Do Government Income Support Programs Increase Or Decrease Measured Income Inequality?

To listen to the voices on the Left, income inequality is a big problem, and the government needs to fix it promptly.  But do government programs to aid poor and low-income people actually increase or decrease income inequality as measured by government statistics?  The answer is, they increase it.  Does that seem counter-intuitive?  Maybe, but it's clearly true.  Of course, this is excellent news for the politicians and bureaucrats who make a living using government statistics to advocate for more money for the government and for their programs.

One can find multiple examples on any given day, but I'll give a couple of current examples of voices calling for government action to fix the crisis of income inequality.  Our new Democratic candidate for Mayor, Bill de Blasio, made exactly that the central theme of his just-concluded victorious campaign for the nomination.  His core campaign document is titled "One New York, Rising Together."  Its introductory paragraphs identify the "crisis of income inequality" as the problem that must be "at the center of our vision":

 Nearly 400,000 millionaires call New York home, while nearly half of our neighbors live at or near the poverty line. Our middle class isn’t just shrinking; it’s in danger of vanishing altogether.  Addressing the crisis of income inequality isn’t a small task. But if we are to thrive as a city, it must be at the
very center of our vision for the next four years.

Or, to take just one of many, many examples from the New York Times, here is what Frank Bruni had to say in his op-ed column in yesterday's election day edition: 

It is indeed the case that income inequality in New York city has worsened during the Bloomberg years, to an extent that's morally unacceptable and perhaps socially untenable.

Well, if income inequality is indeed a "crisis" and "morally unacceptable," why do these people propose so-called solutions that will clearly make the problem worse, at least as measured by the same statistics they themselves are using to define the problem in the first place?

When you go through de Blasio's document, you find out that he covers three main areas of income redistribution programs:  "food security" programs, "affordable housing" programs, and medical care programs.  He thinks all of these programs should be grown and strengthened.  But something is immediately obvious: all of the programs are in-kind distributions.  Therefore, none of the spending on these programs counts as income to the recipients, and none of the spending serves to reduce "income inequality" as measured by the government statistics to even the slightest degree. 

But it's worse than that.  The existence of the programs creates strong incentives that have the effect of greatly increasing measured income inequality.  Measured income inequality is to a large degree a function of family definition, and these programs cause families to redefine themselves to qualify for the programs.   

Consider a family of four, father, mother, and two children.  Father makes $50,000 a year.  This is a middle class family.   It does not qualify for food stamps or low income public housing, and probably not for Medicaid. (I'm not so sure after the upcoming Obamacare expansion of Medicaid.)  Suppose these people realize that they can enhance their well-being by continuing with the income but also collecting on the in-kind programs.  Husband moves out.  Now we have one person with a middle-class income, and three in abject poverty, with no measured income.  If the father gives substantial funds to the family, it will almost certainly be done in a way not captured by the statistics, so no change.  Now the mother and two kids qualify for food stamps, housing and Medicaid, and they go out and collect it.  None of it counts in the measures of income inequality, so we still have one middle class guy and three people in abject poverty.  And that will continue to be true no matter how much spending may be increased on public housing, food security, and Medicaid.

So the result of the programs in the real world of physical well being is that we previously had a middle class family with a $50,000 income, and now we have four people with the same combined $50,000 middle class income and also food stamps, public housing and Medicaid.  But in the world of government income statistics, we previously had a family of four with $50,000 income, therefore all solidly middle class, and now we have one guy with a $50,000 income and three people with zero income, therefore in deep "poverty." 

That's for that one family.  To the extent that spending on the in-kind programs is substantially increased, it is highly likely that more families that have so far resisted getting into the separate-and-collect mentality will cross the line and take the handouts.  And thus will measured income inequality increase., even as the income redistribution programs expand.

You can be sure that de Blasio and the city bureaucracy will use the coming increase in measured income inequality to advocate for yet more increased funding for the in-kind redistribution programs.   Are we really so stupid to keep getting taken in by this?

Regulation In Action At The SEC

Looking for examples of how smart, all-seeing, all-knowing regulators can succeed in removing all risk from human existence, we turn today to the SEC.   We'll start with a little history, and then move on to a current issue.

