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Behind the myth “escape the crisis by growing”

December 18, 2019 3:10 pm A+ / A-

ÁMBITO FINANCIERO – Many politicians and professional colleagues declare that to get out of the crisis you have to grow. Which up to this point is obvious.

That is why we have to transform the premise “you get out of the crisis by growing” to the question: “how do you expand your economy?”.

The answer to this question can be via expansion of public spending.

Those who argue that we are going to grow along this path should answer a second question: Where do they plan to get the resources to pay for public spending? There are three sources of financing: tax increase; higher debt or monetary issue.

In the first case, if taxes are increased, economic activity will not vary as it would only imply a transfer of income from one sector to another. But not economic growth.

Our country has a tax regime that reduces the purchasing power of households, businesses and investors. In addition, it contracts production, causes a growing state of social unrest and makes it impossible for the economy to grow steadily over time.

On the other hand, consumption taxes, such as VAT, reduce the demand for goods by directly reducing the income of individuals. Labor taxes reduce workers’ salaries. In this way, money is taken out from people who could spend it, save or invest it, instead of giving it to the State whose ends, surely, are not very productive.

Corporate income taxes reduce investment to the detriment of the production of cheaper and better quality goods. Also, having less investment present, future activity is less. Therefore, the future welfare of all people is mortgaged.

So, if you want the economy to grow, taxes are not a plausible route of application.

In the second case, increasing debt is not a way to grow when it’s being restructured. So if what you want is to grow by expanding public spending (which I do not subscribe in any way), the last path is the emission.

Unfortunately, the demand for pesos is falling, that is, nobody wants Pesos in their pockets. This is the result of a sequence of bad monetary decisions that caused the gradual devaluation of the peso and explains why although this year the emission rate was reduced, prices continued to rise.

If the monetary policy relaxes, injecting pesos that nobody wants in the economy, then the currency will begin to lose value with more force and we will fall into a strong inflationary spiral. It should be noted that the main victims of inflation are the poorest people who cannot protect themselves.

This path will not cause economic growth, but quite the opposite will further exacerbate the economic crisis. That is why to truly grow it is necessary to implement structural reforms. Because what we really need is to give people confidence back. That the capital that the lack of long-term economic measures is taken from the mattress or abroad, and is spent or placed in the bank. This is the most sensible way to “put money in people’s pocket” without mortgaging their future and encouraging economic growth.

By Natalia Motyl

Behind the myth “escape the crisis by growing” Reviewed by on . ÁMBITO FINANCIERO - Many politicians and professional colleagues declare that to get out of the crisis you have to grow. Which up to this point is obvious. That ÁMBITO FINANCIERO - Many politicians and professional colleagues declare that to get out of the crisis you have to grow. Which up to this point is obvious. That Rating: 0

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