Social dividend

Gov. Joey Salceda’s proposed economic stimulus package has run into stiff resistance.

One journalist called it “Joey’s economic Viagra.” Our economic managers dismissed it as “credit negative” (read: it will not do our credit ratings good if government splurges and risks missing this year’s goal of a balanced budget). Some skepticism has been expressed by business leaders and industry groups.

But Joey is not giving up easily. He is chasing down his critics, offering to present the voluminous data he assembled to support his strategy. He has also unbundled his stimulus package so that parts of it may be undertaken using available funds while the other parts await special appropriation by Congress.

Because I put out a mildly critical commentary in this space, Joey begged for the fellows of the Foundation for Economic Freedom (FEF) to be convened so that we can listen to his presentation. Fiscal conservatism is the dominant orthodoxy among the fellows and a spending plan that flirts with deficit spending is looked at with great suspicion.

Alex Escucha offered to host a dinner meeting for the FEF last Friday. Being men of moderate greed, few of us could resist eating well at Chinabank’s expense and needling Joey Salceda for dessert.

Joey’s presentation was, as usual, breathtaking. He deploys masses and masses of economic information. He flips chart after chart. He looks at the forecasts and sorts out the options as only a financial analyst of Joey’s caliber could.

Then he zeroes in on the central dilemma: the regime of fiscal discipline this administration has so courageously maintained did set firm conditions for stability and growth; but that regime has also taken its toll on the vulnerable middle classes, depleting their purchasing power and reducing job opportunities.

On the one hand, the inflation rate is low and the economy is growing strongly. On the other hand, the vulnerable lower income groups have to pay more for power and water with real costs imputed in pricing and VAT collected on top of that.

Too, over the last few years, the national government has compressed spending in order to close the deficit and achieve a balanced budget. Public sector wages have been virtually frozen. The infrastructure program was frozen (although it will be pursued full blast this year).

All these have put great pressure on the lower income groups. Historical data showed the public was happy and poverty figures went down when government decided to spend on a deficit — although this resulted in incurring mounting public indebtedness.

A program of fiscal discipline is not easy for any administration to do. It is like asking the population to do a forced march to stability and a debt-free future. The positive results happen in the long run. But in the short run, the administration must accept low popularity ratings and high discontent.

It is a wonder that fiscal stability was achieved by a democratic administration. The reason we accumulated such as large foreign debt was that previous governments preferred to borrow rather than tax, spend rather that aspire for a balanced budget. Those previous administrations enjoyed higher popularity ratings — but passed on the burden for future generations to bear.

No one cheers this administration for the rare feat of bringing down our indebtedness, growing our economy at an unprecedented pace and actually looking at a possible balanced budget — as programmed — this year. Since the administration expended its political capital pursuing fiscal stability, it has chosen a productive but unpopular course. Because it is unpopular, the political players are now trying to bring it down some more so that it will not be in a position to consolidate its legacy.

In Joey’s analysis, the economic gains achieved through an unprecedented 28 quarters of uninterrupted growth needs to be protected from the global slowdown expected this year. It is difficult to build a growth momentum and if we lose it now it will take many years to restore.

The only way to insulate our economic growth from adverse global conditions (as well as relieve some of the pain endured by the lower income groups that sinks public support for the present leadership) is to postpone the target date for achieving a balanced budget and accepting a deficit level that the stimulus package implies.

There is a long list of measures composing this stimulus package. It includes rebates for households consuming 200 kilowatts of electricity, a spending program for enhancing agricultural efficiency through mechanization, subsidized skills programs to help our people retrain and public payouts for the poorest families that keep their children in school.

None of these measures, Joey points out, diminishes gains made in tax administration. Nor will any of these permanently alter the pricing structure of utilities so as to require continuous subsidies down the road. They might be viewed as some sort of dividend for the poor for helping the revenue program and supporting the economic growth we now enjoy.

To a large extent, the spending program will involve tightly targeted rebates so that they do not help the rich more than the poor as well as economic investments that will have high multiplier effects.

The whole thing looks sound — provided the spending does not throw the fiscal balance off kilter. Provided, as well, that it does not undermine investor confidence by so grossly missing the balanced budget schedule.

Too, in this heavily politicized atmosphere, the program might be tainted by the opposition as a gimmick to buy popularity for the administration. To avoid this, Joey himself should volunteer to sit before a Senate hearing and try to educate them.