WEBVTT - Can Free Markets Revive Brazil? 0:00:04.320 --> 0:00:07.440 Hello, and welcome to Stephanomics, the podcast which brings the 0:00:07.480 --> 0:00:15.440 global economy to you. Now you've probably heard a few 0:00:15.440 --> 0:00:19.160 things about Brazil's new president, Jaa Bosonaro, and he's a 0:00:19.239 --> 0:00:22.200 controversial right wing populist who once said he could never 0:00:22.280 --> 0:00:25.160 love a gay son. He's also a big fan of 0:00:25.200 --> 0:00:28.680 Donald Trump's. They swapped football jerseys when Bosonaro came to 0:00:28.720 --> 0:00:31.319 the White House in March. But I'd be interested to 0:00:31.360 --> 0:00:34.040 know whether they talked about economics on that visit, because 0:00:34.040 --> 0:00:37.120 when it comes to trade and the economy, the Brazilian 0:00:37.159 --> 0:00:41.839 president couldn't be more different. And Bosonaro admits he's no expert, 0:00:42.240 --> 0:00:45.599 but he's handed the task of turning around Brazil's anemic 0:00:45.640 --> 0:00:49.839 economy to Paolo Gidis, an alumnus of the free market 0:00:50.000 --> 0:00:54.040 University of Chicago. Now, Chicago style reforms were all the 0:00:54.160 --> 0:00:58.520 rage after the so called Chicago Boys helped transform Chile's 0:00:58.520 --> 0:01:02.080 economy in the seventies and eighties, but they've fallen out 0:01:02.080 --> 0:01:03.880 of favor in the last few years with all the 0:01:04.000 --> 0:01:07.600 questioning of neoliberal economic policies we've seen in the wake 0:01:07.680 --> 0:01:12.080 of the global financial crisis. Looking at Brazil, thinking about 0:01:12.400 --> 0:01:15.640 it's decades of boom and bust. A bit of shock 0:01:15.760 --> 0:01:20.000 treatment doesn't sound such a crazy idea. I'll ask Larry's 0:01:20.000 --> 0:01:21.959 Summers what he thinks of getting his plans in a 0:01:21.959 --> 0:01:26.039 few minutes. But first, Brazil economy reporter Bruce Douglas has 0:01:26.080 --> 0:01:46.280 been taking a closer look. There's an awful lot of 0:01:46.319 --> 0:01:50.160 coffee in Brazil, as Frank Sinatra once noted, and beef 0:01:50.360 --> 0:01:53.480 and soybeans and all other kinds of agricultural goods and 0:01:53.560 --> 0:01:58.200 petrochemical products. But decades of protectionism and a massive internal 0:01:58.240 --> 0:02:01.880 market boosted by membership of South America's Customers Union, has 0:02:01.880 --> 0:02:06.440 resulted in a remarkably closed economy. Foreign trade accounts for 0:02:06.520 --> 0:02:10.560 a measly twent of Brazil's GDP compared with the global 0:02:10.600 --> 0:02:15.000 average of But as the country's new government came to power, 0:02:15.240 --> 0:02:18.640 promising to change all that, I went to Santos, Brazil's 0:02:18.639 --> 0:02:25.840 gateway to the world, to find out how song sign 0:02:26.280 --> 0:02:34.000 of Disco for perfect card. I'm perched on a yellow 0:02:34.120 --> 0:02:37.920 boat that's floating in the port of Santos, just in 0:02:37.960 --> 0:02:41.400 front of a huge black ship which is being loaded 0:02:41.480 --> 0:02:46.200 with sugar. Around ten of the world sugar passes through 0:02:46.200 --> 0:02:49.960 this port. Santos is just forty miles from the city 0:02:50.000 --> 0:02:52.519 of South Paolo and lies on the front line of 0:02:52.560 --> 0:02:56.040 Brazil's efforts to open its economy to the world. It's 0:02:56.080 --> 0:02:59.320 the largest port in South America and Santos handles around 0:02:59.320 --> 0:03:02.840 one third the brazils foreign trade, including much of the 0:03:02.880 --> 0:03:13.320 world's coffee, orange, juice and sugar. Okay, to please, can 0:03:13.360 --> 0:03:15.440 you tell me your name and your title and where 0:03:15.480 --> 0:03:21.600 we are. My name is Sally Regina Sosa. I'm a 0:03:21.680 --> 0:03:27.320 journalist of CODESPI, the part authority of Port of Santos. 0:03:27.760 --> 0:03:30.040 So SELLI tell me a little bit about the port 0:03:30.080 --> 0:03:34.240 of Santos. Santally, the part of Santos has around for 0:03:34.360 --> 0:03:39.080 tin kilometers of kids, enough for fifty five ships. Today. 