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We end this article with Banxico’s announcement of raising the interest rate by ¾ point, to leave it at 7.75%. How would Keynes and Friedman have behaved, faced with this dilemma: growth with inflation or recession with lower inflation?

Keynes was a pragmatic economist, who had to face the Great Depression of 1929. He is known for pointing out a recipe for public works, lower interest rates and/or tax cuts to activate the economy when it is stopped or far from full employment. His recipes were successfully applied, especially in Europe in the second half of the 20th century, in the golden age of capitalism, through the creation of the welfare state. On the other hand, there are the monetarists, led by Friedman and inspired by Von Mises and Hayek (Nicholas Wapshott, Keynes vs Hayek, Deusto, Barcelona, ​​2011), who consider that what is relevant is the fight against inflation, so that in the face of a inflationary spiral, the rise in interest rates is the only way out, despite the contractionary effects it may have on the economy and the increase in public and private debt. Some support this in Banxico’s mandate, which is to maintain the purchasing power of the currency; Banxico would not be doing anything other than complying with its constitutional mandate.

Banco de México’s behavior follows a neoclassical approach to the economy: inflation is the only scourge of the macroeconomic figures that must be taken care of; The rest will follow. This has its counterpart, for example, in the 2008 crisis, in which we had a drop in GDP close to 7.0, but inflation remained low. What is more important, inflation or the promotion of employment and the economy, with perhaps a little higher inflation, but with expansionary monetary and fiscal policies, which compensate for the lack of investment by the private sector through growth higher economic?

This is the great debate in modern economics: Keynes or Friedman. Friedman thought that a decrease in interest rates did not have a relevant effect on the economy, because economic agents discounted this decrease through a colder and more calculating behavior, as an effect of conservative expectations. Keynes, on the other hand, thought that saving did not always translate into higher investment rates (the liquidity trap), since investors sometimes kept money in their mattresses or in jewelry and gold, so saving did not translate into more job creation. To compensate for this lack of investment, the government had to promote a policy of public spending (possibly cutting taxes, as proposed by George Gilder and the followers of supply-side economics), without worrying so much about the public deficit. It was necessary to give primacy to job creation over the recessive stages caused by economic cycles, contrary to what was foreseen by the Austrian School of economics, represented by Hayek and Mises, who considered that government intervention in a recession only it increased the damaging effects on the economy and delayed recovery.

Banxico is raising rates to ward off the specter of inflation. The question is at what cost? Companies on the verge of bankruptcy, an increase in the price of money to increase bank credit, a decrease in the investment coefficient at rates of 20% (when it should be at least 25%), a recession in sight. If you ask me, who is not a member of the Board of Governors of Banco de México, I would oppose the increase in rates to give preference to economic growth. With economic growth, according to Gilder, prices eventually decline.


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