The economist who tries to understand Brazilians' dissatisfaction under Lula: 'Social networks create consumer desires beyond income growth'

As part of this effort, she recently released the article "Paradoxes of Lulism: the disconnection between macroeconomic results and perception of the economy", co-authored with her husband and fellow economist Guilherme Klein Martins, professor at the Federal University of Rio de Janeiro (UFRJ). For the duo of economists, four main factors would be behind this mismatch: inflation and its persistent effects on well-being; the comparison with the social mobility cycle of the 2000s, during the first two Lula governments; the change in the population's consumption desires, driven to a large extent by social networks; and the frustration of an educated generation that cannot find jobs compatible with their training. "With social networks, people have access to the consumption patterns of much richer classes, much more easily", observes Carvalho, in an interview with BBC News Brasil. "You are not only seeing what consumes a person in your neighborhood, in your family, you are seeing what consumes a person from the European middle class or a rich person in your country. And then desires, aspirations, become homogenized and globalized in a very fast and unique way in history, with a feeling of dissatisfaction emerging from there", he states. For the USP professor, this is one of the factors that perhaps explains the difference between the population's sentiment in the 2000s, during the Lula 1 and 2 governments, and the current government. "In the 2000s, income distribution at the base of the pyramid and significant economic growth included a part of the population in the consumer market that was completely excluded from this market. They now have access to refrigerators and plane travel. A new middle class has emerged, which today is no longer satisfied with this same consumption pattern", says Carvalho. Also director of Economic Prosperity and Climate at the Open Society Foundation, Laura Carvalho launched the book Valsa Brasileira in 2018, in which she analyzed the reasons that led the country's economy from prosperity (2006-2010) to one of the worst recessions in its history (2014-2017). In the interview with BBC News Brasil, the economist analyzes why inequality in Brazil remains one of the highest in the world, despite the government's high spending on social policies in recent years. And it proposes an agenda to return the country to a new cycle of prosperity. According to her, this involves an expansion of public services and diversification of the economy to generate qualified jobs to absorb the growing educated population. But also due to the advancement of the taxation agenda, which began with the Income Tax reform. "The debate has to move forward in the next period towards some form of wealth taxation", he argues. "The concentration of wealth is higher than that of income, which causes inequality to perpetuate — and it also perpetuates itself in the political system. Because the influence of those at the top [of income] is very disproportionate and, as a result, it acts to preserve the current structure." Carvalho also highlights the role of public debt in perpetuating this wealth peak. "The Brazilian State, through high public debt, which pays very high interest, ends up transferring income to the richest and acting to perpetuate this high inequality", he states. "Today, many of the debt holders are high net worth people who, without much risk involved, obtain these high incomes. This does mean that the government transfers income to the richest. In fact, it seems to me that the distributive cost of debt is something we don't talk about much", he problematizes. Check out the main excerpts from the interview. BBC News Brasil - The World Inequality Report 2026, released at the end of last year by the group of economists linked to [French economist Thomas] Piketty, showed that inequality in Brazil remains among the highest in the world, and even grew between 2014 and 2024. In your view, what explains this persistence of inequality in the country, even in the face of high government spending on social policies in recent years? Laura Carvalho - This is the pattern of inequality in Brazil, in fact, in Latin America. It is one of the most unequal regions in the world and this inequality is characterized by a very high concentration of income at the top of the pyramid — income and assets. Inequality between the middle and base of the pyramid is relatively small in Brazil. We even managed to greatly reduce inequality between the middle and the bottom, with social programs, with the increase in the minimum wage, with the dynamism of the labor market itself, which is accompanied by growth in employment, especially for less educated workers. So, all the redistribution we had in the 2000s took place between this middle and the base, where inequality was no longer so high. But inequality between the top and the middle has not been reduced, it has remained high over the last few decades. The first time we started to attack this characteristic, in fact, was now, in this third term of President Lula. When he, since the campaign, talks about "putting the poor in the Budget, and the rich in Income Tax". This was reflected in the Income Tax reform, not only due to the fact that a minimum rate was assigned to this top, but the exemption itself for those earning up to R$5,000, with progression up to those earning R$7,500, because you are giving a tax benefit to those in this range. But of course, this is just a measurement. There is still a long way to go, because, even with the minimum rate of 10%, we continue to be at the top paying less than those who come just below it. And it's not just about income taxation, the debate has to move forward in the next period towards some form of wealth taxation, because taxing income may even curb concentration, but it doesn't correct what has historically accumulated. The concentration of wealth is higher than that of income, which causes this inequality to perpetuate, and it also perpetuates itself in the political system. Because the influence of those at the top is very disproportionate and, as a result, it acts to preserve the current structure. BBC News Brasil - In a public speech at the end of last year, Luis Stuhlberger, manager of the Green Fund [an investment fund known for its history of high returns to investors], said that the Lula government acts as "father of the poor and mother of the rich", due to high social spending, combined with high interest rates. Do you agree with this assessment? Carvalho - Not that interest is generated by social spending. I don't think we have such a high interest rate because the government is spending a lot, because it is spending on social benefits. This has no evidence. Our