Vanity humanity

We have simply come to accept certain social norms. Seldom do we question them and more often we embrace them. It is has been some time since I have heard of the word vanity. Vanity is the excessive belief in one's own abilities or attractiveness to others. Nowadays vanity is associated with glamour magazines that are read by billions of people. These magazine names appear at the top of Google’s search results.

What is it about ourselves that we so incessantly obsess about? The human body has always been a marvel for many societies and was especially emphasised during Greek and Roman periods. Little has changed.

The pursuit of perfection and the exercise of control are fundamental in explaining vanity. Both, however, are illusory. Humans are not perfect and the idea that we have control over a volatile and random world is slightly misguided. The body is subject to gravity and will over time decay before it reaches its terminal condition – dust. Control is subject to a person’s ability to influence many factors around him such as accidents, disease, money, maintaining a healthy body, etc. Combinations of these factors are countless and any perfect exercise of control over these factors is unlikely.

Another factor leading to vanity, and probably the most important, is pride. I have spoken in length about pride in previous posts. But once again this little devil emerges as a main culprit in making the human spirit ill. Humanity’s ambition to be like gods causes us to obsess about perfection. And this perfection manifests itself in the exterior rather than improving our minds and souls. Our appearance takes precedence over anything and soon we don’t see how silly we really look.

What makes humans different from one another? Nothing much; we want to be differentiated and, more worryingly, we want to be better than everyone. We spend excessive amounts of our money and time in sculpting a body or creating an image “worthy” of our thoughts. Instead of taking a balanced and healthy view about our image we have become sick with our own vanity and created something that is not original and more importantly something that is not ourselves. It is not original because you recreate an image of something that exists in a poster, in a movie or in a song. In fact you lose yourself in wanting to become something else, something that society dictates such as what beauty is. The irony is that in the pursuit of trying to fill a void by focussing on the outward we become emptier.

Vanity is a sad fate if you really think about it deeply. It takes up too much of our precious time, time that we can spend more productively such as the pursuit of wisdom, caring for the needy or spending time with family and friends. Vanity makes the individual the subject and everything else becomes of secondary importance.

There is very little good that could come from a vain life. We know that the pursuit of perfection is a futile exercise, because as humans, we cannot be perfect. We know that control is transitory and evades our clutches all the time. We know that elevating the self means sacrificing loved ones and we know vanity is a destroyed of originality. Despite all of these consequences, we make a conscious decision to ignore it. We choose this knowing all the problems. This could only mean that the mind is not in a healthy and balanced state.

To find a cure for this disease we need to ask ourselves, again, some very deep and difficult questions: Who are we? We are humans and not gods and humans inevitably fail. Where are we heading? We are heading towards death and the process is decay. We have limited time to do worthy things and it would seem like such a waste if we spend most of this time on ourselves. What are worthy things? This is perhaps the most difficult question to answer when it comes to vanity. I would argue that there is a hierarchy of worthy pursuits in life: Searching for the subjective knowledge of our existence (for me this wisdom manifests itself in getting to know God and living for Him), living in harmony and loving each other, gaining knowledge about how the world works and then, maintaining a healthy body.  

   

I almost did not want to write this entry. There are so many wise sayings, paintings, books and songs about this topic that it almost seems over-explored. I think, however, that it is good to remind ourselves of our shortcomings, it is better to acknowledge our fallibility humans and it is best to be humble about what humanity is. Only then can we see the world without tainted lenses.

