The Power and the Money

The Chilean senate is no longer completely terrible but ...

In 2015, Chile reformed its horror of a Senate. (This blog is no fan of senates.)

Previously, Chile elected two senators from 19 constituencies. Eight of the constituencies conformed to Chilean regions, regardless of population. The remainder consisted of regions split in half. In every constituency, the party that won a plurality would get one senate seat. Then the runner-up would get the other seat, unless the winning party more than doubled its vote share over the runner-up. This is the binomial system Andrei mentioned in comments.

That system is now mostly gone, replaced with one where each Chilean region gets a number of Senators proportional to its population. Inside each constituency, Senators are selected by proportional representation. 

But it is still terrible. Consider the below chart. The horizontal axis is the number of senators from each constituency. The vertical access is the population of the constituency. Five of the smaller ones are stuck with the old binomial system. And the distribution of senate seats is lumpy and only vaguely related to population. 

Moreover, smaller regions are ridiculously over-represented and metropolitan Santiago is massively under-represented. Consider:

So the Chilean senate is still a mess. But the lower house is even worse!

There is actual is actual overlap, with smaller districts getting more deputies that larger ones. Malapportionment is terrible.

In other words, the 2015 amendments may have (mostly) abolished the binomial system, but they still left districting a mess. Multimember districts are a good thing, but this is a terrible way to do it. Chile needs constitutional reform.

Although I am still not clear why it needs a whole new constitution. Thoughts?

Why does Chile need a new constitution?

The Republic of Chile is set to replace its constitution. After the mass demonstrations, all the political parties signed on to writing a new Magna Carta. Amendments readily passed authorizing a constitutional convention if a national referendum gives the thumbs up.

But what is wrong with the current document? Nobody likes the fact that it was written by a dictatorship back in 1980. But the atrocious parts of that document have all been excised. It now includes the right to unionize, the right to social security, the right to education through age 18 and the right to a clean environment. It bans no social or economic policies short of outright Bolshevism. 

So is there anything concretely wrong that requires a new constitution? 

A few obvious problems: 

1. Senate districts remain severely malapportioned, as do lower house districts. In addition, the binomial system survives in some constituencies.
2. Many ordinary laws require supermajorities for no good reason. Article 66 requires 60% for any laws that “interpret constitutional precepts.” Meanwhile, constitutional organic laws require 57%. “Constitutional organic laws” are specified in the constitution as laws giving structure to constitutional mandates; in other words, they are just plain laws.
3. The president is too damn powerful. It’s great that the executive can unilaterally propose laws to Congress. (The U.S. constitution could use an amendment permitting this.) But it is ridiculous that Article 65 says that only the president can propose laws on taxation, public services, employment, borrowing, salaries and remunerations, social security or collective bargaining.
4. Amendments intended to strengthen judicial review may have gone too far. In Chile, you do not need standing in the Anglo sense in order to challenge constitutionality: Article 93 gives a long list of officials that can bring suit before the Constitutional Tribunal. 

This is not a very long list. What am I missing? Does Chile need a new magna carta for any reason other than the symbolic?

The problem with Chile

Even with the República Argentina on the verge of an historic election, the riots and subsequent demonstrations in Chile have attracted a lot of attention. Below is a much smaller sympathy demonstration getting started in Buenos Aires, organized by the Frente de Izquierda.

Argentines look upon their neighbor to the west with a mixture of contempt and envy. Contempt, because there is a strain of “Why is that place even a country?” You don’t quite get the spontaneous outbursts that Uruguay attracts — random people in restaurants and bars will tell you, unprompted, “That’s a province of Argentina, you know” if you mention having visited Uruguay — but Chile can ignite the same feeling in some Argentines. (They know who they are.) Envy, because that historical accident to the west has become richer than Argentina and a putative “developed” nation while Argentina remains in its malaise.

So there is schadenfreude in excess on this side of the Andes.

That said, it is worth noting that the problem with Chile is simple: taxes and spending. Chile has some nice statistics about this. The Chilean personal income tax system is moderately progressive, although note that the country collects more from the regressive VAT than from progressive income taxes. Still, the bottom 76% of tax units in 2016 earned an average income of US$3,875 and paid nothing.

