"The Duterte administration and Congress pulled their punches and engaged in compensatory spending that was less than full."
he great British economist John Maynard Keynes must have stirred in his grave when Congress began discussing the first of the two Bayanihan Acts. The stirring must have graduated to full-blown turning-in-his-grave when Congress started to draft Bayanihan Act 2. And with Senate president Vicente Sotto III’s statement that there may be a delay in his chamber’s passage of Bayanihan Act 3, Lord Keynes – he was awarded that title by the British government for his services to the nation – is turning and turning in his final resting place.
The basis for this surmise is the school of economic thought that has come to be named after Keynes. Keynesianism revolves around the role of the government in a democratic, capitalist society.
John Maynard Keynes wrote and taught that in a capitalist economy there are two engines of economic growth – a big engine called the government and a smaller engine called the private sector. For an economy to grow rapidly and steadily both engines – the government and the private sector must be operating at high-capacity levels, with the monetary authorities seeking to ensure the maintenance of price stability. But when, for any reason or combination of reasons, the private sector is prevented from operating at full capacity, it is the duty of the other growth engine – the government – to make up for the decrease in private-sector activity and engage in spending of a compensatory kind. The government, said J.M. Keynes should move in to fill the gap that has taken place in aggregate demand.
The sharp and sustained drop in aggregate demand occasioned by the world’s longest lockdown – 9.4 percent and 4.5 percent GDP (gross domestic product) contractions in 2020 and 2021’s first quarter, respectively – is just the kind of situation that J.M. Keynes had in mind. With tens of thousands of businesses shuttered, billions of persons of production value lost and millions of Filipinos out of jobs, the government should have stepped up and, with the full array of fiscal and monetary tools at its disposal, fully compensated for the GDP losses sustained by the Philippines economy.
Unfortunately, the government – Congress and the administration of President Rodrigo Duterte – did not see fit to make full compensation for the GDP loss visited by the pandemic on the economy. Instead of saying “Damn the torpedoes,” as true-blue Keynesian would have, the Duterte administration and Congress pulled their punches and engaged in compensatory spending that was less than full.
The consensus among well-informed observers in this country and abroad has been that the two Bayanihan Acts were inadequate for the job of substantially mitigating the damage caused to the Philippine economy by COVID-19. Not surprisingly, the assessment of the near-term economic prospects of this country is that it will be one of the slowest among the ASEAN (Association of Southeast Asian Nations) nations to stage a full recovery.
Were he alive today, John Maynard Keynes would be wagging his finger at the government – the Duterte administration and Congress – and faulting them for being half-hearted in their effort to compensate for the GDP loss caused by the stalling of the private-sector engine. When a government is called upon to act, it must do so in an all-out manner.
Yes, John Maynard Keynes must be turning in his grave.