See also:

http://www.nationalgallery.org.uk/paintings/harmen-steenwyck-still-life-an-allegory-of-the-vanities-of-human-life

http://en.wikipedia.org/wiki/Narcissistic_personality_disorder

A different South Africa

How does a nation turn from its evil ways? Is it possible for an almost absolute corrupt country to change into a moral example of citizenry? I have witnessed firsthand the possibility of change and I have seen its inner workings. Once this machine of change finds momentum it is almost impossible to stop. I have recently visited Rwanda. In 1994 its Hutu population attempted to wipe out the Tutsis. Widespread hatred, classification, an air of superiority and a nation brainwashed led to an unforgivable massacre. So it was only natural for me to assume that my arrival in Rwanda will be filled with vivid images of a country still seeped in war-aftermath. To my surprise I entered a country void of civil strife. Its streets are clean and its people friendly. Though I could clearly see different races, there was no trace of classifying someone as Hutu or Tutsi. I was told of a story where a mother lost three children during the genocide only to forgive the perpetrators who are now her friends and protectors. As far as I could see, people live in harmony with a unifying goal of uplifting their country. The government has strong leaders having nothing of a corrupt culture and promoting good work ethic. The country has opened itself for foreign influence and is humble enough to accept skills transfers from anyone willing to offer it. It is the first time that I have experienced a nation happy with its leadership. Many explain this phenomenon as a miracle that only God could have performed. In fact, the country seems to build its image around Christian doctrines. I cannot help but to try and determine why and how people are able to just forgive one another and move on in the pursuit of progress.

I contrast this with my observations about South Africa. In 1994 it had its first free and fair democratic elections. It had a Truth and Reconciliation Commission that seemed to have failed. Instead of promoting a culture of forgiveness it promoted a culture of retaliation in the form of affirmative action, restitution and redistribution. Instead of using the existing resources to teach and promote equality it sought to replace it by ineffective systems like lowering school standards and replacing labour that could have contributed to building a better country. Instead of electing capable leaders it decided to elect corrupt politicians and lazy parliamentarians. Of course it is unfair to label all of South African politicians like this, but this is definitely the view of the majority of South African's. Uneducated leaders often make poor policy decisions that benefit only a minority while impoverishing the majority. We observe and read about politicians granting favours to some people, throwing lavish parties, increasing their wages by preposterous amounts that are not linked to productivity. We see them build empires or little villages and giving tenders to friends and family members, we observe how they escape the hands of justice and accept money from people with hidden motives. If its leadership lacks moral fibre it comes as no surprise that the people will follow in similar vain. I observed personally how people get mugged on the street; no one has the courage to intervene. Police officials are too fat and scared to engage and are "obviously" too lazy to help. The country is in dire straits silencing those who want to make a change.

We have created a culture of laziness, corruption and worst of all - entitlement. South African's are angry and have not yet forgiven each other. There is an air of hatred and revenge instead of a spirit of forgiveness. Has justice not been served? Do more people need to suffer for the wish of revenge to dissipate? Does South Africa need to enter a period of absolute chaos before they pull themselves together?

The solutions to our problems are simple and implementable. If a country like Rwanda improving then there is no reason why we can't do it also. Let us use the constitution as a starting point and follow suit with implementable changes. I propose something simple like this:

• Be strict and disciplined. Do not tolerate things that unsettle society. Be harsh on criminal offences. The frequency and the degree of crime is proportional to the penalty on disobedience. Communicate effectively the punishment for theft, murder, rape and corruption. Ensure that sentences are passed on fairly and do not pardon an act of crime but forgive the criminal. Punish hate speeches or dehumanising words and acts. Make sure that people who classify others are punished and fine people for littering  
• Welcome help. Do not sideline a group of people who have valuable skills to offer that are much needed to build this country. Do not alienate skilful people for they can easily be put to use in other countries that welcome them - this constitutes as a forgone opportunity. Do not make it difficult for skilled people from abroad to enter South Africa. There is so much we can learn from each other - we just need to be humble enough to accept it
• Create a sense of community. Take care of your resources and your environment together. Clean the streets and encourage a culture of cleanliness. Take pride about the things that you have instead of envying things that you do not have. Rebuild, or simply build each other up by being involved in community projects and various community outreaches
• Stop looking into the past. While we should never forget the past, we should learn from the past. If things do not work simply change them. Stop hoping for good change to come automatically and stop blaming events of the past for current failures. Accept the failures and address them immediately in the most effective and efficient manner
• Have a unified purpose in mind. Have an overarching theme for the country - something that is inclusive of every person and something that creates purpose and self-worth. Be sure that everyone understands and is educated in these goals and emphasise the responsibility of everyone to ensure the success of these things

If only we were to follow Christ's example of servitude, love, forgiveness and a sense of justice we would be able to overcome these stumbling blocks. We cannot do this as mere individuals. We need to hold hands and focus our hearts on Christ.

