Episode 176 – Brazil: From Hope to Fascism with Daniel Conceicao

Dr. Daniel Conceição developed an interest in economics at a young age, having experienced the consequences of inflationary crises during his formative years. After being entranced by the writings of MMT economists as an undergrad studying economics at the Federal University of Rio de Janeiro, he came to the US to do his graduate studies at UMKC where he became a friend and colleague of so many of our favorite guests on this podcast. He left determined to use what he learned to help his own country achieve its potential. 

He spoke with us about the recent political and historical context for background into the broader political economic situation and the stances of the major political actors towards it. He pointed out the closely matching parallel track with our own political developments in the US and the economic underpinnings. He also discussed many similarities in the state of the discourse and misinformation in discussions of finance and government budgets. 

He then explained the mechanics of the Brazilian currency, the real, and discussed how the central bank manages it. He discussed balance of payment and foreign exchange situations, and explained why the issue of “monetary sovereignty” is part of the story, but not the end of it. He spoke of a country with monetary sovereignty and abundant natural resources. A country whose government accidentally proved with a massive pandemic economic bailout of the financial sector that the government can indeed do big things and better the lives of its people, if it really wants to. 

Daniel Negreiros Conceição is Associate Professor at the Unicamp Institute of Economics. Professor at the Institute of Research and Urban and Regional Planning (IPPUR) at the Federal University of Rio de Janeiro (UFRJ). He is one of the authors of the book “Modern Monetary Theory: The Key to an Economy at the Service of People”. He is president of the executive board of Institute of Functional Finance for Development Brasil.  

https://iffdbrasil.org 

Follow Prof. Daniel Conceição on twitter @stopthelunacy  

Macro N Cheese – Episode 176
Brazil: From Hope to Fascism with Daniel Conceicao
June 10, 2022

[00:00:03.730] – Daniel Conceicao [intro/music]

The government had to say, well, we’re going to try to keep the debt in check and to keep it from growing. And they actually started cutting spending at the worst possible time. And this is why Brazil has been facing either stagnant GDP growth or even contractions since 2015.

[00:00:28.950] – Daniel Conceicao [intro/music]

We have the most successful basic income transfer program in the world, so the very poor can get some money to survive. And that’s been able to eliminate extreme poverty in Brazil very quickly.

[00:01:42.110] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.090] – Steve Grumbine

All right, folks, this is Steve with Macro N Cheese. Today’s episode is going to take us down to the global south into Brazil. I have economist, former UMKC graduate and student, and now Professor Daniel Conceicao, and he is going to be talking to us in depth about the Brazilian economy and the global affairs that impact Brazil. And the United States has a role to play in that as well. So without further ado, let me bring on my guest, Daniel. Welcome to the show, sir.

[00:02:18.430] – Daniel Conceicao

Thank you so much for having me. It’s a pleasure. I’ve been meaning to meet you guys, and I do like the website and the show and the work you guys do is very important. So thank you for the opportunity.

[00:02:32.950] – Grumbine

Thank you very much. That means a lot to me. And one of our leadership team ran into you in a Twitter space where folks were just talking MMT. And said, Steve, you’ve got to talk to this guy. And I want to give a shout out to Jonathan Kadmon, who set this up for us. So I really appreciate that. Let’s introduce you to our audience. Tell us a little bit about yourself and how you came to MMT.

[00:03:01.450] – Conceicao

Well, so I’ve always been curious about economic affairs since I was very little, and I think we’re going to be talking a little bit about it later. Brazil has a very particular experience with special inflationary issues. We’ve experienced inflation, high inflation, very high inflation for a long time. So the narrative that public spending and money creation were a no no or something that governments should never do was always very present in Brazil.

And ever since I was little, I remember asking my dad during car rides, Why is it that the government can’t spend more to solve homelessness, for instance? I was very distressed with homeless people in Brazil and poverty in general. And the simple answer was, well, the government doesn’t have enough money because taxes are not enough.

And I said, well, what about these notes that we carry? Aren’t those just created by the government? Why is it that we can’t use that to solve our issues? And he said, well, but everyone knows that that can’t be done because of inflation. If you create money, you will create more inflation. We already have a problem in Brazil, so you can’t do it.

And it just never made much sense to me that we couldn’t just do it in a way that wouldn’t be inflationary because it wouldn’t press the economy, right? Pull the economy against its productive capacities. But there was always the general understanding. So I decided that I wanted to learn more about economics. I did my undergrad in Brazil, was very much politically involved.

We were close to the election of Lula here in Brazil, if you guys are familiar, but he’s sort of a left-leaning leader that now is our only hope against the extreme right in the coming election. But he was about to be elected and I was a student. I was trying to get involved, and I was very much into unemployment-eliminating policies. So, my goal was to promote full employment in Brazil.

And I had a professor who was one of the leading post Keynesians in Brazil. He used to teach at our school. He just passed away. He was a wonderful guy, Fernando Carvalho at [inaudible] . And another professor of mine called Alcino Câmara told me that the stuff that I wanted to study for my undergrad thesis and the stuff that I wanted to talk about was very much like what he would do and the post Keynesian ideas that he was developing, having to do with fiscal and monetary policy.

So, I decided, well, I need to learn more about his work. And, in the meantime, another professor came up to me. His name is José Carlos de Assis, and he had just translated Randall Wray’s Understanding Modern Money into Portuguese. So, that’s what happened, because he gave me a copy before the book was even out. And when I read that book, I said, well, that’s exactly what I wanted.

