Lessons Unlearned From Brazil’s Recession

As she was sworn in for her second term last week Dilma Rousseff publicly stated government spending would have to be cut. Yes, you read that right; the leader of the Workers’ Party just said her own administration is spending too much taxpayer money. It might be a day late and a few billion dollars short, but could it be Brazil’s president just had her Eureka moment?

ReaisYears of spending billions of dollars on stadiums and infrastructure for a 4-week event has left the Brazilian government with little to brag about. While the world has moved on to other things the World Cup’s relics lie mostly unoccupied in a land of poverty, police corruption and gang violence. After the artificial boom created by said event the bubble has definitively burst. Yet to hear one of South America’s most adamant cheerleaders of government intervention admit to it is remarkable to say the least.

Government figures show Brazil’s economy had already fallen into a recession before the World Cup even got underway. This year the central bank expects the economy to grow by a dismal 0.38 percent while inflation hovers north of 6.5 percent, well above the 4.5 percent target rate. Industrial production is forecast to expand by no more than 0.7 percent, with the country’s current account deficit widening to $78 billion. Predictable though the downturn may be, its sheer magnitude is forcing the Dilma administration to consider some rather uncharacteristic measures. Or is it?

The budgets of a few dozen ministries and some secretariats may be cut by one-third, reportedly amounting to some $700 million in savings, the new Finance Minister Joaquim Levy was quick to add expenses listed in the constitution will be unaffected – a constitution about as thick as Ayn Rand’s novel Atlas Shrugged, by the way. In addition taxes on imports, credit, cosmetics and fuel are set to be raised. To make matters worse, an income tax reduction already approved by Congress was recently vetoed by Dilma herself.

Naturally, the fact that Brazil’s tax burden of 36% of GDP is far higher than that of other middle-income countries cannot be allowed to keep failed economic policies from going full steam ahead. The logic on which excise taxes or protective tariffs on imported goods rest, i.e. that raising prices of certain goods discourages their consumption, suddenly loses all its validity when it comes to such activities as human labor or investment. Can Brazilians really be expected to keep working just as hard despite essentially working two out of five business days just to sustain a giant bureaucracy? Can a society really be expected to achieve any sort of meaningful growth when forty percent of its productivity is sucked out of it?

It is obviously too late to take all of the resources spent on the aforementioned projects and redirect them into the private sector, where they would have contributed to sustainable economic growth. It is not too late, however, to reverse the trend and stop adding fuel to the fire. Besides, imagine how much more expensive that fire will be considering rising fuel taxes!

As the famous quote attributed to Thomas Edison goes, “I have not failed, I’ve just found 10,000 ways that will not work.” The latter can also be said for the idea of taxing and spending one’s way to prosperity. Edison’s point, however, was that making mistakes can be useful if one learns from them. Unfortunately that message does not seem to have reached Brasilia.


The National-Socialist Legacy of Chávismo in Venezuela

Loved by some and hated by others, Hugo Chávez was arguably one of the most influential Latin American leaders in recent history. After his death earlier this month and with new presidential elections coming up on April 14th, now is an opportune time to analyze what the man who liked to portray himself as a friend and advocate of the poor, did and did not accomplish.

Chávez’s reign started in 1998 when he won the presidency using his typical populist rhetoric, The national-socialist legacy of Chávismo in Venezuelaproclaiming he wanted to create “optimum prosperity for the fatherland”[1]. He subsequently launched his “Plan Bolívar 2000” named after Simön Bolívar, a military and political leader who fought for Latin American independence from the Spanish empire in the nineteenth century. The plan encompassed rewriting the constitution and putting it up for a referendum. For this purpose, a Constitutional Assembly was created, for which elections were held in 1999. Its first meeting took place in August of that year, when Chávez urged the members to produce the new constitution as fast as they could, kindly providing his own draft to give them a head start. The plenary sessions that were subsequently held were eventually abandoned in favor of twenty-one specialist commissions tasked with defining and rewording the separate articles of the constitution[2]. So much for the will of the people being heard..

The powers of the Constitutional Assembly, which had now become the country’s supreme authority as far as most jurists were concerned, seemed to be at odds with those of the democratically elected Congress. To make matters worse, Chávez declared a “judicial emergency” and appointed a nine-member commission with the power to dismiss the Supreme Court, resulting in its president resigning in anger, declaring the “Supreme Court was now dead” and “the democratic system in danger”[3]. The final outcome of the political standoff was that the opponents of the government in Congress agreed not to pass laws that might obstruct the work of the Constitutional Assembly[4].

Furthermore, Chávez blocked the approval of articles referring to the freedom of the press and “the right to life”. The final version of the constitution, while including a so-called “right to work” and supposedly guaranteeing “full care and social security benefits” for senior citizens, made no mention of such basic rights as self-ownership or freedom of the press. Nonetheless, nearly 72 percent of Venezuelans voted Yes, giving the president the green light to move forward with his plans.

The referendums and re-elections might lead one to think that the Venezuelans are a free people who were perfectly content with the reign of “El Presidente”. Those re-elections, however, left many Venezuelans wondering time and time again where the votes had come from or whether their votes were being properly registered by the electronic voting machines. Those concerns cannot simply be dismissed as unjustified claims made by sore losers either, considering the lack of transparency, lack of independent electoral observers and the closure of the consulate in Miami to prevent the city’s large opposition voting bloc from having their voices heard. Such measures would make any election unfair if not outright illegitimate.