You may know the SEC as the guys who missed Madoff, but I'll bet you're not aware of the details of just how bad that one really was.  According to a Wikipedia summary here, Madoff started in business in 1960, and closed his business only when arrested by the FBI in December 2008.  The arrest occurred only after Madoff admitted to his sons that the business was a scam, and that he was out of money to pay redemptions; one of the sons then turned him in.  His fraud was never uncovered by the SEC.  Yet beginning no later than 1999 a guy named Harry Markopolos informed the SEC "that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver."  According to Markopolos, quoted at CBS, "It took me five minutes to know that it was a fraud.  It took me another almost four hours of mathematical modeling to prove that it was a fraud."  

Markopolos didn't just inform the SEC in 1999 and forget about it.  He kept going back and back and back, providing all kinds of detail as to why it had to be a fraud.  After being ignored by the Boston SEC office in 2000 and 2001, he turned repeatedly to the New York office, to no avail.  The SEC even sent people to Madoff's office to look at documents, and they came away without finding anything.  At this link there is a lengthy 2005 written submission that Markopolos made to the SEC laying out in great detail why Madoff had to be a fraud.  For example, Madoff had explained to investors that his returns were always positive because he hedged using options.  But Markopolos tells the SEC:

Mathematically I have proved that BM cannot be hedging using listed index put and call options. . . .  [I]f BM was really buying OTC index put options, then there is no way his average annual returns could be positive!!  At a minimum, using the cheapest way to buy puts would cost a fund <8%> per year.  To get the put cost down to <8%> BM would have to buy a one-year at-the-money put option and hold it for one year.  No way his call sales could ever hope to come even fractionally close to covering the cost of the puts.

Markopolos ultimately wrote a book about his efforts entitled No One Would Listen.  Of course, the SEC should well have been able to figure this one out on their own.  But even with a guy totally on to it and laying it all out for them and literally hammering them with it for nine years, they couldn't do it. 

And then there are the hundreds of other Ponzi schemes over the years.  Always, they come to light only when the operator runs out of money to pay redemptions.  Has there ever been one single example of the SEC finding a Ponzi scheme before it collapsed on its own?  I have looked hard and asked many people.  I do not believe there is a single example. 

If there isn't a single example (or even if there are one or two), why exactly is the SEC using up taxpayer resources claiming a role in this area?  It's just a matter for criminal prosecution after the fact.   But somehow we believe that having "experts" at the SEC looking into this can eliminate the risk of crooks.  It seems that no amount of experience to the contrary can ever teach us that this can't work.

To turn to current events, today the SEC is applying its skills to the regulation of Money Market Mutual Funds.  The concept again is that the smart experts can eliminate all the risk, presumably without side effects (because if risks come with benefits, we should be entitled to have the risks). 

Again, a bit of history.  In 2008 a large money market fund, Reserve Primary, sustained a substantial loss when Lehman filed for bankruptcy, and its net asset value fell below $1 per share.  The loss came to about 2 cents per share at Reserve, meaning that they had 98 cents left to redeem each dollar share.  But there was an immediate run at Reserve, as large investors sought to get their money out immediately.  Runs also began at other money market funds, leaving them at least temporarily with not enough cash to pay redemption requests, and some say that the market "froze."  The Federal government promptly (and very unwisely, in my view) stepped in and guaranteed the assets of all money market funds.  (Those guarantees have since been rescinded, but the market has undoubtedly learned a lesson that the guarantees will return when the government wants to do it.) 

Again, one might ask, if the SEC is all-knowing and all-seeing experts, why hadn't they foreseen the 2008 money fund crisis coming and already provided for it?  The answer is, that their job is not to maintain a healthy horse, nor even to close the barn door after the horse has run away, but rather to be sure that the horse can never escape again by burning down the barn and shooting the horse.  So, carrying out that mission, the SEC put in place in 2010 a large list of money market "reforms" for the purpose, they said, of "better protect[ing] investors."  There is a list at this link.  The main ones were requiring a "minimum percentage of . . . highly liquid securities," requiring "higher credit quality" in assets held by money funds (a very complicated rule to implement), and requiring "shorter maturity limits" for securities for securities held by money funds.