That’s what makes sense, because even the Keynesian economics that I was learning at school was not fully convincing to me, because there was still this concern about public debt and public spending being too much, even without the inflation limits being reached, just because people were still concerned that interest rates could rise if the debt was too high, or perhaps the government wouldn’t be able to find buyers for bonds.

And this was still not convincing to me. So, when I read Wray’s book and when I learned about functional finance and MMT, it really triggered something into my brain. So, I came back to Cardim de Carvalho, the professor, the post Keynesian guy, and I asked him if you would help me get to summer school that was being done at UMKC for MMT. It was actually a post-Keynesian summer school, but I knew that Wray would be there.

And so I think that was around 2003 or 4 perhaps. So I went to, UMKC for the summer school. Alcino Câmara went there. Matias Vernengo, was another guy who was there, also a very influential post-Keynsian in  Brazil. And I met with Wray and Forstater and Kelton and Pavlina [Tcherneva] and Eric Tymoigne. Fadhel Kaboub was there talking about pragmatism.

And they really got me into the whole thing because it was the first time when I felt like, okay, this makes sense all the way through. There are no holes in the argument. It really fits. So I decided I need to come back here. I went to Forstater. I asked, well, what do I need to do to come and study here? And he gave me, like a pile of books, said, Read this. And I came back to Brazil, read the whole thing.

Decided to apply to UMKC in 2005. I was back. That’s when it all started. And I’ll tell you, it was the richest intellectual environment I have ever been a part of. There was so many interesting people, so many different views. We had John Henry at the time, who became a very dear friend, who was challenging me from more politically inclined discussions.

James Sturgeon, also an institutionalist who was giving us a lot of Veblen that really fit well with the whole Minskian approach that Wray was teaching. So, once I was there, it became the most important intellectual experience in my life because it was the place where I could just spend all my waking hours just thinking about how to solve the problems of the world with all the analytical tools that really pay for powerful economic analysis.

[00:09:40.790] – Grumbine

That sounds amazing.

[00:09:42.330] – Conceicao

Yeah, that’s how it started.

[00:09:45.110] – Grumbine

That sounds amazing. With other people that are of, like, mind digging through that material, trying to find answers to the world’s most pressing problems, especially as it involves economics. And the little bit that I do know with that whole heterodox intersectional curriculum, you’re looking at a lot of things, not just economics.

You guys are looking at history, philosophy, a host of other disciplines to understand why economics even matters and how it plays a role in those different areas and how they influence economic discussions. That’s extremely exciting. I’m jealous.

[00:10:27.530] – Conceicao

I’ll tell you, Steve, we really did. We went all over the place. You guys had Erik Dean.

[00:10:35.390] – Grumbine

Yes.

[00:10:36.650] – Conceicao

In one of your podcasts, right?

[00:10:38.710] – Grumbine

Yes.

[00:10:39.710] – Conceicao

We dove for a couple of years into studying human nature in a way that was almost unthinkable in any other place. We went into evolutionary psychology. Erik discovered some stuff from someone who I ended up getting to know at Knox College, a psychologist, forgetting the name, but something that we brought into the Veblen analysis of human nature that we were developing.

We were assimilated into doing this kind of stuff, this inquiry. It wasn’t just about economics. We were really trying to discover pretty much anything that we could think of. So, yeah, it was a blast. It was a wonderful, wonderful time there. We even had a band. We called it the Heterodox Bossa Nova Band that we started, Erik and I.

[00:11:33.230] – Grumbine

That’s awesome. What instrument do you play?

[00:11:36.190] – Conceicao

No, I don’t play. I was the weakest link. So I was singing, doing my best impression of Axl Rose at times. And at times I tried to do some Bossa Nova. But Erik is a heck of a guitar player, so he held the band together. We had a few others, someone who could play the drum very well. We even had a friend who could play the viola for a while. This is jamming together and trying our best, but it was fun.

[00:12:09.530] – Grumbine

Did you ever get to play with Bill Mitchell?

[00:12:12.590] – Conceicao

No, I went to one of his concerts. So Bill is on a whole other level. I think he plays the bass, right?

[00:12:21.550] – Grumbine

I think he plays guitar. He might play bass one way or the other. It’s a stringed instrument.

[00:12:26.510] – Conceicao

Yeah, it is. Yeah. But I was impressed with the way it was a very good band that I saw when I went to Newcastle.

[00:12:38.150] – Grumbine

Very good. All right, so let’s jump in. So I’m just going to give you my backwards American view of what I’ve heard about Brazil. And let us get started with that, because for me, as an individual trying to travel around the world, at least intellectually, and bring in voices and guests that have these different perspectives, one of the big challenges, places like Brazil are thrown in our faces as we try to move forward here in the US as “print more money,” echoing what you heard from your own father.

But one of the things that comes out in the news is you don’t want to go to Brazil. People are getting kidnapped. They’re being held for ransom. It’s really bad there. The poverty is bad. It seems like there’s no real law and order. It’s not a safe place to be. Then, number two, is you’ve got to go to Brazil. The number one industry there is plastic surgery. So everyone’s beautiful.

The oceans are beautiful, the Amazon is beautiful. All these amazing natural treasures are just absolutely spectacular. However, you’ve got this guy, Bolsonaro, who is a fascist. So none of them seem to really capture what Brazil is all about. I’ve never been to Brazil. Tell us a little bit about Brazil. What is Brazil all about?

