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Brazil’s Lost Decade: We Must Free Our Economy – Article by Felipe Capella

Brazil’s Lost Decade: We Must Free Our Economy – Article by Felipe Capella

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The New Renaissance HatFelipe Capella
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It was a lost decade for Latin America. Years of populist governments combined with a commodity boom turned out to be our oil curse, our Dutch Disease. This disastrous mix made bad public policies look like temporary successes, pushing developing countries to an unsustainable path. The collectivist ideology monopolized the debate for more than 10 years, and now that the natural resource party is over, the harm of these policies have become clearer: deep economic crisis generated by a utopia whose greatest achievement was turning toilet paper into a rare-earth product.

Populist and authoritarian South American regimes have set up government bureaucracies aimed at pleasing special interest groups that provide political support while tirelessly harming the population as a whole. These groups are divided into several small groups with special rights and privileges: judges, civil servants, members of parliament, friendly businessmen. These factions are getting their more-than-fair share while the unprivileged citizen foots the bill.

Latin American politicians played it very well during these favorable times. Cronyism and populism greatly benefited some chosen groups, while the harms were diffused enough throughout the whole country and difficult to measure during favorable economic winds. Brazil is just the biggest and clearest example of that.

How We Got Here 

For many years Brazil’s road to serfdom was being paved by the left through a combination of the world’s worst ideas: a Venezuelan-like project to subordinate decisions of the Supreme Court to the ratification of Congress; an Ecuadorian will to regulate and control the free press; a Russian compassion for cronies handpicked by the executive; Greek style benefits for public servants; Southern European pension costs (for a much younger population); Argentinean barriers for international trade, and an American/EU taste for subsidies.

The former — and now failed — cherry-picked billionaire darling of the regime Eike Batista was showered with tax funds while ordinary entrepreneurs lacked governmental support; friendly national industries were heavily protected, while people were taxed up to 50 percent on food and health supplies. Oi Telecom, a multibillion dollar mobile company, is just the most recent example of Lula’s national-champion policy (the company has just filed for bankruptcy, with 17 percent of its debt held by state-owned banks).

That was the result of 10 years of left-populist government in Brazil, all of them enjoying the applause of the international press. For years The New York Times constantly published articles with a pro-Dilma/Lula tone. Right after Dilma’s reelection — which is now known to have been funded by money siphoned from state-owned companies — The NYT published a piece half-mocking 48 percent of voters that were concerned about Dilma’s economic and political approaches.

The good thing about bad journalism is that reality eventually catches up with it. Since that 2014 article, Dilma has since lost her job and is about to be impeached for illegal budgetary schemes and deep corruption. Her top aides are all in jail or about to be thrown there, accused of stealing dozens of billions of dollars, including former Ministers and three former treasurers of her Labor Party (which some people now deem to be the most dangerous job in the world). Brazil is in its worst economic crisis since the 1930s, which has been worsening since 2014 (while Dilma was coming up with her now-famous accounting tricks to fool the Brazilian voters). Lula had even become a frequent contributor of The Times after his presidency, but now faces criminal charges and has seen the federal police knock on his door with a coercive trip to the criminal courts.

In its recent opinion page about the failed Rio Olympic Games preparation, The NYT’s favorite Brazilian correspondent Vanessa Barbara wrote that “political turmoil has paralyzed the country and frozen the economy.” This rhetoric of blaming “political turmoil” for Latin American calamities does not help to set the record straight. The problems with the Olympic games stem directly from Dilma’s and Lula’s incompetence and corruption. But the problem also lies on media vehicles like The Times, always ready to turn a blind eye to mismanagement and corruption in the name of ideology.

So here we are. Brazil is a failing state after a decade of populist presidents, misguided policies and commodity boom, all under the auspices of the progressive press.

The Need for Laissez-Faire Liberalism

For a long time, Brazil has been a place where liberalism (i.e., the ideology of freedom and free markets) was mostly marginalized, despite its positive track-record. In the minds of most Brazilians, being liberal was conspiring for the wealthy, being socialist is taking care of the poor.

But if The Times does not want to recognize its mistakes, apparently the Brazilian population is more willing to deal with self-criticism. There is now a strong resurgence of liberalism throughout the country.

Partido Novo (“New Party”) is a new political party created with a clear liberal approach to the economy, and it is just one of the recent examples of how liberalism is growing in the country, waking up millions of Brazilians who were orphans of a liberal political leadership. Many creative and hardworking people that do not think that socialism (or heavy-handed South American social democracy) will make our countries more prosperous. There are substantial constituencies that want public policies driven by research, metrics and actual public interest.

