Greetings, governor, I trust this finds you still safe from the pandemic.
I note from media reports that you have had to delay delivering your medium-term budget policy statement. I hope the reason for the delay is nothing major to worry about, other than ensuring that you align it with the aspirations as contained in the president’s economic reconstruction and recovery plan.
I’m writing to make a few observations about recent developments, which I believe you may want to reflect upon as you finalise your statement.
On June 11 2020, I shared with you a new tome, Stephanie Kelton’s The Deficit Myth — Modern Monetary Theory and the Birth of the People’s Economy. I trust that with the gift of time from the lockdown you have — as I have — managed to dig into it.
Most critics of the book have unfairly attacked its ideas merely because of the author’s association with Bernie Sanders. I don’t propose to review the book here. But I have found it to be an important contribution. Its release — in the middle of the novel coronavirus pandemic — couldn’t have come at a better time.
Quite rightly, most governments across the world, including ours, have pumped trillions of dollars, euros, pounds and renminbi into their economies to support households and firms during the pandemic.
In my humble opinion — which I hope you share — this has been a correct response even though in certain jurisdictions, such as ours, help has been slow in trickling down to those who need it and, of course, some among us have seized upon the pandemic as a get-rich-quick scam. I know you feel strongly about the corruption that has marred this relief effort.
As governments have sought to save lives and livelihoods, fearmongering has been peddled about an impending public debt and unsustainable budget deficits.
Which brings me back to Kelton’s input. As well as dealing decisively with other myths about the deficit, for me the core message of the book is to destigmatise budget deficits. In brief, deficits aren’t a reckless outcome and can be a force for public good to resolve many problems.
In our case, for example, if we are serious about defending the democratic breakthrough of 1994, we can no longer postpone the project of building a manifestly new economy that uses all of its available resources — land, minerals, capital and human — for the benefit of all. We have to seize this moment to ensure we deal, once and for all, with inequality, unemployment and poverty.
I’m also certain that in between finalising your statement you’ve found time to peruse the remarks made by the IMF about public debt and the pandemic. To recap, my understanding is that the fund, which has extended a Covid-19 loan to us, has done an important about-turn. In effect, it has suggested that governments keep the economic support measures for as long as is necessary to strengthen an economic rebound.
Instead of preaching austerity at all costs, it has urged governments to continue supporting households and firms during this crisis.
For my part, I think this is a sensible proposition that we should adopt in our country as well. By this I mean we should continue supporting households and firms in the face of the crisis.
I shouldn’t need to remind you about the humanitarian crisis we are facing, Gov. It’s evident everywhere, with the 2.2-million South Africans having lost their jobs and a hunger crisis gripping many households.
I appreciate that without the special Covid-19 grant our people would have been decimated by hunger. The extension of the grant will help.
The IMF notes that: “[Ongoing] tax and spending measures should privilege initiatives that can help lift potential output, ensure participatory growth that benefits all, and protect the vulnerable. The additional debt incurred to finance such endeavours is more likely to pay for itself down the road by increasing the size of the economy and future tax base than if the borrowing were done to finance ill-targeted subsidies or wasteful current spending. Investments in health, education and high-return infrastructure projects that also help move the economy to lower carbon dependence can further those objectives.”
I agree with this summation. I hope you cannot fault it either. So, Gov, correct me if I’m wrong: my sense is that the proponents of austerity have finally acknowledged that we need public debt to solve our pressing humanitarian crisis.
I’m hoping you also agree that adding more debt to corporates and households will be counterproductive in this regard. In fact, if anything we have learnt that firms and households have no appetite to take on more debt irrespective of how much we keep tweaking the credit guarantee scheme. Instead, a more effective tool, which I hope you seriously consider, is issuing cheques directly to households and companies.
While it is too soon to dance on the grave of austerity, we should seize this ideological and pragmatic space to save our country. I look forward to hearing from you next week.
Respectfully,
John Dludlu
• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.
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