Tuesday, July 26, 2011

South America is Learning the Economic Lessons North America is Forgetting

If Peru Can Learn, Why Can't the U. S.?

The economies of South American generally have fallen into two categories.  In one categories a right wing dictatorship existed, supported by the military.  The economies were liassez-faire capitalism, but in reality a very small, very wealthy, very powerful class of families controlled the ecnomy, and the rest of the society lived primarily at the subsistence level.

In the other extreme was a left wing, populist economy and political system.  Stringent control of the economy, corruption and excessive protectionism and regulatory enforcement strangled the growth and development of the country.  The left wing governments survived by supporting the large majority of impoverished people with government jobs, handouts and welfare.

Neither of these two systems brouight economic growth and prosperity.  The mold was broken in the early 2000’s when Luís Inácio Lula da Silva became President.  Mr. Lula realized that to grow the economy neither model would work.  So his regime became noted for breaking barriers to private capitalism and investment.  At the same time he invested state resources heavily in the poor, with the primary goal to lift them out of poverty and into the middle class.

In fact, the wealthy have also grown.  This has not been class warfare, it has been a war against povery, and poverty, at least in Brazil,  is losing.

The Brazilian models is so much of a success  that Peru’s new President is expected to move from the radical left to the center, and adopt the model of Brazil rather than the model of Venezuela, which still holds to the old left wing model and consequently is suffering from economic disaster, despite massive oil resources.

The contrast of course is with the United States.  In Brazil over 30 million people have left poverty and the wealthy are even better off.  In the U. S.

In 2009, 14.3 percent of all persons lived in poverty.  In 1993 the poverty rate was 15.1 percent. Between 1993 and 2000, the poverty rate fell each year, reaching 11.3 percent in 2000

Here the distribution of gains in the economy has been heavily skewed towards the wealthiest citizens.  The result, well what do you think all this job crisis and budget crisis and debt crisis is all about.

And speaking of the deficit/debt ceiling issue unless economic policy fosters economic growth, all those rosy projections about cutting the deficit if the government just cuts spending, well they ain’t going to happen.  The only true, sustainable method for cutting the deficit is long term economic growth.

Chart: Benefits of the boom
“In the past 10 years, the income of the poorest 50 per cent of the population grew 68 per cent in real per capita terms while the income of the richest 10 per cent grew by 10 per cent,” says Professor Marcelo Neri of the Getulio Vargas Foundation (FGV) and the co-ordinator of a large-scale study on Brazil’s new middle class.

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