Peruvian economists
It’s really a shame this should be a headline in Peru’s newspaper of record, El Comercio.
Just saying, that one is right up there with “the sky is blue” and “Bill Gates not hurting for money this week”.
But such is the dilemma that is Peru: for the suits in Lima economic growth has long been detached from quality of life for ordinary Peruvians, especially in the provinces. Take for example this chart from official INEI statistics, during a period where GDP grew at a 9% annual clip.
Now I’m not pretending to have an easy solution for the quality of life issues in Peru, but hopefully some of the suits in Lima will start to seriously look beyond the neo-liberal dogma that “what’s good for business is good for everyone”.
I’ll propose a new ideology for economists in Peru: “do what’s good for the people and economic growth will follow”.
- Stimulate the economy in the provinces
- Improve the infrastructure in Lima’s slums and in the provinces
- Respect labor and environmental protections
- Reduce bureaucracy and hold the bureaucrats accountable
- ….
The economy in Peru is too dependent on tourism and export of base metals. While those are great sources of revenue, the suits who run Peru should look at adding technology, manufacturing and quality services, the types of employment that would raise the standard of living of the average Peruvian worker.
At the end of the day, the Peruvian economy is the total of what the average Peruvian worker contributes to it, and expects to receive from it. Not in monetary “funny printed paper” terms, but in terms of products and services. It’s a no-brainer, focus on the quality of life of ordinary Peruvians and economic growth must follow.
Funny printed paper
2 cool charts I copied from Rolfe Winkler at Reuters. To illustrate my point that money’s just funny printed paper.
US public debt outstanding
US public debt, doesn’t include unfunded healthcare and Social Security oblications. Original here.
Dow Jones historical chart valued in gold
Dow Jones historical chart as valued in gold. Original here.
Peruvians should pay attention to these, since Peru historically has very close ties to the US and gold is a major part of Peru’s foreign exports. To stay up to date on all things gold and Peruvian economy, head over to IKN.
Read ‘em and weep
The real-estate classifieds for Cusco, that is. Here’s a few examples:
We’ve started looking to buy a house or apartment in Cusco, because the apartment we’ve been renting is becoming too small, especially since baby got a new swing 
Brianna in her new swing
Real estate here in Cusco is very expensive compared to the rest of Peru, since the area is thriving with so much tourist money. Asking prices for some nice apartments we’ve looked at range from $60,000 to $120,000, and mortgage interest rates range between 9-14%. This in a country where the per capita GDP is $8,500. If I worked full-time at my teaching job, my entire income would be spent on the $500 mortgage payment if we bought a $60,000 apartment with 20% downpayment 
I’m really on the fence about this… to get a nice place that we can afford we may have to look outside the city. I actually prefer the quiet areas outside the city, but then we’d be further away from family, friends, etc.
In terms of real-estate value, I’m worried that much of the increase in Cusco in the past years is speculative and that prices appear to be wildly out of line with personal incomes. On the other hand, I think long-term demographics, conservative lending standards and the mountainous terrain could put a floor under real-estate prices in Cusco, plus we’d be buying something to live in, not as an investment to “flip” in a few months or years.
So if any readers have a rich aunt or uncle… tell ‘em to help out a poor gringo in Cusco
Unconventional
In the comments to this recent post I somewhat defended my ideas around business and geopolitics as unconventional. I happen to think it’s necessary to challenge the ways of the 20th century and the groupthink of the rich old men in suits who run the world.
Take for example this US government mortgage calculator, it won’t accept a negative value for home value increase. Hmm…
idiot mortgage calculator
Chullo tip to the always excellent Rolfe Winkler.
BTW – I think home values in Peru are a bit safer than in the US, since banks in Peru have stuck to conservative loan values (typically requiring 20% down on mortgages) and the demographics in Peru bode well for economic growth in the long term. That said, in areas such as Cusco real estate prices have skyrocketed in recent years, and home prices are entirely out of line with personal incomes.
Otto agrees
Adding on to my recent post about LatAm media coverage, where I said:
“…Hugo and Evo are hugely popular in Latin America because they’re good for Latin America”
Apparently Otto agrees in his recent post about the Bolivian economy, saying:
“A once and future coca leaf grower runs countries better than teams of dumbasses in suits (you know them by the name ‘economists’) with multisquillon dollar eddycations…”
My only issue with that is that Otto narrowed it down to economists, instead of the more general rich old guys in suits. Whether it’s Alan Garcia or Jack Welch or Al Gore, be leary of rich old guys in suits who profess to know what’s good for average Joe. Far too often said rich old guys in suits have made big bucks robbing said average Joe blind.
Tim Geithner related to Alan Garcia??