[00:14:01.070] – Conceicao

Yeah. So we haven’t been well, I’d say, since at least 2018, after the election of our own version of Trump. This type of trauma is similar to what you guys experienced by electing the very worst creature that you can imagine as President. That’s been very traumatic. So we’ve sort of seen the dissolution of much of our institutions that used to hold civility and a functioning country together.

A lot of our policy tools have been destroyed or weakened in public companies that are very key to our economy have been either privatized or are under threat. So these things are traumatic, but in a sense, we’re still holding together. And so it is true that Brazil is very unequal. There is extreme poverty here that creates a lot of tension. So a lot of places are violent.

If you come here as a tourist, yes, you will be at risk of being mugged, perhaps worse, but it’s comparable to most other uneven countries. I actually, when I went to see Bill Mitchell, I almost got mugged in Sydney. I went into the wrong street and a couple of street kids asked me for my valuables and I just ran. So it happens.

It happens more here because there is more poverty and kids are more unequal. And it’s been getting worse since at least 2014, actually. So it’s not all Bosonaro’s fault; you might say it’s a manifestation of things that were getting worse since 2014. So Brazil has a very difficult history. It was the very last country to abolish slavery. It’s been always a very intensely dependent economy.

So it imports a lot of its basic capital goods, its basic inputs for industry, and that makes us very dependent on our money. And therefore, it’s not as easy to do effective policy here as it would be in another country. But even still, if you take, starting in 2003, for example, when Lula won the election, even with all of the concessions that the Workers Party government made to the Liberal agenda, to the austerity agenda, even with that, they were still able to create an environment that reduced a lot of poverty, basically by giving people money.

We have the most successful basic income transfer program in the world, so the very poor can get some money to survive. And that’s been able to eliminate extreme poverty in Brazil very quickly. A lot of their policies also were able to strengthen the domestic markets by creating a new middle class, by strengthening wages. So wages in Brazil were pulled by the minimum wage, which was controlled by the government, and that caused all wages to go up, especially the lower strata.

And so that created internal demand that allowed for some industries and some services to grow in Brazil. So that gave us a boost for a very long time. Now, that boost was made possible without much deficit spending, because we were in a very good place internationally. Lula did get the benefit of an export expansion because China was growing and buying a lot of our commodities.

So that helped. There was demand that didn’t require government intervention because we got lucky. So Brazil did grow a lot from 2005 to 2014, and we did reduce poverty. Time Magazine actually had a cover when the Christ Redeemer statue in Brazil flying like a rocket, as if Brazil was going up like a rocket. It was the new economic miracle in the world. It was Brazil.

And that has to do with that environment that created a lot of economic opportunities, but that started to get undone, perhaps even because of some choices that the Workers Party did, took at the very end towards 2014. And it’s always because of austerity discourse, it’s always because of fiscal terrorism. So what happened was as soon as the commodity boom stopped after the financial crisis in 2008, a lot of countries had trouble and that reversed the stimulus that came from foreign markets into Brazil.

So the Brazilian government had to in fact, this is just natural, right? If we understand sectoral balances dynamics, as soon as one side of the economy stops spending, one sector of the economy, in this case the external sector. As soon as it stops spending as much because of automatic stabilizers, the government side will worsen. In the words of fiscal terrorists, it’s not worsening, really, it’s improving or it’s offsetting the worsening of other balances.

But it means that government deficits had to become larger. And they did for a while. And instead of embracing that as the inevitable solution for recessive shock, the government decided to hide that and to deny it and to try and find other ways of stimulating the economy. So for instance, they try to use private credit creation with publicly owned banks to try to boost private spending at the same time.

But they kept falling victim to the discourse, the generalized discourse that pretty much claimed that if they didn’t do something to keep the deficit from rising and to keep the public debt under control, that there would be trouble ahead. So they did. At first they tried to deny that there was a deficit. This is actually part of the reason why the government was impeached was because they used some creative accounting to hide the fact that they were using some fiscal stimulus to keep the economy from contracting.

But once there wasn’t an alternative anymore and it has to do with the choice of accounting indicators that the media chose. This is an aside, but used to be that the Brazilian media would complain against the net debt of the government and that would not be affected by whatever the government could call an acquisition of an asset.

So all intervention in exchange rate markets wouldn’t show up just because dollars were coming in as money and then bonds were being created and even public investments wouldn’t be a problem under that accounting choice. But then they shifted to the gross debt and that made it unavoidable for fiscal expansion to show up as rising debts.

So, once they did that, the government had to say, well, so we’re going to fight this. We’re going to try to keep the debt in check and to keep it from growing. And they, actually, started cutting spending at the worst possible time. And this is why Brazil has been facing either stagnant GDP growth or even contractions since 2015.

That’s because the government made a choice to cut spending at the same time as foreign demand was falling and ever since then Brazil has been worsening again in every way. Unemployment has started to grow again and poverty and inequality have become much worse. So I used to be optimistic until 2014 but not anymore. Things got much worse since then economically and socially.

[00:23:08.510] – Grumbine

So what happened to Lula? It seems like this guy was heralded around the world and then he’s not in power anymore. What happened?

[00:23:18.350] – Conceicao

Well so he came to the end of his term because here you can only run twice in a row and so once he finished his last term he chose a woman to replace him. Now remember that he’s always been under attack by the corporate media and they actually made some mistakes. The party as a whole didn’t really go against the established rule of policy making.

So there used to be a scheme that was employed by the previous government from pretty much by support for the government’s agenda. This used to be the rule. Everyone did it and the way they did it was helping campaigns or finding a way to give money to the people in Congress who could support the agenda. This was the very first scandal that Lula faced.

