Until Europe Meets Again

Editorial do WSJ

The script could have been written in advance—Europe's leaders, meeting amid market turmoil about the consequences of failure, came together in Brussels Thursday night and Friday, and sure enough, went home declaring victory.

Broadly speaking, German Chancellor Angela Merkel got her way: The latest incarnation of the deal to save the euro involves mostly a promise by everyone to be a little more German about spending, deficits and debt. Most of the details remain to be worked out, but without an amended EU treaty the legal authority for any of it is a loose end.

On the plus side, there is no multitrillion-euro bailout fund (with Germany inevitably paying most of it), and no promise from the European Central Bank to monetize everyone's debt, either directly or laundered through the International Monetary Fund. ECB President Mario Draghi deserves at least some of the credit for upholding the central bank's independence.

Mrs. Merkel's demand of more fiscal discipline is also correct, but an agreement that offers the European Court of Justice as the enforcer is, well, amusing. What court will go toe to toe with Italian or French unions? When German rectitude meets Italian street politics, who do you think will win?

You will also look in vain for any provision addressing Europe's central problem—stagnant economic growth. If you believe, as most Europeans now do, that government spending equals economic growth, then "budget discipline" becomes mainly a bludgeon for enforcing the tax increases needed to chase high levels of spending. This will drive Europe into a long-term austerity trap. Europe needs major spending cuts and entitlement and pension reform. But outside Germany, political leaders are still holding out for an ECB rescue.

The Obama Administration has been especially unhelpful, running a quiet campaign for the ECB to crank up the presses to bail out the spenders and bond-holding banks. This U.S. interference undermines Mrs. Merkel and others seeking fiscal reform while encouraging those who think the ECB is the only way out.

We wish the Germans well in driving a hard bargain in return for writing a big check, but there is a better way. That would be to return to the euro as it was originally conceived: Countries share a currency but are responsible for their own fiscal policies, including the consequences of default.

This would require that France and Germany recapitalize their banks in the event of a major sovereign default. Interest-rate spreads among euro-zone countries would continue to be wider than before the crisis began, perhaps for many years, but this would be its own form of fiscal discipline. Spreads going forward would provide a kind of early-warning system, without the need for a new bureaucracy to enforce discipline.

No one in Europe seems to have the stomach for that. So we are stuck with these summit sequels and the certainty of more uncertainty. Meanwhile, Adam Smith's market discipline will grind on mercilessly to impose its own solution.

Políticos consultores

Rodrigo Constantino, para o Instituto Liberal

O Brasil, um país institucionalmente frágil, onde mudanças políticas podem alterar drasticamente o rumo da economia da noite para o dia, sempre teve um ambiente fértil para o trabalho de consultores políticos. Estes jamais morreram de tédio, tampouco lhes faltou clientes dispostos a pagar boas quantias para os que fossem capazes de antecipar eventos importantes ou esmiuçar os pormenores de Brasília. Várias consultorias surgiram, fazendo trabalho sério de análise e projeção.

Mas a chegada do PT ao poder contribuiu para a proliferação de um novo tipo de “profissão”: o político consultor. A ordem dos fatores, neste caso, altera o produto. Não se trata mais de profissionais sérios que vendem sua capacidade diferenciada de análise sobre o quadro político e econômico do país. Ao contrário, são os próprios políticos que se tornam “consultores” num piscar de olhos, enquanto seus partidos permanecem no poder. Algo como um interregno remunerado – muito bem remunerado –, entre um cargo e outro na política.

Enquanto os consultores políticos ralam por anos, com equipes altamente renomadas, para acumular um dinheiro suado a ser distribuído normalmente por bastante gente (análise séria costuma dar trabalho), os políticos consultores do PT fazem milhões brotarem como que num passe de mágica. O Partido dos Trabalhadores descobriu no poder os encantos do capital, mas não aquele fruto do valor criado no livre mercado, e sim aquele que vem fácil, apenas pelas portas abertas na máquina estatal que consome quase 40% de tudo que é produzido no país. Em bom português, sem eufemismos, o velho “tráfico de influência”.

