André Lara Resende and Modern Monetary Theory in Brazil
By Isaías Albertin de Moraes
Recently, the renowned Brazilian economist André Lara Resende, former Director of the Central Bank of Brazil, former President of the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), and one of the chief architects of the Real Plan which freed Brazil from the grip of hyperinflation in the 1990s, has initiated a lively debate in the country by criticizing dogmatic fiscal and monetary orthodoxies.
Since 2017, Lara Resende has been producing a series of articles and essays (which have been compiled in the book: “Consenso e Contrassenso: Por uma Economia Não Dogmática. Ed. Portfolio-Penguin: São Paulo, 2020”) stating that, like other orthodox economists, he was wrong. Lara Resende's new view is that the nature of money and the burden of public debt need to be revisited. They can no longer be held hostage to an ideological trap imposed by the canons of anachronistic macroeconomic theory.
According to Lara Resende, a fiduciary currency issuing State has no financial restrictions. This obviously does not justify irresponsible and unlimited public spending at any time. The State must minimize the cost of its own operation. Current expenses should be kept to a minimum and should be covered entirely by tax revenues. However, there can be no financial restriction for investments.
It is suggested that in certain circumstances, if the State makes good investments the outcome is highly positive and such investments should go beyond the budget. The way for Brazil to overcome dependence on foreign capital would, therefore, be to increase public investment, reject fiscal austerity and, if necessary, expand the monetary base. The State would issue currency and then withdraw what is spent by collecting taxes or selling bonds.
In other words, first the State invests, issuing currency, and then, if necessary, imposes taxes to withdraw liquidity or sells bonds to withdraw the currency injected into the economy. Such operations would avoid the inflationary process and make it possible to increase public investments in physical and social infrastructure.
According to Lara Resende, it is more important to have a good capacity to evaluate and rank public investments for their effect on the economy's productivity and social welfare than today's monetary policy discussions on whether to lower or raise the interest rate, which is practically irrelevant. It is necessary to structure an efficient and productive economy through a modern, digital, competitive, unbureaucratic and highly competent State.
It is important to highlight that Lara Resende's studies are linked to Modern Monetary Theory (MMT). They revitalize the debate on contemporary Latin American economic development, breaking with the “supposed” dependence on foreign capital.
For further reading:
Moraes, I. A., Ibrahim, H. C. & Tauil, C. E. (2019). O pensamento de Celso Furtado sobre Desenvolvimento Econômico e Capital Externo no Brasil: do Estado interventor-empreendedor ao Estado insurgente-vanguardista. Revista Pesquisa & Debate, 31(2), 143-164.
Resende, A. L. (2000). Consenso e Contrassenso: Por uma Economia Não Dogmática. São Paulo: Ed. Portfolio-Penguin.
Isaías Albertin de Moraes is Associate Researcher at the Center for Extension and Research in Solidarity, Creative Economics and Citizenship at the São Paulo State University (NEPESC - Unesp).