The result was entirely predictable:  Since these rules took effect, you basically haven't been able to earn more than 0.01% interest on a money market fund.  Every so-called "reform" looked at the risk/reward trade-off in some area and required taking the option of the least risk.  No risk, no reward.   

I don't know about you, but I'd be perfectly willing to risk losing 2% on my money fund every once in a while, or even 5%, if I could get some regular positive returns the rest of the time.  Why am I not allowed to do that any more?  And believe me, they haven't driven the risk of loss to zero.  So now it's all downside.  Thanks, guys! 

And now this year the SEC is out with another round of proposed money fund "reforms"  Here's a link.  It's 698 pages long!   Well, what could go wrong with adding a few more (hundreds of pages of) regulations when you've already driven yields down to 0.01%?  The accounting firm PWC in a summary of the effects of the new rules states:

Existing and future sponsors will have to decide whether it will be economically viable to manage MMFs given the proposed regulation.

No kidding.  I guess the American people aren't smart enough to make their own decisions about risk and reward in money market funds.  So we just have to turn those decisions over to the people who missed Madoff. 

Ridiculous Campaigns Of Government Self-Promotion, DOA Edition

Have you noticed that the Department of Defense refers to itself as DOD, Justice as DOJ, Education as DOE, and so on, but at the Department of Agriculture it's USDA?  These bureaucrats cannot even allow an honest acronym into the mix, because it might hint at the ridiculousness of their long-obsolete agency that still manages to pass out about $150 billion per year.  I'm going to use the honest acronym.

Where does all that money go?  According to the DOA budget, far and away the biggest category is so-called "nutrition" programs, of which Food Stamps, aka SNAP, is the biggest, followed by CNP (Child Nutrition Program) and WIC  (Women, Infants, Children) for a total of well over $100 billion per year.  And this number has mushroomed over the course of the Obama administration.  In the 4+ Obama years, supposedly a period of economic "recovery," Food Stamp spending has about doubled, from about $40 billion to about $80 billion per year.  Before Obama Food Stamp spending tended to increase during recessions but go down during recoveries.  It has been widely reported that in recent years Federal and state governments have hired recruiters to pressure people to get onto Food Stamps.  Also, eligibility rules have been revised, particularly to eliminate most asset restrictions (million dollar home? no problem!) and to make automatically eligible for Food Stamps all people who are eligible for any other Federal welfare program.  I have previously covered this issue here; see also a Heritage Foundation article here. 

The explosion of spending has been so enormous that some in Congress have started to notice.  Indeed, the Food Stamp program is at the top of the list of some would-be budget cutters in the Republican House of Representatives.

Time for the bureaucracy to swing into action at what it does best -- promoting its own growth!  And thus we have on the front page of today's New York Times the story headlined "On the Edge of Poverty, at the Center of a Debate."   The story is mostly garden-variety New York Times advocacy for bigger government, combining carefully-edited heartrending stories of people presented as having no ability to feed themselves other than by government handouts, with attacks on cold-hearted "Tea Party" Republicans whose only goal is to leave the needy to starve.  But the notable thing about the Times story is that the "news" that supposedly makes this an issue for today is the release yesterday of a report from the DOA titled Household Food Security in the United States in 2012.    This report is one of the most transparently deceptive exercises in bureaucratic self-promotion that you will ever see.  Of course, it is reported in the Times totally at face value, without the slightest hint of skepticism or questioning.  Hey, these are the neutral, expert bureaucrats!  We at the Times would never be so gauche as to suggest that they might be operating in their own narrow self-interest!

So let us examine the DOA study.  It purports to be a report on "food insecurity" in the United States in 2012.  How do you get a handle on that kind of an ill-defined concept?  Easy!  Commission a survey, to be designed and carried out by the thoroughly neutral, objective people in the DOA's own research branch, known as the Economic Research Service.  Ask a bunch of questions designed to get the answer you want, and then just take whatever answers you get without double checking.  The survey has 18 questions, but just consider Question #1 to get a little flavor:

“We worried whether our food would run out before we got money to buy more.” Was that often, sometimes, or never true for you in the last 12 months?

Do yourself a favor and don't read this 33 pages of bureaucratese.  I'll skip to the result:  14.5% of Americans, almost 50 million people, have either "low" or "very low" food security.  Wow!  That must be a big problem!  Better give the DOA lots more money to solve it!

