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On January 31, the National Institute of Statistics and Geography in Mexico announced that the country’s economy had contracted for a second consecutive quarter, what experts and media translated as a technical recession.
The announcement did not dampen the optimism of President López Obrador (AMLO), who decided it was a lie and maintained that the Mexican economy will grow 5% in 2022 and another 5% each year he remains in office. He also accused the Instituto Tecnológico Autónomo de México (ITAM), a prestigious private school in the south of Mexico City, of inventing the idea that two-quarters of GDP contractions constitute a recession.
Development, not growth
The problem, the president thinks, lies in what he was taught in school about growth and development: “When they talk about growth it is accumulation of wealth… It is more money, but for whose benefit?”
The president’s communication is always clumsy and contradictory, but when it comes to talking about the country’s economy, AMLO shows his most interesting side, that of the foolish and ignorant old man whose knowledge of economics is on the level of that of a teenager who wants to print more money so that we will all be rich.
“What is important for us is development, not growth” repeats the president, going to the commonplace that he surely heard from some high school teacher, one of those who put the students to read Galeano instead of covering the syllabus. A 14-year-old mind is not ready to dispute such an aphorism, how could it? For him growth is a percentage, but development is schools, hospitals and sunny days, that can’t be measured with economics, they don’t teach that at ITAM.
Of course, the president wants to satisfy everyone. For those who are still worried anyway, he promises them growth and reminds them that in 2021 it was 5%. He prefers development, but if people want to grow, he promises them two, three, four, or even five growths.
I have all kinds of questions about the president’s statements, the first one is obvious, if growth is not good why commit to grow 15.76% in the remainder of his government? why blame it on COVID that the promised growth of 6% did not come? the second one is even more important: does the president understand what growth is?
Does the president understand what growth is?
“Growth” refers to the increase in Gross Domestic Product (GDP) which, as the name implies, is a measure of production, of value added, not a measure of accumulation, not even of savings.
GDP is a calculation of what was produced in the economy in the given period of time, and here the president is right, GDP does not measure welfare, because it is a tricky measure that does not discriminate whether what was produced was useful or not.
The most usual way of calculating it contains three components of private sector activity: consumption, investment and net exports, and one component of public sector activity, government spending.
I imagine that the first thing the president would respond to all the above explanation would be: “See, it says there that GDP only benefits the private sector and does not benefit the people.” Right here is where the speech connects, the president jumps from a question about the recession, to denying it, to saying “well, yes there is recession, but it doesn’t matter.”
The Little Prince was not written by Machiavelli
The recession is irrelevant to the president. What matters is that “we now live in a less unequal country.” Although we are not sure what he compares it to, since in his morning lectures and documents he keeps showing the same Gini coefficient graph in which inequality was at its lowest point in 2018.
The economic theory that López Obrador knows is the same as that of a neighbor I had, who came up with the idea of making a telethon to pay the foreign debt. In that economy, if there is poverty it is because the president decreed it so and the solution to it is for the president to decree development.
AMLO cannot accept a recession because he already decreed development, and if the data and all the people do not perceive development it is because… revises his high school notes… “what is essential is invisible to the eye.”
José Torra is an economist, Research Coordinator at Caminos de la Libertad, co-author of the Fraser Institute's Economic Freedom of North America Index, and co-host of the podcast Libertad Aquí y Ahora // José Torra es economista, Coordinador de investigación en Caminos de la Libertad, coautor del índice Economic Freedom of Northamerica del Fraser Institute, y co-conductor del podcast Libertad Aquí y Ahora