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Klaus Bartsch Econometrics
Project Marguarita Towards a
macroeconometric Peoples Model of the
Venezuelan Economy Presentation on the 2do
Encuento de Pueblos y Estados por la
Liberacion de la Patria Grande Barquisimeto
February 28th, 2009
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The Structure of the Presentation

• The general purpose of macroeconometric modelling
  and possibilities for the peoples movement
• Demonstration of these possibilities by the
  simulation of two antagonistic left wing and
  right wing concepts with a highly advanced
  Macroeconometric Model for Germany
• Towards the building of A Peoples Model for
  Venezuela A general outline of the structure
  of the model and the process of its realization
• Concluding remarks to the use of price based
  national account statistics and its limitations
  with regard to the labour value approach

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• 1. The general purpose of macroeconometric
  modelling
• The general purpose of macroecometric modelling
• Giving a realistic and reliable moving picture
  of economic dynamics in the real world.
• On the base of a well specified macroeconometric
  model, tracking with sufficient reliability the
  history of economic development in the
  estimation period, forecasts can be done.
• But supporting business cycles forecast is not
  the main purpose of macroeconometric modelling
  The main purpose is the ex ante evaluation of
  different policy options, based on the
  understanding of the complex dynamics of the
  economy, captured in the structure of the model.

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• Origin and historical aspects of the use of the
  instrument
• Although the Dutchman Jan TINBERGEN stood at the
  cradle of macroeconometric modelbuilding as we
  understand it today
• Karl MARX outlined, in reception of the
  works of Francois QUESNAY, very early not only
  the concept of a national account statistic, but
  also, in his reproduction schemes, a model of
  macroeconomic dynamics.
• Until the 80ies the occupation with the task of
  econometric modelbuilding was restricted to
  relatively few persons, because the hard- and
  software and also the data needed were very
  expensive. So macroeconemetric work mostly
  reflected the rich mans view.
• Today, the situation has changed fundamentally
  concerning the hardware and software resources
  needed, a 500 laptop, in combination with a
  500 software will do it. Many fundamental
  macroeconomic databases, also for Venezuela, are
  available on the internet for free.

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Possibilities for the peoples movement

• Well specified models, focussed on labour
  interest, allows the evaluation of concepts
  developed by the social movements themselves but
  in principle also the evaluation of every policy
  program of the political adversary found in the
  political debate.
• Affiliated with and applied in democratic social
  movements, using the specialized
  scientists/economists related to this movements
  as operators, this models may contribute to a
  more democratic and participative debate on the
  theoretical and practical outlines of
  macroeconomic policy conduct and the true
  intentions of proposed politics.

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• Brief Survey of the LAPROSIM-Model for Germany
• The Model is optimized for the simulation of
  complex economic policy strategies, containing in
  the core model alone now 927 equations, thereof
  187 behavioural equations and further 158
  technical relations.
• There are several hundred additional equation
  linkable with LAPROSIM for special tasks, as for
  example regional econometric analysis. It is
  based mainly on national account and central bank
  data, completed by data of international
  organisations, mainly the OECD and the UNCTAD.
• For practical purposes, it is mainly estimated by
  simple OLS. For most behavourial Equations, the
  estimation period includes data from the first
  quarter 1970 to the fourth quarter 2007 some
  equations base on an even longer estimation
  period, starting 1960, so that you retrieve
  reliable long term relationships.

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The model consists of complete, national account
based interdependent sub-models for economic
supply and demand, labour markets and
distribution that reflects economic development
in a highly endogenous way- Formation of the
capital stock- Formation of educational
capital- Production of Value Added (main
sectors of the economy)- Distribution of
income, both functional (primary and secondary)
and personal- Use of GDP (Consumption,
Investment, external trade, all
disaggregated)- Employment, disaggregated for
secure jobs and mini-jobs Prices - Money,
credit, shares and government bonds (basics)-
Public Sector / State (differentiated for
different levels of regional administrative
bodies and the branches of the social security
system

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• Scenario MEMO includes main economic elements of
  the politics regularly proposed by the
  MEMORANDUM-Group
• The key elements of MEMO-scenario are
• A tripling of public investment, mainly for
  repairing the
• infrastructural shortcomings of the past decades
  
• Shortening negotiated working hours by three
  hours a week,
• what leads in mean to a week with 35 hours of
  working time
• for the usual full-time-worker.
• Increasing welfare benefits in case of disability
  or
• unemployment by 20 percent, thereby adapting
  welfare
• benefits to the minimum for a life in dignity.
• Lower the tax burden accurately for lower and
  middle
• incomes

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• The antagonist concept, the IFO-Scenario
  captures main political targets of the German
  neo-liberals, whose main academic proponent is
  the head of the German economic think-tank IFO
  Institute, Prof. Sinn
• Increasing regular Working hours by 7 hours, what
  results
• in 45 working hours a week for full-time
  workers
• Cut down public spending on infrastructure and
• encouraging privatization of infrastructural
  tasks
• Reducing public investment by 50 percent.
• Halving benefits for the unemployed and
  otherwise needy
• persons.
• Nearly halving public employment and related
  public spending
• Cutting trade unions rights to undermine their
  bargaining power even more , with the result of
  lower wage increases.