But look at that household income number! It is not a misprint. It is substantially lower (in nominal terms) than in Mexico. The Chilean state is /much/ more powerful than the Mexican state. So the country appears orderly, even in small impoverished villages and the outskirts of large cities. That gives an impression of prosperity that even places like Monterrey don’t have.

But it is a false impression. In median terms (not average) Mexico is more prosperous. And not by a little, either.

Getting back to Chile, the top 0.43% of tax units in 2016 earned an average income of US$210,236 and paid an average rate of 28%. So what did the government do? Cut the marginal tax rate from 40% to 35%! And this was under President Bachelet, a socialist.

To be fair to Bachelet, the net impact of her reform was to reduce income inequality. The share of national income going to the top 1% dropped from 16.6% to 15.5%. (See page 7 at the above link, a World Bank report entitled “Efectos Distributivos de la Reforma Tributaria de 2014.”) But that was due to a change in corporate and business taxes. Dropping personal rates was a political compromise, but in the words of my friend Gónzalo Monroy, “In the short term, it is about sending the right signal to diffuse social tensions.”

In other words, the government should not have made that political compromise at all. Leave the top tax rate at 40% and raise business taxes. That sends the right signal to diffuse social tensions. In fact, the top rate should be raised to 50%. Raising the tax take on the top 0.43% by another ten points would net the government only US$854 million per year. But the income isn’t the point. Fairness is the point. These are people who have done very well by the Chilean Republic. They can shoulder more.

And considering Chile’s recent economic history, they damn well should shoulder more! Leticia Abad (CUNY) and Peter Lindert (UC-Davis) have tracked the net impact of fiscal transfers across Latin America. Below are their results from Chile between 1965 and 2013.

Look at the numbers! The dictatorship was astonishingly regressive. They rich not only captured most of the benefits from economic growth, they got the tax system to transfer to them even more. But even under democracy, the bottom quintile only became net recipients from the fiscal system in 2005.

And they have benefited little since, with the lion’s share of net transfers going to the upper middle class, those between the 60th percentile and 80th percentile of the income distribution. Chilean democracy is a system to transfer wealth from the rich to the upper middle class. 

Do I think that raising taxes on wealthy Chileans would solve the social problem? Not in the long run. As Leticia Abad says, spending matters.

But in the short run, well, yeah, I kinda do think that raising taxes would go a long way towards cooling social tensions.

Which begs the question of why smart Chilean politicians don’t have the same impression that I do? Either I’m missing something, or Chilean politicians are really bad at politics. Help?

Mad Max is bullshit, people; disasters do in fact bring us together

 We have some unfinished posts fisking the World War Three novel Ghost Fleet. We are not fans of the book. And now one of the authors, August Cole, has posted this. 

“This” is a paean to Tom Clancy wargame in which there is a smallpox outbreak in New York City, after which society collapses and warlords take over. Or something. You can watch a trailer. 

Now, to be fair, Cole has nothing to say about whether a smallpox outbreak in New York would suddenly cause civilization to collapse into dog-eat-dog violence. He just thinks it’s useful to depict scenes of mass human suffering in video games because it will better prepare future soldiers for urban operations: 

“But scavenging in the confines of the New York subway system or winding up in a shootout with a local gang reinforces that your own worst enemy is all too familiar: fellow humans. The game lays bare how the odds are stacked against the survivors of such a calamity, and how even functional complex urban environments teeter and sway between chaos and order each day. Just as the novel World War Z by Atlantic Council senior fellow Max Brooks presents this uncomfortable truth through the premise of a zombie outbreak, this video game does so with close-quarters anarchy caused by catastrophic bio-terrorism ... The Division will appeal more broadly to gamers, given its formulaic progression of acquiring skills, weapons, and powers, which big studio games must incorporate in order to entice millions of players. That is also one of its strengths and perhaps greatest forms of utility in the defense realm: broad appeal. Megacity operations, be it relief or combat, will no longer be an abstract concept to young corporals or privates — or their commanding officers.”

