There are no facts against arguments

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By PAULO NOGUEIRA BATISTA JR.*

Observations on our economic barbarism

After a quick foray into literature and culture, the column now returns to its usual themes – economics, politics, Brazil. I do not do it with great satisfaction, reader. After all, let's face it, what pleasure is there in criticizing the barbarities that have been committed in our country by a ridiculous government? You have to choose your opponents well, as the ancients said. If you choose mediocre opponents, you will soon become as mediocre as they are.

But anyway, there's not much to do. Brazil chose this path in 2018, and we are paying the price. I then resume the thread of my skein. The good son returns to the house - even if he has difficulty recognizing that house as his.

Observations on our economic barbarism

I would like to dedicate myself today to one side of our barbarism that predates Bolsonaro and that continued with him and Guedes – the immense backwardness of economic ideas and practices in our dear country. What passes for economic science here is another caricature, and a very poor one, of what was taught and propagated in the United States twenty or thirty years ago, a time when some luminaries of the Brazilian buffoon did their economics studies there. As you can see, we are specializing in caricatures.

Let's name the oxen to break the monotony a little? Let's go. For example, Ilan, Alphabet Soup, Goldfayn or Goldfajn. It is quite true that this one is not exactly Brazilian, by the way. Born in Israel, he holds dual Israeli/Brazilian nationality. Nevertheless, he reached the presidency of the Central Bank of Brazil. In other countries, more aware of the national interest, bearers of this duplicity cannot reach high government posts.

But that's not even the worst. During the Temer government, the soup of letters was considered by the traditional media one of the thinking heads of the so-called dream team economic. dream team? Thinking heads? Thought did not exist there, but the mere reproduction of financial market prejudices and the slavish imitation of foreign standards already outdated abroad. It would be better to speak of the mimetic heads of the nightmare team of the Temer government – ​​after all, it was exactly this mambembe troupe that bequeathed us, to mention just one undying achievement, the infamous constitutional spending ceiling – one of the most poorly thought out fiscal rules in history. And the Bolsonaro government suffered horribly from the market and media's attachment to this unworkable rule. Let's speak clearer Portuguese, at the risk of offending more sensitive ears – the ceiling is one of the silliest fiscal rules in Brazilian and world economic history.

At this point, it is necessary to recognize, however, a certain creativity of the nightmare team. The spending ceiling, as far as I know, is an original idea, a Brazilian jabuticaba, unparalleled in the world experience, at least in the main countries. It only exists, as far as I know, here in Brazil. Too bad it's a perfectly dumb idea. It freezes, in real terms, for 20 years, at the level of 2016, almost all of the primary (ie, non-financial) expenditures of the federal public sector. Rain or shine, primary spending could not exceed this ceiling. And the rule was placed, for greater destructive effect, in the text of the Federal Constitution. Exactly the same famous figures who lived, and still live, criticizing the 1988 Constitution for its excessive detail, support (or supported until recently) with vigor, even with religious fervor, the presence of a detailed fiscal rule in the constitutional text. I don't know if Ilan's head, alphabet soup, this abstruse idea. Perhaps not, since it is not mentioned in North American economics textbooks, and the buffoon in question does not usually take risks with novelties.

Allow me, reader, a little digression. I like to describe my characters. In the case at hand, suffice it to say that it is a fat, round and generous girth. However, unlike other fat people, more folkloric, more interesting, this one has no sense of humor, no presence of mind, no measly flash. One day, Goldfain was walking carelessly down Avenida Faria Lima when he suddenly stumbled upon an idea. He got scared and, looking to the side embarrassed, disguised himself, straightened up quickly, cleared his imaginary throat and went on his way, sweating cold. He immediately went to a nearby banking institution, where, recovered from his fright, he exposed his wisdom, also imaginary, and pocketed a hefty remuneration, this very real one, for the advice provided. When he left the room, everyone without exception, from the bank president to the interns, from the directors of the board to the elevator operators, everyone looked at one another, amazed, and exclaimed – “What a head! What a head!”.

I'm going a little long on this digression, I know. But, after all, one of the functions of the columnist is to entertain the reader. And, as Galbraith pointed out, humor is an instrument of considerable scientific value for the economist, since economic behavior has eminently ridiculous dimensions. I add, in closing, that there is still salvation for the illustrious buffoon. Behold, he has just been appointed to head a department at the International Monetary Fund in Washington. Now, the IMF, since the financial crisis of 2008, is in the process of updating, reviewing theories, dogmas and recommendations. Thus, soon, we will see the Brazilian/Israeli buffoon defending theses that are a little less outdated.