0:03:39.160 --> 0:03:45.240 We handle all kinds of cargo, paper, sells, soybeans, sugar, wheat, 0:03:45.760 --> 0:03:58.000 chemical products, petrolum derivatives and alcohol. Good to float in 0:03:58.040 --> 0:04:01.440 and art of Santos for almost five hundred years. It's 0:04:01.480 --> 0:04:04.920 the gateway to greater Selparlo, the most industrialized region in 0:04:04.960 --> 0:04:13.800 the Southern Hemisphere and the biggest consumer market in Latin America. 0:04:15.440 --> 0:04:19.440 The largest continued terminal of South America is in Brazil, 0:04:20.920 --> 0:04:25.280 with intelligence and logistics and efficient CTPS the biggest privately 0:04:25.320 --> 0:04:28.400 owned terminal in the port. After showing me its corporate 0:04:28.480 --> 0:04:32.640 video in Italian Nomura, BTPs commercial manager gave me a tour. 0:04:38.920 --> 0:04:41.760 So basically where you're standing right now uses to be 0:04:41.839 --> 0:04:45.760 a garage repository where all the trash would be, uh say, 0:04:45.839 --> 0:04:48.919 dispatched from the portal centers, and it was two years 0:04:48.920 --> 0:04:51.880 of remediation built on the side of a former trash dump. 0:04:52.200 --> 0:04:55.200 The BTP terminal now boasts eight state of the art 0:04:55.279 --> 0:04:59.280 cranes that were loading containers onto two massive ships. As 0:04:59.320 --> 0:05:03.400 we start talk coffee, meat and this is going to 0:05:03.520 --> 0:05:08.800 the US, probably with lots of construction material. How does 0:05:08.800 --> 0:05:12.400 the performance in Brazil's economy as a whole impact the 0:05:12.480 --> 0:05:15.360 number of containers that passed through her? Oh, there is 0:05:15.360 --> 0:05:19.520 a direct impact. So basically, if the country is importing more, 0:05:19.920 --> 0:05:22.719 as it was the case of last year, we get 0:05:22.760 --> 0:05:26.720 a higher volume of imports, whereas now the exports are 0:05:26.720 --> 0:05:29.960 a little bit still picking up our volume containing volume 0:05:30.320 --> 0:05:35.600 exports are slower as well. Predictions for this year's growth 0:05:35.600 --> 0:05:37.920 through a little bit better than last year, So you're 0:05:37.920 --> 0:05:41.160 hoping that whole mean more containers will pass through this 0:05:41.240 --> 0:05:44.600 laar We are expecting bigger volumes this year, and of 0:05:44.640 --> 0:05:48.159 course the exchange rate or the political situation also have 0:05:48.279 --> 0:05:51.159 an impact on the volume. So we're expecting all the 0:05:51.200 --> 0:05:53.840 best for Brazil this year. All the economy is picking up, 0:05:54.240 --> 0:06:03.480 hopefully our volumes are picking up as well. Since Brazil's 0:06:03.520 --> 0:06:06.080 economy dropped off a cliff between two thousand and fourteen 0:06:06.120 --> 0:06:09.520 and two thousand sixteen, the country has barely returned to growth. 0:06:10.080 --> 0:06:13.440 Boosting foreign trade would obviously help its recovery, and here 0:06:13.720 --> 0:06:27.680 there's massive room for improvement in any typicult operation. If 0:06:27.680 --> 0:06:30.680 you have a hundred spaces, you want to sell a 0:06:30.800 --> 0:06:34.760 hundred spaces. Antonio Dominos is the managing director on the 0:06:34.800 --> 0:06:37.680 East Coast of Latin America for the Shipping and Logistics 0:06:37.680 --> 0:06:43.840 conglomerate MASK. If Brasili you only sell a hundred, you 0:06:43.880 --> 0:06:47.760 will be seen sixty or fifty, So half half of 0:06:47.800 --> 0:06:50.520 your cargo will not show up at the port. Why 0:06:50.720 --> 0:06:53.040 why won't the cargo show up? Because the costin will 0:06:53.040 --> 0:06:56.160 tell us. You know, I was unable to find a drucker. 