The Power and the Money

A public service announcement that has nothing to do with Honduras

  This was one of the most useful signs I've ever spotted while driving along a rural highway.

“Watch what you put on the Internet.  Think before posting.”   

Growth is good

  I temporarily moved to Santiago in late 1991.  For the first few months, I had a room in a house owned by an elderly couple way out in upscale suburb called Las Condes, beyond the end of the metro.  (There were only two metro lines.)  Back then, it was a neighborhood of single and double-family homes.  Apoquindo Avenue was essentially a suburban strip, densely built-up by American standards, with the occasional high-rise and pedestrian-friendly sidewalks, but a suburban strip nonetheless.

I wouldn't've recognized the neighborhood (since I couldn't remember the name of the damned cross-street to save my life) if it hadn't been for the minor miracle that the Pizza Hut on the corner of Apoquindo and Capitanía was still there.  But I remembered the house was on Nevería, a block from the street that hit Apoquindo at the Pizza Hut, and with the cross-street I could locate it.  So I went looking.  And what did I find?  Big apartment buildings! 

Could that kind of change happen in America?  I have my doubts.  In my last post, I briefly discussed the high cost of American zoning laws.  Such laws prevent wholescale changes in land use, causing cities to sprawl more than they would have otherwise.  In other words, they lock in the existing pattern of land use, preventing the kind of wholescale change that in past decades gave us such delights as the boulevards of Queens and Wilshire, where high-rise corridors sprouted along formerly suburban strips.  Today, I don't know if that happens at all, with the exception of a few downtown districts.  When densification pressure starts in an American neighborhood characterized by single-family homes, zoning changes usually squash it, the way New York City has moved to protect the pristine environment of Queens from an onslaught of apartments.  Let alone, say, the Bay Area.  Imagine Palo Alto filled with high-rises and three times the population.

And no, Houston is not an exception.

Domingo flojo, and Doug in Senegal parts 1 and 2

  ¡Domingo flojo!  Despierta tarde en el mediodía, llama al tren, pa’ver q pasaría ... Narnia?  No no no no no. 

So I line up a trip to the deep-pit copper mine.  Chido!  At which it point it starts to hail around here, and the company cancels.  (Liability issues.  Chile is not Mexico, it seems.)  So I figure, hey, Chile has restarted passenger train service, why not chill in Chillán?  Metro to the train station, thin attractive woman a little older than me and wearing this cute little neo-hippy snoopy hat sells me a ticket with just the right amount small talk to remind me why I like this country so much.  Only ... she realizes that the return trips are all sold out.  I debate taking the bus back, decide no, and now regret it.  WTF am I going to do in Santiago on a rainy lazy Sunday?  Work in my hotel room?  Too depressing! 

I'll figure something out.  Meanwhile, Doug Muir is in Senegal, with details here and here.  I, of course, am fascinated by the French influence.  As always, don't expect pictures from Mr. Muir, but do expect lots of information, historical detail, and very good analysis about what it all means. 

You can also go here and here on this blog, where we discuss another part of the French not-empire in West Africa, or here, where you find out how Burundi got a handle on infectious disease.

I'll be back with more about regional inequality, copper, and the effect of the Panama Canal on Chile, but right now I'm going to go brave the rain and wander aimlessly around Santiago for a while.  I will, however, take requests for any Chile-related topics you might want to know more about.  (Randy has one pending on regional inequality.)  Hasta pronto, mis cuates desconocidos. 

Non-conscription conscription in Chile

  In 1991, when I was last in Chile, the military was a thing apart.  Its rule over the country had only ended three years before.  The Constitution of 1980 reserved it a special role.  There was an organization called the National Security Council that consisted of the president, the heads of the Senate and Supreme Court, and the commanders of the four branches of the military.  The NSC could determine its own decision-making functions.  It selected four out of 36 senators, not including the seat reserved for Augusto Pinochet.  It picked two out of seven members of the Supreme Court.  The president couldn't remove military commanders without its approval.  If it saw “the menace of war,” it could order the central bank to extend credits to any person or group that it saw fit.  In addition, albeit not part of the constitution, a 1954 law granted the military 10 percent of Codelco’s copper revenues.  It was all very undemocratic, save for one thing:  the armed forces relied on conscription, and had since 1900.  The annual take, however, was never more than 20 percent.  In effect, it was fairly random and easily avoided, which undercut any chance that the military might become a citizen army.  

Most of that has now changed.  The NSC is now just an advisory board, and the non-elected senators are a thing of the past.  The military continues to get its share of Codelco revenues, but tensions with the neighbors are very low, and civilians set policy.  And ... perhaps inevitably ... conscription has ... well ... not quite ended ... it’s weird, and it raises a lot of interesting questions for the United States and elsewhere.

Details below the fold.

Back to Santiago

  The last time I was in Santiago de Chile was in 1991. It was a bad year.  The First Gulf War ended in February. The U.S. economy was in the toilet.  Unable to afford school fees, saddled with a large short-term debt dumped on me due to a bit of ... ah ... creative financing by a ... hmm ... unrelated family member, and needing to save to pay for my long-anticipated trip to South America, I stopped out of school and wound up doing odd jobs that paid enough to keep me sleeping in my car. Which was a 1980 Plymouth Champ.  If Marcia still comes here, she can probably say more about this period than I remember.  Or necessarily want to.