It was called Mensa loan, the big monthly payment scheme, if you would. And that was just a way of Workers party buying support from corrupt congresspeople who wouldn’t support the policies otherwise. It’s actually very similar to what Abraham Lincoln did when he had to buy support for abolition.

He started trying to get support from people who would support abolition and he reached a limit and then he looked for people who would accept maybe a position in government and then at the very end this is what the movie Lincoln shows. He had to just buy support, basically giving money. That’s exactly what Lula did. He found people to buy support for his agenda.

Now he’s never been directly shown to be involved in this so I can’t really say, well it was Lula’s thing but the Workers party was involved in doing this and it had all the incentive to do it. It wanted to approve some policies that wouldn’t otherwise have been supported by Congress and wouldn’t have been made possible then. So they did that.

That weakened the government a lot and it destroyed a lot of the leadership who ended up in jail. So once Lula had to find a replacement, he really had almost no one left within the Workers party that have the same kind of influence and political capital as he did. He chose Dilma Rousseff who was a very competent minister but wasn’t as politically savvy.

She won the election because she was Lula’s choice and he was still very popular when she ran for government. So she won the first time and then she won the second time in 2014. She won 2010 and then 2014. Now 2014 was already very, very hard. She almost lost. It was actually an election that was decided by, even if it was a percentage point, maybe that’s too much.

And the right wing candidate, I assume, Neves, knew that he could destroy Dilma Rousseff and her government. She was very, very weak by then. A couple of things had happened. A second type of corruption scandal, very similar to Mensa Loan, had come up, had been discovered, and the corporate media was using it relentlessly to weaken our government.

So what they did this was released every day. You would see the main TV channel here, a combination of Fox News with MSNBC. Imagine that they’re both combined into one corrupt institution that’s Global TV for you. And Global would basically run on the news every day something that would show that the Workers Party government was the most corrupt thing ever in the history of the world.

And that created an environment for everyone who was already dissatisfied to say, well, we can’t take this anymore. It started actually, with the leftist movement calling for more public investment, if you believe. That was 2013, because something else happened. Brazil was supposed to host the World Cup and the following Olympics in 2014, we would have the World Cup and then 2016, the Olympics.

And that had happened all because of Lula and how Brazil was viewed as the darling of the world. So Brazil was to host the two main sports events in the world. And in order to do that, there was a lot of public investment to build stadiums, infrastructure. But mind you, most of those investments are benefiting a very small part of the population.

It’s seen as wasteful, because much of it really is materially wasteful. You’re building stadiums for a couple of matches, and then they’ll never be used again. Or you’re building transport infrastructure for a part of the city that is already very well serviced. And that created a lot of dissatisfaction. And so people took to the streets and asked for more public investment, especially with an increase in bus fares that students were mad about.

So they went to the streets. They protested a little, they fought the police, the police came back with a very violent response, and that got more people pissed. So they went to the streets, and all of a sudden you had millions of people taking to the streets and saying that they didn’t want the government to spend on stadiums. Instead, they wanted the government to spend on hospitals and schools and those sort of things.

Still a very interesting and justified protest. But, when that combined with this whole story that was being told by the media that this was the most corrupt government ever, because of the new scandal that had to do with Petrobras, the oil company, and the same type of public money being used to buy support from corrupt politicians, that exploded into instead of people protesting for more public spending, it slowly devolved into people just protesting corruption.

And that was very much shaped by the media, because as soon as they would report the protest, they would say, well, those people are there because of corruption. So in the end, they convince most people that they were there because of corruption. And this is what’s most revolting for me. The response from the Duma government to all of that commotion, which basically was still motivated by the lack of public investment, was to commit to a fiscal sanitation reform.

So she basically committed to reducing public spending and to rein in the public debt and the deficit. And that was the end of the government, because as soon as she did that, she introduced the most devastating recessive shock in years. And that was combined with the slowdown of foreign demand as well.

So the combination of the two, the government reducing spending and our exports slowing down meant that we had a huge recessive shock at the worst possible time because she was under all of these attacks from all of her enemies. So that became the motivation for the impeachment that she suffered. She was impeached.

Congress got together, and they decided we have enough public support to actually get rid of this government. And the most cruel aspect of this whole thing is that the people who were orchestrating the impeachment were very prepared, doubling down on the very thing that took the government. Now, the fiscal reform, the austerity agenda that she had introduced.

As soon as she was impeached, and Michel Temer actually came to power. And that guy is almost as bad as Bolsonaro. He’s actually a very close ally, but he introduced what he called the Bridge to the Future agenda. And that was basically ultraliberal reform all the way through. Now. Its most cruel element was the spending ceiling that was approved, and it was easily approved because at that point, all of our corrupt Congress had shifted its support to the new government.

So as soon as it came with his proposal for freezing primary spending for 20 years, in real terms, everyone went on board. And we have that rule still in effect. Even though Bolsonaro was able to create so many exceptions in order to spend with buying support for his own agenda, that the spending ceiling at this point is meaningless, even though it still keeps us from having good spending.

Spending that is inconvenient for Bolsonaro. But this is the one rule that epitomizes the new Liberal agenda that came with impeachment. So it’s easy to see why Bolsonaro became so popular after that. People just had nowhere to look.

[00:33:49.430] – Grumbine

We have that same problem here in the United States. Exactly what you just said.

[00:33:54.950] – Conceicao

Right. It’s very similar to what happened to the US. I think much of the toolkit, the textbook that is being given to these populist right wingers is very similar. It’s probably been written by Steve Bannon. Right. So the same thing that was given to Bolsonaro was given to Trump.