A “genialidade” dos petistas no setor privado é mesmo algo incrível. Gente que atuou na política quase a vida inteira, ou que nunca foi capaz de ficar rica no setor privado, consegue acumular milhões em poucos meses dando “consultoria”. Mais alguns anos no poder e o PT será o partido dos milionários. Como tem rico ali. O pior é que ainda tem muito ingênuo espalhado pelo país que acredita no discurso de luta pelos trabalhadores, carregado de sensacionalismo contra “as elites”. O PT é a elite! Ainda que o pior tipo existente de elite: aquela sem valor ou ética.

PS: A última edição especial da “Isto É Dinheiro” fala sobre os empreendedores de 2011, e estampa na capa, entre o “time dos sonhos”, bem ao lado do banqueiro André Esteves, ninguém menos que o ministro Fernando Pimentel. Empreendedor? E não é que faz sentido?!

Bundesbank é mesmo diferente

Vale a pena ler este curto discurso do presidente do Bundesbank, Jens Weidmann. Um dos poucos na região que tem focado nos pontos realmente estruturais para resolver a crise, mirando no longo prazo. Segue um trecho:

Regarding the institutional framework, policy makers have to decide which direction monetary union is to take. As I have discussed in more detail in earlier speeches, there are in principle two conceivable options which lead to a consistent and economically sustainable framework for monetary union. The first would be a return to the founding principles, that is, taking the responsibility of individual member states in matters of fiscal and economic policy seriously. For this option, it would be necessary to strengthen the current framework in a manner that really ensures sufficient incentives for sound public finances – therefore, the no-bail-out clause is an integral part of this approach. The second option would imply a major shift entailing a fundamental change in the federal structure of the European Union. It would involve a significant additional transfer of national responsibilities to the European level, particularly in fiscal affairs. In the event that national governments do not comply with strict deficit and debt rules, they would have to delegate their fiscal sovereignty to the European level – at least temporarily. Only a clear decision for either of the two options lays the foundation to preserve monetary union as a stability union in the long run and to safeguard its role in the global economy. It is up to governments in Europe to make this decision. Hence, I welcome the German government’s attempts to press for greater political integration, including transfers of national responsibilities. Let me be clear: it will be a lengthy and arduous process requiring important legal changes. However, a credible commitment to this process could have beneficial effects right away.

What's Italian for Reform?

Editorial do WSJ

Answer: Chasing tax revenue at the expense of economic growth.

Now that Nicolas Sarkozy and Angela Merkel have announced that they will seek a new treaty to refashion economic governance in the euro zone, what remains to be seen is if the new Brussels rules are merely a rewrite of the old mindset. The "new" budget measures announced in Italy suggest the old game is far from over.

Italian Prime Minister Mario Monti unveiled a €30 billion plan Sunday to get the country's public finances under control. Unfortunately for Italy and the euro zone, Mr. Monti's measures are long on tax hikes and short on serious reform. The newly appointed premier seems intent on following Greece down the EU/International Monetary Fund-mandated road of chasing tax revenue at the expense of economic growth.

Mr. Monti's proposals come in the form of an emergency decree, which means he can start implementing them before the Parliament approves them. They include a two-percentage-point hike in the value-added tax rate to 23% (U.S. consumption taxers take note), the reinstatement of a property tax repealed in 2008, and not least a 1.5% tax on income repatriated under a previously announced amnesty program.

Set against this are an increase in the retirement age to hold down the cost of pensions for Italy's rapidly graying population and tax incentives for businesses that hire women and young people. Youth unemployment in Italy approaches 30%.

Making it marginally cheaper to expand payrolls is useful, but it does nothing to address the Italian labor market's fundamental problem—the inability of firms to lay off workers if they employ 10 people or more. The supposed right to a job for life, enshrined in Italy's Article 18, is the single biggest obstacle to rationalizing the Italian economy.

