Title: Bucking Economic Theoretical Trends: Mexico's Unconventional Economy
The significant force propelling Mexican economic growth isn't confined within its borders, but rather, it derives from activities occurring outside Mexico, principally in the United States. Ponder that for a moment, as it veers sharply from mainstream economic theories preached by Keynesians, monetarists, and Austrians.
Mexico receives an astounding $63 billion in remittances annually from U.S. workers, surpassing both the importance of oil and the tourism sector for Mexico's economy. So, a fundamental question arises: why isn't public spending the prime driver of growth in Mexico, as Keynesians argue, given their belief that expenditures fuel substantial demand and that GDP measurements misleadingly suggest that government spending drives economic growth?
The answer lies in the fact that governments are restricted to spending within the realm of their citizens’ actual production output. Mexico doesn't have substantial domestic production to generate tax dollars since many of its most productive citizens are working in the United States. Therefore, governments are incapable of increasing economic growth through spending; they can only respond to existing growth as observed in Mexico.
Now, let's address the Austrians, who claim that central banks facilitate limitless government spending through “money printing.” They argue that unlimited spending is enabled by central banks printing money. However, considering U.S. dollars circulating in Mexico primarily support demand, the Austrian assertion about the influence of central banks on spending lacks merit.
The reality is that governments lack resources, which means they lack demand. They can command central banks to print excessively, but the production of goods, services, and labor is necessary for businesses to accept the printed money. Consequently, "money printing" by central banks cannot result in unlimited government spending, as demand cannot be printed.
Demand is, in fact, a consequence of production, which flourishes outside of Mexico, explaining the wide circulation of dollars in Mexico. This refutes the Austrian view that markets are naive and that central banks enable governments to spend limitlessly.
Monetarists, such as Johns Hopkins professor Steven Hanke, argue that the Fed's money supply should embrace a “golden growth” rate of 6% to promote economic flourishing. Yet Monetarism neglects that governments do not own resources; instead, money represents production's outcome. Just like Mexico, where production in the United States serves as the prime driver of economic growth, money is an effect of production, not an initiator.
Mexico's unique scenario serves as a reminder that production is the foundation of economic growth. The misconception that alternative theories such as Keynesianism, Monetarism, or Austrian theories are antithetical to Keynesianism, should be dispelled, as they are merely deviations from the fundamental premise: economic growth originates from production.
Steve Hanke, a monetarist like Johns Hopkins professor John Hanke, might disagree with the idea that the Fed's money supply should drive economic growth. However, Hanke's argument that a 6% growth rate in the money supply can promote economic flourishing overlooks the fact that money is a result of production, not its initiator. Just like Mexico, where production in the United States is the primary driver of economic growth, money is a consequence of this production, not a cause.
In the context of Mexico's economy, John Tamny might argue that the significant role of remittances from U.S. workers challenges traditional economic theories. Tamny, who often argues against Keynesianism, might propose that the influx of remittances serves as a form of "consumer-directed" spending, fueling demand and stimulating economic growth without requiring government intervention.
