July 3, 2020

Prices Fuel Outrage in Brazil, Home of the $30 Cheese Pizza

For Brazilians seething with resentment over wasteful spending by the country’s political elite, the high prices they must pay for just about everything — a large cheese pizza can cost almost $30 — only fuel their ire.

“People get angry because we know there are ways to get things cheaper; we see it elsewhere, so we know there must be something wrong here,” said Luana Medeiros, 28, who works in the Education Ministry.

Brazil’s street protests grew out of a popular campaign against bus fare increases. Residents of São Paulo and Rio de Janeiro spend a much larger share of their salaries to ride the bus than residents of New York or Paris. Yet the price of transportation is just one example of the struggles that many Brazilians face in making ends meet, economists say.

Renting an apartment in coveted areas of Rio has become more expensive than in Oslo, the capital of oil-rich Norway. Before the protests, soaring prices for basic foods like tomatoes prompted parodies of President Dilma Rousseff and her economic advisers.

Inflation stands at about 6.4 percent, with many in the middle class complaining that they are bearing the brunt of price increases. Limiting the authorities’ maneuvering room, the popular indignation is festering at a time when huge stimulus projects are failing to lift the economy from a slowdown, raising the specter of stagflation in Latin America’s largest economy.

“Brazil is on the verge of recession now that the commodities boom is over,” said Luciano Sobral, an economist and a partner in a São Paulo asset management firm who maintains an irreverent economics blog under the name the Drunkeynesian. “This is making it impossible to ignore the high prices which plague Brazilians, especially those who cannot easily afford to travel abroad for buying sprees where things are cheaper.”

Brazil’s sky-high costs can be attributed to an array of factors, including transportation bottlenecks that make it expensive to get products to consumers, protectionist policies that shield Brazilian manufacturers from competition and a legacy of consumers somewhat inured to relatively high inflation, which remains far below the 2,477 percent reached in 1993, before a drastic restructuring of the economy.

But economists say much of the blame for the stunningly high prices can be placed on a dysfunctional tax system that prioritizes consumption taxes, which are relatively easy to collect, over income taxes.

Alexandre Versignassi, a writer who specializes in deciphering Brazil’s tax code, said companies were grappling with 88 federal, state and municipal taxes, a number of which are charged directly to consumers. Keeping accountants on their toes, the Brazilian authorities issue an estimated 46 new tax rules every day, he said.

Making matters worse for many poor and middle-class Brazilians, loopholes enable the rich to avoid taxation on much of their income; wealthy investors, for instance, can avoid taxes on dividend income, and partners in private companies are taxed at a much lower rate than many regular employees.

The result is that many products made in Brazil, like automobiles, cost much more here than in the far-flung countries that import them. One example is the Gol, a subcompact car produced by Volkswagen at a factory in the São Paulo metropolitan area. A four-door Gol with air-conditioning sells for about $16,100 here, including taxes. In Mexico, the equivalent model, made in Brazil but sold to Mexicans as the Nuevo Gol, costs thousands of dollars less.

The ability of many Brazilians to afford such cars reflects positive economic changes over the past decade, like the rise of millions of people from grinding poverty and a decline in unemployment, which is now at historically low levels. Salaries climbed during that time, with per-capita income now about $11,630, as measured by the World Bank, compared with $6,990 in neighboring Colombia. But Brazil finds itself far below developed nations like Canada, where the per-capita income is $50,970.

As a result, a resident of São Paulo, Brazil’s financial capital, has to work an average of 106 hours to buy an iPhone, while someone in Brussels labors 54 hours to buy the same product, according to a global study of wages by the investment bank UBS. To buy a Big Mac, a resident here has to work 39 minutes, compared with 11 minutes for a resident of Chicago.

Stroll into any international airport in Brazil, and such imbalances are vividly on display, with thousands of residents packing into flights each day for shopping trips to countries where goods are substantially cheaper.

Even though the Brazilian currency, the real, has weakened against the dollar this year (it currently stands at about 2.20 to the dollar), Brazilians spent $2.2 billion abroad in May, the highest amount on record for the month since the central bank began tracking such data in 1969.

Eyeing this market, some travel agents have begun tailoring trips to Miami for clients eager to buy baby products like digital monitors, strollers, pacifiers, even Pampers wipes, which in Brazil cost almost three times as much as in the United States.

Seeking to prevent such shopping binges from getting out of control, the federal police screen travelers upon arrival, picking out people whose luggage appears to bulge with too many items. If it can be proved that Brazilians spent over a certain limit abroad, they are immediately forced to pay taxes on their purchases.

Such screening catches foreigners, too. In May, the police at São Paulo’s international airport arrested two American Airlines flight attendants, both American citizens, on smuggling charges after they were found going through customs carrying a total of 14 smartphones, 4 tablet computers, 3 luxury watches and several video games. The smartphones were hidden in their underwear, the police said, and were intended to be sold on the black market.

Before the protests began, Brazil’s government had begun trying to combat price increases. The central bank raised interest rates after an uproar over food prices this year contributed to inflation fears. The authorities removed some taxes on some products, like cars. Even so, inflation remains high while the economy remains sluggish, leaving many Brazilians fuming about the high taxes embedded in the price of products they buy.

