Opinion – Marcos Mendes: 2022 promises to be a festival of populism from right to left

In a 1990 article, “The Macroeconomics of Populism”, Rudiger Dornbusch and Sebastian Edwards warned that “populist policies always fail and throw the cost on the groups that are supposed to be favored by them” (free translation). Unfortunately, 2022 promises to be a festival of right-to-left populism.

Months ago, Bolsonaro rejected proposals to reformulate social policies that could better serve the poorest without breaking the bank. He stated that “I will not take from the poor to give to the poor”.

However, it did worse by proposing the PEC dos Precatório: in order to expand the transfer of income to the poor, it opened the door to expenses that favor the rich and pierced the spending ceiling, which generated currency devaluation, inflation, increased interest, reduction of investments and job offer.

In a typical populist maneuver, it announced a minimum payment of R$400 for each family below the poverty line. This guarantees the speech from the platform: “I gave R$ 400 to each poor family!”. But dismantles the strategy of serving the most needy: an individual who lives alone will receive the same as a single mother with two small children; a family with an income a little above the poverty line will receive nothing, while another, a little below, will receive R$400. Brazil Aid will cost more than twice as much as Bolsa Família, with a clear deterioration in the cost-benefit ratio.

Candidate Lula reinforces the populist tone. You think R$400 is too little. It has to be R$600! And he supports the dismantling of the roof, shouting on Twitter that “a responsible government doesn’t need a law saying what it can spend.” Authoritarian rapture that pretends to ignore that the Executive Branch does not govern alone, and that inordinate pressures for spending come from all sides: from the other branches, from organized groups, from multiple social needs.

It is also part of the populist kit to criticize “the market”, which, in Bolsonaro’s words, would be “very nervous”. For populists, “the market” is synonymous with “the financial market”, insensitive people who only think about money. Reinforcing his opponent’s argument, Lula does not miss an opportunity to incite confrontation between bankers and the interests of the people.

The “market”, in fact, is all those who manage to accumulate some savings and who, directly or indirectly, invest in production: wage earners, small businessmen, factories, supermarkets.

When populism produces inflation, low growth or default, everyone goes into the mode of protecting their assets. The construction of the new factory or the new supermarket branch is postponed. Financial investments are withdrawn from banks, and the funds are remitted abroad or treasured in the form of dollars, gold or another asset considered safe. They are no longer available, in the cash of financial institutions, to finance new investments in production.

The biggest losers in this process, Dornbusch and Edwards teach, are the people with the lowest incomes, who have no savings and are unable to defend their assets. They live on what they get each month, and that’s eroded by inflation and low growth.

The financial market, whose function is to apply the resources of its clients, is where the bad news first appears. The populists shoot the messenger.

Ideological extremes also merge when dealing with fuel prices. For both, the solution is tabulation and government subsidy. They ignore that this will represent, at the same time: expropriation of those who invested in Petrobras; increased costs to finance new investments in the sector; spending public money to subsidize fuel consumption by the rich; more public spending to recapitalize Petrobras after accumulated losses; reduction in the supply of alternative fuels, which become less competitive in the face of subsidized oil.

The threat of intervention in Petrobras creates uncertainty and devalues ​​the real. As a result, the price of fuels, quoted in dollars, rises even more, instead of falling. Shot in the foot, as always happens in populist bravado.