if we fall back into a narrative of nationalism, bilateral diplomacy will regain relevance. Otherwise, it will continue to slowly lose importance and eventually wane. Hence, the main challenge nowadays is to look for the right niche for traditional diplomacy – and it seems that it has not been found yet.

Nightcap

Brandon Christensen Links , , ,
  1. A closer look at US hostage recovery policy Danielle Gilbert, War on the Rocks
  2. How to restore democracy in Venezuela Ryan Berg, RealClearWorld
  3. How markets and the State leave the community behind Oren Kass, New York Times
  4. I won’t drive the roundabout Irfan Khawaja, Policy of Truth

Should the US intervene in Venezuela?

Edwin van de Haar Current Events , , , , , , ,

With the ongoing troubles in Venezuela some commentators ask for a humanitarian intervention, by the US. Intervention by other countries, for example Brasil, seem to be out of the question. And of course the US has long regarded Central and South America their backyard, going back to the Monroe doctrine. What would be a liberal perspective on this? Basically, there are three answers.

Most people who call themselves liberal in the US have a favourable attitude towards humanitarian intervention. Or used to have this over the past decades (until it went wrong -at least in their view- in Iraq and Afghanistan). Their motives differ, but they would probably argue that there is a moral duty to intervene on behalf of the suffering majority. This moral duty, however defined in detail, is seen to exist when grave abuse of human rights take place in failed state situations, people’s lives are under threat, when a danger of genocide exists. The intervention may take place unauthorized (without United Nations Security Council mandate), or authorized. Dangers of intervention are recognized by liberals, as for example the potential for abuse by the intervening state is ever present. Liberals are less concerned about the duty of the governments of intervening countries towards their own citizens.

Classical liberals start by pointing out there is never a moral duty to intervene, because, as Adam Smith wrote, for humans there is only the duty to mind the happiness of their relatives, friends, country. This is not to say there is never a right to intervention in the classical liberal view. For sure, this right should be exercised in very rare circumstances, as international relations is more about preserving order than about achieving justice for all, and more about the importance of sovereignty for individual liberty than about obligations or rights following from a shared humanity. Yet prudent leaders do have some room for manoeuvre in international politics, according to classical liberals. However, intervention can only take place if they are able to explain to their voters and countrymen how the intervention would promote natural liberty. Foreign intervention is often counterproductive, and only an option when international disorder is seriously under threat. However, most often, the benefits of nonintervention outweigh the costs of attempting a universal protection of even a limited set of rights. Interventions start with the best intentions, but will often have unforeseen, negative consequences, which only in rare cases will be justified.

Libertarians normally have the most straightforward position: the anarcho-capitalists will not allow their private armies to conduct foreign adventures, while most minarchists (Rand excepted) are of the same opinion in case of (partly) publicly funded armies. So for them it is easy, no troops to Caracas.

How about the classical liberal and social liberal (as I continue to call them) position towards Venezuela? First of all: there is no question the situation is bad for large groups of Venezuelans. Maduro is a rotten and corrupt leader, standing on the shoulders of his socialist fairy tale teller predecessor – who was by the way democratically elected by those same Venezuelans, in very large numbers. Closing borders is the common instrument of autocratic leaders without any societal support. Inflation is high, the oil sector is in peril, basic medical services are beyond the reach of millions. There is a contending president, Guaidó, yet he appears to lack the support of the army and other crucial actors. The Catholic church refuses to take a position, for example.

Yet the costs of an intervention are high and the outcome uncertain. The military part might not be so easy, and will cost lives and lead to tremendous economic damage, both in Venezuela and the US. Guaidó, who now seems the reasonable alternative, is basically a young and unproven guy, without any track record. No certainty exists that he will lead the country in the good direction, even if he wants too. To reconstruct the country will almost certainly demand billions of dollars, which will not be easily recouped once the oil sector is on its feet again (remember that argument from the start of the intervention in Iraq?). It will take years before US troops on the ground can return home.

