ALEX GOLDMARK, HOST:
This is a bonus episode here in the PLANET MONEY feed, and it's for a special occasion. Our other podcast The Indicator From Planet Money turned 1 year old this month. So we have picked out one of our favorite episodes from the past year to mark the occasion. Now, if you don't listen to The Indicator, it's like PLANET MONEY, but it comes out every weekday. It's always 10 minutes or less. We think of it as a daily economics crash course on what's happening in the world. So here's a favorite episode of The Indicator From Planet Money. It ran back in June.
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STACEY VANEK SMITH, BYLINE: The Venezuelan economy has collapsed. Years of economic mismanagement and a worsening political crisis have led to a recession that has almost no parallel in recent memory.
CARDIFF GARCIA, BYLINE: But explaining just how bad things have gotten is also really hard because the normal economic indicators that we use to measure a country's economy have started to sound so crazy, so unfathomable that it feels impossible to get our heads around them. For example, inflation in Venezuela right now is running at almost 25,000 percent a year. And by one estimate, almost 9 out of 10 people are living in poverty.
RICARDO HAUSMANN: This was an upper middle-income country that has become a super poor country. And so the numbers change so dramatically, the reality of people changes so dramatically that it no longer can be captured by the traditional numbers we use.
GARCIA: That's Ricardo Hausmann. He is a Venezuelan economist based at Harvard. And to fully understand what's been happening in his native country, he's had to be inventive. He's had to construct an economic indicator that did not exist before, one that communicates the full scale of the calamity in ways that make sense. I'm Cardiff Garcia.
VANEK SMITH: And I'm Stacey Vanek Smith. On the show today - what Ricardo came up with, what his indicator reveals and what conventional economic numbers sometimes miss when a country is rapidly collapsing.
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GARCIA: Throughout the 2000s, the Venezuelan government borrowed a ton of money to pay for social programs and other things. And the government felt safe borrowing the money because its economy produced a lot of oil. And oil prices were really high. But the government borrowed so much money that when oil prices fell a few years ago, it didn't have enough money left over to pay both for the programs and to pay off its debts. And one of the government's responses was to then start printing money and raising wages for its workers. That led to hyperinflation.
VANEK SMITH: Not only that, but the government had also taken over big parts of the economy from the private sector and then mismanaged them. The combination of hyperinflation and this mismanagement led to a big shortage of goods. Even basic items like toilet paper became hard to find and therefore incredibly expensive when people could find them.
GARCIA: Ricardo Hausmann says that people in developed countries like relatively rich countries such as the U.S. don't necessarily have a useful frame of reference for understanding just how bad things have gotten in Venezuela.
HAUSMANN: For example, the U.S. has been traumatized by the Great Recession of 2008, 2009, et cetera. Well, that recession is probably a tenth the size of what happened in Venezuela.
HAUSMANN: So how do you explain something that's 10 times bigger?
VANEK SMITH: Traditional metrics like inflation and unemployment don't really work when a country is in freefall. In the United States, inflation is about 2 percent a year. That just means that the average price of the stuff that we Americans buy goes up about 2 percent every year. So what does it mean for a country to have almost 25,000 percent inflation like Venezuela does? As for unemployment, the government simply stopped reporting that number more than two years ago.
HAUSMANN: So I was trying to communicate, you know, the collapse in living standards. And it's very hard to make those numbers be intelligible for people.
GARCIA: For an economic catastrophe this severe, the figures for inflation or unemployment can feel like abstractions. So Ricardo got to work on an indicator that's not just concrete and precise but one that really gets at the human toll that the crisis has been exacting. He starts with a fact about the Venezuelan economy that's both astonishing and depressing.
VANEK SMITH: And it's this. The minimum wage in Venezuela is also the median wage. This means that more than half of Venezuelan workers earn the minimum wage. So when the government increases the minimum wage, most of the Venezuelan population gets a raise.
GARCIA: And to keep up with rising prices, the government has been increasing the minimum wage a lot in the last couple of years. About two months ago, for example, the government raised it by 155 percent, another crazy number.
VANEK SMITH: But how much more can a Venezuelan really buy on that wage given that the price of everything is going up so fast? People's wages might be going up a lot, but if prices are going up even more, then living standards in the country are still getting worse and worse. Just how much worse is the question Ricardo wanted to explain. And he wanted to explain it in simple terms, so here's what he came up with.