[00:34:51.610] – Intermission

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[00:35:17.650] – Grumbine

But the conditions that led to Bolsonaro were a neoliberal regime that had gone to austerity and once again created all these problems in the name of being responsible. And we have all these people, before we had Trump, dealing in austerity, and then that led to Trump. And now we’ve got the guy. We were all pushed to the edge to vote for this neoliberal center-right candidate in Biden who in no way embodied any of our sensibilities.

But here is this man that can barely tie two words together that was elevated as the answer to Trump. Now he’s celebrating 1.3 trillion in deficit reduction. And if you think Trump was bad, wait till you see what comes next. I don’t know why people don’t understand that when you advance neoliberals, neoliberals are like steroids-fertilizer for fascists.

Because when you are supposed to be the one providing hope with public services, debt relief, the grown-up solutions for environmental justice, and you don’t do it, where do you turn? You start becoming libertarian, you start saying, “I got to look out for me.” And this is what Democrats in our country do. And unfortunately, a lot of good Democrats won’t admit what I just said.

And because of that, we’re doomed to repeat it. And I imagine in Brazil, where you are typically jerked around by global powers like the United States, and I want to get into that in a second, I imagine it’s even more challenging to get through this. Let’s jump away from politics momentarily and dive into the currency of Brazil.

Does Brazil have a pegged currency? Is it free-floating? What is the unit of account? And you mentioned the sectoral balances. What is the position currently? Are you guys in debt to the IMF? Are you on your own? Are you free-standing? What does Brazil look like today?

[00:37:18.130] – Conceicao

Yeah, this is key. And this is something that I’ve been stressing whenever we debate developing countries in general is that we have to be very careful with claiming that a sovereignty itself can be limited. Brazil is fully sovereign in the sense that we today have full control. The Brazilian state has full control over the rules of the game, the monetary system.

So Brazil has its own money of account, and the currency that is perfectly correspondent to this money of account is a state debt. So that means that only the Brazilian state can create the Reals, and therefore it has full monetary sovereignty to make choices. So that’s the key. Now, it also makes it much easier for us to do policy that we don’t have a pegged currency so that we made no promises to deliver anything other than Reals to whoever holds Reals-denominated debts.

But we do have a managed exchange rate system, mainly because some exchange-rate fluctuations in Brazil can be very- disruptive because the exchange rate is a very important price in the economy and if it becomes too expensive, it will create undesirable consequences to people. And this is something that we’ve learned for a long time and we’ve learned again during the Pandemic.

Much of our inflationary problems today come from what happened to the exchange rate in the very beginning of the Pandemic because of some very misguided policy choices that the Brazilian government made. But with that said, we used to be very exposed because of dollar-denominated public debts and since 2003, we’ve reversed the situation for the government.

That’s the main thing. So the Brazilian government is actually a net creditor at this point with the IMF. It’s been able to eliminate all of its debtor positions to the IMF and it in fact has very healthy foreign reserves in its central bank. So this is something that gives us some autonomy in the sense of policy making.

Unfortunately, we do have a lot of private debts that are denominated in dollars, and this came actually because of some very bad policy choices that even the Workers Party governments made. Actually, it has more to do with what was done since the Workers Party was deposed, because we used to have this very strong and active development bank that would give loans even for importers, and those would be subsidized mainly having to do with regards to the exchange rate.

But anything that could be acquired in reals would be acquirable in reals because you could always get a loan from BNDES to do your investment in Reals. So that means that only if you needed to import something, you would have to acquire dollar debt. And if that was intermediated by BNDES, even better, that made it much simpler, much more under control.

If you didn’t have any company just seeking loans in dollars to make purchases in Reals. But ever since the more Liberal government took over, it actually started stimulating companies to look for dollar denominated loans, even if their expenses were in Reals. And that had to do mostly with looking for the cheapest loan possible. So since dollar loans were cheaper, the exchange rate was lower.

A lot of companies simply went and looked for those loans even though they didn’t need dollars at all. So they basically saw the dollars here to get those loans to make their purchases in Reals. Now, that created an inflow of dollars during those times. So it helped to keep the exchange rate low, but it also increased the exposition of those balance sheets to future dollar fluctuation because now we have a demand for dollars from those companies that are indebted in dollar terms that is very inflexible to the exchange rate.

If you owe dollars to a creditor, you have to get those dollars regardless of the price of those dollars in your own currency. So that creates an exchange-rate difficulty. It makes the demand for dollars a lot less exchange-rate elastic. And therefore, if you have an exchange-rate shock, it means that it will be much harder to get rid of the shock just by creating offsetting choices within the economy. So it’s a problem.

[00:42:54.250] – Grumbine

So when the wealthy buy a US product or they buy some other foreign product and Brazil doesn’t have reserves, let’s say to cover the purchases of the bourgeois desire for import. I spoke recently with Olaf Margiersson of Iceland who spoke about this very phenomenon happening as well with countries that are in similar situations.

The most wealthy has effects that most people don’t consider and that is the reserves required to clear those payments. It never dawned on me that private credit in terms of those kinds of purchases could have that kind of an impact on a country as a whole. Can you explain that a little bit more? It feels like this is an important thing to draw out.

[00:43:45.420] – Conceicao

Yeah, this is the key. So when we’re dealing with the exchange rate, basically what you have is supply and demand of those different currencies. So when someone in Brazil wants to buy a foreign good, it has to get the dollars. And the way that you will try to get the dollars is to supply Reals. So you basically sell your domestic currency to someone who wishes to get that currency.