Debt and economic growth

What is the impact of higher debt on economic growth? This is not an easy to answer question. Some analysts will have you believe that debt, and here I am referring to government debt, is either bad for growth or good for growth. These thoughts about debt can be summarised under mainly three ideologies:

·         Barro-Ricardian: Indifferent between taxes and government debt; households only care about  present discounted value taxes

·         Keynesian: Debt can be welfare enhancing increasing both current and future consumption

·         Neoclassical: Debt reduction has positive effects on investment through lower interest rates

My personal view is that debt on growth incorporates all three views with some views being stronger under certain conditions. Economists often use a solvency rule for analysing whether government debt is sustainable. This solvency rule inherently assumes that debt cannot be rolled over and that there is a point at which any change in government finance decisions cannot curb the growth in debt. In other words you will perpetually borrow more funds to finance maturing debt or you will simply have to default.

There are good reasons why government debt can be bad. Funds used for financing higher debt service costs could have been used to do something more productive. Higher debt, if perceived unsustainable, can lead to massive capital outflows - thus a reduction in foreign investment. Often higher interest rates are required to attract additional financing which increases debt service costs even more.

But, debt can also be good. Especially if government borrowed funds to be more productive - i.e. there is a future return for the borrowed funds.

We can then see that debt has a direct impact on growth only in the way expectations are formed. Debt itself  does not necessarily add or subtract to growth since debt is only an accumulation of public finances (public finances directly affect growth). These expectations create investor fears and confidence, which leads investors to either to purchase government bonds or to sell them or not to purchase new bonds.

Simple figures or simple statistical tests often inform people's views on debt. Take as an example a simple scatter plot of South African debt and economic growth since 1980 - It shows that the level of debt is associated with positive economic growth (if you plot a trend line through the bubbles). On average it would seem that higher debt is associated with increasing GDP growth. But using such simple figures would be a very misleading representation of the effects of debt on growth. Some authors (just read about the recent Reinhart and Rogoff controversy) suggest that such figures, accounting for many cross countries and a long enough history, show us meaningful results. It must be added that these attacks ignore a lot of the other good research (and more serious research for that matter) that Reinhart and Rogoff have done. The point that I am trying to make is that we cannot simply infer relationships between any two variables without knowing whether other common factors influence debt and GDP while also controlling for possible feedback loops between debt and GDP -  debt, interest rates and economic growth are endogenous - that means that they influence each other: Higher debt accumulated through government investment programs can increase economic growth while higher economic growth makes it easier to finance debt. Higher debt levels are associated with higher debt service costs which are linked to a risk premium (given that debt increases), but at the same time higher interest rates increases debt (this is if monetary policy has interest rates rising). Thus one needs to properly account for the future path of all these variables in a simultaneous setup to determine whether debt is truly sustainable. This is exactly why looking at the aggregate debt level is wrong - one needs to analyse the composition of debt and all its contingent liabilities (as an example if Eskom defaults then government guarantees will finance the default).

Figure 1: Government debt and economic growth

Or you can use more fancy statistical techniques that tell you at which point debt will have a negative impact on growth - smells like a Laffer curve:

Figure 2: Simple growth regression with debt and debt square

If one were to believe the results of Figure 2 it would suggest that a debt to GDP ratio higher than 42% would lead to less economic growth.

Unfortunately the past is not always a good predictor of the future (and these figures and econometric tests all depend on data collected from the past). If that were the case then we would be able to predict recessions! So using simple Figures and statistics are not that useful in determining debt sustainable.

