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Posts Tagged ‘Latin America’

I wrote a few days ago about Latin America’s “pink tide” and how statist policies are driving away jobs and investment.

Today, let’s look at John Stossel’s interview with Gloria Alvarez about the grim future of the region.

I especially like the part about 9:00 and 21:00 when she talks about the failure of supposed right-wing governments that continue with socialism – or even make it worse (we have the same problem in the United States).

But the best part of the 25-minute video, in my humble opinion, is her explanation of why statism is seductive and liberty is not.

She uses an iceberg analogy. With socialism, people see good things above the surface but are blind to the horrible consequences beneath the water.

By comparison, the libertarian iceberg is superficially less appealing.

The small part above the water seems cold and heartless. All the good stuff is hidden underneath.

In some sense, these two images are a different way of showing what’s captured in this cartoon.

Needless to say, there’s a big difference between superficial and real. In the video, Ms. Alvarez cites Margaret Thatcher’s famous observation about the inevitable problem with socialism.

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The economic policy lessons from Latin America are very clear.

There’s one unambiguous success story (at least until the past couple of years), one semi-decent success story, and then a bunch of utter failures.

What’s interesting (and tragic) is that the failures teach different lessons.

  • We learn about long-run socialist suffering from Cuba.
  • We learn about rapid socialist collapse from Venezuela.
  • We learn about gradual socialist collapse from Argentina.

And if we pay attention to the region, we can expect more collapse.

Why? Because left-wing governments are now in charge and sensible people are moving their money where it can’t be confiscated.

In an article for Bloomberg, Ezra Fieser and Andrea Jaramillo report on people taking their money out of Latin America.

As every major country in Latin America shifts to the left…, capital is flying out of the region. Wealthy and, increasingly, middle-class investors are looking for a Plan B… People and corporations in the region’s five largest economies pulled roughly $137 billion out of their countries in 2022. That number—preliminary data from the Institute of International Finance, a group of banking institutions—is 41% higher than the 2021 figure and the most since 2010. …popular destinations include the Dominican Republic, Panama, Spain and the US. …Each time a leftist gets elected, money pours into South Florida, says Raul Henriquez, chairman of Insigneo Financial Group LLC, a wealth manager in Miami. …Often called a “pink tide,” this shift toward socialism dates to 2018, when Andrés Manuel López Obrador swept into power in Mexico. Leftists prevailed in Argentina in 2019, Chile and Peru in 2021, and Brazil and Colombia last year. “This is a historic event we’ve never before seen—the entire region has gone pink on us,” says Talbert Navia… Mauricio Cárdenas, a former Colombian finance minister, says capital flight is playing a role and could make it difficult to enact socialist policies.

If you want to know why people and/or their money are escaping, read this article from Americas Quarterly by José Antonio Ocampo, who is now Colombia’s Finance Minister.

Latin America can return, of course, to the path of growth, employment, and improvement in social conditions. But this implies a significant increase of fiscal resources… A key barrier is the generally weak level of tax revenue obtained by Latin American countries. In 2018, the average tax revenues in the region were 23.1% of GDP… One of the problems is the lack of income tax regimes with significant redistributive effects… supports the proposal for the introduction of a global minimum effective corporate tax rate of 25%. …countries should…adopt effective progressive wealth taxes on their residents.

By the way, Senor Ocampo used to be at the United Nations, where he enjoyed a tax-free salary while urging higher tax burdens on everyone else.

Also, I can’t resist pointing out that tax burdens in Latin America are already far too high. Ocampo wants a “path to growth,” but he apparently does not understand that today’s rich nations all became rich when the burden of government was very small.

Last but not least, the tax-free bureaucrats at the Organization for Economic Cooperation and Development in Paris continue to push for bad policies.

Here is some of the nonsense included in the bureaucracy’s latest Economic Outlook for the region.

…a fiscal sustainability framework focused on strengthening public revenues will be required… In the medium term, the region will have to focus on generating more progressive and greener fiscal pacts, with the aim of increasing tax collection and strengthening direct income and property revenues. …it is essential that social protection systems have funding sources that will ensure their financial sustainability. This can be achieved, in part, by increasing tax revenues… Innovative income support policies could be worth exploring to increase progressivity… A set of tax policy options are available in LAC that could help increase revenues… These include measures to…increase the progressivity of personal income taxes.

While the OECD should be condemned for pushing bad policy on poor nations, at least they deserve credit for consistency.

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Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization – even a leftist bureaucracy such as the OECD – would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the US-taxpayer-funded organization has become infamous for reflexively advocating big government.

With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.

Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.

You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.

And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.

The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”

Let’s see what else the OECD had to say.

Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.

Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.

Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?

To further demonstrate their bias, the folks at the OECD even acknowledged that the Latin American nations, with their less oppressive tax regimes, are enjoying “relatively strong economic conditions.” Normal people would therefore conclude that the failed high-tax European nation should copy Latin America on fiscal policy, not the other way around. But not the geniuses at the OECD.