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Resume on the simulation results The assessment
of the two politics made clear, that from a
working class point of view the MEMO-option is of
some use for the improvement of the income
situation both measured in real income and in
incomé shares of at least the people in the
lowest three income quintiles, while the
alternative IFO-policy only benefits the upper
classes and worsens the situation of the working
class concerning income, employment opportunities
and quality of employment.
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• Outline of the recommended general structure of
  a Peoples Model for Venezuela based on
  traditional National Account Statistics
• For simulating more complex political strategies
  and for assessing simultaneously its effects on
• the output and employment in different branches
  of the economy and
• both volume and structure of the income for
  different social groups
• demand structure, both domestic and foreign
• fiscal households and public infrastructure in a
  broad sense
• prices and monetary aggregates
• a highly differentiated model is needed.

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• What has to be done?
• Estimation of a set of equations for (potential)
  output and employment, and maybe also investment,
  wages and prices in the main sectors of the
  Venezuelan Economy, what means at minimum
• petroleum sector
• Nonpetroleum sector, with
• Mining
• Manufacturing
• Electricity and water
• Construction
• Trade and Repair Services
• Communications
• Financial institutions and insurance
• Real Estate, entrepreneurial and renting services
• Private non-profit Services
• Government services
• The Problem of the informal sector has to be
  mentioned in an explict manner.

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• In a narrow dynamic context with the statistical
  explanation of production, both realized and
  potential, stands the explanation of formation
  and development of the means of production in a
  broader sense. At minimum the following variables
  have to be addressed
• Fixed capital formation of the state and private
  Business sector, aggregated or on a sectoral base
• The formation of infrastructural capital
• Inventory capital, and, strategically of most
  importance
• the formation of the knowledge capital of the
  society
• Estimation of a set of Equations concerning both
  functional (both primary and secondary) and
  personal income distribution categories.

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• Functional income split into
• Gross and Net Wages
• Gross and Net Profits, probably split into income
  from wealth (mainly rents, interest payments,
  dividends) and other profit income.
• Gross and Net Transfer Payments
• Personal income split into at minimum five
  quintiles.

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• Statistical explanation of the development of
  volume and structure of macroeconomic demand
• Private Consumption, possibly disaggregate by
  groups of goods and services
• Private Investment, disaggregated for equipment,
  non housing construction, housing construction an
  inventories
• Public Consumption, possibly disaggregated for
  main public tasks
• Public Investment, see above
• Exports, oil and non-oil, goods and services, in
  a possible further step by main categories and
  main regions
• Imports, goods and services, later on possibly
  by main categories and regions

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• Employment has to be disaggregated for
• Wage earners, both occupied public and in the
  private business sector
• Self employed persons I would recommend a
  disaggregation into capitalists making their
  income mainly from exploitation and
  non-capitalists, small producers of goods and
  services, living mainly from their own work.
• Further on it should be disaggregated for
  regular and informal employment.
• Also already at a first stage, the model must
  contain behavioural equations for all main demand
  side deflators for taking account of price
  developments.
• Also basic equations for monetary aggregates
  should be included.

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• The main receipts and expenditures of the
  government, disaggregated at minimum for the
  different levels of the regional administrative
  bodies, should be depicted
• Receipts
• Oil revenues
• Direct Taxes from wages and profits
• Indirect taxes by main sort
• Taxes on wealth
• Social security taxes
• Others
• Expenditures
• Wages
• Non-wage consumption
• Social Welfare
• Investment
• Others
• Expenditure could in addition be differentiated
  for the main fields of public spending by task.

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• The process of building a Venezuelan model of 250
  Equations would include the following
  overlapping rough tasks
• Setting up the data base, in close cooperation
  the Statistical Office and the BCV of Venezuela
  and taking account of the informal sector.
• The Estimation of the model. For some of the base
  equations, first estimates will be possible
  already parallel to the middle and end phase of
  the data bank generation process. Although
  foreign expertise might be helpful in one or the
  other way, the technical side of the building of
  the model should be done in very close
  cooperation between Venezuelan econometricians,
  for example from the BCV, and experts from
  abroad. For the laying the foundation of a
  democratic exploit of the use of this method,
  from the beginning members of the peoples
  movements must be involved in the development and
  discussion process of the models specification
  and its economic implication, preventing the
  model from the beginning of getting a black box
  thing for some experts. That will surely take
  more time than the rising up of such a model by a
  group of workoholic experts, but is crucial for
  the task of developing the democratic potentials
  of this method.
• Testing the model Intense testing of
  consistency and reliability of the model
  concerning its behaviour in the estimation period
  is necessary. Afterwards, a lot of testing
  concerning the simulation properties has to be
  done, also involving members of the peoples
  movements the model is dedicated to.
• Overall, the process of generating a first
  working model of the specified type will take not
  under a year. The important and crucial
  integration of the peoples movement in the
  process makes it much more difficult to calculate
  the time needed, than it is for a typical expert
  project. But only if the processes figured out
  by the model are not hidden in a Black Box, the
  democratic potential of the method can be
  realised.

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Remarks on actual National Accounts and the
Labour Value Aproach

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