0:06:56.560 --> 0:06:59.760 I couldn't get all the documentation on dying. It was 0:06:59.800 --> 0:07:03.279 a stock on inspections. So the carol will not arrive 0:07:03.320 --> 0:07:05.720 to the port. So here in Brazil, we have been 0:07:05.800 --> 0:07:11.800 forced to overbook every single vetter, sometimes as much as 0:07:12.040 --> 0:07:15.440 to be able to sail at so that creates a 0:07:15.560 --> 0:07:20.960 lot of challenges for US. Mass distinctive white containers feature 0:07:21.000 --> 0:07:24.120 prominently around the port of Santos, one of the seventeen 0:07:24.320 --> 0:07:28.080 ports the company uses in Brazil. Despite its strong presence 0:07:28.080 --> 0:07:30.920 in the country, Mr Domingez points out the Brazil remains 0:07:30.920 --> 0:07:33.880 a challenging place to do business, and while he welcomes 0:07:33.920 --> 0:07:37.239 the new government's talk of privatization and free trade, state 0:07:37.280 --> 0:07:40.840 dominance and protectionism and not the only issues Polo Gages 0:07:40.880 --> 0:07:44.320 will have to address. We love Brazil, we see brestil 0:07:44.400 --> 0:07:47.520 as a land of opportunities, but there's also a country 0:07:47.560 --> 0:07:53.000 that needs to understand that infrastructure is key for development. 0:07:53.440 --> 0:07:56.280 And it's not only about building new ports. It's about 0:07:56.560 --> 0:07:59.520 making sure that you connect the port with the with 0:07:59.600 --> 0:08:02.640 the with the consumer centers where the population is. So 0:08:02.680 --> 0:08:07.240 you need railways, you need roads, You need infrastructure at 0:08:07.280 --> 0:08:09.760 the beginning at the end to make sure that they 0:08:09.800 --> 0:08:12.560 are able to to move that cargo. And it's not 0:08:12.640 --> 0:08:15.960 just about improving the infrastructures. Will have to look at 0:08:16.160 --> 0:08:18.960 the tariff. They are very high tariffs here in these 0:08:18.960 --> 0:08:23.240 county two imports. The customs systems, it will have to 0:08:23.280 --> 0:08:25.640 be revampant. You have to be easier to be able 0:08:25.680 --> 0:08:28.960 to bring cargo into the country. The taxes in the 0:08:29.000 --> 0:08:32.280 country are highly unpredictable. You know, it can vary a 0:08:32.360 --> 0:08:34.760 lot from one come way to the next, and and 0:08:34.800 --> 0:08:38.200 they're not many good ideas why they are varying. So 0:08:38.720 --> 0:08:42.280 the legal systems think is overburned in this country. You know, 0:08:42.360 --> 0:08:44.920 you have a lot of hurdles that you need to 0:08:44.920 --> 0:08:47.280 to actually look through, so that that also needs to 0:08:47.280 --> 0:08:51.720 be simplified. All in all, the procedures to set up 0:08:51.720 --> 0:09:01.800 a company needs to be easier. The sprawling megalopolis of 0:09:01.840 --> 0:09:05.200 Sal Paulo is the engine room of Brazil's economy. If 0:09:05.280 --> 0:09:08.600 Latin America's largest nation is to start motoring again, here 0:09:08.920 --> 0:09:16.319 is where it will start. Tomasato is the head director 0:09:16.320 --> 0:09:20.040 of Trade and Foreign Affairs ATSP, the Federation of Industry 0:09:20.080 --> 0:09:23.840 of the State of sal Paolo, Opening of Brazilian The 0:09:23.920 --> 0:09:27.400 government was voted into office with this promise, so it's 0:09:27.480 --> 0:09:30.920 something that Brazilians vote for, so it has a mandate 0:09:31.000 --> 0:09:34.760 to do this. One thing is saying what you want 0:09:34.800 --> 0:09:37.240 to do the other things saying how we are going 0:09:37.280 --> 0:09:41.240 to get there right now? What the I would say 0:09:41.280 --> 0:09:45.800 that the biggest single problem that Brazil has is unemployment, 0:09:46.640 --> 0:09:50.360 So opening the economy without doing the other reforms means 0:09:50.400 --> 0:09:54.280 more unemployment. Around twelve percent of the country's workforce is 0:09:54.320 --> 0:09:57.320 still out of a job, and Mr Zanato fears that 0:09:57.440 --> 0:10:01.239 lowering trade tariffs without simplifying the tax system and liberalizing 0:10:01.240 --> 0:10:05.680 the labor market could make matters worse among investors, unless 0:10:05.720 --> 0:10:09.319 and economists. There's also a consensus that the first priority 0:10:09.360 --> 0:10:11.880 of the new government needs to be an overhaul of 0:10:11.920 --> 0:10:15.800 Brazil's massively overstretched pension system. It's a little bit like 0:10:15.840 --> 0:10:19.000 the Titanic. I mean, you're going against the iceberg and 0:10:19.040 --> 0:10:23.240 the pension reforms. Is that movement at the at the 0:10:23.360 --> 0:10:26.439 helm that shows that we are not hitting the iceberg anymore? 