Fiscal Policy, Debt and Politics: Lessons from Latin America - Shared screen with speaker view
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Is it appropriate to compare households and governments in their capacity to run deficits and accumulate debt?
Adam Tooze says, in some cases: "There are circumstances in which this analogy is apt, specifically when you are an impoverishedand desperate country dependent on foreign creditors who will lend to you only in a currencythey, not you, control. Many poorer countries are in this position. "
International currency hierarchies are important determinants of fiscal space, procyclical fiscal policy accompanies macroeconomic risks, and there is a strong case for spending windfalls sustainably. Is this because the government is analogous to a household? I’m not sure
To be making, in 2021, the comparison/analogy between household and government budgets is frankly bewildering.
in the long run . looking forward to the respondents
Thanks. An interesting talk. Are/ were more jobs created when a counter cyclical fiscal rule is in place? what happens to poverty and inequality? is social spending increasing in real terms regardless of the cycle?
Sometimes just preserving (not increasing) the existing social programmes and not cutting them is good enough.
The proposals for unconventional measures by the SARB in South AFrican are not only made by 'radical proponents of Modern Monetary Theory'. For example Owen Wilcox a former senior Treasury official called for a large programme of quantitative easing to respond to the crisis. See here: https://www.tips.org.za/policy-briefs/item/3798-macroeconomic-response-to-covid-19
wtf lungisa and deepening inequality
There is no fiscal credibility in a *procyclical fiscal regime*, such as the one we have in SA, which destroys the prospect of growth, in situation of deep economic crisis. The official macro economic policy stance in SA's 5 year programme- the MTSF- is that we take a countercyclical macro economic stance. But both our fiscal and monetary policy stances have failed to pursue this perspective.
Why is the debt carrying capacity of the economy determined by heuristic rather than the ‘growth potential’ of the economy, under certain conditions. And maybe someone might want to explain to me. W
Why in the context of one of the largest economic shocks in recent memory, our fiscal aspiration is to run a primary budget surplus, am I missing something?
SA had a relative PAYG system for pensions under apartheid. De Klerk and the our first NT massively increased our debt by ratcheting up the level of funding- borrowing to fund our public pensions at unrealistically high levels. A completely irrational and self-defeating policy. When we tried to engage NT officials at the 1998 jobs summit on reversing this approach we were told that this was being done to discipline the ANC government, and prevent them from over-spending! We have a young workforce, unlike Europe etc, where an aging population requires a higher level of funding of public pensions.
Thanks Busi. Size of debt is an arbitrary measure that has no real meaning until it is framed against expenditure and by extension fiscal credibility. The fatal error of this approach is to delink expenditure from economic growth. This delink is an extension of the flawed approach of debating the size of debt rather than debt relative to GDP. In any case, fiscal discipline becomes a hollow KPI if is accompanied by falling socio-economic conditions.
This untrue Neil. Yes, the post apartheid government did cover the gap in the funding level of the GEPF. Simultaneously, it reduced debt as a share of GDP down to about 25% by the GFC. What was unfortunate was that when we had money to spend, including on investment we simply did not have the capacity to plan and execute projects. Of course, there was looting too, on a grand scale.
A pragmatic view would be to accept the utility of fiscal rules. So my question would be: How do we ensure that fiscal rules include a human rights/social impact lens. For example, is the success of fiscal policy only measured by the achievement of a surplus? What of the impact on employment, poverty, inequality and the life prospects of citizens?
@lungisa - what is "good enough"? meeting fiscal targets while unemployment rises? keeping programmes running under a tight budget?
I'm not sure whats untrue Lungisa? The facts are clear and on record about the fact that funding of the GEPF was heavily ratcheted up, and that a large price was paid for this. I agree that failure by the public sector to invest, and large scale looting, has radically worsened this situation. It doesn't mean however that the funding levels of the GEPF are a holy cow and shouldn't be revisited, if it can be shown that these resources can be better spent, while at the same time safeguarding pensions.
The framework of fiscal rules is in good spirit but that countries with these rules have suspended them mean that rules when they are reinstated, they will need to be modified. Rules are therefore unsatisfactory assessment of debt sustainability. Fiscal standards might be a natural evolution from rules as they permit judgement and process to decide when standards are met.
We had detailed discussions as civil society with Trevor Manuel and NT officials on this matter (GEPF) but it became clear that the refusal to engage was not about the evidence, or the facts, but about an ideological decision to adopt a holier than thou fiscal policy stance, to appease powerful interests in the financial sector, locally and internationally.
in SA (as the opposition tables a bill to introduce a fiscal rule) our fiscal anchor, the expenditure ceiling combined with strong voracity dynamics and a weakening treasury/presidency contributed to a deterioration in the composition of spending and ultimately weakened the effect of the counter cyclical stance.-
Or the role of the state
And those political decisions, Michael, about the size of the state, influences the ‘composition’ and channels of spending, and the distributional consequences of this, and their implications for poverty, unemployment and inequality
@ayebonga is the extent of the reform project
There is an important part of the fiscal rules story that we haven’t directly highlighted (it is substantively implied by everything that Prof V has presented). The numerical element of the rules framework is important. But increasingly, the emphasis in “best practice” is shifting towards the procedural elements of fiscal rules. The setting of the states sustainability target (whatever that might be) and then committing to budget and account according to that. We should not be talking about the numerical rule. We should be talking about the procedure by which fiscal policy is made - the numerical targets are an outcome of that. What is the objective of fiscal policy. How do we set our fiscal plan. How do we implement it. How does government report on it. What does accountability look like.
And who gets to inform fiscal policy and its targets.
As national debt rises so does inequality. What would be your advice, for countries that have weak fiscal policies characterized by high deficit to GDP ratios of above threshold levels which grow YoY, with little to no sustainable industrial base or productive capacity? Otherwise, fiscal policy would then be discussed merely as an intertemporal measure to manage the political economic outcomes.
on the paper the electorate
who mandates the institutions of state
"Economics of aggregates" which ignores the economic realities on the ground. Yes Busi.
we can’t be ignore or be agnostic to of the incapability and credibility of the state to execute
We reduced our debt:GDP ratio, yes Andrew but at what cost?
The Rand and the stock exchange are booming, while the economy, businesses and households tank. There is a fundamental disconnect between the financial sector and the real economy, and peoples lived realities.
@Andrew Donaldson, the policy of leaning against the wind remains. We bought all the USD that NT converted into rands.
Thanks all. Very interesting session.
With increasing government bond yields and falling/stable inflation, forget about increase in private capital investment.
I will probably not be able to raise this vocally, hence via the chat. My point is about SARB bond buying as suggested by Michael. We know that government has financially ‘misbehaved’. It has overspent or, put differently, dissaved. The standard answer is fiscal consolidation and international evidence suggests that spending cuts are less damaging to GDP than tax hikes (study by Alesina and co-authotrs, NBER WP). Now, if we suggest now that the discus does not address its own problem, but bring in the central bank then we face two issues. The one is that monetary policy becomes dominated by fiscal policy, called fiscal dominance, which is problematic. Also, and here is my central point. CB bond buying will lower long-term interest rates. This will mean a lower return on private sector savers. So, then you will have people who are saving for retirement being punished for the sins of the discus (dis-saving). That sounds fundamentally wrong and unfair to me.
Good session. It is really promising the SCIS / this PEP project is going beyond the eco-chambers of econocracy by getting different voices around the table; now it will be important to see how the we can get beyond talking past each other to actually co-developing new ideas for innovating our way out of crisis.