Venezuela, the country where everything was done right

hambre-en-venezuela-630x300You would hardly notice from the media in many europeans countries, but there is an economic catastrophe going on in Venezuela. Many economic pundit all over Europe would be surprised with this outcome. After all, since Chavez raised to power, Venezuela has made all the right economic policy choices (according to those economic pundits).

Without an European Commission pushing for balanced budgets, Venezuela could follow an expansionary budgetary policy, with high public deficits that, as so many try to explain us, pay for themselves thanks to the Keynesian multiplier. To ensure a fair distribution of the burden, Venezuela has a corporate tax of 34% and a highly progressive personal income tax. Combined with capital controls, this ensures that the rich can not escape paying their fair share.

On the other hand, the Chavism knows how to protect workers. In Venezuela it is almost impossible to fire someone after the first month of employment. Venezuela ended job insecurity. Workers live in the comfort of knowing that they can never be fired regardless of their performance which, as everyone tells us, increases their job satisfaction and productivity. Furthermore, to set the example to the private sector, the government defined a 4 days working-week.

Minimum wage increases every 6 months and it is now the triple of what it was 2 years ago. As we are told, minimum wage does not generate unemployment. On the contrary, raising the minimum wage increases consumption and, thus, employment. The higher the minimum wage, the more consumption and more employment.

The government has great control on all the strategic sectors: transportation, education, energy, banking and even food distribution. It is not the evil profit, but the common good, that drives management decisions in those companies. The strong hand of the government in the banking sector ensured that the resource allocation was made for the greater good. In the energy sector, the population pays very little for the 20 hours of daily electricity they have access to.

Retiremente age is 60 for men and 55 for women, which leaves a lot of jobs for younger people. After 15 years contributing, you are entitled to a pension aligned with the minimum wage.

Many political pundits in Europe would struggle to identify one wrong economic policy in Venezuela. In reality, they did everything “right”.

What’s next for Portugal?

naom_534af975b6b0eLike it has always happened for the last 40 years of democracy, the Portuguese President asked the leader of the most voted party to form government. Like every president before, he gave a political speech on what he believes the next government should do. He is also far from being the first president to warn about the risks of having communists in power. But, unlike what has always been the democratic tradition, the second most voted party will not allow the most voted party to form a minority government. It is their constitutional right to do so. So what is next? Here is what the future holds for Portugal:

Over the next few weeks:

1. The current PM will form a government with some people of his close group MPs and a few moderate party members. It will be hard to get good names on-board for a government that might not be around for more than 2 weeks
2. The government will not pass in parliament due to the votes of the socialists, left radicals and communists
3. The president will then ask the leader of the 2nd most voted party to form government. The supporters of the idea of a coup in Portugal will be saying some other nonsense about some other country
4. Costa will form a government without members of the radical left or the communists. Radical left and communists let the government pass in parliamentary vote.
5. President Cavaco will warn about the lack of stability of the new solution and once again defend the tradition of the defeated centrist party to allow the other centrist party to lead the government

In November-January:
6. The socialist party will have to get its first budget approved. In order to do so, it will make changes in the labour law (making the labour market rigid) and eliminate some of the expense cuts of previous governments in agrrement with Left Radicals.
7. The first draft will not be approved in Brussels, but after a few rounds and over-optimistic assumptions on growth and tax collections, the budget will be approved in Brussels and by the Portuguese parliament
8. The minimum wage will increase in January
9. The centrist candidate Marcelo will be elected president in January. During the campaign, he will be intentionally ambiguous about what he would do in different political scenarios.

After January:
10. Growth will continue the path of 2015 but employment will stop increasing at the same rate
11. The left-wing parties will be united in the first months of the year. A short-lived increase in consumption will be used as proof that ending austerity works. External balance will deteriorate. Left parties will change labour law, banking regulations and increase capital taxes.
12. After missing the original budget targets, the government will have to get a new revised public budget approved somewhere in April. This will be a hard one.
13. If the communists don’t approve it, and the right wing parties do not change leadership, the revised budget will not pass in parliament and the government will fall
14. The socialist party will accuse the right wing pro-european parties of being irresponsible for not approving their Brussels negotiated budget. Brussels will put pressure
15. New elections in June
16. If the communists approve the budget, the government will stay in power until the end of 2016. Around that time, the budgetary difficulties for 2017 will be impossible to address by a government with support from communists and left radicals. The wounds of a 1 year unexpected and unwanted coalition will become obvious.
17. Points 13 and 14 will happen anyway just a few months later.
18. Elections in March 2017.

Did the radical left really achieve a good election result in Portugal?

Short answer: no.

