DON’T BELIEVE IN UNICORNS
Recently, this week we have been able to hear and see several economic proposals from the different political parties in Spain, and what scares me principally is that were the promises the ones in the face of the newspapers, without doing a real economic analysis of their effects in the long term. This week the ECB reedited the estimations of economic growth and debt for Spain, but not positively, at contrary, it decreased its objectives in the short-mean time, estimating a new growth rate of just 2,4%, which reflects the enormous political uncertainty that we are leaving at the moment in the country, and what negative effects does it have on external direct investment.
Last year, we were able to observe an increase in monetary mass, followed by growth in the public expenditure rate, which made the State debt to increase by a 9% of the GDP, not generating the previous economic growth expectative or accomplishing the deficit reduction that people was waiting for. But what is most surprising at all, is the fact that it wasn’t only the ECB the one who did wrong growth and debt reduction estimations for Spain, but the IMF committed the same error, and in the same way. The cause of this fault was nor previewing the negative impact that some intervention markets, as China could have in Spain, which have an excess of stimulus in the economy, and make international trade decrease, as their coin is usually devaluated, and inflation is caused in cases as China’s. It has been deeply proved that the economies that set up policies of extreme public expenditure to reduce unemployment, and increase economic growth tend to fail in the mean term, as their interventionist plans only work in a really short term, as these policies tend to go against economic cycles, which make their estimations to be reduced, and which is a good reason to stop believing in unicorns.
In Spain, journalists and politicians don’t really care or look at statistics, mathematics or just numbers, as political parties just promise, and promise and continue promising unicorns, unicorns that will be paid with or money, and that will be used to finance the excessive generosity of those who didn’t realise that there promises were not reliable and that increasing taxes and public expenditure will not make the economic growth rate rise, which is one of the general motives for most of the financial recessions along history. One of the principal fake purposes I heard this week came from Unidos Podemos, which promised that they will increase taxes to cover the debt hole, but they will increase taxes just to the “rich”. We have to take in account that in Spain, there are around 4,500 people that earn over 600,000 euros per year, which will just be an option to cover a minimum fraction of all the populist political expenditure. But in Spain, by many economic specialists, at the moment you can be considered as rich if you earn more than 60,000 euros per year, and taking in account all that people, that will be an increment of ore that 32% of IRPF, which will make local demand and imports decrease, generating market failure and higher private debts.
HERE WE CAN SEE A GRAPH SHOWING THE SPANISH PUBLIC EXPENDITURE AND INCOME OVER THE YEARS:
One of the most unfair taxes that we can be able to talk about, is the successions tax, as it charges citizens for things that have been already paid for previously, and which is the nucleus of familiar richness, that normally tends to be located in properties as houses, cars or luxurious objects. From the economic program we can see, that what they call progressive tax, is really a rate that can get to 86% of the total wage in cases of the highest salaries, decreasing internal investment, and housing market demand. The fake promise of just increasing taxes to the rich, really means rising the general tax and becoming more interventionist, as they also exalt that Spain should do “expansive monetary policies”, which can be reduced to increasing monetary mass, forcing a decrease of prices, and giving more public subsidies, which will end up just in a devaluation of the euro, higher debt rates and an enormous inflation, which will produce allocative inefficiency, as we have been able to see in Greece, with the government of Syriza.
One of the most ridicule economic unicorns, is the proposal of ALL parties to cover the enormous debt hole, and to reduce deficit, by just fighting against tax fraud, firstly because it is a concept that we should set up as secondary or tertiary, and not as our primary source of income, because it is unstable, and not very efficient, as in most of the cases to reach a certain objective in this policy, public expenditure should be increased, for example to hire more inspectors, which will reduce the productivity of this economic activity. Following official data from the ECB, and its estimations, just by fighting fiscal fraud, the incomes will just rise by 1.4%, which is a ridiculous amount compared to our debt of more than 100% of the GDP, so we can call this proposal a unicorn.
GRAPH SHOWING THE EVOLUTION OF SPAIN’S DEFICIT OVER TIME:
From this we can now appreciate why Podemos presents its programme as an Ikeas’ catalogue, as they try to sell you their ideas as free and beneficial, but at the end you pay more than you expected, as they are only beneficial in the very short term. They also seem to be doing everything for you, and that you won’t be in need of working anymore, but in the mean time you have to work harder to develop your life and family, and as in everything in life, low quality and cheap proposals, which have no aggregate value, end up costing higher than anybody expected, and who ends up paying it?... yes, you and me, the normal citizens, and how?... through higher taxes, which make local demand and imports decrease, generating a higher debt, and making inflation rise. Because now it’s our time to choose, between false proposals, which are directed to an increase in debt rate, higher prices and a less efficient market and labour system, or real and stable ideas, which promise lower taxes, greater economic freedom, and growth of companies, which will increase international competiveness. Now it’s our time, the time to kill unicorns.