Mr. Monti's proposal to increase the retirement age to 62 for women and 66 for men, from 60 and 65, respectively, will help to slow the growth of Italy's pension bill, currently some 14% of GDP. Italy's demographics make it the second-oldest country in the world after Japan. But it will be years before the pension reform is fully phased in.

Some ideas that Mr. Monti overlooked in his initial sortie deserve serious consideration. Liberalizing entry into the retail market, where productivity is low and costs high, would help modernize an industry still dominated by small, inefficient shops. A decade ago, the planning process for approving new stores was delegated to Italy's regional governments, and the areas since deregulated have outperformed the more restrictive provinces.

The new EU treaty promised Monday by Mr. Sarkozy and Mrs. Merkel would give Brussels bureaucrats more control over national budgets, a move that is supposed to ensure better economic management within the euro zone. But the EU's economic prescriptions in the current crisis have not been encouraging. The Monti reforms merely reflect a familiar Brussels mindset that values short-term tax revenue over long-term prosperity.

Vira-latas

LUIZ FELIPE PONDE, Folha de SP

O brasileiro tem complexo de vira-lata. Adora bancar o chique falando mal de si mesmo.
Principalmente quando alguém chique (leia-se, europeu) fala mal do Brasil. Um modo específico de nosso complexo de vira-lata é achar a Europa o máximo.
Quem conhece bem a Europa e ultrapassou a caipirice de achar tudo lindo por lá sabe que os europeus são (também) arrogantes, metidos, preconceituosos e exploradores e pensam, ainda hoje, que somos uns "índios" mal alimentados, ignorantes e mal-educados.
Claro que há exceções, portanto, não se faz necessário que europeus me escrevam jurando que são legais, ou que seus avós são legais, ou que seus cachorros são criados com todos os direitos humanos, mesmo porque, apesar de que isso não é sabido, ninguém pode ajuizar sobre sua própria virtude.
Lamento pela gente que se julga "crítica e consciente", mas todo mundo que se acha legal por definição é um mentiroso.
Se você for uma leitora que um dia mochilando pela Europa transou com um europeu (europeus costumam adorar brasileiras, porque acham nossas mulheres fáceis e doces, coisa rara nas mulheres europeias de hoje em dia, que a cada dia se tornam mais chatas, competitivas e estéreis), não confunda o papo que teve com ele antes do coito com o fato de que os europeus nos acham subdesenvolvidos. Inclusive porque para eles você é fácil porque é subdesenvolvida.
Sim, achar a Europa o máximo é coisa de gente caipira e brega. Se você pensa assim, tome um remédio. Ou minta.
Recentemente, um intelectual europeu em visita ao Brasil fez críticas ao país. Nada que não saibamos sobre nós mesmos. Mas, logo, alguns intelectuais e artistas vira-latas tiveram um orgasmo porque o "sinhozinho" falou mal das "zelites".
Sim, a elite brasileira pode ser bem brega na sua condição de elite de colônia. E horrorosa na sua ignorância "luxuosa". Aqui, ostentação é destino. Pessoas educadas sabem que a felicidade (seja lá no que for) deve ser guardada a sete chaves. Só gente brega "mostra" que é feliz. Neste caso, um toque de melancolia é elegância.
Por exemplo, o hábito de cultuar restaurantes pretensiosos como "de Primeiro Mundo" porque são caros é comum entre nós.
Dizer que você esteve em tal restaurante "caríssimo" (sempre pretensioso) é atestado de breguice. Mas julgar alguém "superinteligente" porque vem da Europa também é brega.
É fácil posar de "culto e crítico" e ficar horrorizado com nossas injustiças sociais quando se teve a chance de ganhar muito dinheiro ao longo da história à custa das injustiças sociais dos outros. Europeu que se faz de rogado pela injustiça no mundo só cola em vira-lata.
Por outro lado, se a riqueza cultural europeia é óbvia, e não se trata de negar este fato, ela se deve em grande parte às injustiças sociais europeias do passado e não ao seu "estado de bem-estar social" atual. Este tipo de "estado" produz apenas banalidades e monotonias de classe média.
Uma grande falácia é supor que injustiça social e riqueza cultural sejam excludentes, pelo contrário. Ou que justiça social produza necessariamente originalidade intelectual.
Não sou um "patriota", patriotismo é para canalhas. Calabar -que optou pelos holandeses em detrimento dos portugueses no Pernambuco colonial- pode ter razão. Falo aqui apenas de nosso complexo de vira-lata.
É muito comum que grandes intelectuais estrangeiros venham a nossa terra inculta e falem um "feijão com arroz" básico supondo que somos ignorantes mesmo e por isso não precisam suar a camisa diante de nossas plateias que sacodem seus ouros, exibem seus decotes e orelhas de livros.
Já vi isso acontecer várias vezes. Também no mundo acadêmico isso acontece, não só no mundo da filosofia de luxo.
Um grande professor que tive e que vive na Europa há anos me disse certa feita que até hoje os europeus não acreditam que "na volta das caravelas que colonizaram as Américas" pode haver algum "índio" que seja igual ou melhor do que eles.
A afetação moral em europeus não é muito diferente da afetação intelectual de nossos decotes de marca.