While debt sustainability is certainly part of solvency calculations, it is the role of expectations that are important: Let's say you want to invest your hard earned cash in government bonds - most likely you will look for a good  and safe return (remember you are a risk averse investor) with a degree of certainty that you will get your principal and the interest back when the bond reaches some date (bond maturity). Your views on good returns are informed by the monetary policy interest rate and a certain risk premium (the risk premium is some kind of incentive that the government pays you for purchasing a bond - this is linked to the probability of default). The higher the probability that government will default on its debt obligations, the higher the risk premium (here measured as simply the yield on government bonds). And here is the tricky part - what actually informs the probability of default? 

Rating agencies use various probability models to tell us how safe our debt is...but just what makes one country's debt more sustainable than another? Why can Japan have debt well over 100% to GDP, have very small GDP growth numbers while other emerging market countries run a risk when debt exceeds 60% of GDP. Are the Japanese better at paying back the principle and interest rate than South Africa? Both countries finance the majority of their debt domestically and thus avoids currency risks and sudden stops in capital flows. Both countries print their own money, but South Africa has higher inflation which decreases the real value of debt over time while Japan has long periods of negative inflation which increases the real value of debt over time. Once again it would seem like expectations is the main character  in making debt sustainable or unsustainable. 

While this blog entry does not advocate that any country ramp up debt, it does question the views of the market on debt sustainability. It is obvious that if governments ramp up debt with no expected return tax payers will finance the debt and receive nothing in return...when debt runs away at crazy interest rates that are required to finance debt service costs then people might have to make crazy adjustments by paying higher tax rates up until the point where the country is forced to default. But at which point is debt unsustainable? I don't think rating agencies have this right either. Like any good financial investor, a future bond holder should analyse the reasons for why debt is accumulated - ff it is simply to finance transfers or higher government wages then there is a good possibility that government won't make a return. Unless higher wages translate into higher savings which are used for investment purposes.

In essence, the issue regarding the effect of debt on growth seems to be somewhat stupid since we cannot truly measure expectations - we just see it after the fact (higher credit spreads, capital outflows etc.). And we cannot understand expectations completely because they are even different for countries with similar economic conditions. Perhaps the closest we can get is that people follow sometimes silly rating agencies - and these guys might influence expectations. But you can already see some kind of decoupling of expectations to ratings: after the recent SA bond downgrade yields and credit default spreads hardly increased.

And SA has actually done a good job - a majority of debt has been accumulated to finance investment projects. It is up to the government and us to tell us what the expected returns of these projects are. But for now I would not worry about SA debt being unsustainable or whether it is hurting economic growth ;0)

Why do we feel so lonely and so empty?

We live in a world where technology makes life easier. We live in a world where entertainment takes away the lonely nights. We live in a world that defines a set of rules in order for mankind to succeed. Yet, we live in this world feeling empty. We live in this world in isolation. Hardly anyone questions the design of the world. Have you for one instance thought about the concepts we value so much like money, prestige and importance. All three are illusions that build up the image of the self. We have been living a lie and our souls know it. Our minds have accepted these lies. This is called confirmation bias. The world throws out a theory and the standard reaction of the mind is to accept that theory. As soon as a few accept that theory we are introduced to herd bias. And so we form cultural trends and rules for everyday "successful" living. We earn a living from something that has no value. Money is linked to a statutory input and for some reason we believe that a note carries the power to purchase something that is tangible. We drive "fancy" cars. Just why is a car "fancy"? Is it because it has leather seats? Why do we think leather seats are fancy? Is it because of resource scarcity? And so we can question mainly everything that has wealth, power or status attached to it. Most of us don't do anything valuable with our hands. We simply think about things, make sums, write computer code...but we are not really contributing to making society a better place. Of course a better society can be subjectively interpreted. But here I simply mean that a better society is one that has substance to it, where we care for everyone and put the needs of others before the self, and one strives for the eternal rather than the temporary. The eternal here is harmony with God and man (you don't have to agree with this definition). We have set up an image of what man ought to be. This image has been refined through the ages. And through the ages this image has become more perverted and more hollow. We strive to be like this image and we call him the Super Human. In essence he is god. And so we replace one form of idol worship with another, but this time it is the image of man.