This report is obviously an intentionally deceptive effort to promote an increased budget for the DOA.  But still, it is sufficiently  transparent that an intelligent reader, certainly a sophisticated journalist, ought to be able to see through it, because in its efforts to promote more spending the report cannot help but be completely damning of the DOA's efforts to date.  How could it possibly be that we spend $100 billion a year for nutrition assistance to the needy,  with well over 50 million recipients, and yet there are still almost 50 million "food insecure" people in the United States.  Isn't this saying that the existing programs, at $100+ billion per year, aren't having any effect whatsoever on alleviating the problem that you yourself define?  And doesn't that mean either (1) "food security" isn't really the goal, so why are we even measuring it? or (2) if "food security" is the goal, don't the existing programs need to be completely scrapped and replaced with something that actually addresses the goal?   The New York Times, needless to say, is not capable of asking any such probing type of question.

You might be thinking, it would be extremely relevant here to know if the people reporting "food insecurity" are the same people who are already receiving benefits under SNAP, CNP and WIC, or different people, or how much overlap is there?  It's almost impossible to believe, but they do not ask that question.  Believe me, they do not want you to know the answer.  Any possible answer will with 100% certainty reveal the failure of their current programs, at least if the measure of success or failure has anything to do with "food security." 

Think about the Food Stamp program for a moment and you will realize that no amount of spending on this program will ever do much to reduce this "food insecurity" thing.  In the Food Stamp program, you get a monthly allotment on an EBT card, and you have to manage the allotment to last the month.  Lots and lots of people who aren't good at managing money will spend it early and run out toward the end of the month.  That will still be true if you double or triple or quadruple the allotments.  In fact, I would assert that the whole "food insecurity" concept was devised specifically to be used to advocate for more spending yet in a way that no amount of increased spending could ever fix, or even make much of a dent in, the problem.  It's just a transparent fraud, like the so-called "poverty rate."  (See more on that here.)

Of course, if the goal actually were "food security," then a program could be designed to achieve that goal for everybody immediately at a small fraction of the current combined cost of SNAP/CNP/WIC.  Make food available to anyone with an eligibility card, but only at food kitchens that you must go to.  Make the food healthy and nutritious but bland and tasteless.  Lots of vegetables, which you must eat or lose continuing eligibility.  Open 24/7.  Install harsh fluorescent lighting.   Everyone will be completely "food secure"  -- you can eat as much as you need whenever you want.  But something tells me that millions and millions of people currently taking Food Stamps (which can be used to buy virtually anything at a grocery store, including steaks and alcoholic beverages, or sold on a black market for cash) will suddenly find that they are completely capable of feeding themselves.  Believe me, nobody in the DOA actually wants "food security" for the poor.

The U.S. Government Embarks On The Most Massive Fraud In World History

While everyone's attention is diverted to the maybe war in Syria, back here at home the Federal government is set to embark upon the most massive organized fraud in world history.   I'm talking about the incipient effort to get the healthy assetless young to sign up for health insurance under Obamacare. 

The single most obvious and intentional feature of Obamacare is that it is a bad deal for healthy young people, and particularly those who have no substantial net worth, which is nearly all of them.  The whole idea here is to make insurance affordable for those for whom it currently is not, namely those who are already sick and/or old.  Since the money has to come from somewhere, it has to be that the young and healthy will pay.  The designers of the Act got as far in their thinking as to realize that the young and healthy aren't quite stupid enough to get into this without some level of force, and thus we have the "individual mandate," under which everyone is supposedly required to buy insurance, even those for whom it is manifestly a bad deal.  The designers also got far enough to realize that merely ordering people to spend big money on a bad deal wouldn't work, and they would need some incentive.  So they put in the tax penalty for failing to buy the insurance.   

But unfortunately, pretty much everybody who has looked at it has realized that the tax penalty is set at a level too low to make it worthwhile for the young and healthy to buy the insurance.  Add to that that the designers threw in "guaranteed issue," under which you can't be denied coverage just because you had gone without it for a while.  In other words, you can go multiple years paying the tax penalties, wait until you get sick, and then buy the insurance only when you are sure that your healthcare costs will far exceed your premiums.  For the young and healthy, this is clearly the right strategy for dealing with Obamacare (with undoubtedly a few exceptions for people with exceptionally high income or inherited assets).  It's hard not to see a classic insurance "death spiral" developing rather quickly as the young and healthy decline to sign up.   

