There is no magic solution by putting money in people’s pocket

Infoveloz – We are listening to many proposals that want to revive the economy “putting money in people’s pocket”. Now, if the country has no credit or savings, where will that money come from?

Easy, goods will be taken from someone to be distributed later; but no candidate is going to tell who are those “someone” because it could lose potential votes. In addition, by doing this the country will stop growing, because surely the sector that produces those goods, will stop spending or investing that amount that is lost towards those who receive it and will spend. So, it does not increase the total demand of the country. On the contrary, given that, among 190 countries, Argentina is in 21st place among the highest taxation towards their companies, increasing the tax pressure we will lead to much less investment and, therefore, less employment and welfare in the future.

Also, they could give “the little machine” to put money in people’s pockets. The trouble is that it would mean trying to put out the fire of “rising inflation” by increasing the fuel; what with the current sharp fall in the demand for pesos could even lead to hyperinflation. However, even if the latter did not happen, it is known that the inflationary tax punishes those who have less; so it is rather a redistribution to the “Hood Robin” instead of “Robin Hood”.

So what is the way out? Let’s look at a simple example. Suppose I am the butcher of my neighborhood. A responsible guy who wakes up early to control the good quality of the meat they bring me. I open my business on schedule and attend very well to my clientele; So I earn your trust and good money. But one day I start to get up later and, many times, my lazy assistant receives the meat; So nobody controls its quality. I do not always open on time and sometimes I close to go for coffee with my friends. Surely, I will end up losing my clientele because they will stop trusting my butcher shop; so I will earn less and be poorer.

Imagine a friend comes and proposes that, to get ahead, I need to put more money in my family’s pocket? Without clients, I have no money or credit. The solution is to ask myself why I came to that situation and begin to regain the trust of my clients. Getting up early, controlling the meat I buy, opening when appropriate and complying with the opening hours. Surely, customers will start to come back and recommend my business again, so I can improve my standard of living.

If we put aside the magic solutions, we should ask ourselves why we are here. And the answer is: for not solving the structural problems of Argentina. For several decades we have lived from crisis to crisis; in which the disastrous results of not facing the pending structural reforms are liquefied. It is what happened in 2002 that implied a phenomenal social cost, with more than 57% of Argentines in poverty. After the debacle, the economy always recovers again and, as in the past, at the later stage of growth not only was it not taken advantage of to address the necessary solutions, but the problems that nobody had solved before were aggravated. Thus, we reached the edge of the precipice in 2015 and continued to wobble there; because the current management was not encouraged to make all the changes demanded by the delicate state of the country.

Therefore, in 2018, in the face of the smallest international tremor, Argentines and foreigners lost confidence and began to take their savings out of Argentina. That involved fleeing the peso and moving to dollars massively, creating a currency crisis. The loss of credibility was such that it left us without enough credit to face our public debt and we did not enter into cessation of payments thanks to the agreement with the IMF; without which we would have had one of the traditional crises, although with the current fall in welfare, impossible to avoid.

How is it solved? As the butcher did, we must recover the trust of the “customers” to bring back their savings and invest in Argentina. For this, on December 11, we must solve the country’s deep problems. To face a great reform of the State, that serves the Argentineans and not the politics (as it happens today); but, in addition, so that we can pay it. At present, it is not enough to squeeze workers and entrepreneurs. If we want an economy that gives everyone more opportunities for progress, it is necessary to lower the tax pressure. Also, change the current labor legislation that is incapable of generating productive employment in the 21st century. If we take any year of the last 20, more than 40% of people were unemployed, in informality or with unemployment insurance disguised in a public sector position or a welfare plan. Finally, quickly disarm a network of regulations that drowns, above all, both entrepreneurs and SMEs and whose only aim was to justify the excess of public employment and the eagerness of the enlightened bureaucrats to use their power to decide for their fellow citizens.

True, the ease of magic solutions is attractive; But it only leads to new failures. As mature citizens, we must demand the President-elect to face the hard way of solving the problems that prevent us from growing. The experience of other countries that did it shows that the prize is enormous, not only to avoid a crisis worse than that of 2002, but to be able to triple the purchasing power of all Argentines for three or more in the next 20 years, as happened in them.


By Aldo Abram