Chávez's 40-Year Plan to Conquer Vice

By MARY ANASTASIA O'GRADY, WSJ

Venezuela's Hugo Chávez says his Bolivarian Revolution needs more time to produce its utopian fruits. "We barely have 10 years here," he told a crowd of supporters in Caracas last week. "We will take it to 10 more and 10 more and 10 more to construct the new social virtues."

In that time, Mr. Chávez pledged, "we will deepen the socialist revolution: socialism, socialism and more socialism. We have to deepen the struggle and defeat the vices of the past that still persists among us: violence, insecurity, corruption, selfishness, individualism."

Considering that the human condition hasn't changed much since we got kicked out of the garden, a 40-year plan to conquer vice seems pretty ambitious. But Mr. Chávez has never suffered a lack of self-confidence. Of course being an individual is hardly a vice. On the other hand, notably absent from his list was another perennial transgression that has yet to be defeated in Venezuela: the central bank's sinful practice of printing money to finance the government.

Double-digit inflation has been the Venezuelan norm for decades. An annual rate below 20% since 1987 has been the exception; this year the International Monetary Fund expects a 25% increase in the price level.

Of course Mr. Chávez does not blame the central bank for inflation. In his school of economics rising prices are caused by producers, suppliers and merchants, who control the availability of goods and continually charge more for their products so that they can have a fatter profit. The solution to this injustice against the consumer, according to chavismo, is price controls. When they don't work, the answer is more of the same.

It was 2003 when the Chávez government introduced its first big wave of price controls. That year inflation exceeded 31%. Since then prices have been frozen on a wide variety of food items—meat, corn flour, rice, bread, sugar, coffee, powdered milk, cooking oil—and a host of other products and services, including cement and building materials, domestic air travel, private education and medical clinics. The main effect is that many items that used to be readily available are now scarce. Yet inflation stubbornly persists.

The inflation tax hits the poor the hardest and they are Mr. Chávez's most important constituents. Thus, in August he officially redoubled his efforts to control inflation by decreeing the "law of costs and fair prices." This sweeping new legislation creates a regulator charged with monitoring what consumers are charged, analyzing those charges by researching the cost of production and setting "just" prices. An army of 4,000 apparatchiks will make up "committees" that will fan out around the country to report and denounce noncompliance. Hoarders, speculators or anyone found guilty of price gouging will be prosecuted. Offenders can be fined, lose their property, be banned from commerce, and even go to jail.

Among Mr. Chávez's more amusing traits—providing you don't live in Venezuela—is his unshakable belief that he can dictate what the Austrian classical-economist Ludwig Von Mises called "human action." Thousands of years of experience suggest otherwise, most recently in the Soviet Union. But never mind. It is Venezuela's destiny to suffer central-planning hubris all over again.