high level of interest rates also depends on the international context and how capital flows are entering or leaving developing countries. Today there is a scenario of high interest rates all over the world, with Brazil being, of course, always a bit of an outlier. [Editor's note: in June, Brazil was at the top of the ranking of economies with the highest real interest rates in the world, even after the Selic rate was cut by 0.25 percentage points, to 14.25% per year. In the recent period, countries with historically low or zero interest rates have raised their rates, amid the global rise in inflation.] But we also have a much lower inflation target than other emerging countries [currently, the inflation target is 3% per year, with a tolerance range of 1.5 percentage points plus or minus]. So, what I think is valid in this comparison is that, in fact, the Brazilian State, through high public debt, which pays very high interest, ends up transferring income to the richest and acting to perpetuate this high inequality. That is indeed true. Today, many of the debt holders are high net worth people who, without much risk involved, obtain these high returns. This means, yes, that the government transfers income to the richest. In fact, it seems to me that the distributive cost of debt is something we don't talk about much. BBC News Brasil - Is this persistence of inequality reflected, in some way, in the Brazilian population's feeling of discomfort regarding the economy? Carvalho - We have seen all over the world, not just in Brazil, a disconnect between macroeconomic indicators and people's perception of the economy. Even during the [Joe] Biden administration, in the United States, the term vibesession was coined, which is a kind of recession of feeling. So it's not just here in Brazil, this has been observed around the world, and the main factor that has been brought to explain it is inflation itself. We are experiencing a period all over the world of successive inflationary shocks since the pandemic, then the war in Ukraine, and now a third with the war in Iran. So a sequence of economic shocks of a different nature, but which led to similar effects, of an inflation crisis. Which makes it more difficult for governments to deal with, because, in other types of crises, like the one in 2008, what does the government do? Lower the interest rate. Today, in these inflationary shocks, governments act by increasing interest rates by central banks and, as a result, have less fiscal space to help overcome these crises. This has to do with inequality, yes, in the sense that the population that was most affected, especially in 2024, by the food price shock, were the poorest 50% who have these essential products as a larger part of their consumption basket. And, in fact, we observe that, in electoral polls, this cycle of deterioration in economic perception coincides with a cycle of decline in government approval. BBC News Brasil - But is inflation enough to explain this dissatisfaction? Carvalho - Inflation is not enough to explain it, because there is a second cycle of deterioration in this perception of the economy, which comes between 2025 and 2026. It occurs in the middle class, among the richest. There is income growth, it exceeds inflation, so it's not that people are losing purchasing power. People are gaining purchasing power and inflation was not significant for this group of the richest, considering their consumption basket. So, we look at other factors. And the main thing, it seems to me, is that this income growth is taking place on very depressed income levels. We came from a period of a decade with very little growth in per capita income, so only in 2024 will people recover the income they had in 2014. So growth is not as robust as it was in the 2000s and it is based on a memory that you were once more prosperous. And also what you want has changed. Society is changing and wanting access to other things. BBC News Brasil - You have been talking about this issue of "aspirational consumption" and this has even entered the radar of the government's economic team. Why did this become a concern? Carvalho - This is a new phenomenon that has been studied. In particular, the effect of social networks on aspirational consumption. Because aspirational consumption has always been part of economic theory. Economist James Duesenberry looked at this question a long time ago. As, in reality, people do not consume just based on their own income. Of course, whenever their income grows, they consume more. But they also end up consuming by emulating the consumption of others, especially those of the classes they aspire to be. And they then behave and have their consumption desires guided by that, even if their income is insufficient, which, of course, is behind frequent debt dynamics. Because when there is a mismatch between what you earn and what you want to consume, what covers the rest ends up being credit. This has always been true, this is not new. But, of course, social media changes this dynamic a lot. This "demonstration effect" of consumption occurs in a very different way with the presence of networks. People have access to the consumption patterns of much richer classes, much more easily. You are not only seeing what a person in your neighborhood, in your family consumes, you are seeing what a person from the European middle class or a rich person in your country consumes. And then the desires, the aspirations, become homogenized and globalized in a very rapid and unique way in history, with a feeling of dissatisfaction emerging from there. Many studies show that people are also frustrated by the fact that they are seeing this ostentation, which is not only the ostentation of luxury goods, but also of what people do with their free time, travel, leisure. Consumption is not just things, it is a standard of living. I think this perhaps brings one of the elements of the difference between what the 2000s were like for the Lula 1, Lula 2 government, and what this government has been like. Because, back in the 2000s, income distribution at the base of the pyramid and significant economic growth included a part of the population in the consumer market that was completely excluded from that market. That now has access to a refrigerator, plane travel. A new middle class has emerged, which today is no longer satisfied with this same consumption pattern. President Luiz Inácio Lula da Silva (PT) Ricardo Stuckert/PR BBC News Brasil - And how can we change this situation of dissatisfaction and generate a new cycle of prosperity? Carvalho - Because income has been stagnant for so long, it will take time. We need to reach a point where people feel satisfied, where their salary at the end of the month is enough to support what they see as a comfortable standard of living. First, the economy has to grow