I’m beginning to think Tim Geithner and Alan Garcia are drinking the same Kool-Aid. In the news today:
Geithner sees ‘durable’ signs of stability “Probably why I’m doing this (tour) is to make sure we keep working with governments around the world to continue to provide enough support to lift this global economy back to a sustained pattern of growth,” he told reporters.
And in other news:
- Foreclosures rise 15 percent in first half of 2009
- Rising unemployment accelerates foreclosure crisis
- Lawmakers frustrated with foreclosure aid programs.
Geithner’s rhetoric is like that of Alan Garcia, who keeps claiming Peru is on track for strong GDP growth and has an iron-clad, recession-proof economy. The numbers, souped up to begin with, show otherwise (courtesy IKN) :
Chile and Peru GDP
The root of the problem in the US, put simply, is that people bought houses they couldn’t afford. Without steep wage inflation, the foreclosure crisis and falling home prices may continue for some time (see Japan). For all the monetary easing (printing money) Geithner et al are doing, the only thing that achieves is to temporarily prop up the feeble balance sheets of overleveraged banks.
Tim Geithner and Alan Garcia both use optimistic rhetoric to appease the general public but sadly their policies serve rich old guys in suits before the general public.
GM, Peru interest rates and 2-party communism
Random thoughts on some of the day’s main business news:
GM exits bankruptcy. CEO Fritz Henderson said
Yeah, right. Why don’t I have warm fuzzies about this? When was the last time a company majority owned by the US government and the UAW became faster and more responsive? The company even brought back Bob Lutz, one of the old rich guys who was at the helm of the ship when it went under. Sure GM dumped a bunch of liabilities, but with revolutionaries like the US government, the UAW and Bob Lutz in the driver’s seat I doubt they made a lot of structural changes to the problems that got them in trouble to begin with.
Perhaps the biggest thing I question about GM’s reorganization plan is the sale of Saturn, which essentially becomes an independent dealer network. If you’ve never heard of Chery, JAC, SsangYong or Mahindra, you may soon enough at a Saturn dealer near you. In 5 or 10 years, GM will be relegated to selling trucks, Suburbans and Corvettes, no mas.
New Chery cars at a Peruvian dealership
In other news, Peru lowers interest rates. Interest rates are near zero practically all over the world. How’s that been working out for Japan in the last 2 decades or so? I’m with the camp that says the whole financial mess was caused by too much leverage, lending more money is not the solution.
By the way, since interest rates in the US are near zero, how much should you be paying on your credit cards? And if you’re paying 5% on your mortgage, isn’t that about 4.5% too much? Exactly where does that 4.5% go? Once again, if you believe the well-being of the big banks on Wall Street – at the taxpayers expense – is in the best interest of middle class America, I’ve got a mountain in Peru I’d love to sell you
More news this simple mind doesn’t understand… Timmy Geithner says derivatives should be regulated. Creo que no. Regulation isn’t the answer. What would have been better is if the government had simply let AIG fail, this way most of the derivatives would have gone away and perhaps, just maybe, the bankers on Wall Street might have gotten a lesson in morality. Not to mention, taxpayers would have been saved some $180 billion that now went to such needy institutions as Goldman Sachs and Deutsche Bank. Let the market adjust itself, stop bailing out old rich guys in suits.
2-party communism
All this brings me to my main point, the US effectively is a 2-party communist state now. Sure you have individual freedoms, so I don’t mean to imply communism like in the old Soviet Union. But realistically, business and government have become institutionalized and joined at the hip. GM, Chrysler, untold number of banks have been deemed “too big too fail” and are without a doubt taking advantage of that status. Treasury and the Fed prefer regulation over allowing the markets to correct. Bernanke, Geithner, et al are printing up money to distribute as they see fit, practically reducing competitive advantage to where you stand in your ability to tap into government funds. In Washington and New York, decision makers move seemlessly between government and private positions. Henry Paulson was at Goldman before he came to Treasury, wanna take bets where Timmy Geithner will be in 2 years?
All this of course is bad for innovation and real value creation – ever driven an old Lada? Businesses that have become institutions of government have little incentive to make or do better things, yet they wield tremendous competitive advantage over independent companies.
I’m not too worried about any of this though. I believe you have to make your own luck, no matter what the big wigs in Washington, New York or Lima say or do. And the pendulum will eventually swing back in the opposite direction, as it always does. But for now we are “kicking the proverbial can down the road” too much, and future generations will be paying for our excesses. Better get ready to work, Brianna 
Boleta de Pago – Peruvian paycheck
Here’s my paycheck for teaching ESL part-time for the month of May.
