Tag: brazil

Rio’s Olympic Disaster

“The legacy of the Rio Olympics is a farce,” writes sports columnist Nancy Armour in USA Today. She continues:

The closing ceremony was six months ago Tuesday, and already several of the venues are abandoned and falling apart. The Olympic Park is a ghost town, the lights have been turned off at the Maracana and the athlete village sits empty…. the billions that were wasted, the venues that so quickly became white elephants, the crippling bills for a city and country already struggling to make ends meet…

She notes that more and more cities are realizing that Olympic games are glamorous but not economically sound. I made that point two years ago when Boston withdrew its bid to host the 2024 Summer Olympics:

Columnist Anne Applebaum predicted a year ago that future Olympics would likely be held only in “authoritarian countries where the voters’ views will not be taken into account” — such as the two bidders for the 2022 Winter Olympics, Beijing and Almaty, Kazakhstan.

Fortunately, Boston is not such a place. The voters’ views can be ignored and dismissed for only so long.

The success of the “10 people on Twitter” and the three young organizers of No Boston Olympics should encourage taxpayers in other cities to take up the fight against megaprojects and boondoggles — stadiums, arenas, master plans, transit projects, and indeed other Olympic Games.

I cited then some of the evidence about the impact of the Olympics on host cities:

The critics knew something that the Olympic enthusiasts tried to forget: Megaprojects like the Olympics are enormously expensive, always over budget, and disruptive. They leave cities with unused stadiums and other waste.

E.M. Swift, who covered the Olympics for Sports Illustrated for more than 30 years, wrote on the Cognoscenti blog a few years ago that Olympic budgets “always soar.”

“Montreal is the poster child for cost overruns, running a whopping 796 percent over budget in 1976, accumulating a deficit that took 30 years to repay. In 1996 the Atlanta Games came in 147 percent over budget. Sydney was 90 percent over its projected budget in 2000. And the 
Athens Games cost $12.8 billion, 60 percent over what the government projected.”

Bent Flyvbjerg of Oxford University, the world’s leading expert on megaprojects, and his co-author Allison Stewart found that Olympic Games differ from other such large projects in two ways: They always exceed their budgets, and the cost overruns are significantly larger than other megaprojects. Adjusted for inflation, the average cost overrun for an Olympics is 179 percent.

In the latest edition of Cato Policy Report, Flyvbjerg examined “the ‘iron law of megaprojects’: over budget, over time, over and over again.”

Brazil has great resources, great ambitions, and great problems, including a vast corruption scandal that has taken down numerous public officials including President Dilma Rousseff. But the lives of its people will not improve through grandiose projects. Brazil needs financial reform, tax and regulatory reform, fiscal reform, and more. Megaprojects are not the road to prosperity.

Privatize to Drain the Swamp

The new mayor of São Paulo is showing the way if President Trump wants to follow through on his “drain the swamp” pledge. According to today’s Wall Street Journal:

The multimillionaire star of the Brazilian version of “The Apprentice” TV show, who took over as São Paulo’s mayor this month, is set to embark on the biggest municipal privatization drive in the country’s history.

João Doria, who won a landslide victory in October and has drawn comparisons to U.S. President Donald Trump, said in an interview with The Wall Street Journal he plans to sell off everything from São Paulo’s carnival venue to rights to the city’s cemeteries, aiming to raise more than 7 billion reais (about $2.2 billion).

The plan by the businessman-turned-mayor comes as Brazil looks to shrink its cumbersome and graft-ridden government apparatus in the wake of a vast corruption scandal that has destroyed voters’ faith in traditional politicians.

“The heavy role of the state is one of Brazil’s most serious problems—it is inefficient and it invites corruption,” said Mr. Doria.”

The problem is the same in the United States, and so is the solution.

Proposed Spending Cap in Brazil Could Be a Key for Economic Recovery and Renaissance

One of the most remarkable developments in the world of fiscal policy is that even left-leaning international bureaucracies are beginning to embrace spending caps as the only effective and successful rule for fiscal policy.

The International Monetary Fund is infamous because senior officials relentlessly advocate for tax hikes, but the professional economists at the organization have concluded in two separate studies (see here and here) that expenditure limits produce good results.

Likewise, the political appointees at the Organization for Economic Cooperation and Development generally push a pro-tax increase agenda, but professional economists at the Paris-based bureaucracy also have produced studies (see here and here) showing that spending caps are the only approach that leads to good results.

Heck, even the European Central Bank has jumped into the issue with a study that reaches the same conclusion.

This doesn’t mean balanced budget requirements are bad, by the way, but the evidence shows that they aren’t very effective since they allow lots of spending when the economy is expanding (and thus generating tax revenue). But when the economy goes into recession (causing a drop in tax revenue), politicians impose tax hikes in hopes of propping up their previous spending commitments.

With a spending cap, by contrast, fiscal policy is very stable. Politicians know from one year to the next that they can increase spending by some modest amount. They don’t like the fact that they can’t approve big spending increases in the years when the economy is expanding, but that’s offset by the fact that they don’t have to cut spending when there’s a recession and revenues are falling.

From the perspective of taxpayers and the economy, the benefit of a spending cap (assuming it is well designed so that it satisfies Mitchell’s Golden Rule) is that annual budgetary increases are lower than the long-run average growth of the private sector.