I would like to point out here that there is remarkably little evidence that looting and unrest spike in disaster situations. The first paper of which I am aware pointed that out in 1968. A 2004 paper from the CDC reinforced the argument, showing that most looting involved necessary supplies rather than egregious attacks on other people or their property. “In contrast, researchers have found — at least in the immediate aftermath of disasters — that community resilience and unity, strengthening of social ties, selfhelp, heightened initiative, altruism, and prosocial behavior more often prevail. In short, when things are at their worst, disaster-stricken communities tend to rise to the occasion.”

This issue came up again in 2010, when preliminary reports of widespread disorder after the Chilean earthquake proved unfounded. The looting that did occur was easily controlled. No roving gangs taking over whole neighborhoods; for some numbers, we are talking about an increase in armed robberies from 52 in 2009 to 102 in the year of the earthquake. No houses were hit. It was not Mad Max. 

And again in the Philippines in 2013. Same general story.

In other words, I think our military would be very ill served if it were to promote training tools that gave soldiers the impression that organized violent gangs were going to be their main problem in post-disaster situations. 

Syrians to South America?

 Here is a question for you: why aren’t flights from the Middle East to South America crowded with Syrian refugees?

On paper, most of the Southern Cone countries have remarkably liberal immigration regimes. Start with Argentina. Refugees are automatically accorded two years of residency and receive legal representation. (See the 2010 Migration Act.) Now, the law is not as liberal as American activists would have you believe: undocumented migrants can still be deported (page 17), but the Argentine government has explicitly opened its doors to Syrian migration. Uruguayan immigration law is even more liberal than Argentine. All you need to do to migrate to Uruguay is demonstrate an income stream of $500 per month. After that, naturalization comes within a few years. Brazil has a liberal new refugee law. 

The problem isn’t cost. A ticket costs around $800, rather less than the monetary cost of making it overseas to Europe. 

But in practice, all three countries are pretty much closed.

Start with the official Argentine program for Syrian refugees. The refugees need to have links to an Argentine sponsor either through family ties (out the fourth generation) or via a “pre-existing personal relationship based on whatever legal, reasonable, and justifiable reason: family, social, educational, work, etcetera.” 

Unless a Syrian in a camp somewhere can demonstrate a tangible documented link with somebody in the Argentine Republic, then they do not get a visa. This policy lets Buenos Aires claim that the doors are open while actually keeping them firmly shut. 

The policy may change, depending on how seriously Argentine authorities take the definition of a family link. Supposedly, 4 million Argentines trace some ancestry to Syria. In reality, no. In the peak years of 1897-1913, net migration from Syria came to about 103,000. To get from that to 4 million you have to assume almost total exogamy, which is not likely. (For the pedantic: if you assume the same birthrates as the general Argentine population, a generation of 35 years, and total exogamy, then about 3.4 million Argentines should have some “Syrian” ancestry by now.)

Moreover, a 1936 census registered only 11.2% of the Syrian-born residents of Buenos Aires as Muslim. (Page 17, once again.) Some of that is surely conversion, but it also implies that the “Syrians” came much more from Lebanon than from Syria.  

Nor is this policy in violation of Argentine refugee law. Article 10 exempts anyone under U.N. protection. Article 11 exempts anyone who has “voluntarily settled inside or outside the country which he left owing to fear of persecution.” Depending on the definition of “voluntarily settled,” that could include precisely every Syrian refugee. It certainly includes anyone in a UNHCR camp. Only a few hundred people have escaped under this not-so-generous regime. 

Uruguay is worse. After the country took in a whopping 42 refugee families, a counterreaction set in, and the door are now firmly shut. In theory, the country has pledged to admit ... wait for it ... 120. Now, Uruguayan law opens up an interesting way from European countries to send their unwanted refugees to Uruguay: give them an airplane ticket and a $500 per month stipend. That said, given what happened with the 42 refugees the law would be changed right quick if a European government tried to take advantage of it. 

