Wednesday, April 24, 2024

WHAT MATTERS MOST: Govt self-interest at fault


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In recent weeks, the language of interior designing has been used to set a framework for public policy analysis that is less academic and more humane in nature.
The change of language has been deliberate, as initially it was necessary to find a way to educate and inform without the usual aid of graphs and numbers to make the point. The journey demanded ongoing repetition designed to reinforce obvious conclusions drawn from the data.
Having reinforced the claim that Barbados has experienced a self-imposed fiscal crisis since 2008 and not an economic crisis of the magnitude encountered in the early 1990s, it was always going to be a hard sell in the face of the strong rhythm of external forces. The sell was even hard among trained economists, who preferred not to buy because it suggested an anti-Government stance.
It must be confessed that being right in economic analysis means more to me than being politically correct. This brings me to a point of repetition. In analyzing the Barbados economy, it is critical to understand the need to harmonize the competing wants of the public and private sectors; to emphasize the country’s short term goals; to balance these goals with our long-term development perspective and to be aware of the rhythm of external influences.
Last week’s article identified the most obvious example of the Government not harmonizing the competing wants of the public and private sectors, as it chose to sacrifice over 16 000 private sector jobs through its taxation and pricing policies since 2008. The choice demanded excessive taxation in 2008 and 2010 that served the Government’s self-interest at the expense of private sector investment and households’ standard of living.
This week’s article is focusing on what were the country’s short-term goals in 2008. At the end of 2007, Barbados’ unemployment rate was hovering around seven per cent with the prospect of a testing year ahead. Indeed, on two occasions in the last quarter of 2007, Prime Minister Arthur and his Minister of State had extensive discussions on the possible issues the country would face in the coming year and possible policy responses.
They both understood that in such an environment, the Government usually absorbs the pressure by running policies that provide tax relief for businesses and households as a way of spurring economic activity or alternatively increasing Government spending on capital projects.
In the circumstances where unemployment was 6.7 per cent in the last quarter of 2007, the choice would have been for tax relief in preference to Government spending. It would be recalled that having lost the Government, the new Opposition called for stimulus as early as the end of 2008. Instead, the Government chose to impose the highest level of taxation in a Budget. The start of misery!
Even though then Prime Minister Thompson accused the Opposition, especially the writer, of preaching doom and gloom, his administration was indulging in excessive spending. The unfortunate thing about the spending was that it happened on the Government’s current account and not on its capital account. Understanding the difference between these two types of spending required a sustained teaching effort, which became the focus of this column for a prolonged period.
It is apparent that the Government did not tackle its stated mission of cost of living and failed to understand the truly obvious need to stimulate the economy and how to do so. In pursuing its own style of stimulus, the Government compromised the country’s long-term development goals. It will take fresh thinking or, more provocatively, the intellectualization of politics to rescue Barbados from its comatose state.   
The balance between the country’s short-term goals and its long-term development perspective was abandoned more out of economic ignorance than political posturing. The notion that 3 000 public sector jobs are more important than 16 000 jobs in the private sector makes no sense arithmetically, economically or even politically.    
Let no politician convince you of the wisdom of excessively taxing businesses and households such that it dries up the spending of consumers; it increases the cost of doing business and when it all fails the same politician shouts from the mountain top: the policy saved jobs in the public sector.
In the meantime, private sector jobs have been lost; the cost of living has skyrocketed and Barbadians are considerably worse off four years later. The Government emphasized its short-term goals, not those of the country.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.


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