Mr. Chávez recognizes at least some limitations. He knows he cannot decide, from the commanding heights, every price in the Venezuelan economy on day one. So his latest effort will start small. On Nov. 22 his government added 19 new products, mostly in the area of personal hygiene and home-cleaning, to the list of items with frozen prices. By Dec. 15 regulators will have analyzed the cost to make these products—advertising and marketing costs not included—and will decide what they should be sold for. Once those prices are set, the bean counters will move on to other goods.

Mr. Chávez has asked the regulators to keep a close eye on foreign-based companies like Colgate-Palmolive, Pepsi, Coca-Cola, Nestle, GlaxoSmithKline, and Johnson and Johnson. The Italian milk company Parmalat, now controlled by the French Lactalis Group, has already been accused of hoarding. But the large Venezuelan food producer Polar is also in Mr. Chávez's cross-hairs.

Putting aside the absurdity of government bureaucrats overruling the laws of supply and demand, there is also the problem that many producers require dollars—which are not available at the official exchange rate—to pay for imported inputs. If the state insists on using the artificially strong Bolivar exchange rate to calculate costs, the vast majority of producers will either be judged guilty of overcharging or go out of business.

Consumers are anticipating what will ensue. In recent weeks the local press has reported that shops have been cleaned out of many price-controlled items. Sources say that products that are hard to find in stores can usually be purchased from street vendors at market prices.

In the meantime the government is feeding inflation by ramping up spending ahead of the election. Maybe Mr. Chávez will need more than 40 years to cure original sin.

Realismo e utopia

Meu novo artigo para o OrdemLivre.org sobre os perigos da utopia, com base no livro "Missa Negra" de John Gray.

China's Hard Landing

Editorial do WSJ

The state-led growth model is leading the country into trouble

The People's Bank of China's surprise announcement Wednesday of a half percentage point cut in banks' required reserve ratio is an admission that the economy is facing stiff headwinds. Consumer price inflation remains relatively high at 5.5%, and the true level of inflation as reflected in the GDP deflator is probably closer to 10%.

Most analysts expected monetary easing to start next year when inflation had subsided further. But then most China analysts were predicting a "soft landing" for the economy. The data in recent days suggest the stagflation trend will continue and the landing may be bumpy.

Property prices have fallen for three consecutive months and the trend is accelerating. HSBC's and the government's own purchasers managers' indices of corporate sentiment took a big tumble in November, falling into negative territory for the first time since early 2009. This time China can't export its way out of its domestic problems, since external demand is shrinking.

China is a poster child for the Austrian school of economics' theory of the business cycle. After undertaking the biggest stimulus program the world has ever seen in response to the global financial crisis, the country is drowning in unproductive investments financed with credit.

The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S.

Now comes the hangover. The public works projects are winding down, unleashing a wave of unemployment and an uptick in social unrest. The banks' nonperforming loans are rising, and local governments are insolvent. The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere.

One effect of negative real interest rates was a nationwide bubble in private housing, with the average price of an urban apartment reaching eight times the average annual income. Real estate is the most popular investment for the wealthy, according to a central bank survey in September. Millions of luxury apartments are vacant, even as there is a shortage of affordable housing for the poor.

Property construction became "the most important sector in the universe," in the words of UBS economist Jonathan Anderson. It directly accounts for about 13% of the economy, 20% if one includes related industries like concrete and steel. It also provided 40% of local government revenues through land sales.

Worsening inflation forced the government to put on the brakes this year. As with most property busts, transactions dried up, followed by a free fall in prices. Land prices were down 60% year on year in September. Property developers are slashing prices of new homes to stave off bankruptcy.

Beijing recognizes the dangers of a property bubble and deliberately popped this one by telling banks to cut back loans to developers. The government seems to be determined to force some of the smaller developers to the wall, both to force consolidation in the industry and convince the remaining developers to get on board with the state-run program of building low-income housing.

