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How Not to Defend the Revolution: Mark Weisbrot and the Misinterpretation of Venezuela's Evidence

By Francisco Rodríguez

01.04.08 | Wesleyan University Assistant Professor of Economics and Latin American Studies, Dr. Francisco Rodríguez, was kind enough to send his reply to Chavez's favorite 'economy-expert' Mark Weisbrot, an economist, we've been told, whose grasp of economic matters is deficient, to say the least. However this is not the first time, nor will it be the last, when it's proven, beyond doubt, that Chavez's multi billion dollar propaganda campaign just can not get him sycophants clever enough to spin reality to acceptable levels.

Abstract: Mark Weisbrot (2008) has claimed that under the Chávez administration in Venezuela the share of pro-poor spending has increased, inequality has declined, poverty has fallen rapidly, and there has been a massive reduction in illiteracy. All of these conclusions are based on the use of heavily slanted data and on the misinterpretation of the existing empirical evidence. Weisbrot uses estimates of social spending that are upward biased by the inclusion of large infrastructure projects, debt refinancing, and even military spending; his inequality data is distorted by the inexplicable exclusion of households that received no income; his econometric estimates on illiteracy actually show the exact opposite of what he is arguing for. Weisbrot confuses basic economic concepts and offers a bizarre interpretation of events leading up to the 2002 currency crisis. Once one corrects for Weisbrot’s biases, the evidence paints a consistent image of an administration that has not effectively prioritized the well-being of the Venezuelan poor.

In a paper published in the March/April issue of Foreign Affairs (Rodríguez, 2008), I argued that there is little evidence that the government of Hugo Chávez has given priority to the well-being of Venezuela’s poor. In recent days Mark Weisbrot (2008) published a rebuttal on the website of the Center for Economic Policy Research - a Washington thinktank that he co-directs - arguing that some of my conclusions were “altogether wrong, and others grossly exaggerated and/or misleading.” In particular, Weisbrot argued that I am mistaken in asserting that the share of pro-poor spending has not increased under Chávez, that inequality had risen, that the government had not taught 1.5 million persons how to read and write, that the rate of poverty reduction has been slower than normal given Venezuela’s economic growth, that other health and human development indicators show a deterioration in the living standards of the poor, and that the 2002 recession was not caused by the country’s political crisis. On each of these, Weisbrot argues the exact for the exact opposite conclusions to those that I have drawn.

I welcome the opportunity to have an in-depth discussion of the evidence regarding the well-being of the Venezuelan poor under Chávez. Indeed, many of the points raised in Weisbrot’s paper as well as in this response have been discussed previously in academic fora. The broad dissemination of both papers thus offers an extraordinary opportunity to involve a broader group of policymakers and academics in the discussion and analysis of Venezuela’s social and economic policies.

As I will show, Weisbrot’s critiques are generally invalid, relying on erroneous reading of the evidence or use of severely biased indicators that do not accurately reflect the evolution of the Venezuelan economy or the well-being of the poor. For example, I will show that Weisbrot’s estimates of social spending are upward biased by the inclusion of large infrastructure projects, debt refinancing, and even military spending in what he contends is pro-poor spending, that his inequality data is distorted by the inexplicable exclusion of households that received no income, and that his econometric estimates on the effect of the Robinson program on illiteracy actually show the exact opposite of what he is arguing for. Weisbrot’s other criticisms are based on a misinterpretation of the concept of elasticity and on the questionable interpretation of existing health indicators and of the evidence leading to the 2002 recession.

Before delving into these differences, I would like to emphasize one basic point of agreement with Weisbrot. Official Venezuelan statistics are far from the ideal of what we would need in order to properly evaluate the performance of the Chávez administration. Well-designed impact assessments of the government’s social programs are either inexistent or have not been made public by the administration. The raw data and methodological descriptions necessary to replicate official calculations are only made available with severe lags, and often not at all. Many series that are vital to the analysis of the government’s policies are not public, and it is not uncommon for different entities to produce contradictory numbers. These weaknesses cause an inherent ambiguity in the interpretation of the evidence regarding the Chávez administration, a fact that helps to underline the usefulness of a serious academic debate on how to read the data.

In the rest of this note, I will take each one of Weisbrot’s criticisms and show why they are invalid. In most cases, I will show that he has misinterpreted the evidence or used severely biased indicators, and that when we correct for these biases we come to conclusions which are opposite to what he contends. In a number of issues, our disagreements reflect alternative possible interpretations of ambiguous data, and it is useful to lay out the sources of these differences in interpretation for readers to make up their own minds. All in all, I will argue, the image that emerges from a close reading of the evidence is still one in which there is little evidence that the Chávez administration has prioritized or produced favorable effects on the well-being of the poor above and beyond what we could have expected any other government to do.

1. Has the share of pro-poor spending gone up?

In my article, I argued that government spending figures show no evidence that the Chávez administration is giving greater priority to the categories of spending that benefit the poor. As an example, I cited the fact that the average share of the central government’s budget allocated to health, education, and housing during Chávez’s first years in office was 25.12 percent, essentially identical to the share in the previous eightyear period, 25.08 percent. Weisbrot has countered with three pieces of evidence: that the share of social spending – a broader category - in total spending has increased markedly since 1998, that the absolute amount of resources received by the poor has also increased significantly, and that my calculations exclude the contributions by PDVSA to social projects, which he claims summed to $13.3 billion, or 7.3 percent of GDP, in 2006.

Before looking at the data in detail, it is relevant to think a bit about what we should be looking for. Let us start from the following fact: the Venezuelan state is undeniably much richer today than it was nine years ago, to a great extent (if not completely) due to the ten-fold increase in oil prices that has occurred since 1999. As a result, the Venezuelan government has substantially increased its spending levels, and therefore is indeed spending more in real terms on just about any type of expenditures. This means that all categories of spending can be expected to have increased in real terms since Chávez reached office, be they social programs, infrastructure projects, military spending, or growth of the public bureaucracy.

But the absolute level of pro-poor spending is not what should concern us if we are interested in evaluating a government’s priorities. Precisely because the government has experienced such a huge windfall, we want to study how it has allocated it among different possible objectives. To use an intuitive metaphor, if you want to know how much your rich uncle cared about you, you’d like to compare how much of his inheritance he left you with what he gave everyone else. If all of your siblings got a million dollars in his will, while you received the old man’s poodle to take care of, it would be hard to argue that you were his favorite nephew. Thus, of all the pieces of evidence thrown about by Weisbrot, the ones that we should study closely are those that reflect the relative distribution of government spending among different categories of spending.

Read the rest of the paper here.

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