What now?  Well, to judge by some news reports and government web sites, the government's current idea is to launch a massive campaign of lies and fear to try to get the young/healthy to sign up and pay.   Check out for example this July 24 article from the AP, via CBS, describing the upcoming government promotion efforts.   First of all, the budget:  AP gives it as $684 million!  That's a pretty damning indication right there that it's not a good deal.   

So what's the message?  Just as an example, here's some mumbo jumbo from the HHS main page on the subject: 

HHS is responsible for implementing many of the health reform changes included in the Affordable Care Act. HHS is strengthening and modernizing health care to improve patient outcomes, promoting efficiency and accountability, ensuring patient safety, encouraging shared responsibility, and working toward high-value health care. HHS also is improving access to culturally competent, quality health care for uninsured, underserved, vulnerable, older, and special needs populations. These reforms and the resulting improvements in the care provided on a day-to-day basis will improve our foundation for emergency preparedness.  Stronger health care will enhance our Nation’s ability to provide extra medical care capacity when needed. Individuals and communities also will be more resilient in the face of emergencies if they are healthy and have access to quality care on a regular basis.

Well, can you please tell me if this is a good financial deal for me?  How about some numbers of how much this will cost me versus my alternative strategy of waiting until I get sick and buying the insurance then?  I can't find any information from HHS whatsoever on those subjects.  The whole idea is to hide the truth.  The closest thing I find in the long quote above is "encouraging shared responsibility."  I think that means, hey 25 year old earning maybe $30,000 per year and with $50,000 of student loans-- It's your civic duty to spend a several thousand dollars a year on our spending priorities rather than your own!

The AP/CBS article is almost humorous in the lengths to which it goes to avoid using the "F" word.  Here's their take on the basic government pitch:   

It will make you stronger. It will give you peace of mind and make you feel like a winner. Health insurance is what the whole country has been talking about, so don’t be left out.

Sound like a sales pitch? Get ready for a lot more. 

What exactly is the incremental "peace of mind" in a world of guaranteed issue?  Or try this description of the effort in Colorado to find an "effective message": 

There, TV commercials show people being magically transformed into champions. One minute they’re shopping for health insurance on a computer, the next they’re winning at a horse race, in a casino or at the World Series with champagne corks flying. The slogan: “When health insurance companies compete, the only winner is you.”

Well, that one is completely false and misleading, but at least it's not based on false fear like the HHS web site. 

The numbers involved in this scam make all private sector frauds pale by comparison.  Hell, Madoff was reported to be an approximate $60 billion scam (over 20 plus years) when measured in "Madoff dollars" (the fake money you thought you had); measured in hard dollars invested, Madoff was more like the low $20s of billions.  This one is in the hundreds of billions per year.   Nothing else comes close.

Of course the young and healthy with any degree of smarts are not going to be fooled.  No amount of massive government spending on such a transparently phony ad campaign can possibly work.  But that doesn't mean that there won't be huge collateral damage.  The ones who will be fooled are the least smart and most vulnerable -- of course.   

Do The People At The Federal Reserve Have Any Idea What They Are Doing?

Between the responsibility to manage the money supply and additional tasks taken on under Dodd-Frank, the Federal Reserve has a big role in the economy.  They can't force the economy to perform well, but they certainly can screw it up if they don't know what they are doing.  Do they know what they are doing?  Unfortunately, all the evidence points to "no."  I hope I am wrong, but I don't think I am.

In another important op-ed in the Wall Street Journal on Tuesday, John Cochrane of the University of Chicago calls attention to the trendy idea among our economic policy institutions that central banks can and should "intensively monitor the whole financial system and actively intervene in a broad range of markets toward a wide range of goals including financial and economic stability."   Cochrane refers to this 2011 report from the IMF laying out the agenda for so-called "macroprudential policy," meaning the use of a menu of macroeconomic policy tools by which geniuses with Ph.D.s from Ivy League institutions, or maybe from the ENA, can spot instability coming in an economy and use the magic of instantly changing regulations and an infinite check book to put everything right.  A bubble is brewing?  We'll buy bonds!  We'll sell bonds!  We'll increase reserve requirements!  We'll decrease reserve requirements!   We'll increase capital requirements!  We'll decrease capital requirements!  

