IS IT A CASE of new slogans or a fresh economic theory?
That’s the question analysts want answered now that Prime Minister Freundel Stuart has dressed up an old idea in an unusual twist of words about Barbados’ economy.
In an address to a large gathering of Bajans in Brooklyn assembled recently by the Friends of Barbados Democratic Labour Party Association, Stuart talked about “economic witchcraft” and “economic necromancy” in order to complain about critics of his Government’s approach to the management of the economy.
The trouble is, Stuart didn’t fully define his terms. What we know about “necromancy” is that it is the act of predicting the future usually by communicating with the dead. And that usually involves using magic, enchantment or portions or all three. As for voodoo, its roots are in a West African religion characterised by beliefs in the power of witchcraft.
But the Prime Minister wasn’t the first to link sorcery to economic policy. In 1980 when George H.W. Bush was fighting Ronald Reagan for the Republican Party’s presidential nomination, he criticised his opponent’s prescriptions to heal an ailing American economy, calling it “voodoo economics”. Bush contended that Reagan’s supply side doctrine was worse than a case of smoke and mirrors.
“George Bush intended the term voodoo economics to be a derisive or derogatory description of what came to be known as Reaganomics or supply side economics,” said Charlie Skeete, a retired senior economic adviser at the Inter-American Development Bank in Washington.
“Respectable economists still debate the merits and demerits of these policies. Much of the debate now takes the form of arguments about the merits of austerity versus stimulus as a way to cure a recession. And so it is with the term necromancy to describe those who are critical of the government’s policy in dealing with fiscal deficits, high and rising debt and no growth.”
Did Reaganomics work? Not entirely. Yes, unemployment fell significantly during the Reagan years; inflation which was pegged at about ten per cent in 1980 tumbled to four per cent by 1988. Also true, the gross domestic product expanded. But what also happened was that public debt went through the roof, skyrocketing from US$712 billion in 1980 to US$2 trillion eight years later.
Vindication
Paul Krugman, the American Nobel Prize winning economist and a disciple of John Maynard Keynes, the British thinker whose ideas have influenced the policies of almost every Barbados Government since the 1950s, considers Reaganomics a failure.
“Bush was right,” Krugman wrote recently about voodoo economics. “Even the rapid recovery from the 1981-82 recessions was driven by interest rate cuts, not tax cuts. Still, for a time the voodoo faithful claimed vindication.
“The 1990s, however, were bad news for voodoo,” he added. “Conservatives confidently predicted economic disaster after [President] Bill Clinton’s 1993 tax hike. What happened instead was a boom that surpassed the Reagan expansion in every dimension: GDP, jobs, wages and family income.”
Little wonder that the Keynesians who argue for increased government spending during difficult times were delighted with Clinton. Businesses prospered and hired more people and the value of the private sector rose sharply. By the time Clinton left office, the US economy was at full throttle.
This brings us back to Stuart’s remarks about economic necromancy. Clearly, the Prime Minister borrowed a page from the book written by Bush, who, incidentally, became Reagan’s vice-president and was eventually elected to succeed him.
As Skeete pointed out above, necromancy is a term the Barbados leader uses to describe people who are critical of Government’s economic and fiscal policies.
Faced with the return of a recession, a widening deficit; high unemployment and rising debt, the Stuart administration has cherry-picked Reaganomics or voodoo economics. For instance, it laid off thousands of employees to reduce the size of Government; imposed tuition fees on Bajan students at the University of the West Indies to cut spending; and spoke about the need to rationalise statutory corporations.
But it followed Clinton’s prescription by raising some taxes and introducing new ones so as to reduce the deficit. In some ways, then, the Government’s approach would pass key aspects of the voodoo or duck test, which holds that if something walks like a duck and quacks like a duck then it must be a duck.
Interestingly, Skeete, a Keynesian, articulated some thoughts about all of this.
“I believe with the [International Monetary Fund] that there is nothing progressive about large budget deficits and rising debt to GDP ratio,” said the former Barbados ambassador to Washington.
“After all, large deficits have no reliable effect on reducing unemployment and deficit reduction can be consistent with falling unemployment.
“Furthermore, in the context of Barbados with its unswerving commitment to the fixed exchange rate, the need to maintain adequate reserves makes prolonged periods of rising deficits a road to disaster,” Skeete added.
“If this belief is a new form of voodoo economics or necromancy, then I am an undertaker.”
