(By Fisher Investments) Brazilian President Dilma Roussef announced Wednesday
$66 billion of new stimulus measures aimed at spurring the economy in
what thus far has been a tepid year for growth—particularly compared to
2010's rather torrid 7.5% pace. Assuming the standard, media definition
of "stimulus," one would likely pretty safely assume Brazil plans some
combination of increased government spending—possibly in the form of
incentives for private businesses, though more likely through direct
government investment in projects like infrastructure—and possibly some
And if enacted thusly, such a program would ostensibly stand in pretty
stark contrast to measures being enacted across the pond—in countries
like Italy and Greece, among others—who are currently deploying
Now, "austerity" means slightly different things to different
countries, depending on the primary challenges said countries face. But
among the possibilities are plans to privatize large swathes of government-owned businesses and increase labor force flexibility by doing things like increasing the minimum retirement age. And it's precisely such austerity measures the media's widely panned
for choking off already too-low growth—ostensibly because decreasing
government spending at such a time is precisely the wrong course of
What's interesting, though, is such actions are entirely the stated intentions of Brazil's recently announced stimulus measures. You read that right: Brazil's stimulus
doesn't include vastly increased government spending at all. Quite the
opposite, in fact: It includes the sale of rights to operate railroads
and roads to private companies, as well as raising the minimum
retirement ages for men and women to 65 and 60, respectively. The
program's $66 billion figure is the anticipated amount of private-sector
investment the program likely attracts over the next couple years. And
that's just to start—there's speculation more reforms are to come,
including possibly selling rights to private companies to upgrade and
modernize Brazil's ports, which are so outdated they're actually hurting
overall productive capacity.
Also interesting is this is a relative about-face from Brazil's prior,
much more traditional approaches to stimulus—for example, at the end of
June, Roussef announced a $4 billion
package including primarily government purchases. And prior stimulus
packages included measures aimed at increasing domestic consumption—all
of which seemingly had little impact in terms of goosing overall
economic growth. So it seems Brazil's recognized it ought to try a
But the media's treatment of Brazil's plans is odd at best, in light of
its near-complete opposite reception of the various PIIGS nations'
"austerity" measures, which seem strikingly similar to Brazil's
"stimulus." And which highlights well an odd dichotomy we at
MarketMinder have commented on a couple times
recently: Namely, folks (especially in, but certainly not limited to,
the media) seem to get quite confused about the typical source of
economic activity. And as a result of that confusion, they similarly
confuse "austerity" and "stimulus," presuming the former automatically an economic scourge and the latter a surefire recipe for jumpstarting economic activity.
Stepping back, though, and recognizing the private sector is far and
away the larger economic engine makes such concerns far less
relevant—because they really only weigh heavily in arguments predicated
on a belief the government originates the majority of economic activity.
Were that the case, then yes, too-draconian government spending cuts
would be cause for concern.
But the reality is the vast majority of economic activity originates in the private sector—including,
in fact, the government's very ability to exist and operate. And making
plans like Brazil's—and Italy's and Greece's, among others—in our view,
more likely to ultimately succeed at increasing private-sector activity
than the "stimulus" measures as typically defined by the media.
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.
source: Market Minder
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