Now that we’ve addressed the awful policy advice of the OECD, let’s take a moment to look at the real policy challenges facing Latin America.

The Fraser Institute, in cooperation with dozens of other research organizations around the world, produces every year a comprehensive survey measuring Economic Freedom of the World.

The report ranks 141 nations based on dozens of variables that are used to construct scores for five key measures of economic freedom. Of those five categories, the Latin nations have the highest average ranking on…you guessed it…fiscal policy.

Yet the OECD wants policies that will undermine the competitiveness of the Latin nations, hurting them in the area where they are doing a halfway decent job.

If the bureaucrats actually wanted to boost economic performance in Latin America, they would be pressuring those nations to make reforms in the two areas where the burden of government is most severe – legal structure/property rights and regulation.

But that would make sense, which is contrary to the OECD’s mission of promoting statism.

The only semi-positive thing to say about the OECD is that it is consistent. As this video explains, the Paris-based bureaucrats are advocating bigger government in the United States. And to add insult to injury, they’re using American tax dollars to push that agenda.

What a scam. Politicians from various nations send taxpayer money to Paris. The bureaucrats at the OECD then issue reports and studies saying the politicians in those countries should raise taxes and increase the burden of government. Everybody wins…except for taxpayers and the global economy.

Per dollar spent, OECD subsidies may be the most destructively wasteful part of the federal budget. And that says a lot.

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In an amusing coincidence, Secretary of State Hillary Clinton and I were both in Latin America this week offering fiscal policy advice. But it won’t surprise you to know that Mrs. Clinton’s suggestions are radically different than the advice I provided. She spoke in Ecuador and, according to an AFP report, said it was time for “the wealthy across the Americas to pay their ‘fair share’ of taxes in order to eliminate poverty and promote economic opportunity for all.” She also claimed that “her appeal to overhaul tax systems did not amount to ‘class warfare’ and was instead a recognition that the ‘winner-take-all-approach’ was a drag on progress.” The AFP story concludes with Mrs. Clinton asserting, “We can’t mince words about this. Levels of tax evasion are unacceptably high,”

By contrast, in my remarks to the Fundacion Libertad in Panama and in my speech to the Chamber of Commerce in El Salvador, I explained that academic research shows that better tax compliance is best achieved by lowering tax rates and eliminating inefficient and corrupt spending programs so that taxpayers have more confidence that their money is not being wasted. But let’s touch on something even more important than economics. I also made a moral argument about the danger of giving national tax authorities too much power and information – especially in a region where governments oftentimes are the source of oppression, expropriation, and tyranny. Simply stated, there are some things that are more important than obeying tax laws. This Center for Freedom and Prosperity video explains that so-called tax havens are an extremely important refuge for people who are subject to persecution and other forms of government malfeasance.

Let’s consider some Latin American examples. Imagine a political dissident in Venezuela. Hugo Chavez has turned that country into a thugocracy and opponents of his sinister regime are vulnerable to having their assets expropriated (and worse). Thankfully, many Venezuelans are able to protect themselves from socialist tyranny by putting their money in Cayman, Panama, or Miami (the U.S. is a tax haven for non-U.S. people). But if Mrs. Clinton got to make the rules, tax havens would no longer exist and Chavez would be empowered.

Or what about families in Mexico, who rightfully are afraid that if they keep their money in the country and report it on their tax returns, corrupt bureaucrats in the national tax office will sell their names to criminal gangs and suddenly their children will be kidnapped and they will have to deal with the horror of getting a ransom note accompanied by a child’s finger. Fortunately, many Mexicans can guard against this horrific possibility by placing their assets in Cayman, Panama, or Miami. But in Mrs. Clinton’s ideal world, those options would not exist and many more people would experience the nightmare of vicious crime.

And consider the plight of Argentinians. A few years ago, the nation’s venal government stole the private pension assets of the people. This is in addition to radical currency devaluations that have wiped out a big chunk of people’s savings. Prudent Argentinians have avoided these forms of back-door thievery by moving funds to Cayman, Panama, and Miami. In the Orwellian world envisioned by Mrs. Clinton, however, tax havens wouldn’t exist and governments would have carte blanche to engage in bad policy.

This is not the first indication of Mrs. Clinton’s government-über-alles mindset as Secretary of State. Let’s remember that she urged class-warfare tax policy for Pakistan and more recently said Brazil was a role model for soak-the-rich tax policy (a strange assertion since the top tax rate there is only 27.5 percent). If nothing else, at least we can give her credit for being consistent.

But if I have to choose between Mrs. Clinton’s consistent statism and protecting the liberty and freedom of oppressed and persecuted people, it’s no contest. Politicians and senior government appointees all over the world act as if folks in the private sector are nothing more than serfs and peasants who have an obligation to pay ever-higher tax burdens, so we should be happy that so-called tax havens offer a refuge – even if we don’t live in failed states such as Venezuela, Mexico, and Argentina. Actually, since Obama is trying to turn us into Greece, maybe this issue will be important for Americans even sooner than we think.

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