Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (6 page)

There is already some rough statistical evidence that Brazil has begun to eclipse the United States in terms of upward mobility. As a result of rapid economic growth, almost 40 million Brazilians rose out of poverty in the first decade of the twenty-first century. Meanwhile, 5.4 million Americans sank into poverty according to official statistics during the first year of the Obama presidency. When economies are vibrant, jobs are plentiful, and poverty shrinks. Unfortunately, the recent history of job growth in the United States does not encourage optimism about successful realization of the American Dream going forward. According to the Bureau of Labor Statistics, the United States lost 115,000 jobs during the past decade while Brazil gained 15,023,633. On a population-adjusted basis, the United States would have needed to create 25 million jobs to keep pace with Brazil.

Notwithstanding all the trillions that have been mobilized by the Bush and Obama administrations for stimulus programs and bailouts, the collapse of the greatest credit expansion in world history implies a serious depression. Most politicians and many economists seem not yet ready to face the fact that attempts at intervention to prevent liquidation after past credit cycle collapses have been singularly unsuccessful.

Trillions of dollars have been created and spent since the bankruptcy of Lehman Brothers ignited a global solvency crisis, but little of it has landed in the hands of consumers. The shape of the bailouts has been determined by the imperative in a debtist system
28
to rescue the banks in order to keep credit expanding.

Contrary to the naive assumption that leaders today are far more clever than those who presided over the Great Depression after 1929, statistical measures of the downturn, from unemployment to industrial production to world trade, are either tracking to the trajectories after 1929, or are worse. Far from assuring recovery, I believe that the massive interventions organized first by George Bush, and now by Barack Obama, virtually assure a catastrophic climax to the balance sheet recession now underway.

Much as the Great Depression of the 1930s marked the end of British hegemony, the current depression will mark the end of American economic dominance, leading to a much-rumored new world order. The United States emerged triumphant from the economic upheavals that marked the eclipse of the British Empire. The United States has dominated the world's economy and reigned supreme as the leading military power ever since.

After replacing the pound sterling as the world's dominant currency, the U.S. dollar has enjoyed uncommon advantages as the reserve currency and unit of account for international trade. The dollar's special position has permitted U.S. consumers to enjoy a standard of living 7 to 8 percent higher than they earned, as trade surplus countries have been trapped into recycling their dollars back into the United States.

Or, to put the matter another way, in a world of competitive devaluation, surplus countries have been tempted to buy ever-larger quantities of dollars in order to forestall the appreciation of their currencies.

In my view, there is a high likelihood that living standards that were inflated by decades of easy money will be deflated in the years to come as the North Atlantic economies are deleveraged. This is not easy to accept. For four decades after 1965 the economies of the G-7 countries accounted for an average of 65 percent of global GDP at market exchange rates. This remarkably stable performance, never varying by more than 3 percentage points, fostered an illusion that the prosperity of the developed, temperate zone nations was a permanent feature of the global economy. But this began to change in the first decade of the twenty-first century.

The prevailing world order is coming to an end, although not all at once. The question is what comes next? Many bets today would be that China will emerge as the new dominant power, and so it may, but unless you are ethnic Chinese, the rise of China is unlikely to afford you many opportunities. My argument focuses on another of the rapidly growing BRIC economies, Brazil, as likely to become the new venue for economic opportunity in a changed world.

All the BRIC economies are better situated to compete than the conventional wisdom would have imagined before the credit collapse. Even the Goldman Sachs forecast of 2001, which first projected Brazil, Russia, India, and China to become dominant by the year 2050, failed to anticipate many of the current strengths that have been brought into focus in the wake of the Lehman Brothers collapse and the severe crisis in the United States, the UK, Europe, and Japan.

The levels of debt raised by the developed nations to bail out their insolvent banking systems are crippling compared to the emerging BRIC nations. According to International Monetary Fund forecasts, by 2014 the average national debt of economies in the developed world is expected to be more than 114 percent of GDP (up from 78 percent in 2006).

The forecast for the emerging BRIC economies including China is just 35 percent, down from 38 percent in 2006. Note, however, that China's banking system has been weighed down by aggressive lending since 2008; much of it to backward, state-run enterprises at sums that approach 60 percent of GDP.

In addition to everything else they have going for them, two of the BRIC countries, Brazil and India, have much more favorable demographics than the United States, much less Europe and Japan. Over the long term, the three drivers of economic growth are free markets, access to energy, and population demographics.

Brazil's energy profile is arguably the most favorable to growth of any of the leading emerging economies. As we explore more thoroughly in coming chapters, Brazil is not only energy independent; it also has vast reserve capacity for energy production. This includes a reserve of up to 120 billion barrels of oil as well as the world's largest untapped hydroelectric potential. Brazil also takes more advantage of solar power than any of the other BRIC countries. Brazil, alone of the major emerging powers, is a tropical country. The average American uses more energy to heat his home than the average Brazilian uses for all purposes.

Franco Modigliani won the 1985 Nobel Prize in Economics partly for his life cycle hypothesis, which states that spending and savings patterns are predictable functions of age demographics. In other words, Modigliani's hypothesis is basically that the age distribution of the population largely determines the health and robustness of an economy. To the extent that Modigliani was correct, a major driver of the health of any country's economy is the number of its citizens who are in their peak earning and spending years. In that case, Brazil is at a competitive advantage to the United States and all the hitherto advanced economies for demographic reasons in addition to the other reasons that people write about.

Claus Vogt, editor of
Sicheres Geld
and author of
The Global Debt Trap
, agrees, saying that—other things being equal—the country with the youngest population will experience the biggest growth in the future, as it will have the highest percentage of productive people in the days ahead.
29
Unlike the United States, Brazil did not have a Baby Boom age bulge after World War II. Consequently, Brazil is not now facing the prospect that younger generations will have to support a disproportionately large number of retirees. The younger cohorts of Brazil's population are proportionately much larger than their counterparts in the United States.

