Category: Economics

Marxist Wrecks Brazil Economy

(p. A6) “The Brazilian model celebrated just a few years ago is turning into a slow-motion train wreck,” said Mansueto Almeida, a prominent commentator on economic policy. “Our political leaders want to point fingers at China or some external villain, but they cannot escape the fact that this self-inflicted crisis was made in Brazil.”
Even with the country’s legacy of economic turmoil, some historians say that Ms. Rousseff’s track record on economic growth ranks among the worst of any Brazilian president’s over the last century.
. . .
Hoping to prevent Brazil from cooling too much after the sizzling boom of the previous decade, Ms. Rousseff, 67, a former Marxist guerrilla who was tortured during the military dictatorship in the 1970s and took office in 2011, doubled down on bets that she could stave off a severe slowdown by harnessing a web of government-controlled banks and energy companies.
Ms. Rousseff pressured the central bank to reduce interest rates, fueling a credit spree among overstretched consumers who are now struggling to repay loans. She cut taxes for certain domestic industries and imposed price controls on gasoline and electricity, creating huge losses at public energy companies.
Going further, she expanded the sway of Brazil’s colossal national development bank, whose lending portfolio already dwarfed that of the World Bank. Drawing funds from the national treasury, the bank, known as the B.N.D.E.S., increased taxpayer-subsidized loans to large corporations at rates that were often significantly lower than those individuals could obtain from their banks.
Ms. Rousseff’s critics argue that she also began using funds from giant government banks to cover budget shortfalls as she and her leftist Workers’ Party headed into elections.
“They deliberately destroyed the public finances to obtain re-election,” said Antônio Delfim Netto, 87, a former finance minister and one of Brazil’s most influential economists. Taking note of the government’s inability to rein in spending as a budget deficit expands, Mr. Delfim Netto and other economists are warning that officials may simply opt to print more money, stirring ghosts in an economy once ravaged by high inflation.
. . .
Unemployment is expected to climb even higher as the authorities ponder ways to cut a federal bureaucracy that grew almost 30 percent from 2003 to 2013, to 600,000 civil servants.
A pension crisis is also brewing, partly because of laws that allow many Brazilians to start receiving retirement benefits in their early 50s, even though life expectancy has increased and the fertility rate has fallen, limiting the number of young people to support the aging population.
“How can a person who is 52 years old be able to retire with a pension?” Luiz Fernando Figueiredo, a former central bank official, asked reporters. “These things have to be confronted. If not, the country will become another Greece.”
Parts of Brazil’s business establishment are in revolt, openly expressing disdain. Exame, a leading business magazine, devotes an entire section called “Only in Brazil” to documenting problems with the public bureaucracy.
These examples include a $120 million light-rail system in the city of Campinas that lies abandoned because of poor planning, and a measure requiring companies to obtain a special license before allowing employees to work on Sundays.

For the full story, see:
SIMON ROMERO. “As Boom Fades, Brazil Asks How Sizzle Turned to Fizzle.”The New York Times (Fri., SEPT. 11, 2015): A1 & A6.
(Note: ellipses, and bracketed word and date, added.)
(Note: the online version of the story has the date SEPT. 10, 2015, and has the title “As a Boom Fades, Brazilians Wonder How It All Went Wrong.”)

Top-Down Aid “Hasn’t Worked in Africa”

(p. 2) John Mackey is the co-founder and co-chief executive officer of Whole Foods Market, the nation’s largest chain of natural foods supermarkets.
READING . . .
. . . “The Idealist: Jeffrey Sachs and the Quest to End Poverty,” by Nina Munk. Sachs is an economist and I’m sure he doesn’t like the book because it points out that his top-down aid type of approach hasn’t worked in Africa. A more bottom-up approach through entrepreneurship and boot strapping seems to be more effective, which is the approach we take at our Whole Planet Foundation.

For the full interview, see:
KATE MURPHY, interviewer. “Download; John Mackey.” The New York Times, SundayReview Section (Sun., NOV. 23, 2014): 2.
(Note: bold in original; ellipses added.)
(Note: the online version of the interview has the date NOV. 22, 2014.)

The book praised in the interview is:
Munk, Nina. The Idealist: Jeffrey Sachs and the Quest to End Poverty. New York: Doubleday, 2013.

Exponential Entrepreneurs Get Rich by Innovating (and Fleecing?)

