What incentives does a politician have to make the adjustments required by the economy?

Economic Analyst in Libertad y Progreso.

ÁMBITO FINANCIERO – “In the long term we are all dead.” This famous phrase by the economist John Maynard Keynes seems to perfectly summarize the economic direction of the government. As we go through this troubled situation, the long term does not seem to be on anyone’s agenda since the only thing that matters is getting to the elections.

In this way, the government is going to play all its cards so that, in the short term, the economy does not finish derailing, total, after the elections we are “all dead”. The problem is that life goes on and we Argentines have to continue living in an economy that with an annualized monthly inflation of 60%, a stagnant GDP since 2011 (and in decline), with half the country below the poverty line and with very little expectation that the situation will be reversed.

This year does not seem to be the exception to the rule of the “curse of even years” in which the economy grows in odd years (electoral) and falls in even years (not electoral), a rule that Argentina follows strictly since the 2011, although in 2019 it was breached since not even in the electoral year could a positive variation in GDP be obtained due to the crisis of confidence in 2018.

The recipe that governments follow is to ensure that the real salary of voters grows in the year in which they go to the polls, through the postponement of exchange rate adjustments and other prices such as service rates public. Added to this is an increase in public spending for dynamic sectors such as construction. In this way, they manage to reach the elections with some relief in their pockets. As Clinton’s campaign adviser said in the elections against Bush Senior: It’s the economy, stupid.

In this sense, this year we are going to see the government trying to postpone all relative price adjustments so that workers receive a real increase in their wages. To do this, the golden rule of the Kirchner economy must be met: frozen rates and the exchange rate growing below inflation. In the long term (which is 2022 in Argentina) we will see how these problems are solved, but, as Keynes said, by then we are all dead.

What incentives does a politician have to make the adjustments that the economy requires at the expense of his bank in Congress for four years? This question can lead us to understand a little more the attitude of all governments that hide problems under the rug to clean them up later. Furthermore, the benefits of doing things well may not end up being capitalized politically by the current government, but rather the next government reaping the fruits of a measured economic policy. So is it worth paying the political cost for my electoral rival to benefit? The answer is obvious.

The result of these incentives is the permanent “patch policy” that leaves us locked in trying to deal with the very short term and we lose sight of what will happen in the long term. An example of a “patch” is price controls. Within the profession it is widely known that it is a policy that does not serve to lower inflation. However, Argentina returns again and again to apply this type of controls, reducing the rise in prices for a few months, but ending with a shortage of products and repressed inflation. If you really want to lower inflation, it is necessary to focus on the monetary issue and, fundamentally, on the fiscal one.

In short, this year not only will some economic problems in Argentina not be solved, but they will not even seek to solve them due to the over-importance of legislative elections for the government. Thus, today’s problems will end up worsening, reflected in cuts in public services, strong jumps in the exchange rate and higher future inflation. The cost of procrastinating structural reforms is very great, a government must decide to face it regardless of the political capitalization of the positive results since the only thing that should matter is that the country get out of economic stagnation once and for all.

Share on facebook
Share on google
Share on twitter
Share on linkedin

Ultímos Artículos

INSTITUCIONAL

ARTÍCULOS

AUTORES