54 Comments
Feb 8, 2023Liked by Tomas Pueyo

I’m Brazilian and you certainly did an outstanding view of Brazil. Congrats

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author

Glad to hear!

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Feb 8, 2023Liked by Tomas Pueyo

Minor correction: the masculine article in Portuguese is "O" not "El". Thus "O cerrado"

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author

Correcting now, thanks!

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Feb 8, 2023Liked by Tomas Pueyo

Also, on the post-notes: Paraguay’s capital is Asunción, not Concepción

Besides that: great article!

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author

Correcting now, thanks!

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Feb 9, 2023Liked by Tomas Pueyo

In your graph, Brazil doesn't actually look that much more decentralized than the USA. Its regional public spending as a percent of GDP is higher though.

Inflation is anywhere and everywhere a monetary phenomenon. If inflation has been tamed, it's because the Central Bank of Brazil has gotten its act together.

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author

Thx! Some reactions:

1. The US is very decentralized!

2. If the data shows Brazil is even more decentralized, that's saying something!

3. Inflation: Some countries have it easier than others. Brazil has it hard. But yes, the central bank has tamed it, at the cost of growth.

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I think that "at the cost of growth" is a mistaken way of looking at things. You can have a tight monetary policy decreasing economic activity and increasing unemployment (as in the Great Depression or more recent Great Recession), but that's a business cycle feature of the short run, whereas in the long run growth is determined by real factors. Even though the Great Depression lasted an unusually long length of time, the US got back on its previous growth path. The stylized fact of that sort of thing happening after every recession is what inspired Milton Friedman's "plucking model" (which I ironically heard about from one of the Austrians at Mises.org even though that stylized fact contradicts "Austrian" business cycle theory about booms correlating subsequent busts rather than the reverse).

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author

I think you might be overfitting to the countries you know.

The cycles d pens on the geography. A geography that is bountiful will much more easily absorb a crisis, and will be prepared for the next one.

A geography like that of the US, which requires little investment and coordination with others, creates a more independent people, great for entrepreneurship, and hence for a sturdy population that can react to crises.

Both of these features make the US geo better positioned to make inflation cycles shorter and farther apart.

Europe is a good example too. The north’s geography is much better than that of the south. And look at the economic results.

But you are saying something that I’d love to hear more about. Can you expand on the plucking / Austrian business cycles? I’m acquainted with business cycles but that reference doesn’t ring any bell

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Feb 10, 2023·edited Feb 10, 2023

Here's the Austrian responding to Friedman on the plucking model, from which I first heard of it:

webhome.auburn.edu/~garriro/fm1pluck.htm

Another business cycle theory is "real business cycle theory", which is that the cycles are caused by real (rather than nominal/monetary) factors. There are relatively few econbloggers who believe in that, it really seems relegated to "freshwater macro" economists who aren't very online. Garett Jones has partly defended it by noting that it arose at a time when people were noticing that productivity and economic booms (vs busts) seemed to be correlated, which was sometimes described as "make hay while the sun shines". But in more recent recent recessions, productivity has INCREASED during busts (as the least productive workers are let go). Tyler Cowen also sometimes offers a partial defense of it by noting that throughout the majority of history (i.e prior to central banks) most business cycles were real business cycles. But we don't live in that historical period, we live in a time where monetary factors determine most business cycles. And, as Scott Sumner pointed out, even the recent supply shock with the invasion of Ukraine and the spike in energy prices didn't seem to increase unemployment.

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Feb 8, 2023Liked by Tomas Pueyo

Great article once again. Congratulations!

As a resident of Argentina I bounced with joy at your hint that you'd soon publish on this last country, and if you think some proofreading on this coming issue might be useful, don't hesitate to contact me.

Coming back to Brazil, what it has managed to achieve in this context you describe so well is amazing. I remember having read somewhere that the country has the longest strike of year to year economic growth in the world, but that most of the time this growth didn't translate in real improvements for the people because the population itself never ceases to grow. Frustrating but amazing. You should send your article to Musk or to The Boring Company : they may get interested in dealing with the Great Escarpment issue...

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author

Glad to hear! It might take me some time to get to the Argentinian article, but I hope to do it in the coming months

What you describe is a Malthusian trap. Interesting, I've never heard that in the context of Brazil (or any current country).

Well, if that's true, a good news for you is that Brazil's population growth is slowing down quite a lot

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Feb 8, 2023Liked by Tomas Pueyo

Beautiful images of a beautiful country Tomas. Hopefully the coastal cities can eventually connect via the sea and trade. Mountains near the coast are problem but that can be surmounted. Japan, Northern Spain or Chile come to mind.

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I think transport is even harder there. That Great Escarpment is brutal.

And Brazil doesn't have the thousands of years of settlements of Japan and Spain.

Plus, the distance between city-states is much bigger than in either example...

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Feb 8, 2023Liked by Tomas Pueyo

As evidenced by the sheer amount of terra preta, Brazil does have a long history of, well, people living there. What it didn't have are settlements that look like what we think of as civilization. Lots of the traditional advantages of building a city don't apply when you're living in a rain forest with no viable option to preserve nontrivial quantities of food, or build permanent structures, or …

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author

True!

And exactly the type of stuff I covered in Mondays article.