The reviewer’s concern about technology platforms fleecing the masses is shared by Jaron Lanier who describes, and tries to solve it, in a thought-provoking book called Who Owns the Future? (Hint: his solution involves an extension of property rights.)

(p. A9) The exponential entrepreneurs are “paving the way for a new world of abundance” by finding big problems and exploiting the “Six D’s”: digitalization, deception, disruption, demonetization, dematerialization, democratization.

Take the case of Kodak and photography. First came the technology that allowed photographs to be taken and stored digitally rather than on film–digitization. But it seemed too trivial for a giant like Kodak to worry about–an act of self-deception. Then came disruption, when digital photography grew from a tiny niche into a big business and then surpassed print photography. People no longer needed to pay to store or share their photographs because free digital services had sprung up. Kodak found itself demonetized. Then photography was dematerialized, as cameras were built into phones and the physical materials of the darkroom were replaced by digital tools. Finally, the entire process was democratized, since anyone with a phone can (at no additional cost) take pictures, edit them and share them.
In 1996 Kodak employed 140,000 people and had a market value of $28 billion. In January 2012 it filed for bankruptcy. Instagram was founded in October 2010 and was bought by Facebook in April 2012 for $1 billion. It had 13 employees at the time. Instagram was the definition of an exponential organization, one “whose impact (or output)–because of its use of networks or automation and/or its leveraging of the crowd–is disproportionally large compared to its number of employees.” The Six D’s, the authors make clear, are leaving the poor executives who think in linear rather than exponential fashion in a state of three D’s: “distraught, depressed and departed.”
. . .
The great lie about so much technology is that it has enabled a more sharing, more democratic age. But too much of the “sharing” that happens online seems to involve people abandoning their livelihoods to the owners of “platforms”–letting the masses be demonetized and dematerialized for the enrichment of a few. Too much of the “democracy” feels like voyeurism or surveillance. The crowd is not just sourcing and funding this new economy; it’s also getting fleeced.

For the full review, see:
PHILIP DELVES BROUGHTON. “BOOKSHELF; Go Big Or Go Home.” The Wall Street Journal (Tues., Feb. 17, 2015): A9.
(Note: ellipsis added.)
(Note: the online version of the review has the date Feb. 16, 2015.)

The book discussed in the review is:
Diamandis, Peter H., and Steven Kotler. Bold: How to Go Big, Create Wealth and Impact the World. New York: Simon & Schuster, 2015.

The book mentioned by Lanier is:
Lanier, Jaron. Who Owns the Future? pb ed. New York: Simon & Schuster, 2013.

World Inequality Declines

(p. 6) Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.
The finding comes from a recent investigation by Christoph Lakner, a consultant at the World Bank, and Branko Milanovic, senior scholar at the Luxembourg Income Study Center. And while such a framing may sound startling at first, it should be intuitive upon reflection. The economic surges of China, India and some other nations have been among the most egalitarian developments in history.

For the full commentary, see:
TYLER COWEN. “The Upshot; Economic View; All in All, a More Egalitarian World.” The New York Times, SundayBusiness Section (Sun., JULY 20, 2014): 6.
(Note: the online version of the commentary has the date JULY 19, 2014, has the title “The Upshot; Economic View; Income Inequality Is Not Rising Globally. It’s Falling.”)

Lax College Accreditors May Be “Doing More Harm than Good”

(p. A19) Most colleges can’t keep their doors open without an accreditor’s seal of approval, which is needed to get students access to federal loans and grants. But accreditors hardly ever kick out the worst-performing colleges and lack uniform standards for assessing graduation rates and loan defaults.
Those problems are blamed by critics for deepening the student-debt crisis as college costs soared during the past decade. Last year alone, the U.S. government sent $16 billion in aid to students at four-year colleges that graduated less than one-third of their students within six years, according to an analysis by The Wall Street Journal of the latest available federal data.
. . .
(p. A12) Accreditors say their job is to help colleges get better rather than to weed out laggards. Colleges pay for the inspections, which can cost more than $1 million at large institutions.
“You’re not there to remove an institution,” says Judith Eaton, president of the Council for Higher Education Accreditation, a trade group. “You’re there to enhance the operation.”
The government has relied on accreditors as watchdogs since the 1950s. Colleges are evaluated by teams of volunteers from similar institutions, who follow standards set by the accreditation group. For example, colleges sometimes are required to collect student-retention data but given the freedom to set their own goals for those numbers.
. . .
Stephen Roderick, former provost at Fort Lewis College in Colorado, says he now has misgivings about his 2013 review of Glenville State College in West Virginia for the Higher Learning Commission. The review team wrote that the college had a “responsible program” to minimize default rates and “demonstrates a commitment” to evaluating graduation data.
Glenville’s graduation rate is 30%, while about 22% of students defaulted on loans from 2011 to 2013. Both percentages rank near the bottom 10% of accredited four-year colleges. David Millard, assistant to Glenville’s president, says the figures reflect the opportunity offered by the college to students in one of the poorest parts of the U.S.
Mr. Roderick says accreditors are inclined to see the best in colleges like Glenville, but that might not be the best for students. “Sometimes I feel that we’re doing more harm than good,” he says.