Chile, meanwhile, has a liberal refugee law that only considers people who manage to make it to Chilean territory. So no visa for that plane ticket from Dubai. 

And then there is Brazil, which had settled 1,740 Syrian refugees as of March, and 2,077 as of this month. That is nice, but still a very small number. The Brazilian issue is that the bureaucracy is slow, so even without formal quotas few applications get processed. (The Brazilians also exempt anyone under U.N. protection.) It is probably the most open, but still not enough for a mass exodus.

The Brazilian case shows how much bureaucracy can turn an ostensibly open process into a closed one. The Mexican government is coming under a surprising amount of domestic pressure to accept 10,000 refugees. I bet there will even be a bill. And it will sound good.

But the devil will be in the details. Do not wait for Latin America to open its doors in any serious way.

Juan Linz was wrong

 I think I need to spell it out more clearly: Juan Linz was wrong.

(1) There are very few instances of democratic collapse in Latin America which involved partisan gridlock. The only one which clearly fits the bill is the Brazilian coup of 1964 ... except for the fact that Brazil tried a parliamentary system in 1960-63, which did nothing to resolve the country’s underlying political conflicts. Three others fit if you squint hard: the Argentine coup of 1966, the Honduran coup of 2009, and the Chilean coup of 1973. The latter, however, also involves a President who was in open defiance of the Supreme Court as well as Congress.

This is a small subset of the democratic collapses in Latin America. 

(2) Now, Latin America is all presidential regimes, save the 19th-century Brazilian Empire and that brief early-Sixties experiment. But Africa has a mix of presidential and parliamentary systems. And on that continent, both systems are equally-likely to break down.

(3) Postwar Europe has not had a lot of democratic collapses, but there have been a few close calls. They do not fit the Linz formula. Perhaps the coups in Czechoslovakia and Hungary should not count, because they both involved the Soviet Union ... but they nonetheless occurred in parliamentary systems. The collapse of the Fourth French Republic was not a coup per se but it was certainly a constitutional breakdown ... and the Fourth French Republic was a parliamentary system. The 1982 putschists in Spain launched their assault on a parliamentary government. Finally, the 1960, 1971, 1980, and 1997 coups in Turkey overthrew prime ministers, not elected presidents.

The U.S. may go into a crisis. We may develop a political culture most unsuited to our constitutional structure. Jonathan Chait explores that idea here. But if that causes us to go into crisis, it won’t be because of our constitution per se.

Is American democracy doomed?

Juan Linz has gotten a lot of well-deserved attention in the blogosphere recently. Linz wrote that presidential regimes tend to break down because of irreconciliable conflicts between the executive and the legislature.

Many observers, not least Matt Yglesias, have interpreted Linz as stating that the problem is that presidential system allow for gridlock between the executive and the legislature, especially when the parties are ideologically coherent and commited. Kind of like, uh, the modern United States. So are we doomed now that our parties have become European-style organizations?

Well, maybe. The cross-country data is mildly supportive of the presidentialism = bad hypotesis, but is by no means a slam-dunk. Moreover, while presidential regimes are more likely to break down there is really rather little evidence that the reason was gridlock between the executive and the legislature.

The closest parallel to the current American situation is Chile in the early 1970s — but it is not very close. In the 1969 election, the People’s Union (Unidad Popular) got 60 out of 150 seats in the lower house. The Christian Democrats got 57 and the National Party received 33.  The next year, Salvador Allende (the People’s Union candidate) won a plurality of the presidential vote, throwing the election to Congress, where he won with Christian Democratic support. (The Nixon Administration tried to prevent his election but failed.) Allende started a program of widespread nationalizations using existing legal authority under a 1932 law that allowed for the temporary requisition of basic goods when in the public interest. (The law also allowed the executive to put companies into temporary receivership should they be closed by a strike.) In October 1972, the Supreme Court ordered the President to obey lower-court orders overturning some of the nationalizations; Allende refused.