It wasn't the greatest time to decide to go gallivanting off to Santiago, but I managed to get enough money together enough to go.  I don't remember a whole lot.  I have a journal from the period, but the young fellow who wrote in it seems quite alien.  (At some point around 1995 the writer becomes a recognizable version of me.  Stupider and ignorant, but clearly me.  Before that ... who was that guy??) 

So now it turns out that I'll be headed back to Santiago for a few days next month.  It will be interesting to see all the changes.  In that vein, I'm going to begin an intermittent series of posts about Chile, starting with the following chart (you can click on it to have an expanded version pop up): 

It shows the PPP-adjusted GDP per worker (in 2000 dollars) for the United States and Chile between 1950 and 2008.  The data come from the Penn World Tables through 2003; afterwards, the U.S. data are from the Global Financial Statistics database (dividing real GDP by total employment) while the Chilean figures are derived from the Instituto Nacional de Estadísticas, under the somewhat heroic assumption that the growth in Chilean GDP per worker in 2004 pesos is the same as its growth in PPP-adjusted 2000 dollars.  Anyway, the approximation is good enough for a blog post, and unlikely to change this picture much.  (Besides which, I know how the PWT figures are produced, and they're not much more accurate.)

The data show that Chile had an economy about half as productive as the United States at the middle of the last century.  Chile more-or-less maintained that ratio until the economic collapse that hit at the tail end of the Allende presidency and the first few years of the Pinochet dictatorship.  There was a rapid recovery afterwards, but the economy went right into another tailspin in 1982.  The solid growth rates since then have only taken the country back up to the same relative position that it held at the end of World War 2. 

That said, the place is lot richer than it was when I was there in 1991.  Your average Chilean worker produces more than half again as much as he or she produced back then.  But what does that mean on the ground?

Right about now, Doug would probably turn to the human development indices.  Infant mortality, life expectancy, income equality, that sort of thing.  Me, I make like Gary Numan and look at cars.  The following chart ...

Observatorio Argentino 6: a not-crazy Argentine megaproject

Angry Argentine commuters in the B.A. suburbs of Merlo and Morón burned trains and occupied the tracks yesterday.  They got angry when a train conked out right in front of them.

I mean really angry.   

 

The good thing?  This incident might finally kill the Tren Bala.  The mayor of Buenos Aires, Mauricio Macri, has now come out in clear opposition, as did a congressperson allied with President Fernández, Martín Sabbatella.  “It remains clear that this country’s priority cannot be the Tren Bala.”  Better still, the head of a major trade union also allied with the President, Hugo Yasky, also came out against the project, calling instead for more investment in the collapsing commuter rail system.

But not all Argentine megaprojects are dead.  The day before the riots in Castelar and Merlo, President Fernández declared her support for a 13-mile train tunnel through the Andes to Chile, at an estimated cost of US$3 billion.  Unlike the Tren Bala, a cargo link between Chile and Argentina is an excellent idea.  Most of the financing will be private, the current road link (which I've driven) is clearly inadequate, and the economic benefits are clear.  It won't be as cool as a bullet train, but it will help generate jobs and raise incomes. 

Plus, the Buenos Aires rail system desperately needs to be fixed.  Upgrading commuter rail isn't a marginal wouldn't-it-be-nice project, the way it would be in New York or the Netherlands.  Rather, upgrading commuter rail is something absolutely necessary if Buenos Aires is to remain a functioning metropolis in the future.

So while I don't generally approve of burning public property, sacking offices, or overturning cars, this particular angry outburst may have done the country some good. 

The Barber of Buenos Aires

On March 1st, 2005, President Nestor Kirchner effectively repudiated Argentina's obligations to those bondholders who refused its final offer to restructure its debts. 

Four years earlier, during the chaotic month of December 2001, Argentina defaulted on its dollar-debts. Over that evil month, the economy was reduced to barter, mobs sacked bank buildings, and the country went through five presidents in eleven days ... starting with the unlucky fellow in the blue shirt, Fernando de la Rúa. 

After President Néstor Kirchner took office in 2003, Argentina began negotiating over the debt in Dubai.  The Argentine side did everything possible to flummox its creditors, up to and including bringing very scantily clad female “assistants” to meetings with high-ranking American women.  The Argentine chief negotiator also played doornail dumb, honestly confusing the Americans and Italians across the table (unsurprisingly, the half-naked assistant ploy discomfitted the Americans rather more than the Italians) about whether he was uncannily brilliant or honestly didn't understand what a bond was.  (I've met the man, and I don't know either.) 

The Argentines put a truly fascinating offer on the table:  the creditors would forgive past-due interest would be forgiven, and the old bonds would be swapped for new ones worth 35 cents on the dollar.  In return, however, the new bonds would include a GDP “kicker.” The kicker — pronounced “keek-care” by everyone involved — promised the creditors additional payments equal to one-twentieth of the dollar value of all GDP growth above a initial threshold of 4.2% per year, which would eventually fall to one-twentieth of all growth over 3%. 

The creditors rejected the offer, preferring a “haircut” of 40% on the face value of the debt, no interest-forgiveness, and no kicker.  In response, Kirchner told them, and the IMF, and the U.S. Treasury, and eventually even President Fox of Mexico (don't ask), that the bondholders could take his haircut or drop dead.  On March 1st, 2005, the president finally told the holdouts to drop dead, and repudiated their bonds.

Below my friend Aldo contemplates the question: was that the right thing to do?

A year ago, I would have unhesitatingingly answered, “Yes.”  Now, I still think it was the right thing to do ... but I'm worried about what the Fernández Administration intends to do with its hard-won fiscal freedom.  More below the fold.