Free Trade Is the Key

The European Union has no appetite and no urgency to negotiate any comprehensive trade agreement with Mercosur or other Latin American countries. The United States faces a choice between a populist protectionist and a trade-dubious democrat (to put it mildly).

It is essential for the world that someone — anyone — pushes forward the liberal pro-trade agenda. As we natives well know, it is never wise to bet on Brazil as a global force for good. But maybe — just maybe — because we are suffering first-hand the harms of a decade of interventionist, protectionist, and corrupted government, we can somehow understand that populism is an illusory lucky charm that actually curses a country for years to come; and maybe — just maybe — we can do something to redeem ourselves.

Now that international trade seems under constant attack from all places and political spectrums, and no big world economy wants to step up and bluntly defend the liberal track record — including the United States — maybe Brazil could become the champion of good policy at last, pushing for reforms throughout Latin America and holding the liberal torch high in these dark times.

As Roberto Campos advised decades ago, for us Brazilians there are only three ways out of the current mess: Rio’s airport, Sao Paulo’s airport, and Liberalism.

Felipe Capella is an attorney turned entrepreneur. He is a former law professor at the Federal University of Santa Catarina (Brazil), former attorney at Sullivan & Cromwell (New York) and the Inter-American Development Bank (Washington, DC), has Master degrees from UPenn/Wharton and Universidad Francisco de Vitoria (Spain), and holds an MBA from FGV (Brazil).

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The Internet Memory Hole – Article by Wendy McElroy

The Internet Memory Hole – Article by Wendy McElroy

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The New Renaissance Hat
Wendy McElroy
November 24, 2014
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Imagine you are considering a candidate as a caregiver for your child. Or maybe you are vetting an applicant for a sensitive position in your company. Perhaps you’re researching a public figure for class or endorsing him in some manner. Whatever the situation, you open your browser and assess the linked information that pops up from a search. Nothing criminal or otherwise objectionable is present, so you proceed with confidence. But what if the information required for you to make a reasoned assessment had been removed by the individual himself?

Under “the right to be forgotten,” a new “human right” established in the European Union in 2012, people can legally require a search engine to delete links to their names, even if information at the linked source is true and involves a public matter such as an arrest. The Google form for requesting removal asks the legally relevant question of why the link is “irrelevant, outdated, or otherwise objectionable.” Then it is up to the search engine to determine whether to delete the link.

The law’s purpose is to prevent people from being stigmatized for life. The effect, however, is to limit freedom of the press, freedom of speech, and access to information. Each person becomes a potential censor who can rewrite history for personal advantage.

It couldn’t happen here

The process of creating such a law in the United States is already underway. American law is increasingly driven by public opinion and polls. The IT security company Software Advice recently conducted a survey that found that “sixty-one percent of Americans believe some version of the right to be forgotten is necessary,” and “thirty-nine percent want a European-style blanket right to be forgotten, without restrictions.” And politicians love to give voters what they want.

In January 2015, California will enforce the Privacy Rights for California Minors in the Digital World law. This is the first state version of a “right to be forgotten” law. It requires “the operator of an Internet Web site, online service, online application, or mobile application to permit a minor, who is a registered user … to remove, or to request and obtain removal of, content or information posted … by the minor.” (There are some exceptions.)

Meanwhile, the consumer-rights group Consumer Watchdog has floated the idea that Google should voluntarily provide Americans with the right to be forgotten. On September 30, 2014, Forbes stated, “The fight for the right to be forgotten is certainly coming to the U.S., and sooner than you may think.” For one thing, there is a continuing hue and cry about embarrassing photos of minors and celebrities being circulated.

Who and what deserves to be forgotten?

What form would the laws likely take? In the Stanford Law Review (February 13, 2012), legal commentator Jeffrey Rosen presented three categories of information that would be vulnerable if the EU rules became a model. First, material posted could be “unlinked” at the poster’s request. Second, material copied by another site could “almost certainly” be unlinked at the original poster’s request unless its retention was deemed “necessary” to “the right of freedom of expression.” Rosen explained, “Essentially, this puts the burden on” the publisher to prove that the link “is a legitimate journalistic (or literary or artistic) exercise.” Third, the commentary of one individual about another, whether truthful or not, could be vulnerable. Rosen observed that the EU includes “takedown requests for truthful information posted by others.… I can demand takedown and the burden, once again, is on the third party to prove that it falls within the exception for journalistic, artistic, or literary exception.”

Search engines have an incentive to honor requests rather than to absorb the legal cost of fighting them. Rosen said, “The right to be forgotten could make Facebook and Google, for example, liable for up to two percent of their global income if they fail to remove photos that people post about themselves and later regret, even if the photos have been widely distributed already.” An October 12, 2014, article in the UK Daily Mail indicated the impact of compliance on the free flow of public information. The headline: “Google deletes 18,000 UK links under ‘right to be forgotten’ laws in just a month: 60% of Europe-wide requests come from fraudsters, criminals and sex offenders.”