In March 1973, the opposition won the Congressional elections. The Christian Democrats aligned with the National Party to form the Democratic Confederation, which took 55.6% of the popular vote and 87 out of 150 seats. (The People’s Union got the rest.) Congress first attempted to amend the constitution, which failed. It then tried to impeach Allende, but could not get the requisite ⅔ majority. In May, the Supreme Court again reprimanded the President. At this point, Congress went on record asking for a coup. The coup happened on September 11, and its leaders proceeded to disband Congress and jail or “disappear” many of the legislators who had called on the military.

In short, the Chilean crisis was caused by a President who overstepped his authority and disobeyed the Supreme Court and resolved by a military that believed itself above the law. Suffice it to say that this does not characterize America’s current situation.

What about Argentina? Well, Argentina has had a lot of coups since the first one in 1930. In 1930, President Hipólito Yrigoyen’s party had comfortable majorities in both houses. The 1943 coup was against a dictatorship. The 1955 coup overthrew the elected Juan Perón — but Perón’s party controlled Congress by overwhelming margins. As in 1930, gridlock was not the issue. In 1962, the miltary overthrew President Arturo Frondizi: in that case, the prompt was Frondizi’s loss of several governorships to the Peronists in the ’62 elections. Again, gridlock was not the issue. The 1966 coup kinda sorta maybe if you squint could be gridlock-related — but really had more to do with President Arturo Illia’s confrontation with American oil companies. And 1976? That one was against President Isabel Perón’s supposed inability to defeat Communist guerrillas. Her coalition controlled Congress; once again, gridlock was not the issue.

What about Brazil? Well, the Revolution of 1930 took down an oligarchical government with an extremely limited electorate. Not really comparable. The 1964 coup knocked out a left-wing government with American support. It is true that Congress did not support President João Goulart. It is also true, however, that for his first three years Goulart presided over a parliamentary system in which power resided with Prime Minister Tancredo Neves. In 1963, a referendum restored President Goulart’s executive power: the result was paralysis. In that sense, the ’64 democratic breakdown is consistent with the hypothesis that presidentialism causes gridlock causes democratic failure. The problem is that the parliamentary system tried beforehand was doing no better at resolving the country’s political conflicts.

Colombia? Well, the 1953 coup happened after President Laureano Gómez seized dictatorial power. Gómez, in turn, won the 1950 election because the opposition boycotted it. Again, gridlock not the problem.

Let’s turn then to Mexico. Uh … no, let’s not. The 1910 revolution got started against a dictatorship. Porfirio Díaz government was many things, but gridlocked was not one of them. (In fact, Congressional votes were all unanimous after 1893.)

I could go on around the other countries of the Western Hemisphere, but the pattern is similar. Divided government is not the cause of most democratic breakdowns in Latin America. Chile 1973 is the closest, but that is one event, with little resemblance to the government-by-crisis currently affecting the United States.

So breathe easy America! We will get through this. How, you ask? Well, if the GOP keeps this up, it will lose a lot of elections, even with our gerrymandered House of Representatives ... and there is a lot of ruin in the United States. The worst-case scenario on the debt ceiling is pretty bad, and I would certainly a 5-10% fall in GDP and the corresponding human suffering a failure of the United States. But in the unlikely event that the Republicans take us there, they will not be in a position to take us there again.

Chile, Haiti, and disorder

 I think that Tyler Cowen makes a surprising mistake here when he compares the lawlessness in Chile and Haiti. Cowen:  “Haiti, on the other hand, remains fairly orderly and there have been reports that police corruption has gone down significantly ... Haiti is so orderly because a) looters would be killed on the spot, and b) the entire fate of the nation is at stake and thus every small event is taken very seriously.” He links to a CNN story and a tweet from somebody in Santiago reporting secondhand about Concepción. (God, I hate Twitter.)

I dispute the stylized fact. I am peripherally involved with (well, hearing about) a U.N. survey design in Port-au-Prince: the lawlessness is out of control. Kidnappings, assaults, and rapes are endemic. Concepción, on the other hand, has a looted shopping center. These are not the same thing!

Haiti seems orderly because expectations were much worse. Chile seems chaotic because expectations ... well, actually, Chile doesn’t seem that chaotic, given the scale of the disaster. More chaotic than it needed to be, but the state functions and there has been no organized violence. Minute-to-minute reports here.

