More than stimulus
It seems conventional wisdom now that the way out of the COVID-19-induced recession is to throw money—lots of it—at the problem. The term commonly used is “economic stimulus,” which in the current context means government spends unprecedented amounts of money, even if it must borrow big time, to provoke economic activity.
But spending money to revive a frozen economy is not enough; it must also be spent right if we are to get the most overall benefit out of it. Quality of spending, apart from quantity, matters as much. What we need now is spending with maximum multiplier effect via the spending-incomes circular flow that an initial spending in the economy generates. The multiplier is greatest when every round of income is spent on domestic goods and services, production of which creates jobs for Filipinos. This is not the time to spend money on imported goods and services—like a presidential jet, for example—where we completely lose the multiplier effect to the foreign economy to which the money is paid.
The better way to transport the President and his officials at this time is to patronize our domestic air carriers, which are hemorrhaging from lack of business and forced to shed hundreds of prime jobs as they do. To spend billions now in a way that does nothing to support the domestic economy, when there’s an obvious alternative that would, borders on the obscene. It’s no excuse that the purchase had been committed before the pandemic. With aircraft manufacturers facing massive cancellations of orders by airlines for obvious reasons, I don’t see why a government in great need of economic stimulus funds cannot put off buying a private jet. On this basis, that frivolous Manila Bay white beach strip project is arguably better; at least the money stays and circulates within the economy. Still, it’s no less obscene, what with emerging signs of large-scale corruption, severe environmental harm, and outright stupidity (with much of the dolomite sand already washed off by strong waves).
What we really need, and the Vice President had it right, is Kumpiyansa, or Confidence with a capital C, for economic activity to more quickly move back toward its pre-pandemic state. That means confidence that government has a good plan for containing the pandemic, and the plan is being executed and is working, evidenced by declining infection rates (not just declining deaths from it). This leads on to confidence for people to go out and engage in their usual activities that bring life to the economy. But it inspires no confidence when people see a government lacking single-minded focus and competence in containing, controlling, and curing the virus that ails the people and the economy—but instead wandering off into costly distractions like pushing an anti-terrorism law of dubious ends, window-dressing a short strip of Manila Bay seafront, buying a presidential jet, persecuting critics in media, and more. Indeed, not only do these fail to help improve confidence in government; they actually undermine it.
Analyzing vast behavioral data it gathers worldwide, Google has issued Community Mobility Reports over the past months, indicative of people’s confidence to go out and engage in normal activities. Their data show that within the original Asean-5 plus Vietnam, Filipinos remain farthest from restoring pre-pandemic levels of mobility, hence least confident to move about, even as community mobility in Vietnam, Singapore, and Thailand have already gone well beyond pre-pandemic levels.
My Ateneo colleague Dean Nandy Aldaba aptly sums it in a recent article: “Even (with) adequate fiscal stimulus to firms, entrepreneurs, workers and poor households, without the confidence built among them, no economic recovery program will succeed. Firms will not borrow because they are not assured that their market will return. Workers will not commute if their safety will be compromised. They will not report to their factories if health protocols are not in place. Consumers will not go to restaurants or malls if the proper regulations on social distancing are not being implemented….”
All told, stimulus without confidence is like pushing on a string.
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