And if there is no currency available in the exchange rate market, what will happen is the price of the currency that is being demanded will go up. So if you don’t have reserves or in a different sense, if the central bank doesn’t wish to supply reserves to clear that demand for additional reserves, nothing else will happen other than the price of those dollars will go up.

If that demand for dollars comes from people trying to buy luxury imports, that’s a problem because it will also make everything else that is affected by the exchange rate also more expensive. So you want to try to keep that in check. But ultimately, if whatever is being mandated becomes too expensive, the people trying to buy it will stop trying to buy it.

And this is what I mean by some demand for the dollars are exchange-rate elastic. So as the exchange rate goes up, that type of demand will eventually go down. Hopefully it will go down sooner. Now you have a good point that when that type of demand comes from people who are very wealthy, it might take a very sharp rise in the exchange rate in order for them to give up buying whatever they’re trying to buy.

And that’s a problem, but it’s much worse when it comes from people who are trying to pay debts. And that’s why you don’t want your government to accumulate debt that is denominated in the foreign currency and the private sector. When both of them are trying to get , currency to pay for loans that are denominated in those foreign currencies, they will keep trying to buy that currency no matter the price, until they maybe default.

But that’s an extreme limit that is not acceptable mostly to anyone. So this is actually something that explains very well the hyperinflation dynamics of very indebted countries that had very much indebted governments like the Weimar Republic in Germany. That’s a good example. They simply owed so much pounds and gold, and so they could have got away from acquiring those currencies if they weren’t being generated within the exchange rate market.

And the other example is the Brazilian inflation that also came from the accumulation of foreign debts. And this is something that we don’t have right now in Brazil. We do have private debts and that will be tricky to deal with. But we don’t have public debts anymore. So the government will not keep trying to outbid the supply of dollars. Now, this is all without central bank intervention.

So the reserves under this situation that we’re describing, they’re just being kept aside. Central bank is not using them to offset exchange rate movements. Now, it could use its reserves to do that, which in fact, it does every once in a while. In Brazil, during the Pandemic, what we had was the demand for dollars went up very sharply, mostly because of speculative decisions.

It had nothing to do with imports of goods and services. It had to do with imports of financial assets. So it was all about people who had Reals and decided that it was a better idea to acquire other currencies and assets that were denominated in other currencies because they very correctly, and self-fulfillingly, expected the Real to become less valuable against other currencies.

And so that was a difficult movement for Brazilians to deal with because it put a lot of pressure on our exchange rate and had very little to do with that type of demand for goods and services, even capital goods and technologically-unavailable inputs. It was mostly capital flight that put us in a rough spot.

[00:48:37.990] – Grumbine

With the public space now not contingent on foreign reserves and foreign debts. What does it mean to be a citizen of Brazil? What comes with that? What kind of public spending, what public services come as part of your right as a citizen?

[00:48:54.970] – Conceicao

Now, this is what’s really making us mad here, the people who advocate for MMT, our group, because all of what happened in 2020 should have made it clear that, in fact, there is no real justifiable limits to increase in public spending by a lot. And so what happened in the Pandemic is we had a depressive shock that even with all of those exchange rate difficulties was very, very effectively offset by a huge increase in public spending.

Now, mind you, at the same time as taxes had collapsed and at the same time as the financial sector asked for a bailout because the banks were very, very worried that if all of the families and companies in Brazil went bankrupt because of the Pandemic, that they would follow suit, because most of their assets were liabilities of companies and families.

So they were the first ones who received help from the government. Now, how can people possibly claim that the government spending that was done during the Pandemic, that in Brazil generated a primary deficit that came close to a trillion Reals? That’s an unimaginable size that used to be completely unthinkable in Brazil, something that big, a primary deficit.

Now, how can people say that that was made possible by loans from the private sector? They can’t. The only way that you can explain what was done in 2020 is by making reference to MMT. Government created the money. The money became available into people’s wallets and portfolios, and then it was used to buy bonds.

That’s why at the end of the increase in bonds is actually very much close to the size of the deficit. But what happened was money creation, as it’s always been the case. So we tried to give this as proof, and we’ve been trying to get to government officials, Congresspeople, we’re hoping that Lula will listen to us so that we finally understand that there is no justifiable reason for the Brazilian government not to spend a lot more and to provide a lot more public goods and services.

To make sure that people have their basic needs secure, that we try to get our economy as close as possible to full employment, that we try to make sure that we are on a sustainable development path. That’s all doable, even with the exchange rate issues that we’ve described. This doesn’t mean that the government can’t do a lot more. But we haven’t been able to win that debate so far.

And that’s very similar to what you guys face in the US. I imagine that’s the struggle. We used to be so hopeful that the Biden plan would work as the signal for all governments in the world to learn that they could spend a lot more to achieve materially feasible things. So the fact that Biden went full-anti-MMT on us is super frustrating.

[00:52:36.790] – Grumbine

Absolutely. I can only imagine. I guess this takes me to the final question. There are so many more I have, but I think in the spirit of time, because I’d like to have you back on, of course.

[00:52:47.430] – Conceicao

Sure.

[00:52:48.610] – Grumbine

The question I have is this. My number one issue is the environment. And in the United States, the Green New Deal framework provided for a job guarantee, a just transition, Medicare for all, a lot of human-capital relief, and as well as sustainable communities and infrastructure and energy. But one of the things that jumps out is, the Amazon is the “lungs of the Earth.”