A new federal law requiring retailers to detail on receipts how much tax customers are being charged has fed some of this anger. Fernando Bergamini, 38, a graphic designer, was stunned after spending $92 one recent day on groceries like tomatoes, beans and bananas, only to glance at his receipt and discover that $25 of that was in taxes.

“It is shocking given the services we receive for giving the government our money,” Mr. Bergamini said. “Seeing it like this on a piece of paper makes me feel indignant.”

Lucy Jordan contributed reporting from Brasília, Taylor Barnes from Rio de Janeiro, and Paula Ramon from São Paulo.

Article source: http://www.nytimes.com/2013/07/23/world/americas/prices-fuel-outrage-in-brazil-home-of-the-30-cheese-pizza.html?partner=rss&emc=rss

Economix Blog: Bipartisan Agreement: Blame Washington

11:41 a.m. | Updated

Washington partisans were caught slightly off guard by a better-than-expected report on April jobs numbers. Both sides had clearly been preparing to use disappointing numbers as justification for legislative priorities. But the result was unusually parallel reactions from Democrats and Republicans, who both offered equivocal praise. Neither side was about to let the employment gains deter them from their planned messages about the evils of sequestration, in the case of Democrats, and regulation, in the case of Republicans.

The White House’s reaction was more positive than those of both its enemies and its allies.

“While more work remains to be done,” said Alan B. Krueger, chairman of the president’s Council on Economic Advisers, “today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.”

Mr. Krueger, in a statement, added, “Now is not the time for Washington to impose self-inflicted wounds on the economy,” and urged Congress to replace a series of automatic budget cuts, known as sequestration, with “balanced deficit reduction.”

Representative Kevin McCarthy, the majority whip, named a different set of culprits for an economy that “continues to struggle.”

In a statement, he said, “Our tax code is broken, onerous regulations make it more difficult to achieve all-American energy independence and small businesses and families across the country are filled with confusion and anxiety over the implementation of ObamaCare.”

However, other leading Republicans acknowledged “some signs of hope,” as Representative Eric Cantor, the No. 2 in the House, put it, and “some good news,” in the words of House Speaker John A. Boehner. But Mr. Boehner also said that “repealing the president’s sequester” would be crucial to growing the economy.

Senator Harry Reid, the majority leader, also agrees that across-the-board cuts are problematic, but he had a different take on the source of the problem: “Our job growth would be even stronger if our economy were not hampered by the meat-ax austerity Republicans have insisted upon for the past two years, instead of working with Democrats to forge a balanced approach to deficit reduction.”

Indeed, many had thought April’s might be the first monthly report to reflect the sequestration and the resulting furloughs for federal workers, and Adam Hersh, an economist at the Center for American Progress, a liberal policy group, stuck to that downbeat message:

At this pace, we will not reach full employment until June 2021. The labor market seems to be moving ahead slowly but not steadily, while automatic spending cuts mandated by the sequester have barely only begun to bite on jobs and economic growth. If we continue down the path of spending cuts and fiscal contraction demanded by sequestration, next month it will be much more than furloughed FAA workers and snarled air travelers feeling the pinch of unnecessary austerity.

Economists on the right also saw bad signs for the economy in the long term. Daniel Alpert, a managing partner at Westwood Capital known for more conservative commentary, posted on Twitter:

Jim Pethokoukis of the conservative American Enterprise Institute noted Mr. Obama’s overall failure to meet employment goals.

Article source: http://economix.blogs.nytimes.com/2013/05/03/bipartisan-agreement-blame-washington/?partner=rss&emc=rss

Economix: Lowering Economic Expectations



Dollars to doughnuts.

As my colleague David Leonhardt has written, government officials (both in the White House and at the Federal Reserve) have been overly optimistic in their economic forecasts. In particular, conservatives like to make fun of the administration’s rosy projections from 2009 for how the economy would behave under the Recovery Act; the administration’s economic advisers predicted unemployment today would be below 7 percent, rather than the 9.2 percent we’re actually stuck with. Buzzwords like “shovel-ready” and “Recovery Summer” have also become major mockery talking points.

Last Wednesday, in his Twitter town hall, President Obama acknowledged that his administration had not predicted enough doom and gloom. When asked for examples of things he might have done differently in his presidency, he said:

One would have been to explain to the American people that it was going to take a while for us to get out of this.  I think even I did not realize the magnitude, because most economists didn’t realize the magnitude, of the recession until fairly far into it, maybe two or three months into my presidency where we started realizing that we had lost four million jobs before I was even sworn in.

And so I think people may not have been prepared for how long this was going to take and why we were going to have to make some very difficult decisions and choices.  And I take responsibility for that, because setting people’s expectations is part of how you end up being able to respond well.

It seems the administration may have learned its lesson, and then some. On “Meet the Press” on Sunday, Treasury Secretary Timothy F. Geithner seemed to be doing his best to lower people’s expectations going forward:

This is a very tough economy.  And I think for a lot of people … it’s going to be — it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for some time to come.  And that — but that is because that is the tragic effects of a crisis this deep and this bad caused by a long period of lost opportunities to do things to make the country stronger.

It will be interesting to see if this is a more permanent shift in the way the administration talks about the economy, and how it advocates for stimulative policy measures in the next few months.

Article source: http://feeds.nytimes.com/click.phdo?i=7cbaac3841ad04c25b9dc6ea4d9ac73c