0:10:26.720 --> 0:10:30.640 With imminent disaster averted, the administration can then concentrate on 0:10:30.760 --> 0:10:33.600 opening the economy. But ensuring that such a move as 0:10:33.600 --> 0:10:37.120 a success will it requires skillful coordination between all the 0:10:37.200 --> 0:10:42.319 branches of government. Opening the economy depends only of one ministry. 0:10:43.160 --> 0:10:50.440 Um having a better business environment depends on other ministries 0:10:50.440 --> 0:10:53.160 and the rest of the government and also on Congress. 0:10:53.520 --> 0:10:56.880 So so one thing is a given. They are there's 0:10:56.920 --> 0:11:00.640 something we have to fight, I understand. And when you 0:11:00.880 --> 0:11:05.920 when you pay attention what Ministry public is says, I mean, 0:11:06.040 --> 0:11:10.280 it makes a lot of sense. Okay, And and this 0:11:10.360 --> 0:11:17.800 is why you have this kind of bullish environmental expectations. 0:11:18.440 --> 0:11:22.800 But you know, any professor in the strategy on a 0:11:22.880 --> 0:11:27.600 business school tell you that good strategies ten percent elaboration 0:11:27.720 --> 0:11:36.960 and implementations. Brazil ever attempted to liberalize before, uh it did. 0:11:37.520 --> 0:11:41.800 It did something like that in eighty nineteen. It was 0:11:41.840 --> 0:11:45.440 a disaster because it's just opened the economy withoubt and 0:11:45.679 --> 0:11:48.959 was not able to to to push through the other reform, 0:11:49.080 --> 0:11:52.400 so so we had hyper inflation on employment. Was such 0:11:52.440 --> 0:11:56.319 a disaster that the last twenty eight years nobody talked 0:11:56.320 --> 0:11:59.679 about this. With a massive internnel market, bull has long 0:11:59.720 --> 0:12:02.120 since the whole reason to open its economy to the world. 0:12:02.880 --> 0:12:05.320 With the country well on the way to another lost decade, 0:12:05.600 --> 0:12:07.679 there's a feeling that this time it may be worth 0:12:07.720 --> 0:12:12.440 the risk. What are the potential dangers or pitfalls of 0:12:12.440 --> 0:12:20.280 a more liberal Brazil. Look what's sappining outside of Brazil. 0:12:20.679 --> 0:12:23.840 I don't know if you're British or not, but seeing Brexit, 0:12:23.960 --> 0:12:29.959 seeing Donald Trump, and they are the result of the 0:12:30.080 --> 0:12:33.840 end of the day mainly Limon Brother crisis and very 0:12:33.880 --> 0:12:40.840 liberal economy. So so we have, I mean, you have 0:12:41.000 --> 0:12:44.520 very good examples of the pitfalls that you can have 0:12:44.760 --> 0:12:50.120 in a very liberal economy. Now that's said, Brazil is 0:12:50.160 --> 0:12:56.319 getting out of almost seventy years of state driven economy 0:12:56.440 --> 0:12:58.480 and he got us what he got, So we need 0:12:59.320 --> 0:13:04.040 we need owl Maybe a neo liberal Old style or 0:13:04.120 --> 0:13:08.080 Chicago school for some time makes some sense for Brazil. 0:13:09.080 --> 0:13:12.120 There's really no precedent for the rapid liberalization of an 0:13:12.120 --> 0:13:15.840 economy the size of Brazil's South Korea in the nineties sixties, 0:13:16.160 --> 0:13:18.600 or Chiles a decade or so later. Off a few 0:13:18.640 --> 0:13:21.920 clues as to Watson Store for Latin America's largest nation. 0:13:22.640 --> 0:13:27.119 But with Brazil still struggling to recover from years of recession, corruption, 0:13:27.240 --> 0:13:30.640 and political conflict, this new government argues that it has 0:13:30.679 --> 0:13:38.640 no choice but to find out that was Priuce Douglas. 0:13:39.400 --> 0:13:41.880 Now you might remember I spoke to Larry Summers last week, 0:13:41.920 --> 0:13:45.440 the Harvard economist and former Treasury secretary and adviser to 0:13:45.520 --> 0:13:48.920 President Obama. I took the opportunity to ask him about 0:13:48.960 --> 0:13:52.280 what was going on in Brazil and also about the 0:13:52.400 --> 0:13:55.800 radical left wing prescriptions for the economy recently coming out 0:13:55.800 --> 0:14:10.839 of the US. Without getting into the details, Larry, I'm 0:14:10.840 --> 0:14:13.199 sort of interested. You had so many years when you 0:14:13.280 --> 0:14:15.040 were chief economist at the World Bank, and then were 0:14:15.040 --> 0:14:18.560 you at Treasury and helping Mexico with its debt crisis. 