And Brazil is such a beautiful place, at least in pictures. The Amazon rainforest is very crucial to all of our survival. And Bolsonaro is setting the Amazon on fire, probably some hyperbole, but I saw images of the Amazon smoking. It seems like there’s an awful lot of things that we wouldn’t like to see happening, especially in the midst of a climate crisis. I see Brazil is trying to fix this problem. What is real and what is not real, what is going on in the Amazon and what are we facing with Brazil and climate crisis?

[00:53:52.870] – Conceicao

It’s all very real. The threat of destroying and pillaging all of our natural wealth is real. This is what they’re there for. There was a government meeting. All of the ministers were together right at the beginning of the Pandemic, and they were taped, and one of the tapes got leaked or actually it had to be shown to people because of some other mess that we don’t need to get into.

But what it showed is the ministers were openly saying that they should use the opportunity of desperation and their claims that they need to modernize Brazil and to come up with funds and all of those lies in order for them to fight the Pandemic because people were desperate at that point. They said that this could be used so that they can—this is an expression they use—”(let) the cattle go by us” that will allow for the cattle to come through.

And basically what they were claiming is that they should use the situation to enact and pass as many liberalizing and privatizing initiatives as they could, before they didn’t have the opportunity anymore. And with that came a whole bunch of cruelties in the form of policies. So fighting the destruction of the Amazon requires state intervention, state planning and resources being transferred to the institutions that are responsible for protecting and developing the Amazon in a sustainable way.

And this government simply kills all of those institutions by not providing them with enough funds. We haven’t had new public servants being hired to strengthen the police and the supervising forces that are fiscalizing and regulating activities that are being done in the Amazon. So this has all been weakened. The Institute that is supposed to protect Indigenous populations has been completely destroyed.

And what they do is they select especially cruel people to run those institutions. So they’ve always got some general from the dictatorship years being used as a tool for this government to either not allow for the institution to do anything or actually to enable the exploitation of people and resources. So if we don’t reverse the destruction of the Brazilian state that has been done since 2014, we won’t be able to protect the Amazon.

It will take resources and funding and people and planning in order for us to do something there. And this is true for everything in Brazil. In a way, we were very well-equipped to building a functioning welfare state in Brazil. We have the institutions. Our education system is supposed to be all public and universal, even though our public universities are not able to provide education for everyone.

But they are doing as good a job as any to keep access for the Brazilian poor so that they can have higher education. And this is something recently, when I was a student, most of my colleagues were either rich or upper middle class, and I went to a public University. But since our public universities are very good and much better than the private, at least so far, most of the entrance exams, in order for you to be able to get the opportunity to go to a public institution, you could only be approved if you went to a very good private school.

So this used to be the way by which the elites kept the poor from enjoying the very good universities that the state could provide. And ever since Lula came into power in 2003, we’ve created a bunch of laws that make sure that universities were forced, by quotas even, into taking poorer students into their student bodies to provide assistance, financial assistance, so that poor students were able to stay in school without having to get a job or not being able to survive in a different city.

So all of that increased and democratized our schools. The same was a lot of investment and improved our healthcare system, which is also supposed to be universal and free for everyone. So what happened because of the success of those public investments that improved public services until 2014, that’s probably one of the reasons why the elites sabotaged that government and eventually impeached Dilma in 2016.

And that has to do with the fact that, for instance, the public universities were no longer exclusively available to the rich. So you had a lot of lower-class people enjoying those super-quality resources, educational resources, and that got a lot of our elites not very pleased. Something that perhaps an image that we can give is for the first time, the sons and daughters of the Brazilian elites were having to share some resources, were having to share a classroom with perhaps a lower-class kid. And that might have infuriated some of the most influential elites in Brazil.

[01:00:26.590] – Grumbine

Yeah. This sounds so typical. It sounds so privileged.

[01:00:30.710] – Conceicao

Yes.

[01:00:31.460] – Grumbine

Let me ask you this question. Tell everybody where we can find more information about you, because you’ve been just amazing. And I know that a lot of the writings are in Portuguese in Brazil, but folks, don’t be afraid of that Google translator. It really works wonders! But where can we find you? I think you’re an amazing guy. I’d love more people to get to know what you’re doing.

[01:00:54.800] – Conceicao

First, thank you so much. This is wonderful. And I’ve enjoyed a lot this conversation. I will actually try to have more material, not only my own, but what we did in Brazil to try to get the word out and to try to teach MMT to the wider public is, we’ve created a couple of resources. We have a network that is called MMT Brazil, and the website is https://mmtbrasil.com.

And we also have an Institute for Functional Finance and development that we’ve created at the beginning of the Pandemic to try to teach people about how governments spend and then what they should do with the knowledge that “we spend by creating money.” And the Institute is IFFD Brasil with an s dot org (https://iffdbrasil.org). And most of the stuff is in Portuguese.

We have a few things that we did in English, especially when we talked to foreigners. So we had an interview with Wray and Bill Mitchell. We had a discussion with Yeva, my good friend, Yeva Nersisyan, also in our channel. And we’re going to try to have more stuff that is available for English speakers. And even perhaps we can now help each other.

So I’ll send you guys stuff that we can share. And I’ll do the same with you and maybe even present you guys a little bit more to the Brazilian public because I think you guys do an amazing job as well. And a lot of Brazilians do speak or understand a little bit of English. And if they know what you guys do and all of the resources that you guys provide on your website and Twitter and all of that, I’ve been following you for a while on Twitter, and I think you’re amazing there as well.