For the full story, see:
ANDREA FULLER and DOUGLAS BELKIN. “Education Watchdogs Rarely Bite; Accreditors keep hundreds of schools with low graduation rates or high loan defaults alive.” The Wall Street Journal (Thurs., June 18, 2015): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the article was dated June 17, 2015, and had the title “The Watchdogs of College Education Rarely Bite; Accreditors keep hundreds of schools with low graduation rates or high loan defaults alive.”)

Those Who Use “Consensus” Argument on Global Warming, Should Endorse Genetically Modified Food

(p. B3) NAIROBI, Kenya — Mohammed Rahman doesn’t know it yet, but his small farm in central Bangladesh is globally significant. Mr. Rahman, a smallholder farmer in Krishnapur, about 60 miles northwest of the capital, Dhaka, grows eggplant on his meager acre of waterlogged land.
As we squatted in the muddy field, examining the lush green foliage and shiny purple fruits, he explained how, for the first time this season, he had been able to stop using pesticides. This was thanks to a new pest-resistant variety of eggplant supplied by the government-run Bangladesh Agricultural Research Institute.
Despite a recent hailstorm, the weather had been kind, and the new crop flourished. Productivity nearly doubled. Mr. Rahman had already harvested the small plot 10 times, he said, and sold the brinjal (eggplant’s name in the region) labeled “insecticide free” at a small premium in the local market. Now, with increased profits, he looked forward to being able to lift his family further out of poverty. I could see why this was so urgent: Half a dozen shirtless kids gathered around, clamoring for attention. They all looked stunted by malnutrition.
. . .
I, . . . , was once in [the] . . . activist camp. A lifelong environmentalist, I opposed genetically modified foods in the past. Fifteen years ago, I even participated in vandalizing field trials in Britain. Then I changed my mind.
After writing two books on the science of climate change, I decided I could no longer continue taking a pro-science position on global warming and an anti-science position on G.M.O.s.
There is an equivalent level of scientific consensus on both issues, I realized, that climate change is real and genetically modified foods are safe. I could not defend the expert consensus on one issue while opposing it on the other.

For the full commentary, see:
MARK LYNAS. “How I Got Converted to G.M.O. Food.” The New York Times, SundayReview Section (Sun., APRIL 26, 2015): 5.
(Note: ellipses, and bracketed word, added.)
(Note: the online version of the commentary has the date APRIL 24, 2015.)

“Plunged Back into a Pre-Industrial Hell”

(p. B1) If you drive a car, or use modern medicine, or believe in man’s right to economic progress, then according to Alex Epstein you should be grateful–more than grateful. In “The Moral Case for Fossil Fuels” the author, an energy advocate and founder of a for-profit think tank called the Center for Industrial Progress, suggests that if all you had to rely on were the good intentions of environmentalists, you would be soon plunged back into a pre-industrial hell. Life expectancy would plummet, climate-related deaths would soar, and the only way that Timberland and Whole Foods could ship their environmentally friendly clothing and food would be by mule. “Being forced to rely on solar, wind, and biofuels would be a horror beyond anything we can imagine,” writes Mr. Epstein, “as a civilization that runs on cheap, plentiful, reliable energy would see its machines dead, its productivity destroyed, its resources disappearing.”

For the full review, see:
PHILIP DELVES BROUGHTON. “BOOKSHELF; Go Ahead, Fill ‘Er Up; Renouncing oil and its byproducts would plunge civilization into a pre-industrial hell–a fact developing countries keenly realize.” The Wall Street Journal (Tues., Dec. 2, 2014): A15.
(Note: the online version of the review has the date Dec. 1, 2014, and has the title “BOOKSHELF; Making ‘The Moral Case for Fossil Fuels’; Renouncing oil and its byproducts would plunge civilization into a pre-industrial hell–a fact developing countries keenly realize.”)