So instead of becoming ourselves, we lose ourselves by trying to become something that we are not. In fact, we would do anything to become that image. We want to become something completely imaginary. Yet by doing this we have become simply empty. There is no joy in that. We worry about the most ridiculous things just because we have not become that image. We fool ourselves by thinking we have control over our future, and because of this we constantly worry about tomorrow. Our pride, our self-importance has betrayed us in the deepest sense.  The Bible has it right, for you to gain life you need to lose your life. You need to become less of yourself and let God take control. I really believe this is the natural order of things. Thus, in order for you to really become yourself you need to let go of yourself.

How does one do this? Through learning and working really hard at it, but most of all relying on God who started good in you to see it to the end.

Once again Kierkegaard points us to the Bible. He tells us to humble ourselves and learn from the lilies in the field and the birds in the sky. They are joyful and are joy themselves. They have joy because they are exactly what they are - lilies and birds. They are completely obedient and this obedience leads to joy. They are completely obedient because they just live like they are suppose to. They do this in everything that they do, whether it is basking in the sun, singing while building a nest or even withering under sever conditions, they do so in a joyous fashion.

We are an unhappy species because we over-complicate matters. We are suppose to be just humans and nothing more. You cannot be God, you cannot be supreme ruler, you cannot be the most important and you are definitely not immortal. Yet we toil and spin to gain an illusory place in this world.  By knowing what we are not we can come get somewhat closer to what we are. But in the affirmative, we are simply God's representatives on earth. We are suppose to create order when disorder appears. We are to make beautiful the things that have become ugly. But, most of all, we ought to glorify God. When God tells us to put our worries and troubles on Him, who then are we to disobey? Have we become something that we are not - have we become our own creators? We can only be human and nothing more. The sooner we accept this the quicker we will let go of silly and empty pursuits. Only then can we become, like the lily and the bird, joyful. Once again, the cure for despair is becoming oneself through God. There is nothing more to it than that. It is rather simple. We have just blurred this process.

So, are we too far down the rabbit hole? Have we reached the point of no return? Have we lost ourselves completely never to be found again? We are definitely bound by the world's rules, but only in flesh. Our souls are still free only if it/we wills/will it. Slowly but surely the fake identity of the world will lie exposed, and then your heart will turn from it because it is just so damn ugly. All of this reminds me of the matrix - the red or the blue pill kind of choice. We have lost ourselves only because we let go of God. Thankfully God calls us to Him no matter how many times we have rejected Him. Kierkegaard yells from the grave: let the lily and the bird be your master and learn from them. Be yourself as the lily is simply a lily and the bird simply a bird. 

Statistics is a strange subject. Its purpose is to provide insights into many subjects. Yet, it provides only confusion. From classical statistics to Bayesian methods, the constant contrasts confuse so many. But, it shows just how beautiful our world is. It illustrates the world as part deterministic and part random. We model our finances, behaviour and simple tasks according to a set of statistical principles. Any event occurs with a probability and this probability is assumed to stem from some distribution. With many years of data the true data distribution reveals itself, but even with less observations we are able to assume this distribution and run many experiments.