So, yeah, let’s try to strengthen; I think this is the first step to doing more stuff together. I would love it. I think we MMTers and MMT advocates and just people who are trying to use the knowledge of chartal money to the improvement of humanity. We need to stick together.

[01:03:21.490] – Grumbine

Yes, I agree. And with that, Daniel, I just want to thank you so much once again for joining us. And folks, I encourage you to realize that the world goes far beyond the US borders. I hope you understand that there is no such thing as “them versus us.” We’re all connected. Even if we fight, even if we do things wrong, everything touches everything.

There is nothing that’s not connected. So I hope you all understand that our war against climate crisis and to try to make all ships rise is a global thing. It can’t just be a domestic thing. And I hope that the work that we’re doing here helps expand your mind to see the interconnectedness of all things. That’s one of the biggest goals I have with this program.

So I hope we achieve that. And Daniel, you were absolutely amazing. And so with that, folks, my name is Steve Grumbine with Daniel. Ha. I’m going to screw it up, but I’m going to try Daniel Conceicao.

[01:04:24.430] – Conceicao

Oh, that’s very, very good, Steve.

[01:04:27.150] – Grumbine

Yes! I’m going to go out on that victory folks, please make sure you check out the rest of Macro N Cheese. Remember, we are a nonprofit. If you have never considered donating to us, I’m pleading with you. We survive on your donations and if you enjoy this, we need your help. So with that, again, Steve and Daniel, Macro N Cheese, we’re out of here.

[01:05:15.690] – Ending credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.

Daniel Conceicao – Guest 

An associate professor at the Unicamp Institute of Economics. A professor at the Institute of Research and Urban and Regional Planning (IPPUR) at the Federal University of Rio de Janeiro (UFRJ). He is one of the authors of the book “Modern Monetary Theory: The Key to an Economy at the Service of People”. He is president of the executive board of Institute of Functional Finance for Development Brasil. 

Institute of Functional Finance Development 

MMT Brazil

Also check out some of Daniel’s work on our International MMT Resources page in the Portuguese language section.

Lula 

Luiz Inácio Lula da Silva, commonly known as Lula, is a Brazilian politician and former union leader who served as the 35th president of Brazil from 2003 to 2010. 

L. Randall Wray

A professor of economics at Bard College. His current research focuses on providing a critique of orthodox monetary theory and policy, and the development of an alternative approach. He also publishes extensively in the areas of full employment policy and, more generally, fiscal policy. 

Books via Bookshop.org 

 Jose Carlos de Asis 

A Brazilian economist. He holds a PhD in Production Engineering from the Federal University of Rio de Janeiro, and is professor of International Economics at the State University of Paraíba and has authored over 20 books on political economy. 

Yeva Nersisyan 

A Research Scholar at the Global Institute for Sustainable Prosperity and an Associate Professor of economics at Franklin and Marshall College. She received her B.A. in economics from Yerevan State University in Armenia, and her M.A. and Ph.D. in economics and mathematics from the University of Missouri-Kansas City. She is a macroeconomist working in the Post Keynesian and Institutionalist traditions. Her research interests include monetary theory, financial instability and regulation and macroeconomic policy. 

Post Keynsian 

A school of economic thought with its origins in The General Theory of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa and Jan Kregel. Historian Robert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes’ original work.

Alcino Camara

He holds a PhD in Economics from the Fluminense Federal University and a Master’s in Economics from the Federal University of Rio de Janeiro. Between 2002 and 2010 he held the position of Dean of the Center for Legal and Economic Sciences (CCJE) of the Federal University of Rio de Janeiro (UFRJ). He is the coordinator of the postgraduate course in International Analysis, having been co-responsible or responsible for the creation of the course on international relations (undergraduate – UFRJ), Public Policy Analysis, Conjuncture Analysis, International Analysis and Tourism (lato sensu postgraduate course). ) and International Political Economy (master’s and doctorate UFRJ started in 2009 having already obtained grade 5 from Capes). He is Editor-in-Chief of the Versus Journal of Applied Social Sciences of CCJE-UFRJ Participated or participates in research funded by CNPq, FAPERJ, CEPAL, BIRD, UNDP, Ford Foundation, Open Society, Mott Foundation, FINEP and INPI. He has organized several international seminars on the Washington Consensus and Alternatives to Neoliberalism. He is President of the Development Commission of the University Council of UFRJ, being responsible or co-responsible for several important opinions such as the evaluation of the CTINFRA Projects, the UFRJ Restructuring and Expansion Plan and the Master Plan Project of the University City. He held and still holds several positions, having been director of three different units at UFRJ and was a candidate for dean in 2011. He has articles in the best national and international heterodox magazines in the area of ​​economics and development. He is responsible for the blogs Blog do Alcino- Observing the world, the university and Brazil and The UFRJ that Brazil needs.

Publications 

IMF – International Monetary Fund 

An international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Jerry Brown 

An American lawyer, author, and politician who served as the 34th and 39th governor of California from 1975 to 1983 and 2011 to 2019. 

Matia Vernengo 

Associate Professor of Economics at the University of Utah, Salt Lake City and former Director of Economic Research at the Central Bank of Argentina. He has also taught at Kalamazoo College, and the Universidade Federal do Rio de Janeiro.

Bolsonaro 

Jair Messias Bolsonaro is a Brazilian politician and retired military officer who has been the 38th president of Brazil since 1 January 2019. He was elected in 2018 as a member of the conservative Social Liberal Party before cutting ties with it.

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