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Economics is a choice between alternatives all the time. Those are the trade-offs – Paul Samuelson.
Paul Samuelson was the first American to win the Nobel Memorial Prize in Economic Sciences. This award recognized that he “has done more than any other contemporary economist to raise the level of scientific analysis in economic theory.”
He wrote “Economics,” one of the most extensively used college textbooks.
First published in 1948, the book was a best-seller for nearly 30 years. Translated into 20 languages, it was selling 50,000 copies 50 years after its initial publication.
Revolutionary Ideas
The textbook introduced the revolutionary ideas of John Maynard Keynes, a British economist.
He developed the theory that modern market economies could become trapped in depression and would then need a strong push from government spending or tax cuts, in addition to lenient monetary policy, to restore them.
This view is contrary to the idea that private markets would cure unemployment without needing government intervention.
Formula In A Pandemic
Keynes’ and Samuelson’s ideas can explain the government’s response to the COVID-19 pandemic to combat the economy’s unprecedented downward spiral.
Increased government spending and intervention is the primary strategy being implemented by the government, much in line with Samuelson’s thinking.
The present administration emphasizes both enhanced government spending and tax cuts.
‘CREATE’ As A Key
Both houses of Congress recently approved the proposed ₱4.5 trillion national budget for 2021. The measure is now up for signing into law by the President.
On the finance side, Finance Secretary Carlos Dominguez III thanked the Senate for making history with its recent approval of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Once signed into law, CREATE will finally put long-needed reforms in the country’s corporate tax and fiscal incentives system. This bill will gradually lower corporate income taxes from 30 percent to 25 percent and eventually to 20 percent by 2027.
Dominguez said the Senate’s timely passage of the CREATE bill would provide businesses with one of the most extensive economic stimulus measures in the country’s history to help them recover from the financial turmoil caused by the COVID-19 pandemic.
Conflicting Comments
However, there are diverging observations on the government’s budget.
Nomura, a leading Japanese investment bank, said the Philippine government has not yet finalized any significant procurement plans and is still in the process of negotiating deals to secure a sizeable number of doses.
This situation, the bank contends, means that the Philippines would be among the laggards in receiving the vaccines, let alone distributing them widely across the archipelago.
It noted that Philippine business leaders have earlier said that the government’s expenditure program for 2021 was insufficient to stimulate the economy adequately.
A Dim Outlook
However, government economic managers refused to consider increasing the planned fiscal stimulus package saying the government had no more funds to spend, and they did not want to risk the country’s credit rating by borrowing more.
This influential bank further stated that the Philippine economic growth next year would likely disappoint because of limited fiscal support, leading the Bangko Sentral ng Pilipinas to cut rates.
This dim outlook parallels the observation of the World Bank, which observed that around 40 percent of households reported a slide in income either from employment or business as of August.
The World Bank further lowered its outlook for the Philippines this year, citing the continuing effects of the pandemic and the impact of recent typhoons.
Trade Off Agenda
The multilateral lender said it now expects the gross domestic product to contract by a deeper 8.1 percent in 2020. This estimate is higher than the 6.9 percent GDP decline in October.
The trade-offs are apparent in the above observations. These are those on whether to spend more or spend less and where to place the expenses.
Also on the trade-off agenda is the extent to which the government should assist businesses that suffered significant losses resulting in unemployment.
More on trade-offs? Here is a quote that can be exciting because an exciting guy said it:
“I’ve always believed happiness is over-rated, you know? It’s those difficult times that inform the next wonderful time, and it’s a series of trade-offs, of events, of wins and losses.” Brad Pitt (no introduction needed)