HAUSMANN: So we decided to measure, for example, the income of people in terms of the calories it can buy per day. So, you know, how many calories can you buy if you were to spend a hundred percent of your income at the cheapest available calorie?
VANEK SMITH: Here's how this works. Ricardo his team tracked how prices of different foods in Venezuela change from month to month. And each month, he would find the food that gave you the most calories for each bolivar - that is the Venezuelan currency - that the food costs. In other words, he was looking for the cheapest food available. And since Venezuela has shortages of food, the cheapest food available would sometimes change. So it used to be pasta or cornflower, but now even those foods have become unaffordable. So right now the cheapest food is the yucca plant.
GARCIA: Take a typical Venezuelan worker, someone who makes the minimum wage. If he spent every single bolivar from his wage on that cheapest food available, how many calories could he buy in one day? Here is the incredible and frankly devastating answer from Ricardo.
HAUSMANN: This is a calculation that went from buying 57,000 calories a day in 2012 to buying less than 900 calories today.
GARCIA: Nine hundred calories - that's today's Planet Money indicator. Nine hundred calories is all the calories that the minimum wage will get you in Venezuela after working an entire day.
HAUSMANN: Which means that, you know, if a person normally spends over 2,000 calories a day, it means that a worker cannot feed myself, let alone his family. He - and that's assuming he doesn't spend anything in clothing, in transportation, in medicines, in housing, et cetera. So it just gives you a sense of how catastrophic is the collapse in income.
VANEK SMITH: To put that 900 calories in context, in the United States, you can buy more than a hundred thousand calories in one day on the minimum wage. So Venezuelan people are starving. And Ricardo told us about a couple of other similar statistics that also tell this story.
HAUSMANN: The other thing we did is we measured it just in eggs. How many eggs can you buy? Well, before, you know, in a day, you could buy several dozen eggs. Now you can buy two eggs. That's it - two eggs. And that was important for us to calculate because it's not just calories. It's also proteins that people need. So, you know, right now people in Venezuela can buy two eggs. Recently people have calculated, what is the cost of a Big Mac - how long does it take you to work to make enough to buy a Big Mac? And in Venezuela right now, that's a month and a half.
GARCIA: Two eggs a day, or, to afford a Big Mac, a Venezuelan worker would have to save every single bolivar he earned for a month and a half.
VANEK SMITH: The inevitable result of this has been that Venezuelans are losing a lot of weight. A survey from three universities in Venezuela found that the average Venezuelan lost 24 pounds last year because they could not afford to eat. And hundreds of thousands of children are at risk of dying from starvation and malnutrition.
GARCIA: This economic collapse has been accompanied by a societal collapse in law and order as well. And even though the government has stopped publishing the data on that, there are credible estimates showing that Venezuela probably now has the highest murder rate in the world.
VANEK SMITH: The situation has become so intolerable that a staggering number of Venezuelans are just leaving the country. Ricardo and his colleagues estimate that almost 10 percent of the Venezuelan population emigrated in the past year. That is almost 3 million people.
GARCIA: If we were to try to analogize that to it happening in the United States, for instance, where there's 300 and something million, that would be the equivalent of 30 million Americans leaving the country every single year. This is astonishing. And I'm wondering if there's any precedent for this.
HAUSMANN: I mean, this is a migration of Syrian proportions. But in Syria, it's people fleeing, you know, insecurity, people fleeing a war, people fearing imminent death. In Venezuela, it must be something as serious as fearing imminent death to generate that magnitude of an outflow.
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GOLDMARK: That was an episode of The Indicator From Planet Money, and it ran in June. And since then, inflation in Venezuela has gone from 25,000 percent to more than a million percent. But to see how Venezuelans are doing - better or worse - to put it in calorie terms, Ricardo Hausmann wrote earlier this month that a day's work at the median wage would now buy you 1.7 eggs. And to get a pound of cheese, it would take eight days.
The Indicator From Planet Money is there to help you make sense of the numbers that matter in the world. It's out every weekday afternoon - 10 minutes or less. Subscribe to The Indicator From Planet Money wherever you listen to podcasts, or ask your smart speaker to play The Indicator podcast. I'm Alex Goldmark, and thanks for listening to PLANET MONEY.
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