American backlash

America protects the freedoms of speech and the press more vigorously than Europe does. Even California’s limited version of a “right to be forgotten” bill has elicited sharp criticism from civil libertarians and tech-freedom advocates. The IT site TechCrunch expressed the main practical objection: “The web is chaotic, viral, and interconnected. Either the law is completely toothless, or it sets in motion a very scary anti-information snowball.” TechCrunch also expressed the main political objection: The bill “appears to create a head-on collision between privacy law and the First Amendment.”

Conflict between untrue information and free speech need not occur. Peter Fleischer, Google’s global privacy counsel, explained, “Traditional law has mechanisms, like defamation and libel law, to allow a person to seek redress against someone who publishes untrue information about him.… The legal standards are long-standing and fairly clear.” Defamation and libel are controversial issues within the libertarian community, but the point here is that defense against untrue information already exists.

What of true information? Truth is a defense against being charged with defamation or libel. America tends to value freedom of expression above privacy rights. It is no coincidence that the First Amendment is first among the rights protected by the Constitution. And any “right” to delete the truth from the public sphere runs counter to the American tradition of an open public square where information is debated and weighed.

Moreover, even true information can have powerful privacy protection. For example, the Fourth Amendment prohibits the use of data that is collected via unwarranted search and seizure. The Fourteenth Amendment is deemed by the Supreme Court to offer a general protection to family information. And then there are the “protections” of patents, trade secrets, copyrighted literature, and a wide range of products that originate in the mind. Intellectual property is controversial, too. But again, the point here is that defenses already exist.

Reputation capital

Reputation capital consists of the good or bad opinions that a community holds of an individual over time. It is not always accurate, but it is what people think. The opinion is often based on past behaviors, which are sometimes viewed as an indicator of future behavior. In business endeavors, reputation capital is so valuable that aspiring employees will work for free as interns in order to accrue experience and recommendations. Businesses will take a loss to replace an item or to otherwise credit a customer in order to establish a name for fairness. Reputation is thus a path to being hired and to attracting more business. It is a nonfinancial reward for establishing the reliability and good character upon which financial remuneration often rests.

Conversely, if an employee’s bad acts are publicized, then a red flag goes up for future employers who might consider his application. If a company defrauds customers, community gossip could drive it out of business. In the case of negative reputation capital, the person or business who considers dealing with the “reputation deficient” individual is the one who benefits by realizing a risk is involved. Services, such as eBay, often build this benefit into their structure by having buyers or sellers rate individuals. By one estimate, a 1 percent negative rating can reduce the price of an eBay good by 4 percent. This system establishes a strong incentive to build positive reputation capital.

Reputation capital is particularly important because it is one of the key answers to the question, “Without government interference, how do you ensure the quality of goods and services?” In a highly competitive marketplace, reputation becomes a path to success or to failure.

Right-to-be-forgotten laws offer a second chance to an individual who has made a mistake. This is a humane option that many people may choose to extend, especially if the individual will work for less money or offer some other advantage in order to win back his reputation capital. But the association should be a choice. The humane nature of a second chance should not overwhelm the need of others for public information to assess the risks involved in dealing with someone. Indeed, this risk assessment provides the very basis of the burgeoning sharing economy.

History and culture are memory

In “The Right to Be Forgotten: An Insult to Latin American History,” Eduardo Bertoni offers a potent argument. He writes that the law’s “name itself“ is “an affront to Latin America; rather than promoting this type of erasure, we have spent the past few decades in search of the truth regarding what occurred during the dark years of the military dictatorships.” History is little more than preserved memory. Arguably, culture itself lives or dies depending on what is remembered and shared.

And yet, because the right to be forgotten has the politically seductive ring of fairness, it is becoming a popular view. Fleischer called privacy “the new black in censorship fashion.” And it may be increasingly on display in America.

Wendy McElroy (wendy@wendymcelroy.com) is an author, editor of ifeminists.com, and Research Fellow at The Independent Institute (independent.org).

This article was originally published by The Foundation for Economic Education.

How the Drug War Drives Child Migrants to the US Border – Article by Mark Thornton

How the Drug War Drives Child Migrants to the US Border – Article by Mark Thornton

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The New Renaissance Hat
Mark Thornton
July 20, 2014
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Most attentive parents today rarely allow their children to go unsupervised, particularly in public. It starts with the wireless baby monitor for the crib and ends with the ever-present cell phone at college graduation.