Needless to say this analysis is incomplete and lacks sufficient detail for any policy decision. Still, all in all, I would advise against intervention. Despite the bad situation, the proposed cure seems worse, not least from the perspective of the intervening country.

Venezuela and the World

Bruno Gonçalves Rosi Current Events, Politics , , , , , , ,

Nicolas Maduro’s regime seems to be on the ropes. Brazil, being one of Venezuela’s neighboring countries, feels this especially well. The border between the two countries is getting increasingly tense.

Nicolas Maduro came to power after the demise of Hugo Chavez. Chavez on his turn was the first leader connected to Foro de São Paulo to come to power as president in a Latin America country.

Foro de São Paulo is a coalition of leftist groups in Latin America created in the transition from the 1980s to the 1990s to answer to the collapse of the Soviet Union. Perceiving that they would no longer be able to depend on the USSR for help, Fidel Castro as his allies in Latin America decided to help themselves. Chavez’ rise to power was the first result of these efforts. He was followed by Lula da Silva in Brazil, Evo Morales in Bolivia, Nestor Kirchner in Argentina, and many others. At one point in the mid-2000s, it seemed that Latin America was already informally a “Union of the Latin American Socialist Republics”.

At closer inspection, it is possible to see that the relationship between members of the Foro de São Paulo was not always perfectly harmonious. There were inside fights for leadership. Besides that, some leaders were more pragmatic and others more idealist. Even more, the Brazilian Worker’s Party, one of the main players in the organization, was itself internally divided. But none of this stopped members of the Foro de São Paulo from giving significant support to one another.

In the 2010s Foro de São Paulo suffered from many obstacles. Oil prices went dramatically down, making Venezuela – one of the main oil producers in the world – a less dependable ally for Cuba and other partners. Dilma Rousseff, chosen by Lula da Silva to be his successors in Brazil, proved to be shamelessly incompetent as a president. In 2016 she was impeached from office under corruption charges and Lula himself was eventually sentenced to jail. Jair Bolsonaro’s election to the presidency last year marks a right-turn in Brazilian politics that further hurts the Foro de São Paulo’s ability to support Venezuela.

According to political scientist John Mearsheimer, it is simply impossible under current technological development for one country to be a global hegemon. Nevertheless, it is clear that countries try the next best thing: to be regional hegemons and to stop other countries from doing the same in other regions. The US, with its Monroe Doctrine and world diplomacy, is a very good example of this. At least since the beginning of the 20th century, the US was able to secure undisputed leadership in the American continent. However, one of the most important developments of the last decade is China’s economic advance in Latin America. Russia, a country economically very weak, is nevertheless constantly trying to oppose US diplomacy, and Latin America is not an exception.

During the Worker’s Party years, Brazil massively helped Venezuela. The ideological affinity between it and Chavez’s supporters was key in this process. Today leftist leaders in Brazil unashamedly show their hypocrisy by criticizing Bolsonaro’s remarks on intervening in Venezuela.

The fact is that countries, independently of the ideology of those in power, do try to intervene in one another’s internal affairs, no matter what international law might say about this. However, as Stephen M. Walt observes, the chances of such interventions to succeed are highly dependable on domestic factors, mostly the disposition of domestic groups to welcome an intervention.

Venezuela, one of the world’s potentially richest nations is under great humanitarian crises thanks to socialism. Socialists around the globe already have their answer to this: Venezuela was never socialist. Regardless, Venezuela is a real problem, and to buy into the left’s narrative will not help to solve it.

Nightcap

Brandon Christensen Links , , ,
  1. A visit with Dr Quack (feeling just fine) Liam Taylor, 1843
  2. Rushdie’s deal with the Devil Kevin Blankinship, Los Angeles Review of Books
  3. The importance of recognition (Venezuela) Elsy Gonzalez, Duck of Minerva
  4. Should judges pay attention to Trump’s tweets? Amelia Thomson-DeVeaux, FiveThirtyEight

Nightcap

Brandon Christensen Links , , ,
  1. James Madison won the shutdown Greg Weiner, Law & Liberty
  2. A Marxist defense of Venezuela Louis Proyect, Unrepentant Marxist
  3. Emergent complexity in a multi-planetary ecology Nick Nielsen, The View from Oregon
  4. Christian martyrs, marriage, and the Middle East Christian Sahner, Aeon

Venezuela: a nightmare coming to an end?