Boleta de pago
“Read ‘em and weep boys” That’s what an instructor I used to know would say as he handed back his students’ graded exams. Same could be said for paychecks in Peru.
I only taught 2 classes, or about 4 hours a day, 18 days per month. The grand total is S/.800 (~ $280). Notice how S/.104 (~$35) is deducted for my retirement and my employer generously chips in S/.72 (~$25) for EsSalud health insurance. I take home S/.696 (~$250) at the end of the month.
That’s less than what the taxes on my WEEKLY paychecks at GE used to be
Not that I’m an ungrateful gringo, I just do the teaching job for fun, it’s a nice way to meet local people and get out of the house for a few hours. For a single person who wants to spend a few months in Latin America teaching ESL is actually a good gig. If you work full time (4 classes ~ 8 hrs / day) you can make about S/. 1,500 (~$500) per month, enough to cover your living expenses down here.
At ICPNA my pay is actually better than average for Peru. The minimum wage in Peru is around S/.550 (~$180) per month, average starting wages in Cusco for respectable jobs like drivers, nurses or teachers are around S/.800 (~$280) per month – full time.
If you ask me, the way to make money in Peru, start your own business. That’s what I tell all my students, “Make your own luck, don’t work slave labor for a bunch of old rich guys…”
Why Peru is poor
or – why every Peruvian needs a Jack Russell terrier.
Why Peru is a poor country
The picture is from the park in our complex. Although the soccer goal only collapsed in the past month or so, the park has been in complete disrepair for as long as I’ve been here, and most probably long before that. About a month ago, the mayor of Wanchaq put up a sign that he would build a beautiful new park in our complex, 80% financed by the city.
Great news, everyone was all excited, right?
WRONG. A bunch of people in our complex were up in arms that a nice new park would only attract drunks and teenage couples, so they complained at the municipality until the mayor dropped the idea of building a new park.
I once read in El Comercio: “Peru is a poor country because Peruvians act like poor people.” I totally agree with that. The reason our park is in disrepair has nothing to do with money and everything with attitudes. The people in our complex have cellphones and internet, they buy stuff every month from Avon and L’Ebel and so forth, but they refuse to improve the neighborhood they live in.
Our daughter won't play on this junk
Our neighborhood in Cusco, Peru
To any observer here it is obvious how the political and business elite in Lima is totally disconnected from the way of life in the provinces, plenty has been said about that. But I believe there is another issue in Peru:
The middle class is hiding from life.
The dilapidated park in our neighborhood is only one example. The middle class in the cities in Peru lacks initiative and organized behavior, they simply don’t act as if they are empowered to create a better tomorrow. On top of that, they complain about Indios but forget it’s people like Mama Vicky who put food on grocery store shelves. Say what you will about the current recession in the developed world, the middle class in the US is not to blame for that. The high standards of life in the US and Europe are because the middle class always felt empowered and believed they could make a better tomorrow.
I shake my head every time someone tells me they want to leave Peru because there are better opportunities in the USA. Horsebaloney. There are tons of opportunities in Peru, fantastic human and natural resources, but you have to make your own happiness. Take advantage of the opportunities instead of backing away from the challenges.
This is why every Peruvian needs a Jack Russell terrier. Our dog Roxi has boundless self confidence and energy, she will never, ever, back down. She barks at Rottweilers and Mastiffs – she might get her butt kicked, but she will never put her tail between her legs and go hide.
The Peruvian middle class needs a dose of that type attitude fast, so they will start taking on some of the challenges in Peru – or they shouldn’t be surprised in 2011 to wake up to their own copycat of Hugo Chavez or Evo Morales.
“China fears bond crisis” – buy$ Peru
Interesting article about the Chinese Central Bank again questioning US monetary policy.
Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. “They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can’t keep buying bonds,” he said …”
Since the US government has been printing up money as if it’s going out of style, the Chinese are worried that their dollar-denominated foreign investments (US Treasuries) may soon become, well, Monopoly money.
Peruvians should pay attention to these developments, as Peru recently signed a free-trade agreement (TLC) with China, giving China greater access to Peru’s natural resources as well as infrastructure projects. Look for the Chinese to continue investing in Peru (say, La Oroya).
Finally, unless Prez. Two Breakfasts (Alan Garcia) gets a dose of social equality really fast, don’t be surprised to see some Socialist ideology trickle into Peru along with Chinese investments.
About us
View from Machu Picchu, Peru
Read the story about 2 tickets to Lynyrd Skynyrd, love over gold, and our move to the beautiful city of Cusco, Peru.
Ward Welvaert & Patricia Carrasco
Cusco, Peru
contact: ward DOT welvaert AT gmail DOT com
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