This is what makes reports from the US-Mexican border so perplexing to most Americans. It is hard to believe that parents would send their children, even young children, to travel many hundreds of miles, up to 1,600 miles without guardianship, or under the control of “mules” who guide the children with the hope of a safe voyage to the United States.

The journey is both harsh and dangerous. The northern regions of Central America (i.e., Guatemala, Honduras, and El Salvador) and Mexico are some of the most dangerous areas of the world. The climate can be harsh, roads and travel conditions are mostly poor, and the children are subjected to robbers, kidnappers, rapists, government police and soldiers, drug cartel members, and bandits of all sorts.

As unbelievable as it seems, Central American parents are sending their children, or more often asking their children to join with them in the United States, in large numbers. In many cases the children flee on their own accord without any guardian.

A decade ago US Border Patrol agents apprehended only several hundred unaccompanied children per year. Over the last nine months they have caught nearly 50,000. Official estimates project the capture rate to reach 10,000 per month by this fall. Those numbers actually hide the enormity of the problem because historically the problem was largely restricted to Mexican children who could be immediately returned to Mexico. During the last couple of years, the majority of growth has come from children from Central American countries and these must be processed and turned over to the Office of Refugee Resettlement (part of HHS).

One suggested reason for the explosion of child immigrants from Central America is the perception and rumors that children from Central America who cross the border will receive a “proviso” which might suggest a permit to stay in the US legally. However, it seems that the proviso is really just a notice to appear in immigration court for deportation proceedings. Whether this gives the children more time in the US, or whether it increases the probability of them being allowed to stay in the US for humanitarian reasons is unclear. In one report, only 1 of 404 children specifically mentioned the possibility of benefiting from US immigration reform.[1]

Even if the proviso rumor was having an impact, it does not explain why the children and their parents would risk such a dangerous journey in the first place.

The Role of the Drug War

The underlying cause for this mass dangerous migration is the US’s war on drugs. Central American countries have become the conduit by which illegal drugs move from South America across the US border. Unlike conventional media sources, who will sometimes vaguely mention violence and instability in Central America as a cause, The Economist [2] quite correctly found the source of the problem in America’s war on drugs:

Demand for cocaine in the United States (which, unlike that in Europe, is fed through Central America), combined with the ultimately futile war on drugs, has led to the upsurge in violence. It is American consumers who are financing the drug gangs and, to a large extent, American gun merchants who are arming them. So failing American policies help beget failed states in the neighbourhood.

The result has been that the drug cartels have a great deal of control over much of northern Central America. The cartels control the governments, judges, police forces, and even some prisons and some of the military through a combination of bribery, threats, and outright force.

As a consequence of this control drug gangs and cartels can operate in the open or they can operate deep within the jungle beyond the reach of the law. In turn, the drug cartels can act above the law and as a result they have created a culture of violence, building on the civil wars of previous decades.

The countries in the northern Central American region, Guatemala, Honduras, and El Salvador, have the highest murder rate of any region in the world. The region’s murder rate is 7.5 times the murder rate of the North American region.

Globally, the top murder rate in any given year since the 1990s has been Honduras or El Salvador. In 2012, nearly 1 out of every 1,000 citizens in Honduras was murdered. In addition to murder, there are high rates of other types of violence, crime, and intimidation. A very large percentage of the entire Salvadoran-born population has migrated, mostly to the United States.

In addition to violence, the war on drugs has been a disruptive force for the Central American economies. After reading about the region, is anyone likely to make travel plans to go there, or to consider opening a business there? Obviously, the war on drugs has been highly disruptive for job creation, commerce, and international investment outside the drug cartels themselves. Therefore it would be more correct to say that it is not so much the attraction of opportunities in the US, but the lack of and reduction in opportunities in Central America that are spurring emigration, and that this is directly linked to the war on drugs.

When you try to make sense of parents sending their children on such a dangerous undertaking, just remember it is just another despicable result of the war on drugs with few solutions.

The Economist recommends the repeal of the war on drugs and the legalization of drugs globally as the solution. Its second best solution is for the United States to finance an effort to rebuild the institutions (i.e., police, courts, prisons, etc.) and infrastructure (i.e., military, transportation, and education systems) in the countries of Central America:

Such schemes will not, however, solve the fundamental problem: that as long as drugs that people want to consume are prohibited, and therefore provided by criminals, driving the trade out of one bloodstained area will only push it into some other godforsaken place. But unless and until drugs are legalised, that is the best Central America can hope to do.

In other words, ending the war on drugs is the only solution.

Notes

[1] http://www.unhcrwashington.org/children/reports, p. 31.

[2] “The drug war hits Central America: Organised crime is moving south from Mexico into a bunch of small countries far too weak to deal with it,” The Economist, April 14, 2011.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.