The economics of fear
It is an understatement to say that the Barbados economy has been managed poorly since 2008.
But to me as a professional economist, the disappointment has turned into amazement over the last two years as a new breed of economics has emerged. It rejects economic growth as a strategy; it justifies more printing of money at the Central Bank and it sees the Government sector as the new heartbeat of the economy.
The Democratic Labour Party’s quest to reach a new intellectual low has been achieved. It is determined to avoid putting any issues of substance to the highly intelligent electorate preferring instead to trivialize and undermine our country’s future in its pursuit of contaminated ignorance.
Though the politics of fear is not new, the economics of fear is.
Over the last year, the Government’s chief economic adviser has contradicted himself on several issues. He has argued against the evidence that the foreign exchange earning sectors have led economic growth. This is simply not true.
He argued for, and secured the doubling of, the printing of money at the Central Bank in September last year without having to go to the Parliament of Barbados (see Central Bank Board Paper Ref No.8/2011/5(c) re contradiction). The importance of this achievement is missed by an unsuspecting public, which may have forgotten that the demise of the Sandiford administration in the early 1990s was triggered by a debate over the printing of more money at the bank.
It was wrong then and it must be wrong now!
The governor has built a reputation on arguing that the Government is too large but within the last year has been able to justify the new size of Government. It is larger now than in the early 1990s, when the Sandiford administration was taken to task by some technocrats. What has changed?
As has happened, once the Government gets too large, its size compromises the rest of the economy’s ability to grow. In short, the Government behaves like a parasite. This is in evidence when a Government has to borrow to pay wages and salaries.
At the height of this country’s fiscal crisis, the governor recently argued that “a much larger [fiscal] deficit could have been accommodated, without depleting foreign exchange reserves and imperilling the exchange rate anchor” (excerpt from Fiscal Sustainability In An Open Economy With An Exchange Rate Peg by DeLisle Worrell et al.).
This is a fascinating conclusion to reach and it supports the suggestion that tax relief is a viable option to kick-start the economy.
The conclusion is supported by the fact that though the economy underperformed since 2008, the foreign reserves enjoyed their best five-year spell of performance over the same period. In fact, the Barbados economy is not generating much less foreign exchange than it did in the pre-2008 period. The difference truly is in the dramatic fall in foreign capital, which is directly correlated with the management of the economy.
The only logic in the new found strategy to sacrifice economic growth is to be able to pour more financial resources into financing the Government’s excessive spending. This explains the increasing of the local loans limit in parliament last week. More of the country’s money will be siphoned off to feed the Government’s habit of excess.
In the face of all the evidence, no one can argue against the following: that the Government’s excessive spending is responsible for the current fiscal crisis not the international economic slowdown. The last administration engaged in spending but never did it have to borrow to pay civil servants.
It is amazing that arguments are being used to justify increasing Government spending but there is no willingness to admit that private spending needs boosting. It does not take much to understand that, for example, the professional business class relies on the spending power of Barbadians to survive, not just prosper, in times of plenty. Contrary to what is being said, this spending does not leak foreign exchange. How much foreign exchange do doctors, lawyers, hairdressers and other professionals utilize in serving the public?
But the public has to have money to utilize the services of the professionals, who constitute a major part of the domestic economy, including the linkages to other sectors.
The argument against boosting domestic spending is now the foreign exchange, which was said to be able to accommodate more Government spending. So what is wrong with more private spending?
Yes, Government matters, but it does not matter more than the private sector in the pursuit of sustainable economic growth and development.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email [email protected]