When governments lie about the economy – 11/05/2023 – Marcus Melo

During Cristina Kirchner’s government (2007-2015), official inflation announced by Indec (the Argentine IBGE) between 2007 and 2013 was, on average, 15 percentage points lower than the real one.

Companies and institutions began to produce alternative indices. The government then began to fine them, accusing them of producing fake news.

The opposition reacted by creating its own index, the “IPC Congreso”. In 2013, the IMF responded with a motion of censure against Argentina that could eventually evolve into a loan ban. Or their expulsion, for deliberately producing false information, as happened with Czechoslovakia in 1954.

Political competition creates incentives for governments to lie and manipulate fiscal and financial information. What can explain the difference between the electorate’s perception of the economy and the real economy, measured in terms of growth, inflation and unemployment? Ryan E. Carlin and colleagues (2021) empirically analyzed the issue. Here is the link to Comparative Political Studies.

If there are no incentives to report, the availability of reliable information will not matter much. That’s why the authors created an Information Environment Quality Index that combines indicators of transparency of economic information, freedom of expression and strength of the opposition. The behavior of the index is shaped like an inverted “u” between 1993 and 2014. During this period, the negative highlights for transparency were the Indec case in Argentina and the creative accounting adopted in Brazil.

In general terms, there is a (lagged) correlation between what happens in the real economy and what is perceived. Collective memory is short: the association begins to dissipate after three months and becomes diluted after a year. The overall effect depends on what the authors call the information environment: the better it is, the more robust the effect of the economy on public opinion. Otherwise, the incongruity between the real and perceived economy will be greater.

In Brazil, the incongruity was greater in 2008 and 2010 (we weren’t just going through a “wave”). The work of those authors does not cover the entire Dilma government nor the post-covid period, whose impact on public finances was brutal.

The blatant manipulation of information, of which Indec is emblematic, is, in reality, the final stage of a process that begins with the disregard for fiscal responsibility.

Here, the informational environment in the current situation is marked by what I called an unprecedented monster coalition government, without effective opposition (the consequences of which I analyzed here), by public transparency strengthened by the creation of the IFI (Independent Fiscal Institution) and by broad freedom of expression . But who politically defends fiscal responsibility? The president, the center, Haddad? Is this defense credible?

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