STAFF NEWS & ANALYSIS
Brazil's False Choices May Not Stand
By Staff News & Analysis - March 21, 2015

The Man Who Can Save Brazil … A million-plus protesters in the streets and a 13 percent approval rating tend to concentrate a politician's mind … Brazilian President Dilma Rousseff [should] get out of the way of Brazil's finance minister, Joaquim Levy. – Bloomberg

Dominant Social Theme: What is needed in Brazil is authority and austerity.

Free-Market Analysis: This article is an almost perfect example of false choices. The editorial staff is counseling Dilma Rousseff to get out of the way so that a man who knows better than she how to wield the power of the state can exercise it.

The implication – stated outright at the end of the editorial – is that only state solutions can fix what has gone wrong.

More:

Brazil's economy is expected to shrink by 0.8 percent this year. Inflation is the highest in more than a decade. Unemployment is expected to reach a four-year high this year. Plunging oil prices, meanwhile, have cut government revenues, election-year promises have raised the fiscal deficit, and public debt has risen above 60 percent of gross domestic product.

Even before the Petrobras scandal began to gush, Rousseff was facing political troubles. Re-elected by a slim 3 percent margin, her coalition's majority in the lower house is increasingly fractious. Arguing for austerity measures in such a toxic environment wouldn't be easy for any leader –- especially when those measures fly against campaign promises and alienate core supporters.

While Rousseff is beset with problems, the article suggests that Levy is positioned intellectually and philosophically to provide solutions.

His credentials are formidable, according to the article. He is a "former economist for the International Monetary Fund with a Ph.D. from the University of Chicago who served as treasury secretary for Rousseff's predecessor."

He is a technocrat, in other words, and has a grim nickname to adorn his scientific approach to sociopolitical and economic management: "Scissorhands," because of the way he prunes costs.

Levy has already suggested solutions to Brazil's problems, what the article calls "a mix of tax increases and budget cuts." These measures constitute a form of "austerity" and reinforce aggressive tightening by Brazil's central bank. "The benchmark rate is now 12.75 percent."

Rousseff and Brazil's legislators are not so apt to enforce austerity as Levy or the central bank. Currently, they are mulling generous pension adjustments. For this reason, the editorial calls for Rousseff to "back Levy to the hilt."

Better laws and enforcement can help make another Petrobras scandal less likely. More disciplined and farsighted fiscal policy can ensure that the scandal's economic fallout doesn't erase Brazil's gains over the last decade.

This is where the article goes seriously wrong, as we indicated at the beginning of this analysis. The solutions provided by the article and endorsed by Levy are certainly not the only ones.

First of all, Brazil actually doesn't exist. It is simply a collection of cultures, tribes and ethnic groups encircled by an arbitrary sociopolitical boundary. Second, the Brazilian government's rash largesse is somehow considered to be the responsibility of Brazil's citizens, even though they certainly never personally agreed to its dispensation. Third, in order to bring Brazil – which doesn't exist – back to solvency, citizens must pay out of their own pocket for decisions they didn't make.

Perhaps the biggest issue has to do with the Brazilian central bank itself, which, through enormous gouts of money printing, facilitated the recklessness of Brazil's politicians. Central banks have offered this facility around the world and thus the false choices offered in this article have been made available as well.

One can protest that this analysis is not buttressed by reality, but we would argue otherwise and have done so for a decade now. We've explained that the Internet itself is an agent of significant change much as the Gutenberg press was, and that once these change-making mechanisms are unleashed, there is no going back.

Iceland, Greece, even Russia and China are in the grip of significant changes that are overthrowing the old order of things – an order prevalent since a little after World War II.

We would suggest that "austerity" will not end up being the only option for "Brazil" and that the economic narrative itself, driven by a dysfunctional central banking paradigm and corporate structure, is on the way out.

It may not go quietly or all at once. It may die in pieces. But something else is beginning to grow, shouldering it aside. This will have tremendous ramifications, some positive and some negative.

After Thoughts

The trick to surviving and prospering in the coming years will be to ascertain the rate of change and its evolution. It will not necessarily be an easy task.

Posted in STAFF NEWS & ANALYSIS
loading
Sign up now and join our exclusive international network for free-market thinkers
Privacy Assured: We will NEVER share your personal information.