• 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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