I do believe that it is a rare scientific privilege to be in Portugal during the European sovereign debt crisis. Moreover, being a Portuguese, living in Portugal during the crisis should be regarded with the same scientific meaning as being in CERN looking for Higgs.
Today, and after six months of (some) austerity, the numbers for the balance of trade come out and, surprisingly, if no oil were necessary, Portugal would have a surplus of 50%. Exports rose by 11% and imports drop 7%, even with oil climbing up, due to the combination of Iranian madness, currency devaluation or whatever economic causes we want to list. Now, I’m pretty sure I didn’t got a Nobel medal (well, I’m moving and did not check the mail yesterday…:) ), but does these strange numbers ring a bell in the mind of those who believe in public spending merits?
Portugal started to cut in public investment, or better said, in public spending last year, after the IMF-ECB-EU troika intervention. If we think about economic agents as nodes of a complex network that are impelled to trade, this result is quite obvious. The huge state hub that attracted agents to trade with it, just broke and agents are impelled to make trade connections with the ‘available’ agents in order to be in business. In the particular case, and due to the country dimension, the ‘available’ agents are outside the country and, chocking surprise, economy happens!! But economics, doesn’t.
If we now look at the phenomena with economist eyes, this is an exotic event. It seams like a quantum tunnelling effect. How is this possible, to raise taxes, cut public spending, cut on credit and the real economy is, in fact, growing? If economy were a thermodynamic fluid of economic agents trading randomly this event was impossible. The economic equilibrium should be broken by lack of wealth in the system and it should be assuming a new, lower, state of equilibrium from which it would gently evolve, growing in continuous, well behaved fashion. Not in this ‘uneconomic’ way! And, furthermore, the surrounding system is also in crisis, Spain is dropping, Italy and France are dropping, the whole EU is dropping. So, equilibrium must be imposed, Portugal must drop because it is subjected to heavy austerity!
What economists keep ignoring is that the economy is not an equilibrium system. It is the opposite, it is a critical system. And in critical systems, things happen with no characteristic term and the system is always growing and dropping in all scales, from the single economic link between two persons to major interbank deposits. If the system cuts the major links with a hub like a state, the links will appear elsewhere. And links ARE economy.
Furthermore, If the total balance of the links the Portuguese state had was very negative (a huge budget deficit), that means that the amount of wealth the state was delivering to the society was much less that the amount of money he was consuming, most of it in the form of debt. The agents that were delivering labour to the society though the state, were delivering less than what they take. The economy suffered because these agents also trade with external agents and, consequently, the country would loose. When these links with the state are broken, agents must find new links with other agents in order to survive. If we assume that they could substitute all the links, a new proper balance is generated, because the substituting agents do not have the (absolute) leverage capacity of the state. Then, this simple substitution is a source of economic growth, something that is completely strange to economic theory. It is not a quantum tunnelling effect, it is just science.
In fact, we live remarkable times, if we love to learn from what happens around us!