Bruno Gonçalves Rosi Current Events, Politics , , , , ,

Yesterday, January 23, Juan Guaidó, the head of Venezuela’s National Assembly, declared himself acting president of the country. Mr. Guaidó claims that the election that brought Nicolas Maduro to a second six-year term was not fair and that therefore Mr. Maduro is a “usurper” and the presidency is vacant. Donald Trump immediately recognized Guaidó as president and so did Brazil’s Jair Bolsonaro and the entire Lima Group (Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru, Guyana and Saint Lucia).

Venezuela does not have a very democratic history, but things began to deteriorate in 1999 when Hugo Chávez came to power as president. He ruled the country until his death in 2013 and was succeeded by his vice-president Nicolas Maduro. Initially, Chávez didn’t look so bad, but he became increasingly more dictatorial through his government.

Hugo Chávez was the first president linked to Foro de São Paulo to come to power. He was succeeded by Lula da Silva in Brazil, Evo Morales in Bolivia, and many others. Foro de São Paulo (or São Paulo Forum) is a conference of leftist political parties and other organizations from Latin America and the Caribbean launched by the Brazilian Workers’ Party (PT) in 1990 in the city of São Paulo. The aim of the Foro was to build mutual support between these organizations, especially considering the collapse of the Soviet Union.

It can be said that Foro de São was exceedingly successful for a while. At one point in the 2000s, a great part of Latin America was ruled by politicians connected to it. However, the problem with socialism, as Margaret Thatcher once said, is that “eventually you run out of other people’s money.” PT’s rule in Brazil began to fall in 2013 when a great number of Brazilians started protesting against Dilma Rousseff’s government. Dilma was impeached in 2016, and her predecessor and mentor Lula da Silva was jailed in 2018 by Operation Carwash. Jair Bolsonaro, Brazil’s new president, is a fierce anti-communist. His election also marks a turn of events not only in Brazil but in the whole in Latin America. Maduro can no longer count on the support he received from Brazil, the continent’s greatest economy.

With money running out and corruption escalating, the decline of socialism in Latin America is just a matter of time, just as it was in Europe. Wind of Change.

Nightcap

Brandon Christensen Links , , ,
  1. The conversations that cryptocurrency kills Sonya Mann, Jacobite
  2. How and why the 1st Amendment became a weapon for the right Jedediah Purdy, the Nation
  3. Are libertarians crazy? Pierre Lemieux, EconLog
  4. As Venezuelans starve, Maduro gives oil away to Cuba Jorge Carrasco, CapX

Putting a stop to the Argenzuela Project

Brandon Christensen Current Events, Politics , , , , , , , , , ,

[Editor’s note: The following piece is written by Dr Nicolás Cachanosky, an economist at Metropolitan State University, Denver and a native Argentinian. Dr Cachanosky hails from the same PhD program (at Suffolk University) as Rick, who introduced us. His homepage is here, and he is also a member of the group blog Punto de Vista Económico (which you can find on the blogroll here at NOL). Check out his popular work for the Mises Institute, too. – BC]

For the last 12 years Argentina was under the influence of the Kirchner administration. First by President Néstor Kirchner (NK), and then two terms by her wife (and widow since 2010) Cristina Fernandez de Kirchner (CFK). Their plan, as perceived by many, was to alternate presidential terms between NK and CFK and remain in power endlessly. While this plan came to an end with NK’s death in 2010, CFK started to entertain the idea of reforming the Constitution to be able to run a gain for office. Because this was not possible, she chose Daniel Scioli, the Governor of Buenos Aires Province to be her successor. Last Sunday, November 22nd, Mauricio Macri, Mayor of Buenos Aires City beat Scioli in a ballotage and became president elect starting his term this coming December 10th.