It is hard to declare winners in an election where the government coalition lost its majority in parliament and the Socialist Party lost what some months ago was declared as the easiest elections of all times. But in one thing most political commentators seem to agree. The left bloc, a coalition of radical left movements similar to Syriza had a great day. Against all opinion polls, the Left Bloc was third in the election, getting more MPs than all but the 2 major parties in the country. They also almost doubled 2011’s score.

But look closer and you will see defeat. In the graph below, you can see the results of the other radical left parties belonging to the same european political family in the 4 peripheral countries that suffered more with austerity. (For Portugal and Greece we can see the results of the recent elections and for Ireland and Spain the latest opinion polls):

Election results and opinion polls in September

Looking at this, you will be surprised to know that when the crisis started the Portuguese Left Bloc was the most popular radical Left party in these 4 countries.

Election results between 2007-2009


Left Bloc’s evolution in election results since the crisis started is tiny, especially when compared with the same evolution in Greece, Ireland and Spain.

Score evolution since beginning of the European crisis

Does this look like a winning party to you?

Portuguese elections: final results

With only a small number of votes still to be counted, here are the final results of the election:

– PàF (right-wing government coalition): 38.6% (107 MPs)
– PS (Socialist Party): 32.4% (86 MPs)
– BE (Left Bloc): 10,2% (19 MPs)
– CDU (Communist Party): 8,3% (17 MPs)
– PAN (People Animals and Nature): 1,4% (1 MP)

BE and CDU have announced they will veto a right-wing minority government, leaving the responsibility of maintaining political stability in the hands of the defeated Socialist Party. The Socialist Party is likely to ensure a government is formed, without taking part of it. It is not likely, however, that the government will stay in power for the full 4 years mandate.

The six graphs that explain what’s affecting the upcoming Portuguese elections

Many wonder why, after reducing public pensions, salaries, among other austerity measures, the government coalition ends the campaign ahead in the polls. Pedro Magalhães, a portuguese political scientist explains why. Here is a summary:

Austerity: after an initial austerity shock, the last 2 years saw a loosening of the austerity belt.


The widely antecipated recessive spiral from the initial austerity measures did not happen (both in unemployment and GDP)



Moral and confidence is increasing, both in terms of confidence in the economy…


…and consumer confidence:


After an initial recovery, the socialist party has failed to keep growing in the polls after the economic recovery started. Most voters do not believe the Socialist Party would have done a better job in the last 4 years.


Worth reading the full article in the Washington Post.

Three large polls released today indicate political instability for the next months

The most comprehensive polls developed in this campaign were released today, 3 days before the election. Interestingly, the three have similar results: Government coalition (center-right) winning but with a left-wing majority in parliament.

If these are to be the final results, there will be a hung parliament with no clear government coalition. Cavaco Silva, the outgoing president, announced that he will break protocol and will not be present in the Republic celebrations on Monday due to the need to solve what is likely to be a very difficult post-election period. The socialist party already announced they would embark in a grand coalition and would prefer to join forces with the left. The left doesn’t seem to be interested in joining government (the communists wouldn’t do in any case and the Left Bloc wants to avoid Syriza’s faith).

Adding to this, there is the real possibility that despite losing the elections, the Socialist Party will elect more MPs than any other party. The government coalition is made of two party running together, but after the elections there will be two party groups in parliament, but potentially smaller than the Socialist Party’s. This adds an additional complication: traditionally, the PM comes from the most voted party who is also the party having the most MPs. This time, as two major parties are running together, the winning list might not include the party with more MPs. There is no precedent of the in Portuguese democratic history.

Interesting days ahead.

Daily polls (9 days to go)

In orange, the government coalition; in pink, the socialist party; in red, the communist party and in black, the left Bloc.

The government coalition continues to lead both daily polls with a 5-7pp advantage over the socialist party. The socialist party leads the Eurosondagem poll (not a daily tracking) by 0.5pp.

Daily polls (11 days to go)

In orange, the government coalition; in pink, the socialist party; in red, the communist party and in black, the left Bloc.



The government coalition continues to lead both polls with a 4-5pp advantage over the socialist party, but still 4-5pp far from the share of the votes needeed for a majority in parliament. Extreme left parties seem to be rising at the expense of the socialist party.

Government coalition ahead in the polls for the first time since António Costa became the leader of PS (25 days to go until parliamentary elections)

Today will be the first and last TV debate between the two main candidates to become next Portugal’s prime-minister. Last night was revealed a surprising opinion poll. For the first time since António Costa became the Socialist Party’s leader, his party is below the government coalition in the opinion polls. Both lists are far from the 44-46% needed to achieve a majority in parliament.


Also for the first time, the respondents believed that the incumbent prime-minister, Passos Coelho, will make a better prime-minister than António Costa.


António Costa, known for his uncontrollable perspiration will need to sweat a lot tonight to return to the top of the polls.