In his monograph Toward a Psychology of Being, Abraham Maslow distinguishes between two groups of people: those whose motivations stem from Deficiency cognition (D-cognition) or Being cognition (B-cognition). People with D-cognition find there are many aspects of life which are lacking and must be striven for. It is self-interest that propels them forward and the world is there to be manipulated. B-cognition, on the other hand, recognises the inherent wholeness of the world; everything is linked and there is a union between disparate parts.
Motivations are important in determining the kind of world that man resides in. To encourage man to act in a certain way, incentives are needed depending on the objective a higher authority desires. In economic theory, interest rates act as particularly potent incentive. Economics 101 teaches us that raising interest rates will decrease private investment and increasing saving as the cost of borrowing increases for business (here we are assuming that most investment is done on credit); and consumers will receive a better return if they save their money rather than spend.
In generalising, policy makers using interest rates as a tool have B-cognition as they have to consider the whole society, but the affected civilian is considered to have D-cognition: he/she will be concerned about the personal detriment or benefit that will arise. The worry for the policy maker is ensuring that the self interest does not have a long-term negative effect on the whole society.
In many ways, the recently deceased president of Venezuela, Hugo Chavez, was propelled by B-cognition. According to the Financial Times, “During Hugo Chavez’s time in office, from 1999 to the present day, income inequality in Venezuela gradually declined, as it did in most of the region. The country now boasts the fairest income distribution in Latin America, as measured by the Gini coefficient index.” Moreover, “Thanks to his social programmes, poorer Venezuelans have certainly benefited from the country’s oil wealth more than they did under what he called the rotten elites that used to be in charge.” Yet the article criticises the Chavez era for “leaving a nation beset by crumbling infrastructure, unsustainable public spending and underperforming industry.”
Francisco Toro, a Venezuelan journalist, enumerates a list of infractions including cronyism, a convoluted currency regime in which arbitrage was possible due to multiple values to the dollar, a prescriptive regulatory system, poor private sector service standards, and lower than optimal oil production from the PDVSA – the state owned oil group that has more or less funded Chavez’s socialist programmes.
But the outpouring of grief would suggest that, overall, the people were happy, or at least, happier under Chavez than prior to his inauguration in 1998, especially the poor. The historian Greg Grandin provides a far more charitable assessment of the Chavez era praising his “ambitious program of domestic and international transformation: massive social spending at home and “poly-polar equilibrium” abroad… an effort to break up the US’s historical monopoly of power in Latin America and force Washington to compete for influence.” He writes of strong and transparent elections, improvements in state services, strengthening grassroot organisations and promoting social mobility, avoiding repression of his key base supporters and political enemies, improving democratic functions (Chavismo), acting as a broker of peace and opportunity between fractions inside the country, and supporting the growth of neighbouring South American countries such as Brazil.
The radical differences of opinion on Chavez legacy emanates from which side of the political spectrum one chooses to be upon. Chavez manifesto focused on the poor, and the alleviation of poverty. His focus may have been short term, pursuing a course of bringing the poor out of their chronically depressing situation. Thus, attention on long term infrastructural issues may have taken a somewhat back seat. While infrastructure building is important, it cannot be inefficient where costs are more than the returns. There needs to be long term view as to the benefits the infrastructure will bring. This has to be improved upon, especially as Venezuelan inflation is currently at 20%, which along with capital controls, has created a widened fiscal deficit that needs to be funded by external debt. At the same time, this should not take away from the resounding achievements of the Chavez rule, particularly for the poor.
Policy makers and bankers often spend an inordinate time focusing on economic and financial statistics, which in the end appear to benefit more the elite populace, and forget about the impact on the less fortunate. The liberal policies of the Bush-Greenspan era – and even before- laid the groundwork for the credit crisis, and, more perversely, “a study shows the top 1% of America’s rich captured 121% of the income gains for the two years after the 2007-2009 recession was declared over.” It is the elite who have better access to the financial markets than the poor. The impoverished are hardly likely to know what a bond is, the importance of NYSE composite index, derivatives, hedge funds etc, and yet more money goes through these markets than into the coffers of those who truly need it. So when the Dow Jones closes at a record high, and Asian markets follow, there appears to be international optimism, although has humanity, collectively, benefited?
The Venezuelan economy can be contrasted with the Japanese economy where there has been deflation over the last 30 years. Output and demand is low. To stimulate the economy, the new government has ordered one of the largest fiscal stimulus packages of more than Y10tn ($107bn) of new debt-funded spending. In both Venezuela’s and Japan’s case, both countries are going to witness increasing fiscal deficits. So in the long run, what is the difference? The creditors hold much power. Moreover, they are the ones that are most likely to be driven by D-cognition. By incentivising the creditor through interest rates, D-cognition is likely to prevail. Without considering the effects of compounding debt, short term gains for the creditor can have long term detrimental effects on the country in question, for instance Greece. Chavez may have not been a good economist, but he certainly understood that people power makes a country thrive. Financial power based on debt is often very fleeting, and very parochial.