Economic Observations in South America

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This
past August I was in the process of finishing a large book project.
I was not happy with much of what I was doing. To change my attitude
I committed myself to finally visit Brazil. I say finally because
for 15 years, since my friend from graduate school returned to his
home country, I have wanted to visit him and his family at his home
in Rio de Janeiro.

Many
people believe it is valuable to know a second language. For example,
the economy is global so this knowledge might improve one's income.
Of course knowing a second language is nice when traveling. But
knowing a second language is much more fundamental to me.

Linguists,
behaviorists, and anthropologists disagree about the precise relationship
between language and thinking, but there is no question that they
are closely linked. To speak is essentially to think, which is the
defining characteristic of our species. Therefore, to only speak
one language is to understand only one way of thinking. At least
one language beyond the native tongue should be mandatory for all
students, just as it is necessary to know how to read or count.
Thus, it is an example of the gross malpractice of educators in
the US that second language instruction typically begins with a
pathetic attempt during middle school. Languages should be a fundamental
part of all curriculums all through primary and secondary schools.
This is the common standard throughout most of the world. The failure
of US schools has been well documented at LRC. However, I do not
recall anything specific about language instruction, but I would
not be surprised if the trouble began during that wellspring of
bad thinking, the Progressive Era.

So
I believe one must know at least two languages to be considered
educated. This hole in my education has spurred me to take language
courses over the years. But these isolated courses have had little
lasting effect. To be honest, for me, learning a second language
has been the most difficult academic endeavor. I came to think an
immersion course was necessary. Also, I chose Spanish as my second
language because of the availability of classes and many opportunities
to hear the language on TV, and to practice with Spanish speakers
in the US. I love Spain too! Of course Portuguese is spoken in Brazil,
but Spanish (or something close to it) is the language of Argentina.
So I threw the proverbial dart at the Internet board and found a
small school in Cordoba, Argentina to enroll in a two-week immersion
course.

This
trip was my first visit to South America. I quickly became enchanted
with the people and the places I visited. I also was able to make
economic observations that may be of interest to LRC readers.

My
first impression of Brazil, with the exception of the plane graveyard
at the So Paulo airport, was that of a first world country, possibly
Spain or Italy. While the relaxed pace of life would imply a lack
of ambition, on the contrary, the people I met exhibited intelligence,
education, and creativity that match what I have seen in the US
or Europe. In fact, I think the Brazilians have a unique sense of
style in everything from clothing and interior design to toilets
that is beyond what is typically seen in the US. But I did not meet
the people in the vast slums called favelas, though I wanted to
visit a children's center that my friend's wife supports. And I
learned that the people I had met with the ideas and dynamism are
typically frustrated in their plans to better themselves, which
in turn limits the opportunities of the people in the favelas. The
cause of the frustration is the parasitic class who control the
state. They maintain a bureaucratic swamp whose progeny is massive
corruption. Furthermore, the elite are steeped in the socialist
or Keynesian thinking that has kept the multitudes mired in poverty
the world over. It is such a tragedy that this naturally rich country,
with so many wonderful people, should be stained with so much poverty.

Examples
of this state of affairs abound. On the side, my friend runs a gas
station. One of his employees qualified for a position with one
of the police forces. On his first day on the job his commander
told the new recruit that he was required to make a monthly payment
to him. Of course this income was supposed to be generated by fleecing
motorists or other innocent citizens. The former employee could
not bring himself to do it, so he returned to the gas station. My
friend's wife started a jewelry store with her sister. It took her
many months to obtain permission to open her shop as she refused
to pay any bribes. An American friend with connections to Brazil
had wanted to have some of his manufacturing done there. But it
was impossible for him find his way through the bureaucratic morass.
He is now having the work done in China.

Some
of the more hard-working people are driven out of the country. On
the flights to and from Brazil I sat next to young men who worked
in the US. One man could make more money making pizzas in a month
than he could working in Brazil all year. He was going back to Brazil
to check on his properties, properties he had purchased with his
saving from making those pizzas! The other gentlemen wanted to start
a shoe store outside of New York City. Most of the flight he complained
about Brazilian people as if her were an ugly American, or a New
Yorker. I had to kid him about this and told him he must maintain
a more tranquil attitude.

One
hundred years ago Argentina was in the top 10 in the wealth table
of nations. But the usual socialist and Keynesian errors have driven
Argentina into the third world, making her a poster child for Richard
Weaver's observation that "ideas have consequences." Argentina
has its own world-class corruption that has recently dovetailed
with the meddling of the International Monetary Fund in keeping
US banks profit and Argentine state solvency supported on the economic
backs of the people.