The reader, if he is already a certain age, will say that he “got a signature” with alphabet soup. No way. I am willing to recognize your qualities, publicly and without hesitation. The problem, reader, is that I can't find them!

I hasten to make one last caveat. Don't think, reader, that the above description is the work of some “fatphobia” on my part. I am a staunch admirer of several fat people, many of whom stand out for their human qualities – intelligence, creativity, humor, among others. This is not the case, however, for the former member of the nightmare team.

Spending Cap – From Anchor to Symbol

But let's put individual buffoons aside and return to the more general plane of economic ideas and policies. Ideas is overkill. What we have in Brazil are more prejudices and dogmas than ideas. As the reflection is thin, bankers, economists and economic journalists fall into scandalous contradictions. There are notable exceptions, but this is the rule, unfortunately. It's what I call chicken coop economic orthodoxy.

Let's go back for a moment to the infamous spending cap. With the abrupt growth of judicial precatories, something that the Ministry of Economy of the current government did not foresee, yet another expedient was invented – postponing a large part of these payments in the name of defending the ceiling. In the popular: it was a matter of providing a shameless “default” in the holders of precatorios, which are, remember, judicial sentences that have become final, against which there is no longer any appeal. By means of yet another proposal for a constitutional amendment, the PEC on precatorios, which is currently being discussed in Congress, an attempt is made to make room for two things: 1) the introduction of a new social program that President Bolsonaro can call his own (Auxílio Brazil in place of the Bolsa Família of the PT era); and 2) the voluminous Centrão parliamentary amendments. These are, as we know, fundamental objectives for the Bolsonaro/Lira alliance, with a view to the 2022 elections.

The PEC of precatorios was also used to redefine and raise the constitutional ceiling on a case-by-case basis. The 2022 ceiling will be corrected, no longer by accumulated inflation up to June 2021, but by a projection for the year. As the projection will be higher, the change in the correction base allows for an increase in the ceiling next year.[1]Approved in the House, the PEC will be considered in the Senate. The frame still faces the decision of the Federal Supreme Court to suspend the execution of parliamentary amendments, which directly affects the political scheme of which the PEC of precatories is part.

Guedes and his team kicked as much as they could and several technicians ended up leaving the Ministry of Economy. But the political wing of the government, mainly the President himself, and Congress surrendered to the obvious. The spending cap is not consistent with political, social and economic reality. It became clear that the roof was not sustainable in its original form. The gambiarras are piling up to allow the Executive and Congress to pierce the ceiling without abandoning it entirely. Even its most ardent supporters are willing to disown it. The Minister of Economy himself already refers to the ceiling as a “symbol”, as an “austerity flag” – and calls for pragmatism.

Even so, the hardliners of orthodoxy still try to rearguardaction, a rear action in defense of the roof. Members of the financial market argue that its preservation fully justifies the postponement of most precatories. Well well. I lived, reader, to see the bufunfa gang defend a default on the public debt! Buffoons should not, however, forget that, by legitimate extension of the argument, the defense of fiscal austerity could then recommend a default also on public bonds held by investors. Fortunately for them, the cap rule only applies (and not by chance!) to primary spending, not interest on the debt. Even so, strictly speaking, if the important thing is to prevent the real growth of public sector spending and debt, and if defaults are after all defensible, the buffoon gang should, out of consistency, defend a broader default on the government debt.

But I don't want, dear reader, to be too harsh in my criticism, nor to demand coherence from others. I remember that, as Oscar Wilde said, coherence is the virtue of those who lack imagination. And, as you can see, it's not that second-rate virtue, it's not that of coherence or attachment to principles, that one can accuse the crew of the buffoon.

The autonomy of the Central Bank starts in a disingenuous way

To expand this little diatribe against chicken coop orthodoxy a little, I move from fiscal to monetary policy. On the subject of the currency and the Central Bank, we find the same traits and antics of the buffoon crowd and the media that it controls and that gives it faithful coverage. As Nelson Rodrigues would say, what we have here is the pathetic bordering on the sublime. Pathetic, the ridiculous emphasis with which the legal autonomy of the Central Bank, finally instituted in 2021, was defended. , commanded by presidents and directors with fixed and long mandates, not coinciding with that of the President of the Republic.