Earlier this year banking regulators conducted stress tests that supposedly showed the financial system can withstand a 40% fall in property prices. Loans to developers and mortgages account for about 20% of the banks' loan books. But since the health of the wider economy is tied to property, China could face a scenario close to that of the U.S. in recent years. Because the private market for housing was tiny 10 years ago when the current boom began, the country has never experienced a broad-based decline in property prices.

The government and the more sanguine analysts say low-income housing construction will pick up the economic slack, as activity at the top end of the market contracts. The problem is that even if the government meets its goals, the program is still too small to save the economy. Barclays estimates that it will contribute one percentage point to growth in 2011, and 0.5 percentage points in 2012.

There is no easy way to avoid the bust that is coming. The silver lining is that China's increasingly state-led growth model will be discredited, and a debate will begin on restarting the reforms that stalled in the mid-2000s. A financial sector that allocates credit based on politics rather than price signals led China into this mess. Popular pressure to dismantle crony capitalism is building, and the Communist Party would be wise to get in front of it while it can.

Bomba demográfica

Rodrigo Constantino, para o Instituto Liberal

O jornal O Globo estampa em sua página: “Expectativa de vida subiu 11 anos desde 1980”. A expectativa de vida do brasileiro alcançou 73,48 anos em 2010, segundo pesquisa divulgada pelo IBGE. Com os avanços da medicina mundial e com o crescimento econômico, os brasileiros podem viver mais tempo, apesar de ainda estarmos distante da média dos países mais desenvolvidos.

A contrapartida desta boa notícia é o aumento do rombo na Previdência Social. Com os brasileiros cada vez vivendo mais, e com um modelo de aposentadoria ineficiente, o tamanho do buraco à frente só tende a crescer. Hoje, a demografia ainda joga a favor, pois o Brasil é um país jovem. Mas este “bônus demográfico” não será eterno. Em coisa de uma década, a fotografia já será muito diferente. Teremos uma quantidade bem maior de aposentados em relação à população economicamente ativa. As contas previdenciárias serão insustentáveis com base no modelo atual.

O problema é que mexer em algo cujo impacto negativo ocorrerá apenas dentro de uma década exige a postura de um estadista, que foca nas próximas gerações e não nas próximas eleições. Não é razoável esperar tal postura deste governo, que já deu inúmeras provas de ser extremamente populista e só pensar na perpetuação do poder, custe o que custar. Em outra reportagem de O Globo, por exemplo, o jornal destaca: “Transferência de renda é gasto que mais cresce”.

Este é um governo que não faz reformas estruturais, que não investe nem facilita a vida dos investidores, e que criou uma bomba-relógio com seus mecanismos populistas de transferência de renda e crédito. Para piorar, fomos lançados de volta no tempo pelo ministro Guido Mantega, com pacotes quase semanais no afã de controlar todas as variáveis econômicas de cima para baixo. Surfamos a onda chinesa com o auxílio da abundância de capital no mundo, mas não fizemos nada para colocar a economia em uma trajetória sustentável de elevado crescimento.

O custo do desgoverno petista não será alto apenas no quesito da ética, com um grau de corrupção nunca antes visto na história do país (o Brasil ocupa a 73ª posição em uma lista composta por 183 países no ranking de corrupção da ONG Transparência Internacional). O custo será econômico também. Os míopes ainda não conseguem enxergar isso, pois só olham as árvores, mas não a floresta.

Quando a economia chinesa desaquecer de forma mais acentuada, quando o custo do capital voltar a subir no mundo, ou quando nossa demografia deixar de ser tão favorável, aí a tragédia grega vai parecer brincadeira de criança perto da crise que o Brasil enfrentará. As sementes foram plantadas pelo governo petista.

Entrevista na rádio Roquette Pinto

Minha entrevista na rádio do governo do Estado do Rio de Janeiro sobre o lançamento do meu novo livro, LIBERAL COM ORGULHO.