And nations that have followed such a policy have achieved very good results. The burden of government spending shrinks as a share of economic output, which naturally also leads to less red ink relative to the size of the private economy.

But it’s difficult to maintain spending discipline for multi-year periods. In most cases, governments that adopt good policy eventually capitulate to pressure from interest groups and start allowing the budget to expand too quickly.

That’s why the ideal policy is to make a spending cap part of a nation’s constitution.

That’s what happened in Switzerland early last decade thanks to a voter referendum. And that’s what has been part of Hong Kong’s Basic Law since it was approved back in 1990.

Unsettling Cotton Settlement at the WTO

Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.

Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one’s own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.

The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer’s opinion:

Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.

While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it’s pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level.  But when aggregated across programs, the costs to individuals become more significant. It’s death by 10,000 cuts.

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Obama’s Trip to Latin America

As Ted Carpenter notes below, President Obama is departing on an important trip to Latin America. The countries that he will visit exemplify the macroeconomic stability and advancement of democratic institutions now found in much of the region.

Brazil, by far the largest Latin American economy, has enjoyed almost a decade of sound growth and poverty reduction. Chile is the most developed country in the region thanks to decades of economic liberalization, a process that has also made it Latin America’s most mature democracy. And El Salvador is undergoing a delicate period in its transition to becoming a full-fledged democracy with its first left-of-center president since the end of the civil war in 1992.

In an era when most Latin American nations are moving in the right direction—albeit at different speeds, with some setbacks, and with notable exceptions—the United States can serve as a catalyst of change by contributing to more economic integration and the consolidation of the rule of law in the region.

Unfortunately, despite President Obama’s assurances that he’s interested in strengthening economic ties with Latin America, his administration is still delaying the ratification of two important free trade agreements with Colombia and Panama. President Obama also continues to support a failed war on drugs that significantly exacerbates violence and institutional frailty in the region, particularly in Mexico and Central America.

It’s good that President Obama’s trip will highlight significant progress in Latin America, but his administration’s policy actions still don’t match the U.S. goals of encouraging economic growth and sound institutional development in the region.

Obama’s Latin America Trip

President Obama’s trip to Latin America is likely to focus on economic topics, but two security issues deserve scrutiny during his stops in Brazil and El Salvador. 

Washington’s diplomatic relationship with Brazil has become somewhat frosty, especially over the past year.  U.S. leaders did not appreciate Brazil’s joint effort with Turkey to craft a compromise policy toward Iran’s nuclear program.  The Obama administration regarded that diplomatic initiative as unhelpful freelancing.  And when Brazil joined Turkey in voting against a UN Security Council resolution imposing stronger sanctions on Tehran, the administration’s resentment deepened.  Obama should not only try to soothe tensions, he should shift Washington’s policy, express appreciation for Brazil’s innovative efforts to end the impasse on the Iranian nuclear issue, and consider whether the milder approach that the Turkish and Brazilian governments advocate has merit.

In El Salvador, worries about Mexico’s spreading drug-related violence into Central America are likely to come up.  El Salvador and other Central American countries are seeking a bigger slice of Washington’s anti-drug aid in the multi-billion-dollar, multiyear Merida Initiative.  President Obama should not only resist such blandishments, he should use the visit to announce a policy shift away from a strict prohibitionist strategy that has filled the coffers of the Mexican drug cartels and sowed so much violence in Mexico, and now increasingly in Central America as well.  Prohibition didn’t work with alcohol and it’s not working any better with currently illegal drugs.

Bribes to Brazil to Continue

An amendment to end what Congressman Barney Frank (D-MA) rightly called “lunacy” failed this afternoon in a depressing show of cowardice on cotton subsidies. The amendment [Amendment No. 89] would have ended payments to Brazilian [yes, sic] cotton farmers that cost U.S. taxpayers $150 million a year.  The House rejected the amendment 183 to 246. 

Republicans – those stalwart fiscal conservatives! – voted 75 in favor and 164 against. The Democrats showed more courage and voted in favor of the amendment 108 to 82. (These numbers are according to C-SPAN; I will post an update if they prove to be incorrect).

The deal on cotton is one of the more shameful aspects of U.S. trade policy. As I blogged last year, U.S. taxpayers are paying millions of dollars to Brazilian farmers in a deal to ward off retaliatory tariffs Brazil has the right to impose on U.S. goods. That right was granted them by the World Trade Organization in the face of the United States’ continued failure to bring its cotton subsidy program into line with its obligations to other WTO members. Rather than cut off the subsidies to the powerful cotton lobby, though, the United States Trade Representative instead opted to do a deal with the Brazilian government.  (No bribes for the poor African cotton farmers also harmed by the price-suppressing effects of U.S. subsidies, though.)

The Hill article (linked to in the first paragraph of this post) points out that some members (presumably the Republicans who voted against the amendment) were concerned that ”the move [to cease the payments to Brazil] could create a trade war if Brazil decided to retaliate.” It doesn’t seem to occur to those concerned members that one way to avoid a trade war would be to abide by international obligations and cease subsidizing U.S. cotton farmers. It would also shave a few million from that huge deficit about which they profess to be concerned.