Only a year ago, president Luiz Inácio Lula da Silva was widely feted as the man who had turned Brazil into a competitive powerhouse, the China of Latin America. That's not what has tongues wagging now. Rather than using Brazil's prominence to press outlier regimes to respect human rights and comply with international rules on using nuclear power, Lula suddenly seems bent on ducking controversy and accommodating demagogues. He routinely trades bear hugs with Hugo Chávez, even as the Venezuelan leader silences the media and harasses opponents. Brasília's diplomats abstained on a vote "deploring the grave, widespread, and systemic human-rights abuses" in North Korea. Lula canceled a visit to the tomb of Zionist founding father Theodor Herzl but found time to garland Yasir Arafat's grave. And in February, Lula posed for a photo op with Fidel Castro as protesters a few kilometers away mourned the death of Orlando Zapata Tamayo, a political dissident who died after an 85-day hunger strike in a Havana jail. ...
Now, as Lula's swagger grows bolder, the risk is that he is sending foreign policy on a political jag with little coherence, thereby squandering the remarkable legacy of pragmatism and evenhandedness that have been the country's anchors for the most of the last decade.
Tuesday, May 25, 2010
Monday, May 24, 2010
GREECE is not the only country that suddenly feels poorer. Britain faces budget deficits at about 12 percent of G.D.P., and Italy has a debt-to-G.D.P. ratio of 110 percent. In the United States, the housing and job markets are recovering only in fits and starts and we face significant future Medicare liabilities. This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot of countries, most of all Greece, aren’t as rich as we used to think.
Friday, May 21, 2010
Critics of the euro seem to think the Greek tragedy vindicates their view that each country should have its own currency and monetary policy. But that wouldn't solve a thing. Let's face it: If Greece weren't today's Argentina, it would be Venezuela. In that country, which has sovereign money—the bolivar—and no monetary rule to prohibit the central bank from financing the government, inflation is now spinning out of control. ...
The lesson here is that without political will, fiat money in any form—be it in a monetary union, anchored to a reserve currency or run by the sovereign—is unreliable. As Messrs. Steil and Hinds note, "money untethered to a commodity gives rise to inflation when managed by corrupt, irresponsible or incompetent rulers," thereby covering Greece, Argentina and Venezuela in one breath.
Harkening back to the wisdom of a 15th century Spanish canon lawyer, the authors capture today's fiat currency problem: "The ruler's power to create value from the valueless by designating it 'money' was bound to lead to inflation."
Thursday, May 13, 2010
Beyond self-love, Smith discussed how the functioning of the economic system in general, and of the market in particular, can be helped enormously by other motives. There are two distinct propositions here. The first is one of epistemology, concerning the fact that human beings are not guided only by self-gain or even prudence. The second is one of practical reason, involving the claim that there are good ethical and practical grounds for encouraging motives other than self-interest, whether in the crude form of self-love or in the refined form of prudence. Indeed, Smith argues that while "prudence" was "of all virtues that which is most helpful to the individual", "humanity, justice, generosity, and public spirit, are the qualities most useful to others". These are two distinct points, and, unfortunately, a big part of modern economics gets both of them wrong in interpreting Smith.
Wednesday, May 12, 2010
The late Milton Friedman once quipped that "if you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand."
Friedman was using hyperbole to make a point about central planning. Or so I thought until Hugo Chávez put himself in charge of Venezuela's coffee sector. Last year, for the first extended period of time in the country's history, Venezuela did not produce enough of the little red berry to satisfy domestic demand. It has now become a coffee importer and is facing serious shortages.
Tuesday, May 11, 2010
On the other hand, I can only shake my head in disbelief when I realize how badly my Minnesota taxes are used by our government. This all happens while the University of Minnesota has been cutting back salaries and some arguably more important programs (although, to be fair, some salaries and nonessential programs deserve to be cut - but the pearls go with the waste). File this one under government failure, big time.
Monday, May 10, 2010
Posner makes it clear that he understands the risks the United States now faces as the crisis of private finance continues its metamorphosis into a crisis of public finance: an exploding debt relative to gross domestic product; larger risk premiums as investors prepare for higher inflation or a weaker dollar; rising interest rates; a greater share of tax revenues going for interest payments; a diminishing share of resources available for national security as opposed to Social Security. “As an economic power,” Posner concludes, “we may go the way of the British Empire.” Indeed. It seems not to have struck the judge that British decline and the rise of Keynesianism went hand in hand.
Friday, May 7, 2010
Leading bloggers think that budget deficits and inflation will increase in the short term. I assume that the answers are based on the notion of structural deficits (meaning, discounted the temporary effect of bailouts and the stimulus on the deficit) and on the idea that the effects of loose monetary and fiscal policies should start to be felt in a three-year horizon.
Here is a surprising one (at least to me):
What? The Brazilian Real is seen by 3% among the leading bloggers as the 2050 reserve currency? No way in hell this is gonna happen. Maybe I find it loony just because I worked for the Central Bank of Brazil for so many years, but those are my two cents anyway.
PS: Oops, my mistake, those 3% among the bloggers voted for the EU Euro, not for the Brazilian Real. A more sensible result, although clearly biased by the Greek crisis.
Thursday, May 6, 2010
One of the main results of the latest survey is that there's a substantial consensus among top bloggers that supporting entrepreneurship is fundamental for a strong economic performance. On the other hand, most also agree that excessive budget deficits, like the ones we're seeing now, are one of the main factors that will negatively affect economic performance.
The video below explains it all. Enjoy!
Wednesday, May 5, 2010
Caplan's theory of rational irrationality explains the good performance of free economies, where decisions are taken through markets, and the bad performance of socialist and centrally planned economies, where decisions are mostly political. It explains how highly educated Germans could have become infatuated with the madness of Nazism. It explains why the results of behavioral economics are not necessarily in conflict with the results of other economics fields. And, finally, explains why the NOVA episode gives a wrong answer to the question asked in its own title: markets stimulate rational behavior even if humans sometimes act irrationally.