Ricardo Hausmann shared some thoughts on the lessons we can learn from the Venezuelan case, in his recent Project Syndicate op-ed. Normally, I enjoy reading his commentary, but I am confident that some aspects are missing from this article. I will try and sketch out some of the questions I was left with, after I read the text.
Here’s the article:
Here’s what he argues:
“So the relevant question is: why would a government adopt harmful policies, and why would society go along? The chaos into which Venezuela has fallen may seem to be beyond belief. In fact, it is a product of belief.
Whether policies sound crazy or sensible depends on the conceptual paradigm, or belief system, that we use to interpret the nature of the world we inhabit. What looks crazy under one paradigm may seem like plain common sense under another.”
This graphic example illustrates his point even better:
“From February 1692 to May 1693, for example, the normally sensible people of Massachusetts accused women of practicing witchcraft and hanged them. If you don’t believe in witchcraft, this behavior seems incomprehensible. But if you believe that the Devil exists and takes over women’s souls, then hanging, burning, or stoning their bodies looks like sensible public policy.”
Hausmann, acknowledges the catastrophic impact of Venezuelan government’s anti-business vigor, by saying that “this crisis is the inevitable consequence of government policies”. He attributes this behaviour to the fact that sets of beliefs can make the reality blurry, and lead to extremely poor choices. He calls these “dysfunctional belief systems” (DBS), and names a few examples, including the Brexit vote and Trump’s policy choices.
Within this DBS frame that he sets up, individuals are seemingly rational, but there is a very thick fog of their paradigm, which surrounds them and only allows access to a handful of choices, which are either bad or disastrous. This line of argumentation ultimately means that these individuals who have dysfunctional belief systems are simply benevolent ignorants.
ARE GOVERNMENTS ALSO INFLUENCED BY DYSFUNCTIONAL BELIEF SYSTEMS?
There are two parts of Hausmann’s focal question. First, why governments adopt harmful policies? Secondly, why societies go along?
In this text, he does not seem to discriminate between government and society when it comes to the influence of conceptual paradigms. One could easily understand that governments act foolishly because they are ignorant, and not malevolent. In this sense, Hausmann makes quite a step back from what Acemoglu and Robinson gave us, in regards to the way we perceive the incentives of those who govern us.
Another example of this argument is a text on Venezuelan decay (or suicide, as he puts it), written by Hirst, who blames it on the bad ideas, which create an ever-growing, “great edifice of stupidity”.
This willful naïveté of Venezuelan policy-makers may seem genuine, but its only purpose is to candy-coat the very blunt interests of their elites. “Burning the witches” was never meant to heal the country. As before, it was used to snuff out dissenting voices, and solve personal disputes.
Reading the text, I got this impression that Hausmann accepts the fact that their intentions pave the way to hell, but he thinks they don’t know it. If he doesn’t believe that governments make wrong choices out of ignorance, then it should have been stated more clearly in this article.
WHO INFLUENCES WHOM?
Also, Hausmann mentions Harvard’s Rafael Di Tella and his research, saying that “fundamental determinant of public policy choices is the public’s beliefs“. Still, it remains unclear who follows whom. Does a Trump-like political creature create the public opinion, or does he tap into it?
It sounds as if the government acted within a window of discourse shaped by the public. This abolishes some of the responsibility governments have for the outcome of their choices. It is like saying “they just followed vox populi”. If the government just follows public beliefs, then there’s no one to blame but the public.
I am taking this to the extreme, but the direction of this causality should be clarified.
HOW DOES A FAILING PARADIGM SURVIVE?
Countries (with all their particularities) don’t exist in a vacuum, and creating economic policy is not a one-shot game. You adjust according to the results your actions give you. Even though Hausmann claims that “science cannot devise an overarching belief system or assign moral value to outcomes”, there is quite a broad consensus that being hungry is a bad condition to be in. When lessons of failed policy are intentionally ignored, then it is not the people’s interest policy-makes pursue, but their own.
In today’s world, it is practically impossible to opt for a clearly wrong set of economic policies on a scale that we’ve seen it occur in Venezuela. All the “expropriations, price and exchange controls, over-borrowing in good times, anti-business regulations, border closures, and more” have failed to bring economic progress before, and no paradigm is strong enough to withstand the repetitive nullification of its claims. I can think of no other instrument potent enough to keep a paradigm afloat, after it has failed miserably, but coercion.
He could have done a better job elaborating how failing paradigms persist.
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I may have missed, or failed to understand something, while reading Hausmann’s text. If that is the case, feel free to point it out.
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