馃儚 IS THE NEOLIBERALISM A FALLACY? 馃儚
The current times have once again invoked state intervention, contrary to the neo-liberal thesis. In a sense, it may be "necessary" because of geopolitical tensions and the coming multipolar system. Perhaps in a few decades there will be open world war; today it is only disguised by regional conflicts.
If is analyzed the chart, it seems that the richest countries have more Public Spending (PS). However, they have ratios from 30% to 55% with more or less the same levels of equally, measured by Ginni coefficient (WB, 2022 or later). In fact, more than 50% is harmful. What is true is the more inequality ratio match with lower public spending and undeveloped world (except by US or South Korea). So, is neoliberalism a fallacy?
In some sense may be, because the richest did not follow the public spending reduction idea. However, to set the PS as a cause of equality is also fallacious. PS only explain in ± 40% the Gini behaviour, in spite of its correlation of ± -63%. It is not bad, but the estimation error is ± 6.3 points; this means a difference between Chile and United States, or Norway and Italy, for example. By other side, PS makes no difference respect Public Expenditure, and Gini does not reflect the impact of taxes or purchasing power parity (indeed, in some cases, an African country might have a coefficient similar to that of some Asian or European).
Notwithstanding the above, these are good indicators to summarise a rather complex subject. It is also worth to mention the great relevance of cheaper energy and good conditions for investments that developed countries had had from countries such as Rusia, China, India or America. That situation could come to an end. Thanks to the trade openness, private investment and flexibility in their supply chain, they experienced the efficiency that neoliberalism espouses. In that sense, it is not a fallacy because many bad policies come from politicians (State intervention).
To say that any economic or political regime is bad or good, is Manichean. Many tools are required to optimise the welfare: freedom, education, health, innovation, and sustainability... Politics are useful. Finally, if the State do not provide that, what do you want it for? The sad thing is that when there has been total state intervention, the results have been the worst.
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2023
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