Economic flat earthism and fiscal terrorism

Christiana Carvalho's photo


Before and after 230 deaths

A few months ago I put in the Twitter that we unorthodox economists should lift the hashtag #stopfakenewseconomics. What is known and sold as economic science is full of “truths”, reproduced and repeated ad nauseam by the corporate media, with no room for contestation. Economic terrorism, which has plagued us for a long time, feeds on such “truths”. The newest star of the show is a so-called “tax anchor”.

“If the government abandons the fiscal anchor, the Central Bank will have to act”, said the current president of the Brazilian monetary authority, Roberto Campos Neto, in mid-December;[1] “the spending ceiling is the country's main fiscal anchor”, stated, a week earlier, Arminio Fraga, former president of the Central Bank, to suggest that it would be necessary to reinforce it, approving the reforms;[2] the day before, a financial market leader was concerned about the “loss of credibility” of our fiscal anchor.[3]But what does that mean anyway?

The term “anchor” is often found in economic texts. It usually appears in discussions involving economies with high inflation, in need of a monetary stabilization process. The metaphor makes sense if we think of the space for expressing the value of the infinite goods and services traded in the daily life of markets as a great transatlantic, laden with price-forms, all interconnected with each other (the so-called relative prices). If the ship goes crazy and decides to sail around randomly, then you need to put an anchor on it. With one of the prices being forcibly fixed, the other prices are also constrained, that is, the said price will not sail without control.

But what would be the candidate prices to make such paper? Will the price of bananas do? Hmmmm… it seems not, if only because not everyone likes bananas and it doesn't matter if their price goes up or down; moreover, bananas are not widely used in the production of other goods, and therefore, if their price rises a lot, for whatever reason, their impact on other prices is very low.

The intuitive impression that the price of such Brazilian fruit does not seem to suit the aforementioned task, which extends to the prices of all other goods and services. Those that can adequately fulfill this function are special ones: the price of the currency (the exchange rate) and the price of money itself (the interest rate). In the first case, we are talking about an exchange rate anchor; in the second, a monetary anchor.

When the Real Plan effectively began, that is, when the new currency came into existence on July 1, 1994, the exchange rate acted as an anchor (despite the government not recognizing this). Thought to be born equal to the new currency, that is, US$ 1,00 = R$ 1,00, the price of the currency, however, began its new journey at R$ 0,87. In the euphoria of stabilization brought about by the device of the Real Value Unit (URV), which operated from March 1st to June 30th of that year and managed to quell the so-called inertial inflation, the government released the exchange rate to see what would happen and he was right on the bet: the new currency was born “stronger” than the US dollar.

From then on, the exchange rate was fixed, leaving a small margin for fluctuation above and below this value, the so-called “bands”. Now, the then existing high probability of the exchange rate quickly becoming overvalued (or appreciated, as the market jargon is called) was evident, because, even in the new currency, there was an inflation that would not be accompanied by the price of the currency.

However, in the case of a new currency, in an initial stage of an economic plan that seemed to be managing to stabilize the economy after a decade and a half of high inflation, this was considered a reasonable price to pay, since the imbalance in the external accounts that could arise from this would be offset by the very high real interest rates paid by the country. Furthermore, a devalued currency (that is, a low price, in reais, for each dollar unit), even if artificial, had positive impacts on the general price level, guaranteeing the continuity of the success of the Real Plan (this expedient, not without reason, called by some “exchange rate populism”).

At the end of 1994, the failure of Mexico, considered at the time by the IMF to be the “best student in the class” for doing its “homework” properly—to adapt the country to neoliberal prescriptions— generated the “Tequila effect” here and a large speculation around the viability of continuing to keep the exchange rate fixed. Three years later, at the end of 1997, the Asian crisis forced the government to more than double interest rates (which went from 20 to 45% per annum in less than a month) to face speculation against our currency.

The definitive blow to this strategy came in 1998, with the advent of the Russian crisis. Even using the remedy of raising interest rates again (which doubles in value in a week, in September of that year), the country loses more than US$ 40 billion, making the external situation unsustainable. In January 1999, after the election that gave FHC a new mandate, the real was heavily devalued and the fixed exchange rate ceased to exist.

Whereas, during the floating exchange, the currency price can no longer be used as an anchor, as it is not determined by the State, but by the market, another type of anchor becomes necessary. In June of the same year, 1999, Brazil began to adopt the inflation targets and along with it also the famous macroeconomic tripod, which has its two other elements in the floating exchange rate and positive primary results for the public accounts. Indiscriminately prescribed by the neoliberal prescription for any country (except for the USA, which does not need to worry about the imbalance of its external accounts, nor with the imbalance of the US State accounts), the aforementioned tripod has a monetary anchor.

Based on the targets system, which is still in force in Brazil today, monetary policy, mainly the setting of interest rates, is carried out with the declared objective of obtaining an inflation rate beforehand determined. Thus, for the purposes of preserving monetary stability, the economy's main price, or its anchor, ceases to be the price of the currency (the exchange rate) and becomes the price of the domestic currency (the interest rate).

I recalled such facts from our recent economic history to illustrate with a concrete case what is behind the idea of ​​an anchor. In short, an anchor can only consist of a price. That said, what would be the point of a tax anchor? And considering that a monetary anchor is still in force in our economy, what is the meaning of such an “anchor”? At what price is it finally constituted?

The answer is that such a price does not exist, that is, the term does not make the slightest sense. “Fiscal anchor” is just another name that came to be given, deceitfully, to the infamous and criminal spending ceiling, approved in the government of coup leader Michel Temer as part of the neoliberal destruction project of our State. See how cunning, neutral and “technical”, the idea of ​​the need for a ceiling becomes when one begins to call it an “anchor”. The tale (of the vicar) that starts to prevail is that everything in the economy, not only the behavior of prices, depends on the maintenance of such a expedient. This is a subtle form of economic terrorism: you no longer need to threaten explicitly; the term already carries with it the inevitable shipwreck to anyone who disobeys the compass.

In short, there is no fiscal anchor. It's about one more fake news ideological to be part of the flat earthism that has dominated economic discourse for a long time and which is particularly pernicious in Brazil. As is known, emergency aid was fundamental in 2020 to mitigate the consequences of the pandemic on the poorest sections of the population. Even so, we surpassed the 200 dead, thanks to the president's denialism and the necropolitics he commands.

The “fiscal anchor” (read: spending cap), its preservation at any cost, will add many thousands of deaths to the already frightening figure. Despair will drive the population out onto the street, with the consequent relaxation of health standards amid the second wave and much more transmissible variants of the coronavirus, not to mention the predictable increase in violence, since material misery, as we know, is the antechamber of moral misery. Social collapse and collapse in the healthcare system will design an even more hellish 2021 than the past year. Anyone who continues to talk about a fiscal anchor (meaning: spending ceiling) and defend it will be just as responsible for tens (hundreds?) of additional deaths as the genocidal Bolsonaro government.

*Leda Maria Paulani She is a senior professor at FEA-USP. She is the author, among other books, of Modernity and economic discourse (Boitempo). []

Originally published on the website Other words.



[2] Newspaper economics section The Globe, P. 17.


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