Inflation and democracy

Inflation, in short, the upward spiral of the prices of goods as measured by the consumer price index, is one of the main forces that currently challenges the stability of Panamanian democracy because it undermines the standard of living of the majority.

It is estimated that the risk that the inflationary phenomenon, the most pronounced and not seen since the seventies, will continue for several years. There are two generations of Panamanians who have not experienced it because they were born or were just children in the seventies of the last century. There are, however, differences between what was experienced at that time and today, as David Malpass, president of the World Bank Group, has pointed out: the dollar, weak in the 1970s, is strong today; oil prices quadrupled between 1973 and 1974 and doubled between 1979 and 1980; today oil prices, adjusted for inflation, are 2/3 of what they were in 1980 and the state of finances of major institutions is robust, unlike then (“The Supply Solution to Stagflation”, Project Syndicate , June 7, 2022).

It is a historical constant that since the collapse of the Weimar Republic and the rise of Adolf Hitler and fascism in Germany (Martin G. Geyer, “The Period of Inflation,” in Oxford Handbook of the Weimar Republic, 2021), high levels of inflation (hyperinflation) are a danger to the stability of democratic institutions. This phenomenon has also been experienced in Latin America, especially in countries in the south of our continent such as Argentina, Brazil, Chile and Peru, in which, after the fall of the military dictatorships in those countries, the control of hyperinflation was key in the re-election of presidents Menem, Cardozo and Fujimori.

Of course, inflation in Panama according to official figures remains below 4%, certainly felt in the price of many goods and services, and far from the experience of South American hyperinflation of other times. I remember on a visit to Buenos Aires in 1983 that in a ten day stay the hotel staff entered my room four times to change the price list of the minibar, the prices of the items in the supermarket I visited were in units and the When paying, the cashier had a list of the monetary value of each unit, a list that changed almost daily: an inflation of 343% is difficult to imagine in our country, linked to the dollar, which has allowed relative price stability. However, there are many fools’ consolation for the protests in our country over the price of gasoline, food and medicine.

Inflation, the serious unemployment generated by the pandemic, the arbitrary violence of criminality and the decline of political institutions due to the rigidity of the rules to facilitate changes and their capture by particular interests and the weakness of the controls of power with its consequences (corruption and deterioration of public liberties during the confinement due to the pandemic) are all factors that explain our undeniable social unrest.

I fear that such collective malaise is aggravated by the occupation of public space not by moderate and sensible voices but by charlatans, hotheads and demagogues attached to a culture of patronage and disqualification. This was captured in a poem written in 1919 by Irish Nobel laureate William Butler Yeats: “the center yields…the best have no convictions and the worst brim with passionate intensity” (The Second Coming). We must not become the republic of the worst.

Faced with the deterioration of the purchasing power of the popular and middle classes caused by inflation, the state response has been that of a policy of subsidies with multiple components. This is in addition to the programs of the institutions that make up our Welfare State, which range from social security to aid for the unemployed and informal workers, who are already almost half of our workforce (47% of it) and the legislation labor. I do not believe that these state responses are wrong, but they must be rationalized and their sustainability ensured with robust economic growth, today not only driven by services but also by the recently exploited mineral wealth.

The expansion of our welfare state in a liberal democracy must be done with moderation and the acceptance, in the happy phrase of the philosopher E. Kant, that “from the twisted wood of which humanity is made, nothing entirely straight can be built” (quoted by Isaiah Berlin, The Crooked Timber of Humanity, 1991, page XI).

After all, moderation is one of the virtues of a democracy, as the political scientist Francis Fukuyama highlights in his most recent work (Liberalism and its Discontents, London, 2022, page 154). The moderation of both state action and public discourse were highlighted, according to this author, since ancient Greek thought, but “it has been discarded in modern times… it requires self-control, the deliberate effort not to pursue the utopian or exalt excessive passions… for a democratic order was established, among other things, to control those passions and accept a set of limits on both individual and collective action” (my translation).

My impression is that the situation of our democracy is not going to improve in the short term. Perhaps a renewed economic growth, a drop in inflation. the upcoming electoral process, the abatement of the pandemic and the moderation of our social actors help improve the living conditions of the majority, allow us to recover the measured hope that the institutions and those who run them respond to our ideals and we can overcome this time of disenchantment.

Doctor of Law, Master in Development Economics. Former president of the CSJ (1994-2000)