A closer look at the effects of Chávismo on the country and the daily lives of its citizens reveals why opposition against the late president may have been stronger than anyone was supposed to know. Part of the people’s discontent has to do with the economic chaos caused by Chávez’s national-socialist policies aimed at micro-managing every aspect of Venezuelans’ lives. In many ways the economic policy pursued by the Chávez government for many years is a classic example of how some government intervention invariably and inevitably leads to more and more intervention, until the Leviathan decides to just go the whole nine yards. In the case of Venezuela, the results included the nationalization of “strategic companies” deemed too important to be owned and controlled by foreigners, a massive loss of purchasing power and devaluation upon devaluation of the bolívar followed by shortages of foreign currencies, most notably U.S. dollars. Strict currency controls were then implemented aimed at stopping the black market from supplying dollars, further aggravating Venezuelans’ misery, whose consumption consists for 70 percent of imported goods. None of that stopped Chavez from  using state oil funds to finance his latest re-election campaign, though, thereby leaving his political successors and the entire country with serious budget deficits.

Despite his professed benign intentions, Hugo Chávez leaves a country in ruins and a people in despair. Let’s hope the next Venezuelan president will do more than pay lip service to the plight of the country’s vast poverty-stricken underclass, If the new elect knows anything about history, he might give free market capitalism a try.

[1] Richard Gott, Hugo Chávez and the Bolivarian revolution. (London: Verso, 2005). pp. 136-137

[2] Richard Gott, Hugo Chávez and the Bolivarian revolution. (London: Verso, 2005). pp. 146-147.

[3] Ibid.

[4] Richard Gott, Hugo Chávez and the Bolivarian revolution. (London: Verso, 2005). p. 147


The European Soviet Union

As of this writing Italian media were reporting the secretive Bilderberg Group, composed of some of the wealthiest and most influential people in the world, had convened in Rome to discuss the future of the Mario Monti government. Why, you ask? The answer is Monti, a leading member of the Group, is one of the unelected technocrats put in place to do the bidding of the European Union, forming a government without a single politician one year ago.

Another example is Lucas Papademos in Greece, who was Governor of the Bank of Greece when it fraudulently fiddled the figures – aided by Goldman Sachs – to get Greece into the eurozone [1]. He was rewarded with the post of Prime Minister in 2011 after having a senior post in the European Central Bank. The definition of a technocrat is “an expert who is a member of a highly skilled elite group”. In other words, elitists have now officially taken the place of elected leaders in Europe. However, the appointment of these technocrats to leadership positions should not have come as a surprise, as the European Union was set up from the start to be an undemocratic superstate.

“The Lisbon Treaty is the same as the rejected constitution. Only the format has been changed to avoid referendums.” These were the words of Valery Giscard d’Estaing, former French president and President of the Constitutional Convention on October 27, 2007, Both the rejected constitution and the Treaty contain 106 new EU powers. Both contain 68 new areas with majority voting. A Finnish minister was quoted as saying he was “happy that 99% of the Constitution had been kept in the new texts” [2]. Moreover, the 3,000+ pages of the Lisbon Treaty put no restrictions on the scope of the original Constitution that was rejected by French, Dutch and Irish voters [3]. Scheduled referendums in other countries were subsequently cancelled.  In effect it was a massive  transfer of power from national governments to the European superstate.

Herman van Rompuy, the first president of the European Council – a new post that was a product of the Lisbon Treaty -, has the same powers that the General Secretary of the Communist Party of the Soviet Union had. Though we often hear about the European Parliament (the only directly elected EU institution) on the news, this is effectively a symbolic body subject to the will of the European Commission, which has the sole power to propose and reject European legislation. Appropriately called “directives”, this legislation is as undemocratic as the legislation put in place by the Soviet Union officials. All the European Parliament can do is adopt or amend proposals from the Commission and even those decisions can be overridden by the Commission, as evidenced by one Commissioner’s comments on ACTA earlier this year.

Everyone living in the European Union is now a citizen of the Union with rights and obligations directly in relation to it, just like in the Soviet Union. Up until the Lisbon Treaty, the citizens were considered to be citizens of each individual country who were represented through direct elections for the European Parliament held in their own countries [4]. In addition, European law overrides national law whenever the two conflict. The number of conflicting laws will decline considerably over time, though, as more and more laws will be dictated to the member states straight from Brussels.

The EU was clearly never meant to be a democratic institution. It was meant to be a European Soviet Union.

[1] Bagus, P. The Tragedy of the Euro. (Auburn, AL: Ludwig von Mises Institute, 2010). p. 122.

[2] Bonde, J.P. From EU Constitution to Lisbon Treaty. p. 26. Available online at http://www.eudemocrats.org/eud/uploads/downloads/e-Lissabon_til_nettet.pdf

[3] Bonde, J.P. From EU Constitution to Lisbon Treaty. p. 21. Available online at http://www.eudemocrats.org/eud/uploads/downloads/e-Lissabon_til_nettet.pdf

[4] Bonde, J.P. From EU Constitution to Lisbon Treaty. p. 28. Available online at http://www.eudemocrats.org/eud/uploads/downloads/e-Lissabon_til_nettet.pdf