much more and the income level has to rise. GDP [Gross Domestic Product, the sum of all goods and services produced in the country] continues to matter a lot. And income has to be redistributed. The more inequality, the more difficult it is for us to reach that point where the majority of Brazilian society can benefit from this growth. And third, there is an entire agenda of public services, because not all inclusion comes with direct income for people. They can also spend less of their income on private services, because they have access to higher quality public services. A health plan that is no longer necessary because the SUS serves it, or a private education that is no longer necessary because the education system serves it. This already frees up a lot of space for people to give vent to their ambitions and aspirations. And less time on public transport. This is a change in quality of life that also contributes to bringing people closer to the standard of living they desire. BBC News Brasil - You mention the expansion of public services as one of the items in this revenue, how can you do this within a framework of fiscal restrictions, without further increasing interest rates that fuel inequality? Carvalho - We advocate that the taxation agenda be continued. And then it's not just about charging more progressive taxes, but also about subsidies. Tax spending, which currently represents 6% of GDP, also contributes to inequality. These are deductions that are not pursuing any specific agenda, which were being expanded under the influence of the benefiting sectors. BBC News Brasil - But is it possible to open up fiscal space just through taxes? Or might structural reforms also be necessary, such as administrative reform? Carvalho - We have to continue advancing in efficiency in spending and services. This is an agenda that we have seen in this government, with the digitalization of services. So that the same real spent on the health system, on the education system, achieves higher quality, reaches more people. Now, it doesn't seem to me that we will be able to achieve a higher quality public service objective, thinking that the great enemy of the Budget are the people who are working to provide these services. Nor do I think cutting social benefits [is the solution], although, of course, there could be a discussion about integration, about rationalization of benefits, which are in fact many, and often overlap. I think this is valid. BBC News Brasil - You have also cited as one of the factors behind this frustration among Brazilians, the educated generations who cannot find compatible jobs. Why is this happening? And how do you see the impact of artificial intelligence on the Brazilian job market in the coming years, could this worsen this situation? Carvalho - Brazil, in the first cycles of PT governments, greatly expanded the educational level, providing access to higher education for children from families who never had it. This is due to both Fies and Prouni, as well as the expansion of federal universities. We now have an entire generation of people with university degrees who are now looking for jobs with a higher level of qualification than their parents had. And the jobs we are generating are minimum wage jobs and in low-skilled service sectors. So, there is a certain gap between the jobs created and those that people want and are qualified to have. This has been observed for some time. In the last decade, the percentage of people who are in jobs that require a lower level of education than they have has increased significantly. BBC News Brasil - And how to address this problem? Carvalho - This has been debated around the world and demands a type of policy that looks at the productive structure, and [defines] which sectors we are going to enter and where Brazil is competitive. This has to do with the country's development agenda. It is necessary to look at it from the perspective of employment, in combination with climate transition, sovereignty and several other objectives that an industrial policy has. You also have to look at education itself. Because, sometimes, the diplomas being given are not compatible with the production structure. So, [it is necessary to think about] how you further integrate System S, universities, federal institutes into this strategy. So that people can also educate themselves where there are opportunities. The issue of AI, of course, affects all of this. But I don't think she's the main thing. BBC News Brasil - Professor Rosana Pinheiro Machado has written about how the radical right has mobilized this new platformized working class through digital networks, with speech particularly aimed at micro-entrepreneurs and informal workers. In your view, is it possible to win these workers back to the democratic field through economic measures? Carvalho - In some cases, these are individuals who are in these jobs because they have no other job, but in many cases they are people who today value some degree of autonomy over their time. Because your alternative would be to be on a 6x1 scale, where that time does not exist. So the 6x1 scale itself is an agenda that helps. The other side is, of course, protection. So, how will these people have access to social protection if they lose jobs. I think there is a whole regulatory agenda for the sector that makes sense. But a third part, which I think is little talked about, is that this sector depends a lot on a macroeconomy that is doing well. When the economy goes bad, the first to suffer are these workers who are either precarious, as they are in informal jobs, or are platformed. It is a sector very dependent on GDP and low unemployment. So the way to deliver a substantive improvement for these workers is to have an economy that grows. That's the main one. We need to have a longer, more robust growth cycle, with income redistribution, to be able to see better indicators of people's perception of the economy. BBC News Brasil - You have always been close to the PT governments, but you have never taken on a position in the Executive. Do you have this desire in a possible Lula 4 government? Carvalho - I am a university professor, I am very comfortable in the position of an analyst of Brazilian economic policy. Being outside, we contribute to this understanding, this analysis of the phenomena, with permanent dialogue with those who are doing it [within the government]. So, I was always very comfortable in that position. At this moment, I'm more thinking about writing a new book, like Valsa Brasileira, which analyzes this new necessary cycle of economic prosperity in the country. What is this economic prosperity agenda that can help us overcome these new challenges, with all the limits. How to open the necessary gaps to be able to implement and adopt these agendas. So that's what's most on my mind at the moment.