Argentina was in path to become what is referred as Argenzuela. Namely, the Kirchner administration was taking the country, step-by-step, to become the next Venezuela of Latin America in a close way to what has been described as the four stages of populism. Under the Kirchner administration, the government increased their political ties with Venezuela, Iran, and China, at the expense of political relations with countries like the United States, Germany, and the United Kingdom. But the resemblance was not only in terms of political friendship, but on institutional and economic reforms. Argentina became a country where “Republic” is just a word on paper without a real presence in the country’s institutional reality. According to the Fraser Institute’s Economic Freedom of the World, in 2003 Argentina ranked 99 out of 153 countries. By 2012 it ranked 149 out of 152 countries. The loss of economic freedom was fast and significant. Economic troubles and imbalances did not take long to appear.

Macri’s victory in the presidential elections put a stop to the Argenzuela project. We know what a presidency by Macri won’t look like. But it is still hard to say what it will actually look like. Macri is known for his emphasis not in free or unfree markets, but on an efficient administration. While not difficult to be more free market than the Kirchners, it might prove difficult to describe Macri’s political movement, Pro, as a free market party. The Kirchner administration has refused, at least so far, to share information with Macri and his appointed ministers, so the real situation of the economy and the Treasury remains unknown. Macri and his team are working on reform plans half-blinded because they don’t have reliable economic information, if they have it at all.

Specific reforms by Macri are still unknown (at the time of writing these lines), but his team of Ministers has already been announced. The people he’s bringing to the government with him show significant successful careers in government, the private sector, and international organizations (her chosen Chancellor is the Chief of Staff of Ban Ki Moon, General Secretary of the United Nations.) This is a clear contrast with the Kirchner administration, where all the Ministers showed a strong ideological motivation before professional accomplishments.

The economic crisis in Argentina hands Macri a unique opportunity to carry long needed significant reforms. He has, also, a unique political position. His political party has not only won the presidential election, with Pro Macri has also retained the Mayor’s office of Buenos Aires City and also won the Governor elections for the Buenos Aires Province. Macri’s Pro is in charge of the three most economically and political important districts. Let us hope that Macri does not become yet another lost opportunity in Argentina’s history.

Assessing Elections in Poland and Argentina in the Context of Populism and Liberalism in Europe and South America II (liberalism in the classical sense of course).

Barry Stocker Current Events, Liberty, Politics , , , , , , , , ,

The Argentine election was for the state president, who is head of government as well as head of state. An expected first round victory for the Peronist party (formally known as the Justicialist Party) candidate Daniel Scoli disappeared as he failed to clear 45%. He is clearly ahead of Mauricio Macri, Mayor of Buenos Aires, running on behalf of a three party centre-right alliance which contains the less statist, and populist elements of Argentine politics, but at least the hope exists of a second round triumph over the Peronists.

The third candidate is also a Peronist, showing the difficulty of overcoming that legacy and why even just turning the Presidential election into a competition between a Peronist and a non-Peronist is a victory of some kind. The sitting President Christine Kirchner pushed at the limits of the Argentine constitution, which prohibits more than two terms for any President, by alternating in power with her late husband Nestór Kirchner. If he had not died in 2010, we might now be looking forward to a fourth consecutive term in power for team Kirchner.

Peronists or the army have run Argentina almost constantly since the 1940s. The periods of army rule give a good indication of how successful Juan Perón and his widow Isabel (the third wife) were in stabilising Argentine society and political institutions. Nevertheless the Peronists have been the only party with a record of electoral success in Argentina and have improved from the chaos that Juan and Isabel instigated in more recent appearances in government.

