The Austerity Republic: BandAid response to a colossal wreck

THE@giant@shado …@of@john@Ma ynard@ Keynes@looms@large@as@the@virus-roiled @ world scrambles to find the fitting response to the human and economic catastrophe of unprecedented scale and scope.

The economic primer written by Keynes@that@largely@guided@the@massiv e@ interventionist policies of governments during the Great Depression and post the@ T reaty@ of@ V ersailles@ is@ essentially @ guiding the virus response of the major powers except for the United States under the Republicans and Trump.

Economic managers across the globe are revisiting Keynes and his magnum opuses on state- driven intervention during depressions and crises, the same theoretical guides that the US government partly adopted to avert a total economic collapse after the 2008 financial crisis. A new book on Keynes written by journalist Zach Carter, who argued that Keynes was more interested in using economic theories to further a “national purpose” and forge global cohesion rather than testing its technical and empirical applicability, has added to the interest in Keynes in the time of the virus.

Economics that leads to the solution of a humanitarian crisis.

In the Philippine context, no one is referencing Keynes. But there is an informal debate between proponents of two schools of thought on the funding level for the virus response. One side argues for an adequate, bolder response, with at least P1 trillion in virusrelated spending, the Keynesian response. The other is the timid, inadequate funding level, with the economic managers of President Duterte as the chief advocates. As expected, the timid side is winning.

But can a Band- Aid response meet the exacting challenges of the virus, from saving human lives to rebuilding the economic sectors currently suffering from varying stages of paralysis? The proponents of the bolder, more aggressive state intervention, the Keynesian approach, have framed their argument with very stark choices. Spend aggressively to heal and recover or spend inadequately to lay down the seeds for wasted society post- Covid.

The most powerful argument of those batting for the Keynesian approach cannot be refuted: There is money to fund a more comprehensive, bolder and aggressive approach.

According to a money tally prepared by those proposing stepped-up funding, total loans/ grants/ assistance from multilateral institutions such as the Asian Development Bank as of June 30 totaled roughly P410 billion.

The World Bank is scheduling another round of funding for Covid- related programs, a total of P9U billion that is due for release before the end of the year.

Via auction of bonds, the National Treasury has raised P1.2 trillion as of June 30. A total of PU16 billion has been raised as of August 10 through the sale of retail treasury bonds ( RTBs) that sold like hotcakes because of the government guarantee and the interest rate of below 3 percent, which is heaven considering the 0.4 percent interest of regular savings accounts.

The national government can now resort to massive domestic borrowing at historically low rates, which are true across the globe.

The Duterte administration has so far released a niggardly sum of P376 billion in Covid response, mostly for what is now known as the ayuda. Extraordinarily little of it has gone to the so- called “directly- impacted economic sectors.” In terms of per capita spending, the Philippines is one of the stingiest in the Asia- Pacific region. All those claims of being one of the “fastest- growing” economies in Asia and one of the most prepared to cope with emergencies simply did not show up in the actual Covid- response funding.

The Bayanihan 2 draft law is yet another case of underspending for the virus response. The actual allocation that is readily available for release under the draft law is P140 billion plus a standby fund of more than P20 billion if money for that can be sourced out. The two badly hit sectors, tourism and transport, get P10 billion each and the total of P20 billion for the two includes aid to distressed workers. The direct aid to hard- hit transport operators is a paltry P2.6 billion.

Proponents of the bolder spending say that around P1.3 trillion is the adequate response and that level of funding is there, money that is already with the government but which the government refuses to spend to fill the spending void of a great humanitarian and economic crisis. So, what gives?

It is the phantom fear of deficits. It is the baseless fear of the anti- Keynesians who loath government intervention on a massive scale.

It is no wonder that all credible forecasts say the Philippines will be the regional laggard in the post- virus world. The one country that will struggle to rebuild and recover.

All because of our misplaced fear of massive intervention, the government as the investor and funder of last resort.

In the long run, Keynes said, we will all be dead. But in the meantime, let us set aside our fixation with austerity and misguided fiscal conservatism.