The state debt has once again reached 50% of GDP, i.e. the second threshold of the Law on Fiscal Responsibility. Attention, the indicator is reported at the level of May. We are now in August. Perhaps some principles of anti-fragility, in the sense described by Taleb, will help the budget, the economy and our lives, Romanians, more.

*Don’t panic if you can’t find the term antifragile in the dictionary, it was coined by Nassim Taleb of Black Swan fame.

It is obvious that although the law, among other things, states that the salary expenses of state employees should not be increased, the Government wants to do the opposite: to increase their salaries by 15%-50%.

To reduce the percentage of debt, the authorities always rely on what they call “organic reduction”, that is, nominal GDP growth. Today, inflation is huge, so nominal GDP is also higher. So the debt is piling up, but it looks smaller because the GDP is higher.

Under these conditions, due to the fact that the state has very large expenses (the number of budget employees has also increased), even with interest (they have increased by almost 48%), the debt percentage has also risen to 50%. We repeat, the data are at the level of May (as amount: debt 614.3 billion lei).

The government continues to borrow (both to repay past debts and to support current spending). Hence, the deficit.

The first correction from 2022 increases expenses by 32.6 billion lei, and the deficit by 2.6 billion lei.

Deficit means borrowing.

The state relies to some extent on some revenue from the Tax Increase Decree (those already in place – OG16/2022 is mentioned), but we don’t have the amounts broken down by measures (which apply from 18 July and 1 August) not even in the explanatory note nor in Appendix 1. It is only mentioned and that’s all.

They just made some revenue estimates here and there and hope that they will be met. If not, then the second correction comes and everything is solved, cuts from several places (but not from salaries and budget figures), including from investments, because… they are not done.

Politicians, the Coalition should think about making the economy anti-fragile

Everything the government is doing seems to be the exact opposite of what they, the officials, must have been reading: Nassim Taleb’s book Antifragility.

To make it easier for everyone to understand, let’s give an example, which is also in the book (we simplify a lot, because we write from memory): if you go to the gym and lift a 50-kilogram dumbbell with difficulty, after a few days, when you return, you will notice that you can raise a little more. Basically, the body is so smart that it assumes it needs more muscle mass and strength to handle more weight.

Well, that’s how you should think about the economy, that is, how the Government should think, politicians (whom they actually lead), those from the Ministry of Finance – simple executors.

Basically, the goal is not to be a sustainable, strong, sustainable budget, but to be non-fragile. That is, to be ready for an even bigger crisis. Let’s not forget, as Taleb also explains, that when they make assessments (including economists), they all rely on past crises, although often there is an even bigger crisis.

The government should have thought twice before raising taxes in a crisis. This further weakens the economy. The budget is based on fees paid by us and the companies we work for or partner with. Perhaps it was worth thinking about better management of own expenses (nothing happened here).

While they’ve hinted that they’ve actually fixed some exemptions in the Internal Revenue Code, in practice…that’s not exactly the case. For example, objects of construction, food industry and agriculture have not disappeared. They lowered the ceiling to 10,000 lei, and even Adrian Cachiu, the finance minister, said there was no known impact, that most were below 10,000. This is just an example.

(Let’s see what consequences the tax increase will have for us next year, when the “main part” of the measures in Decree 16/2022 will come into force)

Having an anti-fragile budget would mean, for example, realizing surpluses, reducing the public debt, having a fair tax system for everyone. Such things do not happen. Due to changes to the Fiscal Code in recent years and an increase in budget expenditures on salaries, the exact opposite has happened. The budget has become fragile.

The fragility of the budget also makes the economy fragile, and after a while, when a crisis hits, you will feel the impact much more deeply.

Countercyclical thinking does not work with politicians. The goal is always short-term: win the next election, and then we’ll see what happens. Therefore, resources are always spent improperly, clearly not in the interests of Romanians.

As the economist Radu Krachun hinted, we should take care of the budget deficit, because it is because of it that we pay higher taxes.

“The truth is that they should be very careful, because if we go back again to 2009-2010, we have to remember that one of the ways to correct the budget deficit then was to increase the VAT, which led to a general increase in all prices. Which in the end was also found in people’s pockets. Perhaps it is our duty to explain such things so that they are finally understood,” he said in an interview with Hotnews.ro.

And we end with a quote from Taleb’s book Antifragil:

“Just as the concept of ‘speed’ has no relevance to an airplane with a high risk of a crash, because we know that the plane may not reach its destination, economic growth marked by fragility should not be called growth that governments are not already working on.” understood”.

Photo source:DreamTime.com