The book praised in the review is:
Epstein, Alex. The Moral Case for Fossil Fuels. New York: Portfolio, 2014.

Bernanke Not Clear if His Zero Interest Rate Policy Increased Inequality

(p. B3) . . . it is striking to find Mr. Bernanke . . . receptive to a . . . critique: that the bond-purchasing efforts, known as quantitative easing, increased economic inequality.
“Monetary policy is a blunt tool which certainly affects the distribution of income and wealth, although whether the net effect is to increase or reduce inequality is not clear,” Mr. Bernanke wrote in a blog post on Monday.
This was not a white flag. Mr. Bernanke went on to argue that the stimulus campaign was justified irrespective of the impact on inequality. But it struck a surprisingly hesitant note on a day when the Brookings Institution, Mr. Bernanke’s new home, hosted a conference on the same subject that was largely devoted to evidence that the Fed’s efforts had reduced economic inequality.
. . .
Current Fed officials share Mr. Bernanke’s judgment about the basic economic impact of the program. “Did these policies work?” Stanley Fischer, the Fed’s vice chairman, asked rhetorically during a speech on Monday in Toronto. “The econometric evidence says yes. So does the evidence of one’s eyes.”
But the “eye test” has also suggested to many that the wealthy have benefited disproportionately. The stock market has soared, and investors have prospered, even as wage growth has stagnated. Kevin Warsh, a former Fed governor, has memorably described the Fed’s current role as a “reverse Robin Hood,” rewarding the rich at the expense of the poor.

For the full commentary, see:
Binyamin Appelbaum. “The Upshot; Ben Bernanke Says Fed Can’t Get Caught Up in Inequality Debate.” The New York Times (Tues., JUNE 2, 2015): B3.
(Note: ellipses added.)
(Note: the online version of the article has the date JUNE 1, 2015 and has the title “The Upshot; Ben Bernanke Says Fed Can’t Get Caught Up in Inequality Debate.”)

China Looks to Innovation to Increase Growth

(p. 6) Wrapping up the 11-day session at a news conference on Sunday [March 15, 2015], Premier Li Keqiang said that while the economy faced downward pressure, the government has room to step in and has “more tools in our toolbox” should growth flag and affect employment.
. . .
As exports, investment and infrastructure become more ineffective in generating economic growth, China’s leadership is looking to innovation and entrepreneurship to pick up the slack.
Toward that end, Mr. Li said Beijing will continue to reduce regulatory interference. The number of government approvals required to begin a new venture has roughly halved to 50 to 60 steps in recent years, he said, although this level still raises costs and damps enthusiasm for startups.
But the Chinese state retains an oversized role in the economy and many of the outlined moves to limit its role are difficult to verify.

For the full story, see:
MARK MAGNIER. “Beijing Plans More Action to Spur Growth.” The Wall Street Journal (Mon., March 16, 2015): A9.
(Note: ellipsis, and bracketed date, added. Where there was a small difference in paragraph structure, the quoted passages follow the print version.)
(Note: the online version of the story has the date March 15, 2015, has the title “China Plans More Action to Spur Growth.”)

“Bring Prosperity to Billions of People”

(p. B1) If you’re feeling down about the world, the book, “Resource Revolution: How to Capture the Biggest Business Opportunity in a Century,” is an antidote. Mr. Rogers and Mr. Heck outline how emerging advances — among them 3-D printing, autonomous vehicles, modular construction systems and home automation — might in time alter some of the world’s largest industries and (p. B7) bring prosperity to billions of people.
They put forward a rigorous argument bolstered by mountains of data and recent case studies. And once you start looking at Silicon Valley their way, your mind reels at the far-reaching potential of the innovations now spreading through society.

For the full commentary, see:
Farhad Manjoo. “STATE OF THE ART; The Future Could Work, if We Let It.” The New York Times (Thurs., AUG. 28, 2014): B1 & B7.
(Note: the online version of the commentary has the date AUG. 27, 2014.)

The book praised in the commentary is:
Heck, Stefan, and Matt Rogers. Resource Revolution: How to Capture the Biggest Business Opportunity in a Century. New York: Melcher Media, 2014.