Misreporting Venezuela's Economy

The bulk of the media often gets pulled along for the ride when the
United States government has a serious political and public relations
campaign around foreign policy. But almost nowhere is it so monolithic
as with Venezuela. Even in the runup to the Iraq war, there were a
significant number of reporters and editorial writers who didn't buy the
official story. But on Venezuel, the media is more like a jury that has
12 people but only one brain.

Since the Venezuelan opposition
decided to campaign for the September elections on the issue of
Venezuela's high homicide rate, the international press has been flooded
with stories on this theme - some of them highly exaggerated.
This is actually quite an amazing public relations achievement for the
Venezuelan opposition. Although most of the Venezuelan media, as
measured by audience, is still owned by the political opposition there,
the international press is not. Normally, it takes some kind of news
hook, even if only a milestone such as the 10,000th murder, or a
political statement from the White House, for a media campaign of this
magnitude to take off. But in this case, all it took was a decision by
the Venezuelan political opposition that homicide would be its main
campaign issue, and the international press was all over it.

The
"all bad news, all the time" theme was overwhelmingly dominant even
during Venezuela's record economic expansion, from 2003 to 2008. The economy grew as never before,
poverty was cut by more than half, and there were large gains in
employment. Real social spending per person more than tripled, and free
healthcare was expanded to millions of people. You will have to search
very hard to find these basic facts presented in a mainstream media
article, although the numbers are hardly in dispute among economists in
international organisations that deal with statistics.

For example, in May, the UN Commission on Latin America (ECLAC) found
that Venezuela had reduced inequality by more than any other country in
Latin America from 2002 to 2008, ending up with the most equal income
distribution in the region. This has yet to be mentioned by the major
international press.

Venezuela went into recession in 2009, and
you can imagine how much more press attention has since been paid to
GDP growth there than when Venezuela was growing faster than any economy
in the hemisphere. Then, in January, the government devalued its
currency, and the press was forecasting a big upsurge in inflation, to
as much as 60 percent for this year. "stagflation" - recession plus rising inflation - became the new buzzword.

The
"out-of-control" inflation didn't happen - in fact, inflation over the
last three months, which is 21% at annualised rate, is considerably
lower than before the devaluation. This is yet another indicator that
the economists relied upon by major media as sources have limited
understanding of the actual functioning of Venezuela's economy.

Now, it looks as though Venezuela may have emerged from its recession
in the second quarter of this year. On a seasonally adjusted annualised
basis, the economy grew by 5.2% in the second quarter. In June, Morgan
Stanley projected that the economy would shrink by 6.2% this
year and by 1.2% next year. The International Monetary Fund (IMF) is
projecting long-term gloom and doom for Venezuela: negative per capita
GDP growth over the next five years. It is worth noting that the IMF
gave the authors of "Dow 36,000" some competition for creative forecasting, with their repeated, wildly off-the-mark underestimates of the Venezuelan economy during the expansion.

All
this may seem like par for the course if we compare it with coverage of
the world's largest economy, the United States, where the vast majority
of the media somehow missed the two biggest asset bubbles in world
history - the stockmarket and then the housing bubble. But there were important exceptions here (for example,. the New York Times in 2006). With Venezuela - well, you get the picture.

Of
course, Venezuela's continued growth is not assured; it will depend on
the government making a commitment to maintaining high levels of
aggregate demand, and keeping it. In that sense, its immediate situation
is similar to that of the United States, the Eurozone and many other
more developed economies, whose economic recovery is sluggish and
uncertain right now.

Venezuela has adequate foreign exchange
reserves, is running a trade and current account surplus, has low levels
of foreign public debt and quite a bit of foreign borrowing capacity,
if needed. This was demonstrated most recently in April with a $20bn
(about 6% of Venezuela's GDP) credit from China. As such, it is
extremely unlikely to run up against a foreign exchange shortage. It can
therefore use public spending and investment as much as necessary to
make sure that the economy grows sufficiently to increase employment and
living standards, as it did before the 2009 recession. (Our government
in the United States could do the same, even more easily - but that does
not appear to be in the cards right now.) This can go on for many
years.

Whatever happens, we can expect complete coverage of one
side of the story from the media. So keep it in mind: even when you are
reading the New York Times or listening to NPR on Venezuela, you are
getting Fox News. If you want something more balanced, you will have to
look for it on the web.