But, it is also very frightening. Government policies are often made based on these statistical outcomes. Various surveys inform policy makers how much expenditure should be allocated to various population groups or to various states. Thus, not surprisingly, these surveys should conform to the strictest scientific rigour. This is unfortunately not always the case. The South African Statistics authority (Statistics South Africa or StatsSA) recently fired two of its Census statisticians on the basis of gross incompetence. This is based on results from a post census survey which measure how many people were not surveyed. The original results suggested something like 18% of the population (that is a massive number) which was changed to something like 14% after the Statistician General (SG) contended the original results. He said that he applied his logic and saw that the algebra did not make sense. Yet news papers only published the views of the Statistician General without getting the comments from the fired employees. There is seriously something fishy here:

• Jairo Arrow (the statistician originally in charge of the post census) has received many awards for outstanding service by the SG, but is now suddenly deemed incompetent
• The SG should be embarrassed for making premature statements regarding a single digit under-count
• The SG does not show how he applied his "logic" and "algebra" to the results   
• Experts at UCT also question the survey results, but this is met with laughter and a dismissal from the SG
• A 14% under-count is not very reliable to make informed policy decisions
• The SG handled the matter very poorly by quickly going to the press and blaming others for mistakes

Statistics in the hands of bullies is dangerous. To clear this mess up the Census methods and data should be made available for proper and professional scrutiny. The SG is quick to say that the Census results are good and a true reflection. I have my doubts however given the way things unraveled post Census. 

Perspective found in quiet evenings

We don't stand still. Our minds are beehives that are distracted by functions. The busy toil of everyday living impedes our ability to understand life. As a consequence we become mere drones whose sole purpose is to maximise over a grid of decisions. If only this grid was a vast field of endless possibility, then perhaps we would have expressed our desires in a way that is more soothing to the soul. This two dimensional constraint in which we operate allows us limited movement. We can only maximise over a set of combinations, which for some might seem infinite. It is strange that we cannot construct something truly unique and original. The best that we can do is combine existing elements into a form that serves a particular function. Yet, by being able to move above, or below the two dimensional space we might find something extraordinary.

Life becomes boring. We experience both failure and success in various degrees. And since we seem to enjoy success so much, and are even more averse towards failure, we do everything to succeed. How futile our existence to strive for success when we don't even really benefit from it. If you want to make a success out of work you sacrifice peace and family. If you want to be a great writer you must work hard at writing well and be able to sell a story only to worry whether you are a good writer. We toil and spin and learn nothing from the wise men. We get excellent examples of how to live life. The Bible tells us to observe the lilies in the field and the birds in the air. They neither toil nor spin. They do what comes naturally to them and cannot worry about the future. Yet we continuously define our success, or failure, in terms of human dictates.

What I miss most in life is quiet evenings outdoors where the sky is dark yet filled by little lights. I miss those evenings because it is quiet and my mind finds rest. My prayer becomes silence and all that remains is me waiting upon God. I feel Him walk beside me and I feel His presence calming my soul. Only then do I get perspective about life, only then do I focus on things that really matter.

Seek first the Kingdom of God

Despite our best intentions, we continue to be betrayed by our desires. We preach the gospel, and make ourselves the subject instead of the gospel. By criticising hypocrites we implicate ourselves. How often do we really get a message across that is pure and innocent of hidden motives? You see we work hard to make progress, we argue to win, we earn to own, we cry to feel sorry and we complain because we lack. Nowhere is God the constant object of our everyday lives.

We are to seek first the Kingdom of God. Then only will everything else follow. Adam and Eve's behaviour was only a precursor to that which was to come. In absolute disbelief did they deny God by trying to obtain wisdom and knowledge through their own effort. Unable and unwilling to let God rule their lives, they wished rather to be masters. No one is free from this. Even Abraham who many  see as the symbol of the expression of faith failed by conceiving a child with a woman other than his wife. We want to be masters of our own lives when we take the glory for things that happened by our hands but were given by God. Moses made this mistake when taking the glory for the flowing water from rock. We are to seek first the Kingdom of God, and only then will everything else follow. Kierkegaard puts this phrase into action by pointing out that we have the choice to do this. It is such a delicate decision, one that is not forced upon is, but one that will set in motion the accent to righteousness. In Matthew we learn that the Kingdom of God  is like a man stumbling upon a great treasure. He sells everything to buy the land in which the treasure was found. If man is open to receiving the good news God might have mercy on Him and give him life. In this discovery he is willing to forgo everything to have everything - God. The Kingdom of heaven can also be expressed  as a fisherman searching his whole life for a specific pearl, and upon finding it he is willing to let go of everything, because he has found what his heart desires. Man will find God if he really wants to find God. And finally, the Kingdom of God is like a net cast into the ocean sweeping up all sorts of fish. The fisherman than takes with him the good fish and returns the bad fish to the ocean. Here believers will be separated from unbelievers. Those who are open to God, and those who seek Him will find Him. But those who do not wish to know God will never know Him, since the Holy Spirit does not work in someone who actively denies Him.

