The government is committed to a demand-side economy, as its name suggests, with policies that expand demand and boost inflation to increase output and employment. I don't like the Phillips curve. Output and inflation do not evolve in the same direction. Growth and progress are sought through savings-minimizing models. Latin America's mistake is to seek development in return for income distribution, and to no end.
As I pointed out in my last book and recent articles, in 2014 the economy moved into a supply-side economy: saving less than investment and supply less than demand. Keynesian policies designed for demand-side economies are inadequate to address supply-side economies. Also, they aggravate the imbalance.
Importantly, these economies are based on demand models that exacerbate inequality. Economics operates in a world with solutions that make it worse. Lack of savings is remedied by measures and models that emphasize it. Therefore, the structural change of the economy towards supply levels is carried out with demand equilibrium models, raising interest rates and revaluation of the currency. Savings reduction, a disadvantage caused by structural change, is exacerbated by the dominant model.
As I mentioned in the previous paragraph, Economist The United States operates with supply-side economies that face the tools of demand-side economies that raise interest rates, revalue the exchange rate, and reduce the savings rate.
The decline in savings that follows is emphasized by the model of raising interest rates and revaluing the exchange rate. To avoid this, there is no other option than an economic model that maximizes savings.
You have an economy of demand. Savings decline and, as a result, investment contracts, imports and exports decline, and the balance of payments worsens. All of this contracts production, which in turn lowers the savings rate, and the two reinforce each other. A vicious circle is set up. By intervening in the exchange market or intervening in the money market there is no alternative but to a model that lowers the interest rate and directly devalues the currency. Savings ratio. To this end, negative real interest rates are needed to adjust the nominal interest rate below inflation.
As reflected in DANE data for December and January, output and employment grew below demand, widening the gap. The economy is affected by the gap between supply and aggregate demand, which is caused by factors from behind and cannot be avoided in the current model. What can be done is to advance a national agreement to address the inequality that lies behind. A consensus model requires a trend reversal through positive economic actions derived from observation of real events, such as adjusting interest rates below inflation and intervening in exchange and currency markets to directly devalue the currency.