As such a dominant party they have relatively centrist technocratic elements (most notably ex-president Carlos Menem) as well as the hard core statist populist nationalists. The Kirchner years have tended increasingly towards the more populist end, stoking nationalist sentiment over the islands in the south Atlantic known in Argentina as the Malvinas and in the UK, which has sovereignty over the islands, as the Falklands.

There has been economic growth under the Kirchners, but it has now very much slowed as policy has tended towards high inflation, currency controls, confrontation on debt owed to foreign creditors and increasing budget deficits. There has been social liberalism, most obviously, on attitudes to the LGBT communities, but in a context of nationalist sovereigntist politics. At least we can hope that if Scoli wins, he will feel obliged to shift towards genuine economic sustainability and a less populist politics.

In general, this adds to a feeling that South America has passed the peak of leftist populism which has influenced most countries outside Colombia in the last two decades. The more respectable end of that spectrum in Brazil’s Workers’ Party, which had been fairly successful economically, appears to be declining under the weight of corruption scandals, economic recession and incapacity in delivering on the more populist side. On the less respectable side, Venezuela has lost its status as model for the world’s radical left as corruption, economic decay, state brutality, election rigging and persecution of the opposition has become too extreme to ignore, particularly since the state socialist hegemony no longer has Hugo Chavez as a charismatic frontman.

Brazil and Venezuela were the models of the left, reformist and revolutionary respectively, and no longer have that status. If there is a model now it is the Evo Morales Presidency in Bolivia, which in some respects is radical left, but not consistently enough to get the kind of model status previously accorded to ‘Lula’ (now caught up in corruption scandals as his successor Dilma Rousseff) in Brazil and Chavez in Venezuela (whose successor Nicolás Maduro is a blatant and charmless neo-Stalinist thug-apparatchik). The Morales regime has received some cautious support from those inclined towards liberty on the grounds that he has pursued an overdue reduction of the power of traditional rent seeking elites in Bolivia and engaged in an economic pragmatism certainly distasteful to former Chavez admirers, and not even entirely comfortable for former admirers of Lula.

The leftist populist tide in south America has not entirely receded, but is now discussed with increasing nostalgia and an increasingly elegiac tone by left socialist observers, and as it has receded has tended to leave only embarrassments for the socialist left or reformist pragmatist examples of at least some interest to the liberty community. We are not looking at a strong shift towards liberty in all its forms in that region, but at least we see some shifts opening the possibilities of new movements towards liberty in markets, rule of law, individual rights, and social openness.

Eduardo Galeano Disavows ‘Open Veins of Latin America’

Brandon Christensen Books, Current Events , , , , , ,

I read this book a long time ago (it wasn’t required reading for any of my undergraduate courses) and found it to be much too hyperbolic and unsubstantiated, so I’m very pleased and surprised to see Galeano disavow it.

From the New York Times:

For more than 40 years, Eduardo Galeano’s “The Open Veins of Latin America” has been the canonical anti-colonialist, anti-capitalist and anti-American text in that region. Hugo Chávez, Venezuela’s populist president, even put a copy of the book, which he had called “a monument in our Latin American history,” in President Obama’s hands the first time they met. But now Mr. Galeano, a 73-year-old Uruguayan writer, has disavowed the book, saying that he was not qualified to tackle the subject and that it was badly written.

The reactions of factions, something I have become increasingly interested in, are predictable but maybe that’s why I am so interested in them. For example:

Michael Yates, the editorial director of Monthly Review Press [a socialist publishing outlet – bc], Mr. Galeano’s American publisher, dismissed the entire discussion as “nothing but a tempest in a teapot.” “Open Veins” is Monthly Review’s best-selling book — it surged, if briefly, into Amazon’s Top 10 list within hours of Mr. Obama’s receiving a copy — and Mr. Yates said he saw no reason to make any changes: “Please! The book is an entity independent of the writer and anything he might think now.”

Consider not only the reaction of a long-time socialist to the disavowal of one of his intellectual and – dare I say – spiritual bedrocks, but also the fact that a socialist is scrambling to keep his best-selling product from losing its quite subjective value. Read the whole report.