It is urgent to “educate the sovereign” in public finances

“Medicine is a noble profession, the problem is that sometimes it is difficult to enjoy a barbecue with friends.” The expression corresponds to a doctor tired by the numerous consultations that he received at a dinner. But his observation did not end there, “of course this in Argentina is greatly attenuated if there is an economist at the table.” It is so. In our country, it is difficult to avoid the economic question, from inflation in the event of a war to the maximum reductionism to our formative years with the now classic “dollar or fixed term?”.

Going beyond the trivial story, the big difference with the doctors is that at the end of our explanation we usually receive the refutation of the inconclusive popular truth: “I understand what you describe, but for me poverty is fought with more fiscal deficit and not less ”. Something like arguing with the doctor that smoking is good for you.

When “the truth of the street” subjugates science and the prose of false altruism persuades more than the classroom, a dangerous risk emerges that, in economics, can expand into the unfathomable mud of the moral. If economic science does not govern, the distribution of income is carried out by dispute, in a battle between picky eaters and profiteers, which makes it essential that there is a hostile arbitrator who controls the unscrupulous, since progress is ill-gotten and productivity does not pay, diluting merit as a tool for prosperity.

The problem intensifies when these “truths” are not only heard at dinner with friends but also by politicians and governments of all party colors, revealing that behind our eternal economic instability lies a serious diagnostic problem. And it is always impossible to find the right medicine from a wrong diagnosis.

Strategy differs from tactics not only because of its longer time horizon, but also because of the size and number of exogenous and indeterminate variables that come into play. Tactics is how to win next Sunday’s game, strategy is how to win a World Cup in 4 years. As a country, we need “strategy”, that is, abandon the short-term shortcut by looking at the next election and agree on a medium-term plan, assuming the risks of navigating uncertain waters, and making it clear that the benefits will be more for our children than for us.

Strategic decisions, with complex, inter-temporal goals where benefits take time to flourish, are made in three types of contexts: when we know what we know, when we know what we don’t know, and even more tragically, when we don’t know what we don’t know. . As an example, in the first case I may be sick with a simple cold. The second scenario refers to when I know of my illness, but there is no therapeutic agreement between the doctors. The third, and much more complex, is being sick and not knowing it.

This last case is the one that best reflects our failure in recent decades. In Argentina, we don’t know that we don’t know economics, or public finances, or how states work, and therefore, we were never able to solve the recurring problem of inflation, recession, and poverty.

It is urgent to “educate the sovereign” in public finances. As was done in the past with basic topics such as Civic Instruction or Health and Hygiene, keys when it comes to equalizing rights and opportunities in a nation in formation, plagued by cultural, religious and political asymmetries. In short, we must educate the State, to emancipate the sovereign from mauleros politicians, who offer colored mirrors camouflaging the trick of inflation, blaming the grocer.

I will mention some examples of false dogmas, which have slowed down our prosperity, sowing distrust between social strata and harvesting cracks.

The fiscal deficit, like any imbalance, is bad. Spending beyond our income makes us dependent, vulnerable to the interest rate, to international prices, to the sympathy of other nations, to the markets. It is the gestational germ of indebtedness dynamics. Consume and transform our energies and virtues because instead of going out to sell, we go out to beg. However, we hear daily talk of resisting lowering the deficit as a patriotic act. And much worse still, his advocacy on behalf of the poor. When there is no trust and credit is lost, the fiscal deficit is covered by issuing pesos beyond those demanded and this excess is transformed into inflation, having a greater impact on the poorest, since by consuming all their income, they do not have a surplus. financial institution to defend against inflation by acquiring stable currencies or setting up a fixed term.

Debt is not vile in itself, all organizations and countries take on debt. Large works and investments are financed with debt. Japan is the most indebted country on earth (three times ours) and has zero poverty because its debt is high, but sustainable. As Professor Edwards states: “sustainable debt is one that is not paid” (of course, by decision of the creditor), it is always renewed by trust. Debts are not high or low, they are reliable or not.

Freezing rates is synonymous with cutting services and inflation in the future, however, here it is an electoral promise. Of course, the most vulnerable need a social tariff, but in prosperous countries, subsidies are the exception and not the rule. Imagine arriving at a place and hearing the politician of the day promise to build a nuclear arsenal in his city, and that he is the one who wins the election. Either it is an uneducated or dissociated society from reality. would they invest there?

Another recurring mistake is to increase taxes on a sector because “it is doing well”. What we need is precisely that whoever invests does well, so that others come to imitate him by expanding supply (which lowers prices), creating more activity and employment. To put a ceiling on profitability by increasing taxes is to drive away investment, to warn that if the project is successful it will be punished. And even worse, in a country without dollars, doing this with exporters is like applying taxes to water in the desert.

It is also impoverishing to finance large losses in public companies, ridiculous values ​​in tolls or privileged pensions with money from the Treasury, “common well where everyone puts” including the vast majority excluded from their benefits. Not to mention in partner countries of the inflationary tax.

Years of ill-advised responses to incorrect diagnoses explain our stagnation. This happens in the eyes of an indifferent people who, fed up, deliver a “blank check” to the best promise, relegating institutions. This “cheque” is very tempting for a policy that gives up its role as mediator between the people and the government, generating a dangerous asymmetry of incentives between society and its rulers. Tiredness and ignorance of the “public” are combined in the temptation to hand over the sum of public power, trusting that this will put an end to their eternal disgrace. Here comes the risk of autocracy: “you vote for me, and I’ll take care of everything.”

Let’s teach “State” to end decades of trickery and improvisation. Uneducated tribunes fascinated with a devious leader of great prose, they were the beginning of the end of once very successful empires and civilizations.

Economist. Professor at the UNLP and at the Di Tella University