On the yawning deficit, reject conventional wisdom

By Marlen V. Ronquillo

Our own  focus on the deficit, (the obsession with the deficit, rather), is not an uncommon thing. Across the globe, this is the same obsession. If you look at the points of agreement firmed up by the leaders of the G-20 countries, number one on the list is fighting deficits.
The US is resisting a bit. Its economic managers know the facts on the ground and fully realize that
without fiscal expansion through a second stimulus package, the US economy will be in for more shocks. But with a mid-term election coming in, the managers have to tame their expansionary rhetoric—the same caution which President Obama carried over into the G-20 summit.

As if on cue, the familiar storyline of economic reporting in the Philippine context is the P300 billion budget deficit that we have to face this year. And when the new president is asked about economic issues, the standard questions would be, of course, on deficit-bridging measures.

Question: is this a good way to start the discussion of the  economic issues that have to be dealt with by the Aquino presidency?   Is this not a negative start for economic and  fiscal managers? Should we not focus on something more uplifting?

Or, should we  not focus on the right thing—and this means  shifting the focus  on generating growth and jobs?

Obsessing with the deficit is not good policy. It is not even a rational one.

Someone has to point out to the new leaders that it was reckless spending that did us in. The previous dispensation had to placate its political allies by rewarding them with funding surges, worse, to fund projects that were either worthless or marginally worthy.

A lot of infra funds and related public investments had been poured to benefit the businesses and investments of corporate cronies.

A lot of public investments was driven by so-called “commissioners” and these funded projects not intended for the general public but to serve vested interests.

So, instead of enhancing the GDP and generating lots and lots of jobs, the public investments in the previous administration just widened the already ballooning deficit. It if were not for “commissions” and public investments that served vested interests, we would no be in this  sorry fiscal mess right now.

Anti-corruption NGOs differ on the size and scope of public investments lost to reckless public spending, corruption and cronyism. But they agree on one thing: the yearly leak is so huge that it is beyond comprehension.

The other argument may put it this way. OK, the leaks are there and the results have been brutal. Still, there is no reason why we should not confront the yawning deficit  now and start a government with built-in fiscal austerity measures?

My answer to this: read the sad story of Ireland. I am not referring to  IRA bombings and bloodletting in Ulster. I am talking about the ongoing obsession of Ireland’s leadership with  belt-tightening and  harsh fiscal austerity measures.

About two years ago, Ireland adopted the conventional response to a looming economic crisis. It cut public spending and raised taxes. The two responses, both  textbook approaches, were expected to yield the textbook results, which was renewed confidence in the Irish economy. Or the best-case scenario, which is finding the way back to recovery.

But these were the results. The economy went down by 7.1 percent last year. Officially, it is still mired in recession.

The number of jobless has been placed at 13 percent. Those out of work for a year or more, the jobless that have the slimmest chance of rejoining the work force soon enough, stood at 5.3 percent. On its benchmark bonds, Ireland pays three percentage points more than Germany. The bond market, despite Ireland’s brutal austerity measures, remains cruel toward Ireland.
Investors, instead of appreciating the full fiscal sacrifice adopted by Ireland’s leaders, have not been impressed—or have not reacted positively—to genuine attempts at consolidation.

What if Ireland debunked orthodoxy and  instead went on a pump-priming spree via a substation economic stimulus package?  We would not know the results. But they could have been different.
Obsessing with and over the yawning budgetary deficit and adopting brutal fiscal measures in response may put us in sync with the conventional wisdom that is sweeping the world right now.

But it would utterly neglect what should be the main agenda of the new administration, which is to generate jobs and growth.

The new administration, many think, should not start by getting  paralyzed  by the old fears. It should debunk the textbook responses to the fiscal mess it has inherited. There are two forks on the road and it should take the one less traveled.


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