Cochrane is extremely dubious, to put it mildly.  Me too.  The idea that ivory tower geniuses can spot an incipient bubble and fix it by changing rules and meddling in the financial markets, when serious market participants committing large amounts of their own money cannot, is completely preposterous.  Can anyone identify even one example where bureaucrats have spotted and corrected for a financial bubble in a timely way? 

Let alone that the proposed cure is virtually guaranteed to worsen the disease rather than cure it.  Threaten to change the main rules randomly, arbitrarily and with little or no notice just as things are starting to go wrong -- How can that possibly work?  Markets thrive on stable rules.  Here's what James Madison had to say about this in Federalist 37:    

Stability in government is essential to national character and to the advantages annexed to it, as well as to that repose and confidence in the minds of the people, which are among the chief blessings of civil society. An irregular and mutable legislation is not more an evil in itself than it is odious to the people. . . .

Well today we have dispensed with the need for "legislation," but we can have "irregular and mutable" regulations changeable on whim by bureaucrats with fancy academic credentials but with no practical experience in the world.  If they knew what they were doing, they would promptly disclaim any ability to perform these tasks.  But they have way too much hubris for that.   

Meanwhile, how are they doing at their other job, managing the money supply?  You may be thinking, we're now through QE I, II, III and maybe a few more, and inflation doesn't seem to have taken off.  Could they be doing something right?  Don't count on it.

The world history of sovereigns expanding the money supply is a history of one disaster after another.  Why not this time?  Well, today they don't just print the currency; most of the money supply manipulation is more indirect.  The money supply is mostly bank accounts.  The Fed buys bonds, creating "monetary base," and the banks then lend out the money in several rounds, creating the bank accounts that form the money supply.  Except that today the banks are mostly sitting on the multiple trillions of dollars of monetary base that has been created by QE I, II, and III.  Don't believe me?  Check out this graphic of "excess reserves" from the St. Louis Fed.  (Apologies that it is not currently possible to import the graphic into this web site, which is systematically rejecting all graphics.  But please look at the graphic, which is very dramatic.)   The graphic shows that since at least 1950 until late 2008, when QE I began, the banks promptly lent out all available monetary base created by the Fed, leaving "excess reserves" of a flat zero.  From the start of QE I, excess reserves have shot straight up.  Today they are close to $2 trillion.  Given that the money supply (M2) is currently between $10 and 11 trillion, and that reserve requirements are mostly 10%, that means that the money supply could promptly triple as soon as the economy starts percolating and the banks lend out the excess reserves.  It hasn't happened yet, but it could happen at any time.   When the money supply triples, unless output simultaneously triples (impossible), then the price level will triple.  Some would call that a 200% inflation.  

I think the people at the Fed believe that they are such geniuses that they will be able to see this coming and manipulate some regulation or other to stop it just in time.  Again, there is no empirical example of bureaucrats actually having this ability.

According to Ezra Klein today on Bloomberg, the "overwhelming favorite" candidate to take over the chairmanship of the Fed is uber-genius Larry Summers.  How much of a genius?  Well, besides being former President of Harvard, Larry Summers is the one whose June 2 article in the Financial Times claimed that  "rapid deficit reduction" would lead to decline in "output and jobs," and a "weaker economy," that would cause "our children" to end up with "more debt and less capacity to bear the burden it imposes."  I guess he's never heard of Singapore!  

Again, all the evidence is that the people at the Fed have a huge amount of hubris and no idea whatsoever what they are doing.  And it's about to get worse! 

Venezuela Shows The World How To Practice GDP Fraud

I have noted multiple times (for example here) that the universal practice of counting government spending at 100 cents on the dollar in GDP turns fraudulent when governments start to manipulate their spending in order to manipulate the GDP numbers.  Does it matter?  Let us consider the extreme case of Venezuela. 

