'Now is the time to spend to combat the crisis. The state has no restrictions on doing so,' says an economist from Unicamp.
Unicamp Economics professor Pedro Rossi explained to TV 247 that there are no technical restrictions preventing the State from spending, and argued that this should be done to combat the Covid-19 crisis. According to Rossi, what exists are political rules that can be altered to benefit the fight against the pandemic. Watch.
247 - Professor Pedro Rossi from the Institute of Economics at Unicamp told TV 247 that there are no financial or technical restrictions preventing the state from spending whatever is necessary to combat the new coronavirus pandemic. "There is no financial restriction for the government to do what it has to do. The government has mechanisms, the government can create means of payment, it can allocate resources. That is the central message," he stated.
According to Rossi, the solution lies in the government creating means of payment, which doesn't necessarily mean printing money. “The State can simply spend, and how does it do that? It issues a means of payment. It doesn't have to be literally printing money; it's simply an invention, it's accounting-based. You write 'the State will make a health expenditure in such-and-such municipality,' and then it puts money into such-and-such account that will be used for health expenditure. It invents a means of payment; it has no technical restrictions for this, only political restrictions and rules, which can be set aside to do this.”
In response to the argument that creating means of payment could generate inflation, the economist emphasized that the Central Bank can intervene by withdrawing money from the market and increasing public debt, which would prevent inflationary pressure. “The State can simply spend, and how does it do that? It issues a means of payment. It doesn't have to be literally printing money; it's simply an invention, it's accounting. You write 'the State will make a health expenditure in such and such municipality,' and then it puts money into such and such account that will be used for health expenditure. It invents a means of payment; it has no technical restrictions for this, only political restrictions and rules, which can be set aside to do so.”
Pedro Rossi stated that it's necessary to clarify that the State doesn't function economically like a family, since a family doesn't define its own income, can't print money, and doesn't determine the interest rates it will pay on each debt. “What we need to dispel from people's minds is the idea that the State is like a family, the idea that the State doesn't have money, that it's broke. Weeks ago, public spending was Brazil's biggest problem; now it's the great solution. This is a completely misguided idea about how the public machine works and the relationship between fiscal and monetary policy. The idea that there's no money presupposes that the State lacks the capacity to allocate resources, to tax, to print money. It's a completely misguided idea. The State is very different from a family; the State determines how much it collects, it has a money-making machine within its own walls, and it issues a document called public debt, on which it sets an interest rate.”