Surrounded by unrealistic expectations, the debut of the autonomous Central Bank was disappointing. Already in its first year, 2021, inflation will burst the ceiling of the established target – and by a large margin. There is a real risk that the fiasco will be repeated in 2022. So, reader, see the irony! Without formal autonomy, the Central Bank used to stay within the inflation target. Now, with autonomy assured by law, the president of the monetary authority will have to explain why he is unable to fulfill his mandate this year and perhaps also next year.

Other factors, the smirking economists will say, explain the difficulty of this wonderfully autonomous Central Bank in fulfilling its central objective. The blame will certainly be placed on populist politicians, in Congress and the Executive, who do not conduct fiscal policy responsibly. Note what this ultimately means. For logical consistency, fiscal policy would also have to be somehow insulated from politicians and politics. Reduction ad absurdum of orthodox doctrine!

Public accounts performance – better than it seems

I highlight one more and final embarrassing inconsistency between the facts and the prevailing economic preaching. Despite all the noise about “fiscal risk” in Brazil, the performance of primary public accounts has been very reasonable in 2021, better than expected.

An important indicator of fiscal policy is the primary result, the difference between public sector non-financial revenues and expenditures. In 2020, influenced by the pandemic and the recession, the primary deficit of the consolidated public sector (Union, States, municipalities, state-owned companies) was greater than 9% of GDP. In 2021, this deficit will fall to just 1% of GDP, according to the median of market projections collected weekly by the Central Bank. Public sector net debt, from 63% of GDP at the end of 2020, should fall to just over 60% of GDP, according to market projections.[2] Thus, the expected results for 2021 do not confirm the widespread notion that we are experiencing a fiscal disaster.

Could it be that the problem resides in fiscal uncertainty for the 2022 election year? Perhaps. It should be noted, however, that here, too, the data do not seem to confirm the alarmist discourse. The projections collected by the Central Bank from the market indicate, for the time being, that the primary deficit would remain close to 1% of GDP in 2022, and that the net debt would increase slightly, to 63% of GDP at the end of next year. These projections are perhaps too optimistic. But they are from the very market that so much waves the flag of the fiscal crisis. Difficult to reconcile them with horror scenarios for public accounts.

I would add that the IMF projections do not differ much from those collected by the Central Bank. For this year, the IMF projects a primary deficit of 1,7% of GDP; for 2021, 1,0% of GDP.[3] Again, it could be that the IMF technicians are also completely mistaken and that the 2022 election year will indeed bring a sharp deterioration in fiscal results. To see. But this is not what is expected so far. The suspicion remains that, once again, the market's rhetoric shows a propensity to exaggerate the fiscal risk. With the, perhaps only incidental, advantage of increasing risk premiums and the reward associated with holding government bonds…

In fact, with the increase in the basic interest rate, the Selic, and longer-term interest (due to the increase in perceived or declared fiscal risk and external factors), nominal interest expenses are increasing significantly , to 4,9% of GDP in 2021 and 5,4% of GDP in 2022, also according to market projections. Thus, the nominal deficit grows, despite the reduced primary deficit. Please note, readers, that the deterioration results from the rise in interest rates on the public debt, benefiting rentiers and financial institutions, and not from lack of control over primary spending or a decrease in revenue. Nothing to see here, as the Americans ironically say. Curious - isn't it? – which is hardly talked about…

no illusions

But enough. I'm done here, reader. I've already said too much. I have no illusions. It's not much use invoking facts, showing statistics, pointing out glaring contradictions between doctrine and reality.

Against arguments there are no facts. And this inversion of the established phrase, this small paradox, sums up what I wanted to say today.

*Paulo Nogueira Batista Jr. he holds the Celso Furtado Chair at the College of High Studies at UFRJ. He was vice-president of the New Development Bank, established by the BRICS in Shanghai. Author, among other books, of Brazil doesn't fit in anyone's backyard: backstage of the life of a Brazilian economist in the IMF and the BRICS and other texts on nationalism and our mongrel complex (LeYa).

Extended version of article published in the journal Capital letteron November 12, 2021.

 

Notes


[1] For more details on the PEC of writs and projections for the 2022 budget, see Manoel Pires, “Economic and political challenges for next year’s budget”, IBRE blog, November 9, 2021. See also Luiz Schymura, “The Risks of the PEC of Precatorios”, Valor Econômico, November 9, 2021, p. A2.

[2] These market projections, as well as those referred to in the following paragraphs, can be found in the Focus Report, published by the Central Bank. See Central Bank of Brazil, Focus – Market Report, November 5, 2021.

[3] International Monetary Fund, Brazil – 2021 Article IV Consultation Staff Report, IMF Country Reports No. 21/217, September 2021, table 1.

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