0:14:19.400 --> 0:14:22.760 How should we think about this kind of quite old style, 0:14:22.840 --> 0:14:26.040 if you like, pro market recipe coming to Brazil at 0:14:26.040 --> 0:14:29.160 a time when sort of that that kind of model 0:14:29.200 --> 0:14:32.880 of market policy is being so questioned elsewhere in the world, 0:14:32.880 --> 0:14:35.800 and you know, not least in the US. Not an 0:14:35.840 --> 0:14:38.920 expert on the Brazilian situation, but it seems to me 0:14:39.640 --> 0:14:44.280 that a large part of credit has been allocated by 0:14:44.360 --> 0:14:52.680 government in Brazil, with vast misallocation of capital, very substantial corruption. 0:14:53.560 --> 0:14:57.000 Levels of real interest rates that for most of the 0:14:57.120 --> 0:15:01.080 last decade were six percent or more, are real interest 0:15:01.240 --> 0:15:05.440 rates that are unlike anything we saw in the United 0:15:05.480 --> 0:15:09.920 States because of the very large government role in credit markets. 0:15:10.280 --> 0:15:14.760 I think the instinct to clean that up is probably 0:15:14.800 --> 0:15:20.880 the right instinct. I think the instinct to have pensions 0:15:20.920 --> 0:15:25.800 that are not unreasonably generous relative to people's final incomes, 0:15:26.600 --> 0:15:29.120 to be in line with the rest of the world 0:15:29.200 --> 0:15:32.280 in terms of the scale of your pensions relative to 0:15:32.360 --> 0:15:35.920 the scale of your economy, that feels like a reasonable 0:15:36.080 --> 0:15:43.520 urge to pursue in Brazil. So I think that broadly, Um, 0:15:43.720 --> 0:15:48.560 you can't judge which way an economy should move without 0:15:48.640 --> 0:15:55.440 knowing where it is. And Brazil, after eight years of 0:15:56.000 --> 0:16:01.560 really quite extreme twelve years of quite ex dream quite 0:16:01.800 --> 0:16:09.040 leftist government, really had become very much a state controlled 0:16:10.800 --> 0:16:19.480 economy with a state that was not really highly competent 0:16:20.320 --> 0:16:24.680 or able to act with complete integrity. And so I 0:16:24.720 --> 0:16:30.120 think the direction of reform that the Balston Arro administration 0:16:30.280 --> 0:16:33.760 wants to move in is broadly correct. And as I 0:16:33.840 --> 0:16:38.000 say that as someone who is very much aware of 0:16:38.080 --> 0:16:44.000 the similarities between Boston Arro and Donald Trump on many 0:16:44.080 --> 0:16:48.400 different dimensions and certainly doesn't hold a brief for either, 0:16:49.040 --> 0:16:50.800 I mean, what is interesting is that you have to 0:16:51.000 --> 0:16:53.320 the two of the most important economies in Latin America 0:16:53.440 --> 0:16:56.400 have now got new presidents who have represent a completely 0:16:56.440 --> 0:17:00.360 different approaches. In Mexico, somewhere that has had years of 0:17:00.680 --> 0:17:04.399 reform and is in a very different place in terms 0:17:04.400 --> 0:17:07.920 of the degree of liberalization and its economy. I mean, 0:17:07.920 --> 0:17:09.879 I guess can you can you sympathize there with the 0:17:09.960 --> 0:17:12.919 idea that there's a government student that now wants to 0:17:12.960 --> 0:17:15.679 have more focus on what you might call the left behind. 0:17:17.520 --> 0:17:21.720 I can sympathize with the desire to focus on the 0:17:21.800 --> 0:17:27.240 left behind. And I think that income distribution oligarchy have 0:17:27.400 --> 0:17:32.480 been real issues in Mexico for a long time. I'm 0:17:32.480 --> 0:17:35.879 not sure I can sympathize quite as well with the 0:17:36.000 --> 0:17:40.639 idea of keeping the private sector out of sectors like 0:17:40.760 --> 0:17:45.520 whale and telecommunications. I'm not sure I can sympathize quite 0:17:45.520 --> 0:17:50.840 as much with the more cavalier approach that sometimes seems 0:17:50.880 --> 0:17:54.399 to be taken to in Mexico on issues relating to 0:17:54.480 --> 0:17:58.879 property rights or enforcement of contracts. But I ain't the 0:17:58.920 --> 0:18:04.080 emphasis on investing in people, on education and kids, I 0:18:04.080 --> 0:18:07.119 think it's all quite appropriate. I had one more thing 0:18:07.160 --> 