BRAZIL-The genius of Einstein

..goes beyond Theoretical Physics!

Albert Einstein’s genius allowed him to forecast gravitational waves 100 years before the technology to measure them had been developed. His forecast was based solely on mathematical conjecture, and most importantly he was right!

However, Einstein has also contributed other areas outside the realm of phyics;

• He observed that when technology overtakes humanity the world will be governed by idiots;
• He observed that you cannot solve a problem by employing the same mindset that created it.

We can verify his first observation by simply entering any public place that provides WiFi and see people sitting together each consulting his/her “smartphone” and texting conversations in total silence or occasionally giggling. One wag showed a sign posted in one such place that apologetically advised patrons that the WiFi system was “down” and patrons would have to “talk” to each other until it was back on line.

His second observation can be most easily verified by the fact that the various reforms now under consideration by the current administration in Brazil were actually proposed in the early 1980s. They have been sitting around ever since as one kleptocratic government after another continued to pursue populist policies. The one exception was the Real Plan that managed to attack one major underlying problem: inflation; the “mother” of many of the other problems that plagued the economy. 

The Real Plan was necessary but not sufficient to make Brazil more efficient. It did, however, create a huge base from which to implement other reforms, ostensibly with the support of a 40-million-member “new middle class” that was created with the Plan.

Now for my regular diatribe:

The deterioration of the economy shows signs of accelerating. Consider the following:

• General Motors announced that it is analyzing the wisdom of cancelling its investment plans in Brazil. The investment of R$6.5 billion is scheduled to start in 2017 with a two-year execution timeline to 2019. I don’t think it’s necessary to repeat the reasons given by the company’s management. They are well known and have been forecast for the past 5 years (at least).
• The Mexican subsidiary of Mabe (that in Mexico exports 70% of its output to the USA) has shut down operations after its 10 February bankruptcy. The company in Brazil manufactured white goods (notably stoves, refrigerators and washing machines) for the GE and Dako brands. It had not paid workers’ salaries since December and the press reported that it skipped out on its worker indemnity obligations and other debts. Labor indemnity obligations are not subject to a statute of limitations so the company cannot return to Brazil without coming up with the indemnity payments. Since Mexico is a member of the proposed Transpacific Partnership (TPP) it is likely than any new ex-Mexico manufacturing by Mabe will be in Asia.
• In an interview in today’s Estado de São Paulo, the chief economist of Banco Itaú announced that Brazil could drop directly into the 3^rd Division (using a football analogy). In baseball terminology it would be immediately reverting to the status of a minor league team in a small US city. It was Banco Itaú’s president who suggested that Brazil’s growth in 2016 could contract by as much as 5%. (As of this writing that might turn out to be the “best case” scenario!)
• It was reported recently that in 2015 some 100,000 small businesses shut down in Brazil. Unemployment has moved up a couple of notches to 9% (9.1 million people out of work).
• The situation in local government is even worse. Every time it rains municipalities are flooded and millions of dollars are lost to the lack of adequate urban storm sewer infrastructure. (So much for the song, "Pennies From Heaven"!)

Meanwhile, the administration continues to pay lip service to “fiscal reform” – so much so that the official prediction for GDP growth in 2016 is -2.49%. (Now THERE is a best case scenario that stands not a chance of materializing!) 

There is no lack of projects, promises, and hubristic planning (remember the high speed train ro Rio, the urban train in São Paulo to encircle the city and connect with other systems – e.g. subway and buses, the plan to irrigate the parched interior of the Northeast with water transferred from the São Francisco River, or the construction of electric generating stations without the requisite transmission lines?)

As Freud has observed, don’t judge solely what a patient says but also what he/she actually does. You can then analyze the difference and arrive at a diagnosis.

Thanks, doctors Einstein and Freud!