Economics is a social science, which according to what is explained in the faculties of economics, is cyclical, and well due to exhaustion of economic growth factors, as observed in the previous crisis with the construction sector , or as currently due to an unforeseen event, currently health crisis, but in previous crises, due to geopolitical conflicts, oil crises or natural disasters, there are fluctuations in the growth path of the economic activity in the environment of potential growth.
This potential growth is a relatively abstract concept, which is justified in part by the improvement in total factor productivity, as well as by the greater availability of productive resources, i.e. increase in labor force, increase and improvement in capital. This theory works very well in stages of economic stability, where relatively modest increases and contractions of activity are observed, and mark a trend in the environment of its potential growth.
However, in stages of sudden collapses and contractions of activity, theories of potential growth do not serve to describe the evolution of economic recovery. It is in these times of crisis, where economic knowledge experiences a greater learning, as well as a more notorious example, of the crisis of the 29th US, Keynes believe that stages of demand crisis, requires an intervention of public spending to encourage demand, and this will shorten the periods of fall in activity.
Unfortunately, as I have mentioned in previous articles, the conclusions of the responses to the crisis of 2007 and 2010, by Europe and the rest of the world, were asymmetric, and so were the results. In this sense, I continue to argue, that Europe‘s response was not the right one, and the fiscal constraint that we implemented in the countries of southern Europe, had perverse effects on the path of economic growth, which it not only aggravated the contraction in economic activity, but also undermined the budgetary balance pursued.
In the current economic crisis, I have the perception that there is a great consensus on the need to sustain economic activity, stop the deterioration of the business fabric, and inject liquidity to ensure the short-term economic viability of families and businesses. However, the instruments we have in Spain are much more limited than those implemented by either the US or China, which in the latter case has already recovered pre-covid activity levels, as well as countries with higher solvency and economic (and health) capacity such as Germany, France or the Netherlands, which have implemented much more relaxed economic stimulus and liquidity measures than in Spain, making it possible to contain the fall in activity and the destruction of employment, at a time when a faster recovery than ours is expected.
Therefore, although there is no economic theory to prove this, it seems that the response to the current crisis of consensus on fiscal incentives and public spending is the result of learning the divergence of the answers from the previous one. recession stage.
In the same vein, the set of international institutions, the IMF, the OECD and major central banks, the ECB in our case, encourage economic stimulus measures, both fiscal and monetary. Thus, this time the ECB’s position marks a total willingness to provide the necessary liquidity to the financial system, while being concerned about the evolution not only of inflation, GDP, but also employment. , and the adverse consequences for inequality, as concluded from its President’s speech at the Central Bank Forum.
In short, it seems that at the international level there is a consensus and some confidence that it is preferable to sacrifice current public spending, to limit the future consequences of the crisis. While at the national level, although the discourse is fully compatible with these conclusions, the decisions are not consistent with these.
Obviously, this lack of coherence is justified by the lack of resources, by the tension in the levels of deficit and its consequence on the public debt, but what I consider out of place, is, first of all, not to be transparent with the resource constraints (at all levels of administration), as well as prioritizing large stagings of measures and great promises of stimulus, which at the time of truth are insufficient, poorly structured (such as the example of aid to the self-employed) and inaccessible to most affected people / families (such as difficulties in receiving the minimum income).
Therefore, if at the international level it seems that the approaches are consistent and are relatively well posed, focusing on the problem and its solution, internally it seems that we continue to make balances between ranks of administration, geographical balances and balances between parties, which does not they make it possible to identify the true situation of weakness, and therefore to take measures to establish the basis for a possible recovery.
Fran J. González is a Strategic Consultant at the UNED Girona Management Center and Academic Coordinator