0:18:09.800 I wanted to ask you about. We've had several years 0:18:09.880 --> 0:18:14.439 of you contributing debates about macro policy, and you're very 0:18:14.520 --> 0:18:18.440 much associated with the view that we should be changing 0:18:18.440 --> 0:18:22.160 our attitude to fiscal policy, and particularly in the event 0:18:22.200 --> 0:18:26.160 of another downturn, we should have a different approach to 0:18:26.160 --> 0:18:31.240 to the sort of sustainability of of fiscal stimulus, and 0:18:31.280 --> 0:18:33.920 we should expect to rely more on fiscal policy down 0:18:33.920 --> 0:18:36.440 the road because of this situation, a very low interest 0:18:36.520 --> 0:18:38.320 rates and the fact that monetary policy is going to 0:18:38.359 --> 0:18:41.440 be constraint. And the surprise comes from people who've heard 0:18:41.480 --> 0:18:45.320 all of that. And then here you so vigorously condemning 0:18:45.320 --> 0:18:50.720 the proposals of the likes of Alexandria Cortez Um, who 0:18:50.800 --> 0:18:54.720 is also associated with sort of in a sense talk 0:18:54.800 --> 0:18:59.159 of of of fiscal stimulus and fiscal activism. Why is 0:18:59.240 --> 0:19:02.639 it so important to you to draw its distinction between 0:19:02.640 --> 0:19:06.480 those kind of radical democrat proposals and what you've been 0:19:06.520 --> 0:19:10.160 talking about over the last few years. I think it's 0:19:10.200 --> 0:19:18.880 a fair uh fair question, Stephanie. As I hear the 0:19:18.920 --> 0:19:25.400 proposals that come from the so called modern monetary theorists, 0:19:26.200 --> 0:19:29.840 there seems to be an implication that you can do 0:19:29.880 --> 0:19:34.720 whatever you want with fiscal policy if you're just willing 0:19:35.440 --> 0:19:40.320 in some appropriate way to print money. You know. The 0:19:40.359 --> 0:19:44.359 analogy I'd like to use is with um incentives and 0:19:44.480 --> 0:19:49.159 supply side economics. There was a valid recognition in the 0:19:49.240 --> 0:19:52.919 late nineties seventies that in addition to their demand effects, 0:19:53.520 --> 0:19:57.720 tax has had UM incentive effects on how much people 0:19:57.760 --> 0:20:01.240 wanted to work and save and invest and so forth. 0:20:01.280 --> 0:20:07.200 That was an important insight, but then it became UM 0:20:07.240 --> 0:20:11.639 a claim that tax cuts would pay for themselves, which 0:20:11.800 --> 0:20:16.800 was completely irresponsible with the Laugher curve. And I feel 0:20:16.840 --> 0:20:22.159 the same way about modern monetary UH theory that it 0:20:22.280 --> 0:20:25.640 takes a valid idea that you know, a low interest 0:20:25.720 --> 0:20:30.119 rate environment, more expansionary fiscal policy than we would have 0:20:30.200 --> 0:20:36.439 previously thought was appropriate UM is appropriate, and turns it 0:20:36.520 --> 0:20:41.639 into an absurd free lunch kind of idea that we 0:20:41.680 --> 0:20:47.040 don't need to think about budget constraints. But in this environment, 0:20:47.080 --> 0:20:52.680 if we have a prolonged period of super low interest rates, 0:20:52.920 --> 0:20:55.280 it is the case that we could be less concerned 0:20:55.560 --> 0:20:58.120 about I think I've been very I think I've been 0:20:58.240 --> 0:21:02.480 very clear that UH justice. People can afford to buy 0:21:02.520 --> 0:21:07.760 a more expensive house when interest rates are low than 0:21:07.840 --> 0:21:11.639 when interest rates are high. The government can afford to 0:21:11.840 --> 0:21:15.440 run a larger deficit and run up we're debt when 0:21:15.480 --> 0:21:18.800 interest rates are low than when interest rates are high. 0:21:19.280 --> 0:21:26.560 But that doesn't remove the obligation to budget and plan 0:21:27.359 --> 0:21:31.760 and make choices, and the problematic aspect of at least 0:21:32.240 --> 0:21:35.760 much of the advocacy of modern monetary theory is the 0:21:35.840 --> 0:21:40.159 suggestion that is somehow don't have to make uh choices 0:21:40.280 --> 0:21:43.679 and you don't have to plan in careful ways around 0:21:43.680 --> 0:21:54.280 your budget. And I do think that's an irresponsible idea. Now, 0:21:54.359 --> 0:21:56.440 I just have time to give