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Feb 8, 2023Liked by Tomas Pueyo

As a Brazilian, the quality of education improves only on high middle classes. They can afford private schools to their children while most of the population attend public schools, which barely give the basics of a good education.

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author

Better than having a poor education for everybody, not yet great. But from another position, understandable given the little cash the country can generate. Not an easy position to be in. Hopefully the Internet will allow cheap, mass education.

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Hi Tomas, new subscriber here attracted to your newsletter because of the focus on Latin America.

Question: Do you think that the inequality of Brazil - in wealth, which is linked to class and race and vice versa - is partially tied to the deep roots of racism in African slavery? Which, as I read here, was fomented/encouraged by the need for labor for the cerrado?

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Certainly

The article focuses on the geographic roots of that poverty and inequality, which are important. But they’re not the only factors. Other countries with a much better geography (like Argentina) also have poverty and inequality—albeit less.

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1) If the King of Portugal had not taken refuge to Brazil following the Napoleon invasion, Brazil would have fractured like Spanish America, which share most of the same characteristics (small coastal plains, separate unconnected river basins...

2) Another region looking like Brazil is the Southern US. The impossibility of internal communications kept them poor and cost them the war of Secession.

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author

Saw your comment on Twitter. I agree with your 1st point, I cover it in the follow-up:

https://unchartedterritories.tomaspueyo.com/p/brazil-part-ii-everything-else-you

On the 2nd point:

Yes, the Appalachians are bad indeed. But there’s a very big plain east, west, and south of them.

I’d compare it more to Mexico, Iran, or Ethiopia

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Feb 10, 2023Liked by Tomas Pueyo

Speaking of capital-intensive growth, I've read that the farms in the cerrado are some of the largest farms on earth, and highly automated. High transport cost and high cost of capital encourages innovation and efficiency.

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author

That makes a lot sense. Except for the automation. Surprising when low skill workers are available… the cost of capital vs labor must be worth it

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Feb 9, 2023Liked by Tomas Pueyo

There is a paradox in your last bullet point

"The different regions of this rugged country, plus the oligarchic nature of the economy, mean that political unity has been hard."

And yet, Brazil holds together as a federation. Meanwhile, Spanish America fractured into 19 separate states (including Puerto Rico) 19!

What allowed the Brazilians to maintain political unity, if their geography was set against them?

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author

Ah! I address this very point in this week's premium article!

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Its ruling class are a bunch of well connected families that can have their own divergencies, but get united when it is to avoid their biggest fear: A slave/poor people's revolution.

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author

Makes sense in highly unequal societies

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Spanish countries split into Viceroyalties

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Feb 8, 2023Liked by Tomas Pueyo

Un torrrente de información inusual para los medios habituales. Me asombra y encanta. Mil gracias por compartirlo¡¡

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author

Me alegro!

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Feb 8, 2023Liked by Tomas Pueyo

The most thought-provoking part of this article for me was the section on inflation and I’m wondering if that’s somehow related to the fact the Brazil is relatively protectionist, with not insignificant tariffs on imports and many products coming from outside the country. (I don’t have any sources for this, just my own experience shipping items to Brazil and other anecdotal evidence I’ve collected over the years.) The long-term downsides of protectionism are clear to me - reducing your ability to trade will reduce the overall wealth your society can generate - but I’m wondering if the high risk of inflation you mentioned could be a short-term policy incentive for Brazil to be protectionist...in theory, it would dampen the effect of external boom and bust cycles. There are definitely other reasons for protectionism - the small, wealthy Brazilian elite protecting their vested interests is a likely explanation - but I’m curious if the risk of inflation is another motivator.

Does my theory even make sense? Maybe somebody with more economic knowledge knows...haha

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author

Thx!

I think there's a couple of factors here.

One is that the nature of the country is just what it is. Low capital, low skill, that's a hard place to be in.

But what you say follows. You have to control capitals if you don't want overinflations.

But this would be more recent. The protectionism comes from earlier. You can also see it in Argentina, decades ago.

It's also potentially not all Brazil's fault. In the 30s, the more developed countries started protecting their own economies against big raw material exporters like Brazil.

But I'm not an expert on Brazil's trade history or protectionism. If somebody knows, I'll take it!

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Feb 8, 2023Liked by Tomas Pueyo

> As we’ll see in the Amazon article later this week, if making the Cerrado viable agriculturally is expensive, it’s even worse for the Amazon rainforest

Well … you can buy a whole lot of fertilizer, that's the expensive part, esp. since the stuff ends up in the rivers and oceans after the next rainfall. Or you can burn the existing vegetation and move on after a couple years, that's cheap enough, see the last couple of decades' worth of deforestation. Or you can make terra preta – its only disadvantage is that it takes decades before you get any sort of net benefit.

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Indeed! I actually posted this one already. You're right.

https://unchartedterritories.tomaspueyo.com/p/the-amazon-rainforest

In this world of only bad options, terraforming the Cerrado is the least bad one.

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Jul 13, 2023Liked by Tomas Pueyo

Brazil has everything against it and still, it goes well. Argentina has everything on its advantage but still, it lacks behind...

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I had never seen such a deep and faithful analysis of my country before.

Thank you for showing us through this approach.

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author

I’m glad to hear!

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Feb 28, 2023Liked by Tomas Pueyo

Maybe we could collaborate by applying a similar structure and using similar sources to those used for analyzing countries through your lens. Let me know!

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