While the details of everyday life are important, they add to many unnecessary complexities to living life. Once again, by focusing on the details we subtract from the main objective, which is to seek the Kingdom of God first. We naturally, but wrongly, assume that we exercise control over outcomes. Outcomes are not always proportional to our inputs. If we used this logic we put faith into our own hands, instead of simply relying on God. Adam and Eve failed to see that they had God right there beside them. That the source of everything was walking with them and that any question they might pose be answered in perfect harmony. They had everything, but they lost it to gain everything for themselves. And in doing so they divorced themselves from everything only to gain nothing.

So, the only logical conclusion to make when going through life, is to make God the centre of everything. Everything else loses purpose when we change this equation. 

Along this path you will most likely venture off in a different direction. But that is ok since you know what it is to follow the right path. Hopefully you won't be too stubborn to turn around and continue on the path that is intended for us all.

To live out your salvation means to live like Christ. It means to choose humility over praise, to  sacrifice over being lifted, to be last so that others will be first. It is by lifting Christ that we are lifted up to heaven. If God is the centre of your world, then the world and all its worries are inconsequential. For to gain Christ is to truly gain life.

Should we just close the budget deficit?

I am sure most people are aware of the difficulties faced by the US government regarding their debt ceiling. It has sparked debates from academics and politicians alike on the best way to deal with state debt.

A nice lesson of how fiscal policy works is summarised by Jeffery Frankel. He discusses the mistakes made by US and UK governments in the 1930's and how that time is applicable now. To summarise:

1. Fiscal expansions can be justified when interest rates are low and unemployment high (usually when a country is growing below potential)
2. Fiscal expansions should be countercyclical (save in good times and spend in bad times). Unfortunately this is usually dependent on output gap calculations
3. A 1 dollar increase in government purchases grows the economy by more than 1 dollars. I.e. the fiscal multiplier is larger than one
4. High debt is not always bad, unless markets perceive it as bad. Expectations are more important than the actual number

How does this story apply to South Africa? 

1. The SA government has run countercyclical policy (automatic stabilisers ensured that tax revenue automatically adjusted and expenditure growth increased)
2. Fiscal multipliers are < 1 but can be big SA fiscal multiplier paper
3. Debt is growing but set to stabilise at around 40% to GDP (SA has been downgraded, and might face another downgrade if debt exceeds this ratio)
4. Unemployment has increased by quite a bit (might have been worse if it was not for fiscal stimulus)

SA GDP growth has been low, and the Budget Reviews are revised frequently (under collection in taxes). The output gap is closing, but expenditure growth is not moderating (will have to see when the new Budget Review comes out in February). So how does SA go about consolidating its budget deficit (if it is warranted). For one you need to either increase tax rates (see previous post on this) or cut spending. Cutting spending is not that easy given that government is committed to social objectives such as reducing inequality and unemployment. It would be a very tough sell to cut back on wages and transfers to households (more than 80% of government expenditure is government consumption and transfers). This leaves one with very little room to cut back spending (mainly investment). 

SA's VAT rate has remained constant for quite a while (maybe for good reasons). Maybe government could increase the rate on VAT to finance the current expenditure path. On the other hand, tax collections should increase as the economy recovers...

For the next time I will talk about the impact of debt on the economy (for those skeptics out there who think that debt is not necessarily bad).