Skeet,
Thank you for your "preliminary" response, I look forward for the main feature...
If possible, input the following in your response...
I am not an economist (wheeeeu! just in case the obvious was not so evident), and while I did take economics in school, my brain usually disconnects (automatically), when I am not listening to what I would consider, a logical string of events... With economics, the main trouble I have is that they seem to look at an "ideal world" when they make projections.... I contend that an economy, (same with markets), are composed of human beings, who, at times, they make irrational and/or emotional decisions, (sometimes these two are one and the same <g>), that can affect the overall outcome of things, and in spite that I have been told that in their forecasts, economists have considered such events, I still "don't' get it". --my problem.
So I am certain that in the eyes of technocrats, I have already made various statements, equivalent to economic heresy... On the other hand, a close relative of mine, who has recently earned his Ph.D. in Mathematics, has proudly told me that there are three things no-one can calculate and predict, (I assume, he means "accurately").
These are:
1. The Weather.
2. The Economy
3. The Stock Market (!)
So, that gives me some relief every time an economist tells me "I am way off-base" <g>
My comments are based primarily from observation of the Latin American scene, in some instances from direct [suffering] experience of the strange world one lives in, while in LatAm.
While I have understood your explanations, as they seem logical, you are missing a small point. However, your following comment does give me renewed inspiration (perhaps illusion), that we are going in the right direction.
It is time to stop discussions only based on economic and political theory so more effective programs can be implemented.
Absolutely!!
What I want you to consider in your response (if I am not too late for "printing presses time"), is the following:
How do you input, (in coming up with the solutions), the corruption factor, which is highly prevalent in Latin America.
For example, many politicians, and their "inner circle" of friends and family, suck millions of dollars out of the economy, many times over in form of bribes and/or "laced" contracts.
By laced contracts I mean this, (this is a real life example during the oil boom years around 1976):
In developing the Oil fields of Tabasco/Campeche (southern Mexican states), they needed lots, and lots of roads and highways), as an example, a transportation secretary with relatives in the road contracting business would assign a contract to a relative of his.
Assume the cost of constructing a specific road, such would be $5 Million (US).... but wait... in a very artful way, this cost all of a sudden would become $15 Million... (5 to pay for the road, 5 for the contractor, and 5 for the politician...)
Extend such example to every single contract in sight... to the point that a famous dam ("Lázaro Cárdenas Dam" in the state of Michoacán, I think)... was built costing many millions of dollars, yet the cost of delivering the power that this dam would produce, to the points where is needed, would add to the cost tremendously, simply because the damn dam was built way out in the wilds, far from where the demand would exist, and such cost was never taken into account in the initial considerations ... making the entire project questionable, at best.
Or...
The deep water port facilities that were built in the west coast (I believe, Manzanillo, I forget the exact location...), at the cost of several millions... only to find... that the place itself... well, can not take large ships..... <G>
Much of this "wasted money" end up in the politician's (and their families and cronies) pockets, in many instances, they do not even "recycle the money"... They put it in CD's in the US and/or Switzerland... in effect, "OUT OF THE LOCAL ECONOMY".
So... never mind the multiplier effect...
Simply because, that money.... was tucked away for .... "a rainy day"
(evidently, being the "deeply religious" (mainly Catholic), that these souls are, no doubt they are thinking rain, in terms of biblical proportions)... the point being is that not only they take away a considerable amount of money away from the economy, they also destroy any possible economic sense that the specific project could have had.
Now.... why do they put this monies in a different country...?
Well, since they really are not all that dumb, they know, that sooner or later, (lately, is more like a continuous event), the local currency WILL be devaluated... as sure as the sun comes up every morning. In many instances, when a devaluation is about to take place... well, a few tips here and there to the "privileged ones", enhances the return... meaning, you transfer funds, (to the US), conveniently, a week or two prior to the "announcement". Afterwards, your "working capital" is returned to the country, greatly enhanced, not only because you protected it against the devaluation, but also because you will be able to purchase assets greatly reduced, given the fact that many "ordinary citizens" are deeply hard pressed because they were not able to protect themselves.
