tail of the turkey

So, here I am. Three days into my turkey bender. Even though there was a bit of pork sandwiched in between -- as if I were a congressman from Boston.


I have enough tryptophan in my bloodstream to have a go at the Rip Van Winkle Open.


On Friday night I dined with two local attorneys, a hotel owner and his wife, and a friend from Tuxpan. Our conversation was primarily in Spanish. I discovered my listening skills have improved over the past eight months -- to the point I could enjoy (or, at least understand) the lawyer jokes.


We ate at one of the beach spots where herds of expatriates congregate -- usually. The type of place you could not swing a cat without causing abuse concerns from a score of Canadians. In a normal year, the place would have an orderly queue of expatriates waiting for a table.


Not Friday night. Tables sat vacant like jilted lovers waiting for the wandering scoundrels to make amends.


The upside was we enjoyed amazingly attentive service. The downside is if the wanderers do not show up, there may be no place to swing my cat.


The photograph at the top of this post illustrates the problem. That is the main shopping street in the village. On Friday night. If mouths are to be fed, the shops should be filled with tourists willing to exchange hard-earned pesos for shells and sandals. It is simply not happening.


A recent issue of The Economist puts the Mexican economy in perspective. It is hurting.


Fourteen years ago, Mexico's economy came close to collapsing. The peso was devalued in the midst of a bad recession. The United States put together a $50 billion rescue package, and the Mexican economy started to soar with the additional boost of the North American Free Trade Agreement.


I lifted the following graph from The Economist article:



It illustrates that the current recession is deeper than the 1996 recession (with almost a 10% shrinkage of GDP this year) and a drastic decline in exports. So far, inflation has not been a problem.


Mexico is often a slave of its own history, even when it attempts to toss off its yoke.


One goal of the Revolution was to make Mexico less dependent on outside economic forces, especially the United States. Mexico abandoned most of that principle with NAFTA.


But another historical factor undercut that brave move. Even though Mexico had trade agreements with other countries, they were primarily ignored in favor of trade with the United States. When Mexico was a colony, Spain allowed Mexico to trade only with Spain --with all of the troubles that come from a closed economic system. Inadvertently, Mexico resorted to historical type -- and has now paid a very high price for the slip.


But what does this have to do with living our lives in Mexico?


Successive Mexican governments have failed to address a major flaw in Mexico's fiscal health. For historical reasons, almost all taxation is imposed by the federal government. Mexico collects only 11% of its GDP in taxation -- one of the lowest in the world.


As a libertarian, that figure seems just about right to me.


The problem is that the figure has nothing to do with liberty. Mexico collects nothing more because the wealthy are powerful enough to prevent any additional taxes and the poor simply cannot pay more.


The Mexican government recently went through the political equivalent of a slap-down merely to increase the VAT by 1%. And raising taxes during a recession is usually counter-productive -- especially for raising revenue.


Some politicians have raised the possibility of an expatriate tax -- with details remaining increasingly vague. The problem with that option is that it would cause more problems for the government and raise very little revenue. But that is a logical response to a system that thinks it needs money.


If it is to recover from this recession and protect itself in the future, Mexico is going to have to make some very hard choices.


The domestic economy must be reformed with the goal of keeping Mexican labor at home -- rather than relying on remittances as if it were some Third World banana dictatorship. That means repealing regulations that prevent businesses from starting and operating; jettisoning the system of favored monopolies that stymie innovation; reforming trade union laws to remove their veto power over important economic matters.


Can it happen? Certainly, with a political will.


Will it happen? Mexico is about to enter an interesting time. Next month PRI -- a party not known for its reform affection -- will take control of the Chamber of Deputies. We will see if it has learned anything during its exile from power.


In my small fishing village by the sea, the big question is going to be whether the government will simply get out of the way to let turkey dinners be served to restaurants filled with tourists willing to part with their cash.