Brazil’s Economic Problems

From an Economist newsletter:

Brazil’s statistics agency will today release GDP figures for 2020. Thanks to generous handouts to the poor since the start of the pandemic, which fuelled consumption, the economy fared better than many had feared. A survey by Fundação Getulio Vargas, a university and think-tank, predicts growth of 2.5% in the fourth quarter compared with the previous quarter, and an annual contraction of 4.3% for the whole year. Brazil’s covid-19 dip followed three years of muted growth (around 1%) and exacerbated a fiscal crunch, with public debt approaching 100% of GDP. Fears that economic populism may trump reforms in the lead-up to an election in 2022 have sent the country’s currency tumbling in recent weeks. Unemployment is nearly 14% and could rise again with new lockdowns due to another spike in covid-19 deaths, the worst yet. The central bank’s weekly survey of financial institutions forecasts GDP growth of 3.3% this year. That may be wishful thinking.

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Crypto Coins as Assets

The trouble with a cryptocurrency like bitcoin is that it is relatively easy to create new currencies.  The most obvious current example is the dogecoin that Elon Musk has been promoting.  Bitcoin is a potential store of value because there will be a limited number made, a total of 21 million.  However, it is possible using the blockchain security system and other algorithms to develop a new cyber currency with similar or different characteristics.

Bitcoin was originally developed to serve as a currency to pay for commercial transactions.  The blockchain process makes it relatively easy to make payments.  It appeals to dishonest actors (like drug dealers and hackers who hold data for ransom) because it is hard to trace.  But I don’t see anything particularly unique about bitcoin compared to any other cyber currency, except that the transfer mechanisms are in place and have worked for several years.  Some other organization – a country, a bank, a credit card company – could develop a new cyber currency that might have more political or financial weight behind it, and thus might pass bitcoin as the preferred cyber currency.

One problem for countries might be that a cyber currency would be harder to inflate.  The Federal Reserve can just print dollar bills (physically or virtually), but it might not be able to make new cyber coins, depending on how the coin algorithm is designed.  If a country mandated that everyone had to accept the new cyber coin, that would certainly make it displace bitcoin as a form of payment.

As a result, I do not see that bitcoin is an asset that will retain its value indefinitely, like gold.  There are other precious metals like silver, platinum, maybe copper, but they are also physically limited, and their value is determined to some extent by how much physically exists, plus or minus whatever speculative fever surrounds them at any given time.  Bitcoin might be more like gold if it had some intrinsic value, for example, if it were a store of energy that could light a house for year.  But currently, as a store of value, it is not even being used as a means of exchange.  Its skyrocketing value actually makes it a source of currency deflation; no one will spend a bitcoin today if it will buy twice as much tomorrow.  People will not spend them; they will save them.  This tends to be a drain on economic activity, which weakens the economy.

More Foreign Service Science Officers Needed

The Scientific American called for more scientists at the State Department. Nick Pyenson and Alex Dehgan wrote:

“Traditional diplomacy related to territory and place. It was organized by sovereign nation-states with borders and limits that were clearly defined. Those coming into the foreign service, especially in the U.S., came from fields like history, economics and political science, forming the bread and butter of the foreign policy schools. These backgrounds help with the standard set of diplomatic responsibilities for engaging with host country officials, but they are no longer sufficient—nor is it enough to just listen to scientists. Bringing scientists to the front lines of solving our most pressing, complex problems is a necessary step for diversifying and improving the composition of our foreign affairs and foreign assistance institutions.”

I came to the Foreign Service with some of what they want. I had a bacherlor’s degree in mathematics, not exactly a hard science, and I had a law degree, adding to my liberal arts credentials, rather than my scientific credentials. However, I was more interested in science issues than most of my Foreign Service colleagues. The article continues:

“Even with a richness of talent, we still need more opportunities for integrating scientists on the front lines of U.S. embassies and missions abroad. Programs such as the AAAS fellowships already place postdoctoral scientists throughout the State Department and USAID for pressing problems in diplomacy and development. Scaling up this type of program would have a real impact on global diplomacy and development. At USAID, the Partners for Enhanced Engagement for Research have built hundreds of collaborative research programs to date, in conjunction with American scientific agencies, aimed at building long-term engagements and connections across the global scientific community.”

When I was the deputy director of the State Department office dealing with environmental conservation issues, we had two AAAS fellows working on biological issues. The director of the office spent about a year in Nairobi negotiating the Biodiversity Convention, which the US then refused to sign. The main opposition came from then Vice President Quayle’s office, mainly his chief of staff William Kristol. President George H.W. Bush said he could not sign two environmental agreements, one on climate change and the other on biodiversity, because of pressure from the Repubilan Party. He felt it was more important to sign the framework climate agreement than the biodiversity convention. So, the work of our office was for naught.

The article points out the advantages of scientific cooperation, expecially since many foreign scinetists have studied in the US. One of my biggest disappointments was whe the US ceased to fund scientific cooperation with Poland shortly after the fall of the Berlin wall, and as Poland was tansitioning from a Communist government. The US had promised several million dollars a year for science cooperation with Poland for five years. I was sent to oversee that cooperation, but the Gingrich Republican revolution occurred about a year after I arrived, and the Gingrich Republicans refused to fund the remaining years of the agreement. One would have thought that the Republicans would have wanted to encourage Polish scientists and welcome them into a free world with a free economy with a little help, but apparently Republicans didn’t care about Communism anymore and had moved on the domestic political issues. Meanwhile the State Department had a little money of its own to supplement the cancelled Congressional appropriation, and it decided that China needed the money more than Poland; so, State gave its remaining science cooperation cash to China. At least we know the Chinese put it to good use, outpacing US scientific activity.