I accept that corruption is a world wide, but I believe that in Latin America, particularly in Mexico, it takes monumental proportions.
The country is not a poor country.... far from it, but its wealth has been tremendously squander by primarily the corrupt politicians... the businessmen have their share of blame, but at least in the case of the businessmen, they are far more productive than the politicians as many of them, have their capital at risk, working "in the economy", (but also a good deal of it, outside of the country.
Now, as far as moving the money out of the country, how could you blame them, all they are doing is protecting it from the "next devaluation". (This adds to billions, by the way).
The situation (since approximately the mid 70's ) has been worsened rapidly... in my eyes, primarily to the explosion in population growth... (a great debt to the Catholic rulers), and secondly, to the great debt that all those American MBA bankers that during said oil boom went and lent money as if it was going out of style, analyzing projects based on "illusory costs and projections"... in my eyes, they never saw how the Mexican "system" really worked...
Since then, the combination of population growth, (creating pressure on social demands), and crushing debt service, due to a mounting debt, leaves little chance for these countries to get out of such situation. Lack of education/skills only worsens the picture.
The entire region, (but in particular, Mexico, given that it is the US neighbor, and all that comes with it, i.e. immigration), is now a "sub-state" of the US.
My view, that dollarization, would improve things a bit by removing the incentive of "taking money out of the economy", and at least if corruption can not be completely removed, you would get the benefit of the recycled money.
In addition, as Henry has pointed out, unless you have a growing and capable middle class, (with purchasing power), your internal growth will never really take a stable long term perspective....Another important benefit, as I see it is that it would give business a more stable environment in order to plan for a longer term. The irony, particularly with the last litter of Harvard/Yale/LSE, politico-technocrats, (I just made this term up), no less corrupt than their lesser pedigree cousins, the earlier [PRI] dinosaurs... is that because their fanatical chanting in favor of "Free Markets", combined with the evident power struggle between the two classes, PLUS now the third element being the opposition parties, (a potpourri of crazed collectivists, to a tamed, i.e., less crazy than their US counterpart, right wing conservatives), is yielding the not so desired result, (at least to me), that every evil of the situation is being blamed on the "Evil Free Markets" (and its promoter, the big bad gringo, Uncle Sam)...
On a different subject, but related: Given the fact that the US and Mexico are neighbors, a "guest worker" program is a better solution than miles of barbed wired fences and enhanced border patrol.
By far, the main motivation of most Mexican immigrants is to seek employment, NOT to move to the US, the move becomes a consequence not the objective.
This is an important difference, since under the current system, the US is being inundated by illegal immigrants, who, one way or another, they get paid wages... TAX FREE... (Federal, State, and FICA), so, it is another case of "Do not cry for me Argentina", not so bad a deal as in the surface it may appear.
Now, under a guest worker program, these wages would be taxed, including health services, (which at present they some are getting for free anyway).... by the way, in the border towns, many Mexican [pregnant] women of all social levels, specifically have their children born in the US side, not so much because sometimes they get the medical care for free, or at a reduced cost, but the main objective is to have a US citizen son/daughter...who in turn, once the appropriate age is reached, they can claim specific benefits. (i.e. legal immigration for direct blood relatives.)
Anyway... the above, are part of my thoughts that yield my reasoning why I think that a dollarization of Latin America in the long run would be beneficial for all involved... However, I will listen to the more technical reasons/arguments against dollarization.
The above is my opinion, I am certain that other Latin American individuals will disagree, some, more strongly than others; however, to my credit, in spite of economists projections, my opinions have served me well to navigate, safely whenever I had to deal within the Latin American environment. Perhaps, that is not good enough to delve in the world of economic projectionism, (AKA Voodoo), so view it merely as an opinion.
Lastly, I assume that by now, you have seen that I favor free markets, and run like hell from collectivists, politicians, and bureaucrats... regardless if they are Latin American or not... (but given my direct experience, I run faster when they are Latin American... <g>) |
