El Viejo Almacen -Bs.As.

Surplus Approach

“Es necesario volver a la economía política de los Fisiócratas, Smith, Ricardo y Marx. Y uno debe proceder en dos direcciones: i) purgar la teoría de todas las dificultades e incongruencias que los economistas clásicos (y Marx) no fueron capaces de superar, y, ii) seguir y desarrollar la relevante y verdadera teoría económica como se vino desarrollando desde “Petty, Cantillón, los Fisiócratas, Smith, Ricardo, Marx”. Este natural y consistente flujo de ideas ha sido repentinamente interrumpido y enterrado debajo de todo, invadido, sumergido y arrasado con la fuerza de una ola marina de economía marginal. Debe ser rescatada."
Luigi Pasinetti


ISSN 1853-0419

Entrada destacada

A 80 años de la "Teoría General" de Keynes ¿El ahorro se puede "canalizar" hacia la inversión?

 por Alejandro Fiorito* Hace unos dias el presidente del BCRA , Adolfo  Sturzenegger afirmó: “ Sustituimos consumo por ahorro”.  ...

5 jun. 2015

Aggregate demand and the slowdown of Brazilian economic growth in 2011 - 2014


We posted a preliminary work from our colleagues  Franklin Serrano and Ricardo Summa about the recessionary conditions in the Brazilian economy. The work is a continuation of one published in the Revista Circus 5 (Spanish)
La Desaceleración Rudimentaria de la Economía Brasileña. 
Ricardo Summa also exhibited in Buenos Aires on the same subject in 2012. Here







1. Introduction

The Brazilian economy experienced a period of faster growth from mid-2000s to 2010, after nearly a quarter-century with very little growth in GDP per capita, due both to a major change in external conditions combined with a smaller but very important change in the orientation of domestic macroeconomic policy. The average growth of GDP in the period 2004-2010 was 4.4%, slightly more than twice that observed in period 1995-2003 (Serrano & Summa, 2012)1. However, the average growth rate of the period 2011-2014 drop considerably to 2,1% and in 2014 the economy grew close to zero (0,1%). 

The purpose of this paper is to argue that this sharp slowdown in the growth rate of the Brazilian economy since 2011 can be explained predominantly as due to changes in the orientation of domestic macroeconomic policy, rather than to changes in the external conditions of trade and finance. Moreover, we shall argue that, as the economy was neither constrained by foreign exchange nor by the general scarcity of labor or capital, these changes in macroeconomic policy led to a substantial decrease in the rate of growth of aggregate demand and are chiefly responsible for the lower growth of both output and business investment.

In the period 2004-2010, after the marked improvements in external trade and financial conditions since 2003, the government gradually (and initially with some hesitation) took responsibility for directly generating growth through the expansion the domestic market. This was done through a series of policy measures boosting aggregate demand in order to promote economic growth, measures which were quite successful in attaining it. However, since 2011, despite the continuity of the ease in financing the large current account deficits, the government changed the orientation of macroeconomic policy. The new strategy was first to make space and then provide macroeconomic incentives for the private sector to lead the growth of investment and of the economy. This was done in two phases. The first was through a strong and deliberate contraction in aggregate demand growth rates in 2011 (whose effects lasted until 2012), including a very large reduction in public investment, to open space for the presumed private investment and export boom that was expected to come with lower interest rates and an exchange rate devaluation. As investment and exports did not respond to these interest and exchange rate changes and the exchange rate devaluation began to accelerate inflation, interest rates were increased again. After that the government tried to revive private sector investment mainly through large tax breaks to firms, hoping for the private sector to respond by expanding investment and aggregate demand. As the measures taken since mid-2012 did not significantly increase final aggregate demand (increasing neither the internal nor the external market), private investors naturally found no reason to expand investment and in the end the new strategy reduced considerably the growth trend of the economy. 

The contraction of the Brazilian GDP growth rates since 2011 was sudden and considerable. After growing 7.6% in 2010, the Brazilian economy grew 3.9% in 2011 and only 1.8% in 2012. Growth increased modestly to 2.7% in 2013, but the economy entered in technical recession (two consecutive quarters of negative growth) in 2014 and grew only 0.1% in this year. In addition, manufacturing industry exhibited the same pattern: average growth rates of 3,6% in 2004-2010 and -0,9% in 2011-2014. Finally, formal employment creation was on average 1,46 million jobs a year in 2004-2010, which was reduced to 829 thousand 2011-2014 and only 152 thousands in 20142. 

Our argument will proceed as follows. Section 2 and 3 discuss, respectively, the possible role of external and internal causes of this marked reduction in growth rates. Section 4 critically evaluates both the initial policy decisions made to supposedly make space for growth in 2011-12 and the phase of stimulus through incentives to investors since 2012. Brief final remarks will be made in section 5.



 1 This happened with inflation near the target and with improvements in income distribution (personal and later also functional) and a large reduction in poverty rates (see also Barbosa-Filho and Souza (2010), Vernengo (2011), Hallack Neto and Saboia (2014)). See also Weisbrot et alli (2014) for an overview of the recent Brazilian economic and social performance.  



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