The Organization for Economic Co-operation and Development deconstructs the false "stimulus" mirage

We are More than twenty international organizations have analyzed the overall picture of the Spanish government’s budgetsAnd not little by little. Spain won’t recover its 2019 GDP until 2024, our last economy for comparison, and it will do so with the highest unemployment rate in the OECD, a debt of 113% of GDP and a deficit of at least 3.7%, according to the OECD. . These assumptions, which have no value, once again reminded us of the utter failure of the Keynesian double mirage. I put it in quotes because if Lord Maynard Keynes saw what was done in his name he would spring out of his grave like a walking dead zombie to eat those who use his name to cause financial and monetary imbalances.

Let’s be serious. If the monetary and fiscal stimulus implemented in 2020 are minimally effective, today’s advanced economies – with the invasion of Ukraine including – should grow at double the rate of their trend. The OECD estimates are particularly worrisome, because the result is higher inflation, lower growth, more debt and less dynamism … If these stimuli work, the sharp increase in commodity prices is mitigated by the dynamism of higher growth generated by the inverted quantity Already. Return on capital employed is important and here it turns out to be zero.

Bad Spanish example

This is very evident in Spain. More than 300,000 million additional public debt for “growth” and the largest monetary stimulus in history, at negative nominal rates and the European Central Bank buying 100% of net emissions, without relying on Russian gas and with tourism recovering impressively, and the economy stalling dead, leading indicators show a contraction in Services, manufacturing and the OECD Composite Index are declining.

Spain is the proof of the failure of the stimulus plans. The implementation is weak, the effect is non-existent, and the result is an increase in political spending and debt, which leads to the destruction of the economy. A fiscal and monetary push of over €500,000m should generate an impact on potential growth that has not only not occurred, but has proven counterproductive.: The structural deficit increases and the level of recovery decreases in relation to the trend. The evidence of the destruction of capital and with it the potential growth of these so-called catalysts is terrifying if we add the non-existent impact of the forgotten Juncker plan, which mobilized tens of billions, or the 2009 growth and employment plan that left debt and recession.

Lower growth, worse debt and productivity

You will argue that without the stimulus it would have been worse, but the argument – apart from being a simple irony – does not stand up to the evidence of failure in countries across the spectrum. The evidence for so-called catalysts is that they leave lower growth, debt trails and worse productivity. It’s not even debatable. Huge sums of money are allocated out of nowhere to perpetuate current spending without real economic profitability, unproductive areas are subsidized and the most productive areas are taxed. The sad truth, taken collectively, of these multi-billion dollar stimulus is that their impact is nonexistent and the indebtedness is skyrocketing.

Moody’s stresses that the multiples are very low and even negative. Since March 2020, the United States has allocated more than $5 trillion, roughly 25% of GDP, to generate a weak and heavily indebted recovery. After massive indebtedness to the state, the labor participation rate and the employment rate in relation to the population have yet to regain 2019 levels. This is in an enviably dynamic economy where jobs are created and invested and the recovery has been better, supported by a competitive energy sector and exporter. However, as Judy Shelton, a good friend and a senior US economist, points out, the fiscal stimulus did not generate any ripple effect.

Infrastructure investment

However, investment in infrastructure can leave a positive impact of 1.23 after one year of its implementation, but the investment is not made in infrastructure, and current expenses are skyrocketing, in addition to higher taxes. In any case, this investment in infrastructure also leaves downward returns when it becomes a building that must be built, something all Spaniards know and the Chinese are now suffering.

The evidence in recent decades is that fiscal multipliers are very low in advanced economies and negative in highly indebted economies (Ethan Ilszetzky), and so it is no coincidence that global public debt continues to grow at a record level, and productivity growth is getting poorer. And that potential growth trend has eroded. The argument “it could have been worse” does not hold. You have to prioritize and not fall into the fallacy of repeating the typical “not enough done” and “we have to repeat” excuses. When a trillion-euro stimulus comes out of recession and one-trillion-euro debt is not resolved. These so-called catalysts are, today, evidence of capital destruction and massive negative impact. One day we will learn that governments do not stimulate the economy, but rather perpetuate its deficiencies.