you one more piece 0:21:56.440 --> 0:21:59.280 of news, and that's the announcement of the not at 0:21:59.280 --> 0:22:02.840 all cover to prize of most Miserable Economy of the 0:22:02.920 --> 0:22:08.760 Year for eighteen, as measured in the latest Bloomberg Misery Index. Now. 0:22:08.840 --> 0:22:13.080 Katarina Survivor is an economic data editor in the Global 0:22:13.119 --> 0:22:16.359 Economic Surveys team for Bloomberg, and she put this year's 0:22:16.359 --> 0:22:20.160 index together along with our Southeast Asia economy reporter Michelle 0:22:20.240 --> 0:22:23.280 jam Risco. Katerina is here with me. Now, Katarina, tell 0:22:23.320 --> 0:22:26.720 me how this index is compiled and who's top of 0:22:26.720 --> 0:22:30.280 the list, Who's most miserable for this year? Hi? Yes, So, 0:22:30.400 --> 0:22:35.720 our Misery Index is the classic combination of countries unemployment 0:22:35.840 --> 0:22:39.320 rate and inflation rate, and in our Bloomberg Index, we 0:22:39.359 --> 0:22:42.200 have sixty two countries for which we have a good 0:22:42.240 --> 0:22:45.920 amount of private sector estimates. So we're talking about banks, 0:22:46.240 --> 0:22:51.040 academic institutions, research institutions. And at the top of our 0:22:51.080 --> 0:22:56.480 list is Venezuela, which will come not as not much 0:22:56.520 --> 0:23:00.320 of a surprise. In Venezuela this year has in eye 0:23:00.400 --> 0:23:05.639 popping misery score of eight million, and that is mostly 0:23:05.760 --> 0:23:11.439 due to its extremely high inflation. I imagine that's an 0:23:11.440 --> 0:23:15.679 all time records. Yes it indeed it is in the 0:23:15.800 --> 0:23:18.840 in all the five years that we've been doing. Yes, absolutely. 0:23:19.080 --> 0:23:23.600 Um And our calculation of Venezuela's actual misery score for 0:23:23.760 --> 0:23:26.960 last year, which is based on um I m F data, 0:23:27.000 --> 0:23:30.000 because the country has not published economic data in quite 0:23:30.000 --> 0:23:33.760 a while, is just about nine hundred and thirty thousands. 0:23:33.760 --> 0:23:36.400 So you can see that that is a substantial increase 0:23:36.480 --> 0:23:39.240 even over last year's. So I guess this isn't a 0:23:39.320 --> 0:23:41.520 list that you really do want to be top off. 0:23:41.560 --> 0:23:44.000 You want to be bossom. So so who is the 0:23:44.359 --> 0:23:48.200 which is the least miserable country this year? Our least 0:23:48.240 --> 0:23:51.240 miserable country and this has been all five years that 0:23:51.280 --> 0:23:54.320 we've done this index is Thailand. They have kind of 0:23:54.600 --> 0:23:59.159 unique ways of calculating unemployment, so we don't like to 0:23:59.240 --> 0:24:03.160 focus too much on their position in this way. When 0:24:03.160 --> 0:24:05.800 you say unique, you mean they just don't count all 0:24:05.840 --> 0:24:08.800 of them? Is that yes, I think it's great. I'm 0:24:08.840 --> 0:24:13.919 not completely I'm not an expert in in the Thaie economy, 0:24:14.000 --> 0:24:19.200 but they yeah, I think they don't quite count all 0:24:19.280 --> 0:24:22.399 of the people. Or perhaps there's a bit of a 0:24:22.600 --> 0:24:27.119 shadow job market as as we see in in quite 0:24:27.119 --> 0:24:29.800 a lot of countries. So what is it? We probably 0:24:29.800 --> 0:24:34.280 wouldn't think of Thailand as the les miserable country or 0:24:34.320 --> 0:24:38.600 maybe even happiest country. But what are the other countries 0:24:38.640 --> 0:24:42.480 that appear low on this list? So we have are 0:24:42.480 --> 0:24:45.920 in our number two spot is Switzerland, um, and they've 0:24:45.960 --> 0:24:49.520 improved a bit over last year. We also have Singapore 0:24:49.640 --> 0:24:53.280 in the third spot, and then Japan, which I think 0:24:53.359 --> 0:24:55.920 also won't be too surprising to people as they have 0:24:56.040 --> 0:25:00.840 had persistently low inflation and and that's probably a country 0:25:00.880 --> 0:25:04.320 that's a good example of UM. You know, maybe this 0:25:04.320 --> 0:25:10.000 this low number is not quite a great thing. I 0:25:10.040 --> 0:25:12.639 guess that's one of those things that probably the feature 0:25:12.680 --> 0:25:15.439 of this index is that it's not so bad at 0:25:15.480 --> 0:25:20.480 capturing misery because it's combining the inflation and the unemployment, 0:25:20.480 --> 0:25:22.399 and if you've got high numbers on both, you're not 0:25:22.600 --> 0:25:24.640 likely to be in a good state as an economy, 0:25:24.680 --> 0:25:28.520 but it probably doesn't doesn't really capture what's going on 0:25:29.600 --> 0:25:32.120 further down the list, because if you've got very low inflation, 0:25:32.240 --> 0:25:34.960 you might still be quite miserable, or you certainly might 0:25:35.000 --> 0:25:39.400 have quite a slow growth, quite a stagnant economy. Exactly. Yeah, 0:25:39.480 --> 0:25:42.320 And that's been the story of the index this year 0:25:42.400 --> 0:25:45.840 because we're seeing quite a lot of countries that have 0:25:45.920 --> 0:25:49.040 improved their score, such as the US and the UK. 0:25:49.760 --> 0:25:53.280 But it's not necessarily a positive thing because both of 0:25:53.320 --> 0:25:57.359 these countries are battling pretty low inflation, and and that's 0:25:57.480 --> 0:26:02.240 not a great barometer of economic sentiment and just well 0:26:02.320 --> 0:26:06.280 being because it shows that the consumer is not as 0:26:06.359 --> 0:26:09.639 confident as perhaps consumers should be in a healthy and 0:26:09.680 --> 0:26:12.720 strong economy. And of course we have the same old 0:26:12.720 --> 0:26:16.120 debates about whether or any of these measures GDP, inflation 0:26:16.160 --> 0:26:19.639 or I think can really get to what's going on 0:26:19.720 --> 0:26:23.200 in the country and whether a real measures of well 0:26:23.240 --> 0:26:26.720 being and whether people are satisfied with life. But I 0:26:26.760 --> 0:26:31.280 do notice that you certainly it's as as is traditional. 0:26:31.440 --> 0:26:35.800 There are a lot of South American countries on this list. 0:26:35.840 --> 0:26:37.800 We don't just have Venezuela at the top, where it's 0:26:37.840 --> 0:26:41.920 extraordinary inflation rate nine. In two thousand and eighteen it 0:26:42.000 --> 0:26:46.800 had a nine twenty nine thousand percent inflation rate. But 0:26:46.880 --> 0:26:53.080 you also have Argentina in the top ten. You've got Argentina, Uruguay, Brazil. 0:26:54.040 --> 0:26:59.040 So some things don't change, yeah, exactly. And Argentina has 0:26:59.080 --> 0:27:01.879 held onto that second spot for a while as well. 0:27:02.200 --> 0:27:04.720 It looked last year like things were improving a bit, 0:27:04.760 --> 0:27:08.800 but they're now in their second recession in three years, UM, 0:27:08.840 --> 0:27:13.800 battling extremely high inflation. I mean, nowhere near Venezuela's, of course, 0:27:13.880 --> 0:27:17.600 but in March it was at fifty percent year over year. 0:27:17.720 --> 0:27:20.600 I mean that's a very high number. And the government 0:27:20.680 --> 0:27:24.240 has just rolled out some price freezes UM, I think 0:27:24.280 --> 0:27:26.840 in part to try to make things a bit easier 0:27:26.880 --> 0:27:29.959 for the consumer there. I think the past year has 0:27:30.000 --> 0:27:34.240 been one of some issues in South America again, and 0:27:34.240 --> 0:27:37.000 and it's it's kind of sad because it's in countries 0:27:37.119 --> 0:27:41.560 that UM. There. There seemed to be some good progress 0:27:42.119 --> 0:27:46.040 going on with the economies UM in the past couple 0:27:46.040 --> 0:27:48.480 of years, and that seems to have rolled back a bit, 0:27:48.880 --> 0:27:53.000 especially for Argentina and Brazil. In the years time, we'll 0:27:53.000 --> 0:27:56.119 have you back and see whether all of these reforms 0:27:56.320 --> 0:27:59.359 in Brazil have managed to take it off the top 0:27:59.400 --> 0:28:01.800 ten slope, but Katerina Surriva, thank you very much for 0:28:01.880 --> 0:28:13.520 joining us. Yes, thank you, it's a pleasure. Thanks for 0:28:13.520 --> 0:28:16.040 listening to Stephanomics. We'll be back next week with more 0:28:16.080 --> 0:28:19.280 on the ground insight into the global economy. In the meantime, 0:28:19.320 --> 0:28:22.639 you can find us on the Bloomberg Terminal, website, app, 0:28:22.880 --> 0:28:25.399