For readers not following events in that troubled Latin American country, the last about 15 years of its history have been dominated by a guy named Hugo Chavez.  Chavez was first elected President in 1998, and re-elected in 2000, 2006 and 2012.  He spent his nearly 15 years in power imposing what he called the "Bolivarian Revolution," along with a personal form of socialism/authoritarianism.  At the time of his final re-election in October 2012 he was critically ill with late-stage cancer, and he died in March 2013, leaving Venezuela to his personally-selected successor Nicolas Madura.

How has Venezuela been doing during the last 5 or so years of Chavista rule?  If you believe the official economic statistics, just fine.  Yes, Venezuela  is rather dependent on oil as its chief export, so that when oil prices took a big tumble from mid 2008 to early 2009 from about $140/bbl to $65/bbl, Venezuela's economy took a dip in 2009 and into 2010, which they admit. Here is official Venezuela GDP data from the Central Bank. But putting aside the 2009-10 event, the official statistics show fairly impressive GDP growth in 2008 (6+%), 2011 (4.2%), 2012 (5.5%), and into 2013 (0.5% in Q1 and 2.6% in Q2).  It would be great if the U.S. could match those kinds of numbers! 

Well, let's try to see what kind of information we can get about the real economy.  The Wall Street Journal had a big article on the front page in the August 18 edition titled "U.S. Rice Farmers Cash In On Venezuelan Socialism"  (unfortunately behind pay wall except for the first few paragraphs).  Even in those few paragraphs, we learn that Chavez's policy of nationalizing large farms has turned Venezuela from an exporter to an importer of rice.  The remainder of the article covers how production of many other items, including steel, has declined with nationalization and government control.  

For a longer non-pay-walled treatment of the real Venezuela economy, try this from Foreign Policy on May 10.    Here's an excerpt:

 [I]t is getting harder to find items such as sugar, cooking oil, and corn flour -- an essential part of any Venezuelans' diet. According to latest figures from the Central Bank, scarcity peaked in April to reach a historic record of 21.4 percent. This means that roughly 1 of every 5 products consumers want to purchase is missing from the shelves. Not surprisingly, Venezuelan consumers are being forced to queue for basic staples, sometimes in an undignified manner. The photo above shows shoppers noting their place in line while shopping for corn flour.

Rolling electricity blackouts continue to be yet another thorn in the government's side. They've been the norm following the complete state takeover of the electricity industry in 2007.

Well, how could GDP possibly be growing at those impressive rates if production of everything that counts is going down?  Perhaps the price of oil is going up?  Turns out that the price of oil has been fairly stable since the beginning of 2011, fluctuating between about $80 and $110/bbl.   (Chart of NYMEX prices here.)  That's not the answer.  Also, Venezuelan oil production has declined since the start of the Chavez years, going from about 3.2 million barrels per day in 1998 to about 2.3 million in 2012, and the decline has mostly continued in recent years.  According to a chart here, Venezuelan oil production declined in 2008, 2009 and 2010, had a slight 3.8% increase in 2011, and was completely flat in 2012.

The answer can only be one thing -- an explosion of government spending, dishonestly counted at 100 cents on the dollar in GDP as if it were real wealth-generation.  According to this from Bloomberg last September 13, Venezuela had a 67% increase in government spending in the run-up to the 2012 election.  That's one way to get a 5% increase in GDP!  The problem is, it's not real.  The Bloomberg article reports that the biggest piece of the increased spending was for subsidized housing -- one of those destructive government programs that actually decreases real wealth and income.  But of course they count the spending at 100 cents on the dollar positive.  And thus you can see how a country can report 5% GDP increase when in fact its economy is in serious decline.

But of course, everybody who counts takes the fraudulent numbers without the slightest skepticism.  For example, the CIA in its 2012 World Factbook here reports the official government numbers of 5.5% GDP growth in 2012 and 4.2% in 2011 as if they were real (although it does say as to 2011 that "record government spending" helped to produce the result).  The World Bank also takes up the official fraudulent numbers and passes them on without comment here. 

Again, does it matter?  Believe me, the United States is doing the same thing, just, so far, on a smaller scale as a percent of GDP.  But with U.S. GDP growth running under 2% per year, could government spending increases result in positive GDP growth figures when honest accounting would show negative?  It is absolutely possible, and becoming more likely all the time.