This is another important reason why America's potential is destined to be fulfilled in Brazil in this century. As Richard Jackson, director and senior fellow at the Global Aging Initiative, told the White House Conference on Aging in 2005, “Countries with slowly growing workforces may have slowly growing economies. . . . ”
30
Indeed, Daniel Arnold, demographer and author of
The Great Bust Ahead
, says that the aging of America points to a major depression. Arnold claims that the stock market (DJIA) has closely tracked the 45-to-54-year-old cohort of Americans for over a century. As this 45 to 54 demographic is easily projected for years in advance, Arnold's crystal ball has given him a frightening message. He sees the Greatest Depression in history looming ahead for the United States. He declares that 2008 was,

a self-inflicted sub-prime financial crisis. This has nothing to do with the demographics based massive depression that is yet to come. . . . The sub-prime consequences are however very similar though mild so far compared to what is coming our way. The book clearly spelled out that along the way unpredictable short-term (1 to 3 years) disruptive events could happen. The sub-prime crisis is just that. It should be regarded as the “warmer upper” or “hors d'oeuvre” for the big one that is now rapidly closing in on us all.
31

It almost goes without saying that the transition away from American predominance is likely to be more fraught than the transition between British and American hegemony. For one thing, Great Britain and the United States spoke the same language. America's elite consisted of anglophiles, who supported the British Empire with finance, troops, and military hardware. After World War II, when the United States more or less formally emerged as the leading global power, Great Britain became its closest and most dependable ally.

Today's circumstances are different. Among the BRIC countries, Brazil is closest ethnically and culturally to the United States. Brazil alone is an “American” economy. Indeed, it is the original “America” as christened in the Baptismal Certificate of the New World.

As you will learn in forthcoming chapters, Brazil has these and many other advantages facilitating its emergence as a haven for opportunity in a troubled world.

1
Armando Castelar Pinheiro, Indermit S. Gill, Luis Servén, and Mark Roland Thomas, “Brazilian Economic Growth, 1900–2000: Lessons and Policy Implications” (Washington, DC: Inter-American Development Bank, 2004), 5.

2
John H. Coatsworth, “Why Is Brazil ‘Underdeveloped'?”
Harvard Review of Latin America
(Spring 2007).

3
Pinheiro et al., “Brazilian Economic Growth, 1900–2000,” 4. See also Angus Maddison, “Monitoring the World Economy: 1920–1992” (Paris: OECD Development Center Study, 1995).

4
For a different account of how the United States came to eat “the low hanging fruit of prosperity,” see Tyler Cowen
, The Great Stagnation: How America Ate All the Low Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better
(New York: Dutton), 2011.

5
Robert Gordon, “Revisiting U.S. Productivity Growth over the Past Century with a View of the Future,” NBER Working Paper No. 15834, March 2010,
www.nber.org/papers/w15834
.

6
Branko Milanovic,
The Haves and the Have-Nots A Brief and Idiosyncratic History of Global Inequality
(New York: Basic Books, 2011), 228.

7
Alex Tabarrok, “World Income Inequality,” Marginal Revolution, January 31, 2011,
http://marginalrevolution.com/marginalrevolution/2011/01/world-income-inequality.html
.

8
Thomas E. Skidmore,
Brazil: Five Centuries of Change
, 2nd ed. (New York: Oxford University Press, 2010), 15.

9
Steven Solomon,
Water: The Epic Struggle for Wealth, Power, and Civilization
(New York: HarperCollins), 373.

10
Ibid., 375.

11
Henry Manse, “Crop and Ore Riches Skew Economy,”
Financial Times
, December 21, 2011.

12
Stefan Zweig,
Brazil: A Land of the Future
, trans. Lowell A. Bangerter (Riverside, CA: Ariadne Press, 2000), 19.

13
See “Brazil,”
www.lonelyplanet.com/brazil
.

14
Nicolas Rashevsky,
Looking at History through Mathematics
(Cambridge, MA: MIT Press, 1968), 133.

15
Quoted in Jim Cullen,
The American Dream: A Short History of an Idea That Shaped a Nation
(New York: Oxford University Press, 2003), 4.

16
Jed Graham, “10-Year Real Wage Gains Worse than the Depression,”
Investors.com
, June 2, 2011,
http://news.investors.com/article/573982/201106020800/10-year-real-wage-gains-worse-than-during-depression.htm
.

17
Quoted in
Consumer Society in American History: A Reader
, Lawrence B. Glickman, ed. (Ithaca, NY and London: Cornell University Press, 1990), 1.

18
Martin Waldseemüller,
Cosmographiae Introductio
, April 25, 1507.

19
Jonathan Cohen, “The Naming of America: Fragments We've Shored against Ourselves,”
www.uhmc.sunysb.edu/surgery/america.html
.

20
Ibid.

21
Inscription from the Waldseemüller Map, 1507.

22
Seán Mac Mathúna, “Is the Name Brazil of Celtic Origin?”
www.fantompowa.org/brazil.htm
.

23
A. J. R. Russell-Wood, “European Conceptions and Misconceptions of America: Sixteenth to Eighteenth Centuries,”
www.univ-ab.pt/investigacao/ceaa/actas/russell-wood.htm
.

24
“Universalis Cosmographia Secundum Ptholomei Traditionem e Et Americi Vespucci Aliorum Lustrationes,” CartographicImages.net,
http://cartographic-images.net/Cartographic_Images/310_1507_Walds.html
.

25
James Truslow Adams,
The Epic of America
(Boston: Little Brown & Company, 1931).