The post perturbs me a bit, since I know many people who rely on Marginal Revolution for information, and I am afraid that the false comparison is going to mislead some of them. It is also a bit ironic, since the main point of the post was “context-dependence, context-dependence, context-dependence.” 

Yes. Context-dependence. By any absolute standard, Haitians reacted far more violently than Chileans to the earthquake, because the destruction was far greater and the state basically collapsed, even if it is now getting back on its feet. Apples and oranges, context-dependence.

Chile is a great country

 I have many reasons to like Chile to the point of taking out dual citizenship. Democratic government, great climate, good music, nice roads, and a flag that reminds me of what is still my favorite country on the planet. (You know, the one that got the silver in men’s and women’s hockey.) And to all that you can add a sensible response to looting after a natural disaster.

Matt Yglesias got this wrong. Here is the correct story:

“A day earlier in Concepción, the police fired water cannons and tear gas to disperse hundreds of people who forced their way into shuttered shops. But law enforcement authorities, heeding the cries of residents that they lacked food and water, eventually settled on a system that allowed staples to be taken but not televisions and other electronic goods. Ms. Bachelet later announced that the government had reached a deal with supermarket chains to give away food to needy residents.”

The issue he raised is a real one, but Chile should not be impugned, when in fact the government is responding with alacrity and good sense. ¡Felicidades! ¡Viva Chile!  Take it back, Matt! Chile awaits an apology.

Natural disasters and and wealth

 I’ve checked, and everyone I know in Santiago seems to be all right. The earthquake has been incredibly severe, but the state is responding.

Here is a brief overview of what we know about the economics of natural disasters. Here is another paper by one of my favorite economists. (He has been really helpful to Kris and I in our ongoing work on Crown Agents.) Yang’s paper looks at hurricanes, not earthquakes, and finds something interesting: in very poor countries, foreign aid plus increased remittances helps recovery along. In richer countries, however, increased inflows from abroad are more than offset by huge declines in private investment. Paradoxically, richer countries take longer to recover than poorer ones. (Places like Puerto Rico and Martinique are not in his sample; I doubt that the result would apply to places that are parts of larger political units.)

Then again, there is economic recovery and there is death and destruction. These are very different. So even if it is the case that richer nations take longer to recover from natural disasters, far fewer of their citizens are likely to die.  Moreover, citizens of functioning democracies are also more likely to make it through, even after adjusting for income.

Chile is both relatively rich and a functioning democracy. Today is a nightmare; but nothing along the lines of what is going on in Haiti.

American Airlines, I should say, is running flights for relief workers out of both Miami and Fort Lauderdale. Kudos.

Bolivian energy and the neighbors

 The New York Times has an article today entitled, “Neighbors Challenge Energy Aims in Bolivia.”  It is quite informative.  But it gives the wrong impression about the effects of Bolivia’s energy policy under Evo Morales.  The article makes it seem as though Bolivia shot itself in the foot by nationalizing the gas.  That is probably not true.  Rather, Bolivia has shot itself in the foot by refusing to build a pipeline to Chile.

Argentina’s energy policy has nothing to do with Evo.  In fact, inasmuch as Argentina has a coherent energy policy, it currently revolves around importing more Bolivian natural gas. Its roots lie in the peso devaluation of January 2002.  The government froze the peso-price of natural gas, in order to protect Argentine consumers who were already suffering an economic downturn considerably worse than the Great Depression.  The effect was to knock down the residential gas price from $1.88 to 66¢ per MMBTU. 

That wasn’t a problem until the southern hemisphere winter of 2004, when gas companies cut supplies to large industrial customers. After all, they could get much higher prices from exporting the gas to Chile.  Well, the Kirchner administration reacted much as you’d expect:  they banned gas exports. The Interior Minister of Argentina apologized to the Chilean government for the interruptions — but in May 2005 the Argentines once again slashed exports to Chile. The story repeated itself in 2006, when Argentina cut exports altogether for two weeks.  In fact, Buenos Aires added insult to injury when the government raised export taxes from 20% to 45%.  

