Population dynamics and destruction

Next October 29 commemorates (in its meaning of remembering a sad event) that day four years ago when Andrés M. López, being president-elect, announced that, based on an illegal and rigged survey, the good and wise people had considered it convenient to cancel the airport in Texcoco and expand the military air base in Santa Lucía instead. Consequently, and given that “the people are never wrong”, he had no choice but to comply with his mandate. With that announcement began a process of destruction that continues and that in the following two years will deepen with an immeasurable cost.

In last week’s article I pointed out that the population is in a gradual and irreversible process of aging as a result of the lower fertility rate (last year it was 2.08, slightly lower than the replacement rate required to maintain the constant population that is 2.10) along with the highest life expectancy of 71 years (note that it fell four years between 2018 and 2022 due to the destruction of the public health system that left 15 million Mexicans without access to health services, the dismantling of the mechanisms for the acquisition and distribution of medicines and the terrible management of the covid pandemic).

Thus, it is projected that by the year 2050 the population up to 15 years of age will represent only 15% of the total, while those aged 65 and over will represent 40 percent. Furthermore, demographic dynamics suggest that the demographic bonus is about to end because the dependency ratio will begin to increase.

It is because of this demographic dynamic that if the economy does not begin to grow at high and sustained rates, Mexico is heading towards being a country of old poor. And this is where the tsunami of destruction that President López has caused must be situated, because what he has done in different spheres of public policy lead each one by itself and all of them as a whole to destruction, forgive the redundancy, of the growth potential of the economy. I highlight, due to the restriction of space, three aspects of this destruction.

First and without a doubt the most important is the institutional destruction, the weakening of the rule of law and the less legal certainty. Perhaps the president does not care that “the law is the law” (and for example there are the violations of the T-MEC in matters of electrical energy), but it is obvious to private agents that they do care and the consequence of that loss of legal certainty has been a drop in investment. Thus, the evolution of Gross Fixed Investment shows that it registered its last peak in July 2018 (which coincidentally is when López won the elections). The latest data (July 2022) shows that the IFB is at a level similar to that of May 2011 and is 3.3% lower than the last referred peak. It is obvious that without investment there can be no future growth or the possibility of generating a growing flow of income that prevents there from becoming more and more elderly poor.

Second is the looming fiscal crisis. The government presumes that the public debt has not increased, which is false; As of June of this year, the balance of the financial requirements of the public sector amounted to 13.5 billion pesos, an increase of 25% compared to the end of 2018. It is important to point out that these have not increased further because the government decided to use the resources that it had in different funds, highlighting the Budget Income Stabilization Fund. In the future there will no longer be such savings and there will be a serious problem of public finances and indebtedness pressures due to the accelerated growth that the pension category will have; Without a tax reform, there will be no way to fund them, nor will they continue to pay for the different “social” programs created by the president, in addition to education, health, security, etc.

Third, the destruction of the national educational system. In itself, the quality of the educational service has historically been very low, but since the president canceled the 2013 educational reform, it has fallen. Worse yet, the president wants an ideological and “humanist” education, even though the graduates are functionally illiterate. Without high-quality human capital, growth is more difficult, notoriously more expensive and ensures a population that will have low productivity and low wages; poor.

Twitter: @econoclasta