Tripod or death by plague

When the plague arrived in Europe in the mid-1300s, the rule adopted by prudent families was to lock themselves inside their homes, avoiding contact with people outside.

Although this rule of minimal contact wasn't exactly wrong, death was in the details and passed through the holes in the walls: the disease came through fleas, carried by black rats that roamed over the dead. Cruel ignorance. Humanity was almost decimated before understanding how the disease was actually transmitted.

This type of learning is what we have been trying to do, without much success, for over 30 years.

Another kind of plague, an economic one, is destroying our capacity for growth. We lost two decades, between the 1980s and 1990s, trying to understand why the miracle had ended. We stagnated, with growth in the range of 2,5% per year.

We improved when we adopted the "three-legged stool" in 1999. The formula stated (1) create a primary fiscal surplus to cover a good portion of the interest on your debt, (2) create inflation targets, imposing punitive interest rates until prices calm down, and (3) stop manipulating the exchange rate so that the most competitive sectors can flourish.

It worked. With the strong help of Alan Greenspan and the Chinese, a huge wave came and surfed us to the beach of apparent prosperity. The owner of the surfboard went by the name of Lula da Silva. In our poor people's euphoria, we didn't realize that we remained stunted, growing below our potential.

The plague of stagnation seemed to have been averted, as we returned to growth of almost 4% on average. Some organizations, such as the IMF, even predicted that our growth potential had increased. A mistake similar to that of doctors during the European plague.

Another "surge" of stagnation has returned and embarrassed Dilma and her team. The IMF also said that we are no longer the country of the 4%. So what?

Doctors who dealt with the bubonic plague soon reappeared, brandishing the three-legged stool rule. Presidential candidates also swear they will adopt it. Rare are the voices, like that of... Sheet in an editorial ("Beyond the tripod", 10/23), which they record their distrust of the magic potion.

Why doesn't the three-pronged approach work? The problem, once again, lies in the details. The mandate to achieve a primary fiscal surplus every year would only be effective if public spending did not continuously exceed GDP growth, as is the case in Brazil today. An economy with high government spending and a stagnant private sector always has a supply imbalance, with a greater propensity for inflation.

Here comes the second command of the three-pronged approach: take a lot of interest, five times a day, in massive doses, until inflation "returns to the center of the target." Public spending on interest will become catastrophic, generating an effort to generate even more primary surplus. And more tax burden, of course.

Meanwhile, with floating exchange rates and high interest rates, dollars pour in to take advantage of Brazilian interest rates, and the real appreciates. Industry sinks. It finances trips to Disney. And "la nave va" (the ship sails on). The tripod rule becomes poisonous. The tripod cannot be managed by those who don't know that rats enter through the cracks.

Essential measure: create a rule for the growth of public spending which, for a decade, should operate at a rate lower than the GDP that finances it. The annual growth of current spending cannot exceed half the growth of GDP. This will not be painful, as GDP will grow faster than it does today, and therefore, half of what is higher may become greater than half of what is lower.

This year, we have public spending skyrocketing at 6% per year in real terms, in a meager economy that doesn't even reach 3%. Less spending pressure means less debt, less interest, more efficiency, more external openness, a better country for everyone. Fewer rats, less plague. Real prosperity.

Supplementary measure: deal with the cats. Let's read what article 67 of the Fiscal Responsibility Law says. The legislator left us there the key to definitively controlling the plague. The key to the enigma is right in front of us, in the hands of the men who, in Brasília, are playing cat and mouse.