Walking on both sides of the road

Aug 21, 2021 Features / Columnists, Peeping Tom

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Kaieteur News – Ever since Bharrat Jagdeo assumed the post of Minister of Finance and effectively handed over economic planning to the international financial institutions such as the IMF, World Bank and the Inter-American Development Bank, Guyana has been caught between a rock and a dead end. One stops you in your tracks and the other stops the tracks.
Guyana has been pursuing a neo-liberal economic model. But the country’s financial gurus seem clueless as to which path within the neo-liberal landscape to take. They have meandered between supply-side economics and demand-side economics.
Nothing has changed under the Ali administration. The country is pursuing both supply-side economics and demand-side economics not realising that the two are not compatible when pursued simultaneously.
Supply-side economics holds that economic growth is best pursued by lowering taxes, reducing interest rates and encouraging investment. In this way, people invest more and this is supposed to increase production and generate more jobs.
Demand-side economics prefers to increase spending in the economy, especially through increased public expenditure. This spending, it is hoped, will create greater demand for goods and services and thus generate growth.
Those countries which pursue the neo-liberal model of development often have to make a choice between demand-side policies or supply-side policies. They can switch policies depending on their extant situation but one set of policies – either demand or supply-side policies – are pursued at any one time, except during periods of structural adjustment when greater restrictions are placed on local demand.
Broadly speaking, demand side policies are aimed at stimulating demand while supply side policies are geared towards increasing production. The country’s financial gurus have to pick a path; they can’t travel on both tracks.
The signals from the country’s leaders are however contradictory. On the one hand, the President is pushing investment because with investment comes jobs. He has been touting increased production of poultry to the point of giving incentives to increase production.
We have oil production taking place and a number of businesses are setting up shop in Guyana. The billions of US dollars being invested are responsible for the country’s economic growth.
The Guyana Office for Investment – which is nothing more than a duty-free concession factory – is boasting about increased interest being shown by investors. GOINVEST boasts about “unprecedented investor interest.” This is supply side economics.
Then, we switch to the housing sector and see another side of economics. The President says his government’s housing programme – and consequently public investment in housing – will stimulate demand in the country and this demand will increase production and create more jobs. This sounds like demand side economics.
As if to confirm this, last October, the President said, “We cannot talk about sustainability in a housing programme if we cannot create areas of density. Areas of density create demand. Demand creates job opportunities. It creates new growth pole, new towns.”
And since last year, the government has been attempting to jumpstart the stuttering non-oil economy. The government is pouring tax dollars into the economy in Keynesian-styled economics in order to generate demand for the business community.
Monies are being poured into the sugar industry in the hope that it will revive the countryside economy. Billions of dollars is being doled out to households, parents of school-age children, pensioners and the disabled in the hope that this massive injection of public funds will stimulate the local economy.
The Minister of Finance explained in an interview recently this demand-side economics. He told the Guyanese Critic in a recent interview that the interventions, which the government have been making such as the cash grants and the reduction in taxes on household items might look like and it is an immediate cost to the Treasury but that they stimulate economic activity. He explained that when the government reduces taxes or the cost of doing business or provide support to households, that money does not vanish into thin air. He said it stimulates economic activity, which generates jobs and incomes.
In other words, he is saying, it stimulates demand and this demand creates incomes and jobs. That is, these interventions increase aggregate demand in the economy and this in turn drives economic activity. This is demand-side economics. The government is injecting monies into the economy in order to generate a demand for goods and services.
The IDB however has warned the government about stimulating too great a demand since this can have effects on the price levels. The experience of the 1970’s where there was high and sustained levels of inflation led to concerns about the usefulness of demand-side economics.
But do not tell that to our financial gurus. They are taking both paths – supply-side and demand-side economics. But to where it will lead, only time will tell!
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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