The
economy, I mean real people beyond aggregate statistics, is still
reeling from the sudden eruption of inflation in 2001. For 11 years
the peso was pegged to the US dollar. But the state was still borrowing
and the inflation was hidden from the people. Argentines falsely
believed their cash in the bank was safe and that their dollar-based
mortgages were financially sound. The Argentine inflation was not
unprecedented in amount, a 70% fall in the value of the peso, but
it was particularly bad on the psyche in how it occurred. In contrast,
the dollar lost about 40% of its value over the same 11-year period,
a period that is considered one of the very best economically in
US history. When overnight the currency went into freefall and the
government closed the banks, the people suddenly realized they had
been robbed but could do nothing to mitigate the problem. The gradual
and sudden inflations are in effect like paying protection money
and being robbed by a pickpocket, respectively. Both are morally
repugnant. But your problem is compounded when you attempt to pay
for the dinner you have already eaten and find that your wallet
is missing. Thus, many Argentines were over-committed after the
revaluation of the peso. My Spanish teacher in Cordoba, young, attractive,
educated, and bright, told me she could not make any plans for the
future. Thus, the economic crimes echo in the souls of the people.

A
case study on the economic theory of supply and demand and the interference
of the state is the prevalence of the medical house call in the
US as compared to Argentina. In the 19th century the
American Medical Association purposefully and successfully created
a cartel for the practice of medicine, thus severely limiting the
number of doctors. The 20th century saw the corporatization
of private medical insurance through the tax code, the nationalization
of military veteran's health care and medical research, and the
creation of Medicare and Medicaid. In the 21st century
we have already seen the prescription drug boondoggle foisted on
the public. LRC readers are well acquainted with this history. The
result is a fascist health care system in the US; fascist in that
production, though not totally owned by the state, is controlled
by the state. My father was a physician but passed away before he
could reap the high returns for MDs from this system. In a general
practice, he still made house calls up until his death in 1967.
Now the house call, presumably a service still desired by patients,
is extinct in the US. In Argentina, medical education is free and
newly minted physicians barely make a living wage. And house calls?
The going rate is 5 pesos, which is less than $2US!

The
economic star of South America is Chile and it is about to enter
the first world, if it has not already done so. How does Chile differentiate
itself? According to the Heritage Foundation's Freedom Index Chile
is freer than the US. My friend told me a most telling anecdote
regarding his work for an American energy company preparing a bid
for a contract in Chile. He specified to his contact in Santiago
that he must have the input of a tax attorney. His contact told
him that would be impossible. My friend was adamant; no bid could
be prepared without expert knowledge of how the taxes would affect
the profitability of the project. The best his contact could do
was to make an appointment for the top law firm. The lawyer also
explained to my friend that no tax attorneys were available. What
seems amazing to us is the reason. The taxes are so low and so simple
that there are literally no tax attorneys in Chile!

In
Brazil and Argentina what is considered clean, sanitary, in order,
and safe is much different than in the US. In other words, many
Americans would think it was dirty, unsanitary, disordered, and
dangerous. It is undoubtedly true that it is not as clean and not
as safe in Brazil as in the US. But the concern for safety in the
US has reached neurotic and totalitarian proportions. The attempt
to take all of the risk out of life, for total security and sterility,
makes life itself sterile and constrained. An example of the difference
in attitude is the warning on cigarette packages. In Brazil the
package shows the picture of a drooping ash and the warning is not
for cancer or heart disease but impotence. Now that is an example
of a different set of priorities!

While
the economic climate is not nearly as good as it could be, life
in general seems better because the most important traditional institution
has not been replaced by the state. Family life in South America
is more vibrant than in the US. It is typical for students to go
to their local university while living with their parents. When
they do move out of the house it is usually within the same city
if not down the street. Adult siblings are best friends and business
partners. The extended family of aunts, uncles, and cousins are
participants in everyday life. Thus, the financial resources of
an extended family mitigate the lack of economic opportunity. Even
more telling, retirement income and health care in old age, the
source of so much anxiety is the US, is much less of an issue because
loved ones, not bureaucrats, provide these services.

There
is much more to observe in South America than economics. The wonderful
people express the charm of a vibrant culture in a beautiful and
exotic setting. I highly recommend that you visit.

February
18, 2005

Ira
Katz [send him mail] teaches
mechanical engineering at Lafayette College.  He is the co-author
of Handling
Mr. Hyde: Questions and Answers about Manic Depression
and
Introduction
to Fluid Mechanics
.

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