Eventually, however, as the economy recovered, Argentina stopped being an exporter.  So the Fernández administration began to walk back the policy.  First, she allowed prices to rise to around $2.50 per MMBTU. Second, she created incentives to increase the domestic supply.  Finally, she moved to try to lock-in relatively low gas prices from Bolivia. Argentina imports LNG, but it costs twice as much as Bolivian gas.  The country’s LNG terminal offers a useful hedge against any Bolivian attempts to renegotiate the contract, but both parties would prefer to buy Bolivian gas for $5 instead of Trinidadian gas at $10.  (In fact, the terminal goes unused for long periods.)  

What about Brazil?  Well, what about Brazil?  It is true that the nationalization provided some impetus for the country to become self-sufficient, but less than you might think.  First, the Brazilians pushed back hard, even threatening to dismember Bolivia if it messed with the price or volume terms of the contract.  And Brazil won.  So while Petrobras may have been disillusioned, the situation worked out well from Brazil’s point of view. 

In fact, Brasilia had a good reason to want to allow Bolivia to retain more of the rents from resources, as long as Brazilian consumers weren’t affected.  Simply put, the bet was that a wealthier Bolivian government would result in a more stable Bolivia, and it’s politically easier for Brasilia to aid La Paz by resisting pressure to defend Petrobras profits than it would be to write checks.  The logic is identical to that behind the 2009 renegotiation of the Paraguayan hydropower contract — the primary difference being that since Brazil initiated the hydropower deal, it has been able to extract more political benefits from Asunción than it has been able to receive from La Paz.

Now, many people in Brazil say that Petrobras is upping domestic production in response to Bolivia’s tax hike. It may even be true.  But we don’t know!  Domestic exploration was good business with or without  Evo Morales.  The increase in Bolivia’s government take made it more so, but we don’t have the numbers to say that domestic supply would not have increased regardless.  I’m not faulting the article;  it’s a subtle point. I am faulting them for getting Argentina backwards ... but with Brazil, we just don’t know if Evo really mattered.

Chile is where the article is spot on.  After Argentina cut the taps, the Chilean government attempted to strike an agreement to build a pipeline from Bolivia, but the negotiations ignited a firestorm in Bolivia.  The anger surged over the fact that the pipeline would pass through territory that Chile had seized from Bolivia in 1878.  Horrors!  The Chilean government periodically floated a trial balloon of transferring a strip of land along the Peruvian border to Bolivia, but Lima protested, since Chile’s far far north had been originally seized from Peru. 

Nobody in Peru seriously contested the border ... but accepting a century-old annexation and allowing the annexed land to be transferred to a third country were very different things.  After a brief and goofy Bolivian flirtation with the idea of building an underground pipeline that would surface far out to sea, the idea died. And thus Bolivia lost a natural market, and whatever possibility it had of producing LNG. 

The article makes no effort — not that it should! — to produce a cost-benefit analysis of Bolivan policy for Bolivia. The country lost opportunities in Chile and it may have lost opportunities in Brazil ... but it got a lot more revenue at a politically-dicey time. That, I have to say, is not nothing. 

What should Evo do now?

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 ...

  

... shows the number of private automobiles per 1,000 people for various countries around the time that they reached the same level of auto penetration that Chile enjoyed in 1991.  That would be Italy in 1960, France in 1952, Britain in 1951, and Argentina in 1968.  All saw their car ownership grow more quickly thereafter than Chile. 

There is some reason to believe that Chilean income inequality has widened.  Since 1993, average wages have risen 40 percent, in line with labor productivity growth of 42 percent.  That said, the real wages of high-level managers have risen 58 percent, while those of unskilled laborers have risen by 36 percent.  Personal service workers — e.g., maids and security guards — have seen their real wages rise only 29 percent, and skilled machine operators wages have gone up just 25 percent. 

I'll put up more sporadically, as I look into the economic and social situation of the country I'm going to revisit soon.  Is there anything in particular that anyone out there is curious about?

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.