Inflation and Insouciance: The Peculiar Brazilian Game

Abstract

The politics of inflation typically have been cast as reflecting an underlying “collective-action problem,” in which actions that would benefit the entire group are irrational from the viewpoint of each individual. Everyone would be better off without inflation. But in the absence of a mechanism that would permit social groups such as workers and owners to construct a lasting bargain, each group finds itself structurally obliged to push for higher money incomes, even if each one knows that any temporary gains in real income will be inflated away. Brazilian inflation has been described in these terms (Franco 1989). This article will suggest instead that the attitudes of one key Brazilian social group may be better understood as a case of “rent seeking.” In other countries, financial capital as a net-creditor sector opposes inflation. But because of Brazil's unique set of financial regulations, Brazilian bankers and upper-income investors have reaped substantial economic benefits from inflation in recent decades. Although they might prefer as citizens to have lower inflation, their rational economic interests give them few strong reasons to make sacrifices in the interest of solving society's “collective-action problem.” Because not all important actors desire stabilization, bringing prices down becomes intrinsically more difficult than if the problem were simply one of finding a means of overcoming mutual distrust to reach a cooperative solution.