Saturday, August 25, 2012

Economist's Notebook: A Note From Brazil on Hyperinflation

Teatro Municipal - São Paulo
Greetings from Brazil where I am working on a couple of research projects for 10 days.

I had the opportunity on Friday to visit the Henrique Cardoso Foundation in São Paulo and get a private tour of the offices that includes his library, his papers a museum and lots of interesting displays. One had letters from world leaders including Jacque Chirac and Hugo Chavez and another had various gifts he got durning his tenure as the President of Brazil.  Prior to becoming President of Brazil in 1995 he was the finance minister and, ironically for one of the key intellectuals of dependency theory, led the movement to liberalize the economy - steps that are credited with sparking a period of growth and prosperity that extends to today.

At its peak, Brazil's inflation hit 80% per month
While he was finance minister he initiated the Real Plan as a way to fight the extremely high inflation that plagued Brazil at the time and when I visited the foundation workers were working on an interactive exhibit intended to explain to school-age children the Real Plan.  One of the goals of the exhibit is to try and get today's children, who have never known high inflation, to understand to some extent what high inflation means and how destructive it is.  I was very excited about this because it is fascinating to talk to my friends who lived during this period about how they dealt with it.  The key of course is to take your wages the moment you get them to the store and convert them into real goods.

Anyway to get kids to understand this and how damaging high inflation can be to people and the economy, they have a few exhibits to manipulate a couple I show here:

This is an exhibit where many kids will have rods representing different sectors of the economy and without enough rods the money dropped in at the top will fall into the metal jaws below that eats and destroys the money.

This is an exhibit where there is a room with white walls and projected on the walls will be picutres of more furniture.  The TV will show news reports from the time about inflation and simultaneously the furniture displayed on the walls will start to get old and shabby, disappear and so on (or so I understood, my Portuguese needs work so caveat emptor).

Finally an amusing (and sad) anecdote.  There was one person in government responsible for making what was essentially the old currency and new currency exchange rate daily which was a key provision of the real plan.  [Click here for one of those pithy Planet Money takes on the process]  Since it was ended in 1995, he has been continuously tied up in lawsuits - people have tried to sue him for damages. He now works at FGV, where I am a research fellow.  The American was shocked that individual government workers could be sued for doing their job to implement legal government policy.  But apparently in Brazil it is very common.  One of the guys I was talking to said that the problem with getting good people in government is that there is a substantial risk of ending up with a negative salary from having to defend yourself in court.  Anyway the happy ending is that the very last lawsuit was successfully defended last week and now he can enjoy the twilight of his life.  Every single lawsuit failed.

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