Mexico: the Great Depression and the Coronacrisis, 1929 and 2020

By contrasting the Great Depression and the Coronacrisis, we demonstrate that narrative economics (Shiller, 2017Shiller, R. (2017). Narrative Economics. American Economic Review, 4, 967-1004 https://n9.cl/mqh0k
https://n9.cl/mqh0k... ) is key in the analysis of economic fluctuations. We note the importance of the populist narrative to understand the economic and health outcomes of the Coronacrisis in Mexico and highlight the role of the predominance of different economic paradigms in economic policy decision-making. We suggest that, just as in 1929, by following orthodox primary fiscal balance sheet policies at the cost of contracting government investment, the Mexican economy will undergo a long and painful recovery process compared to its global peers.

KEYWORDS:
Narrative economics; Coronacrisis; Great Depression; economic populism; history of economic thought

Authorship

EDUARDO LORÍA

Full-Time Professor in Economics. School of Economics, National Autonomous University of Mexico (UNAM), Mexico. Email: eduardol@unam.mx; quijano6919@hotmail.com. I thank the assistance of Arely Medina.National Autonomous University of Mexico (UNAMMexicoMexicoFull-Time Professor in Economics. School of Economics, National Autonomous University of Mexico (UNAM), Mexico. Email: eduardol@unam.mx; quijano6919@hotmail.com. I thank the assistance of Arely Medina.

https://orcid.org/0000-0002-1597-3847

SCIMAGO INSTITUTIONS RANKINGS

Figures | Tables

Figures (13)
Tables (2)

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Figure 1:
U.S.: Fiscal balance as % of GDP, 1929-1940

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Figure 2:
Mexico: Percentage change in imports and exports, 1923-1936

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Figure 3:
Mexico: Public Deficit, 1923-1933

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Figure 4:
Mexico: Percentage growth of tax collection, 1926-1934

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Figure 5:
Mexico: Real GDP 1925-1936, 1925 = 100

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Figure 6:
Mexico: Presidential approval, 2018M12-2022M02

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Figure 7:
Extraordinary fiscal support as % of GDP, 2020

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Figure 8:
Mexico: Subsidies and Transfers and Public Investment (% of GDP) 1990-2021

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Figure 9:
Tax revenue (% of GDP), 1990-2020

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Figure 10:
GDP growth, 2020 and 2021

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Figure 11:
Foreign Direct Investment and Remittances (% of GDP), 1980-2020

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Figure 12:
Gross fixed capital formation, 2015Q1 = 100 2015Q1-2021Q2

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Figure 13:
Mexico: Economic growth. Structural changes by periods, 1980-2024

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Table 1:
Mexico: Government narrative towards the Coronacrisis, 2020

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Table 2:
Mexico: Growth accounting by periods, 1970-2019¹⁹ 19 We make the estimation up to 2019 because the Coronacrisis completely affected all variables and can generate analytical bias.

Figure 1: U.S.: Fiscal balance as % of GDP, 1929-1940

Source: Own elaboration based on FRED (2020FRED. (2020). [Federal Reserve Economic Data]. Federal Surplus or Deficit [-] as Percent of Gross Domestic Product [FYFSGDA188S] Federal Surplus or Deficit [-] as Percent of Gross Domestic Product [FYFSGDA188S] https://n9.cl/xapk3 (Accessed on May 23, 2021).
https://n9.cl/xapk3... ).

Figure 2: Mexico: Percentage change in imports and exports, 1923-1936

Source: Own elaboration based on UC3M (2022UC3M. (2022). [Universidad Carlos III de Madrid]. Federico-Tena World Trade Historical Database. https://n9.cl/7boxw (Accessed on June 1, 2021).
https://n9.cl/7boxw... ). Current US dollars.

Figure 3: Mexico: Public Deficit, 1923-1933

Source: Own elaboration based on Gómez-Galvarriato (2002Gómez-Galvarriato, A. (2002). La política económica del nuevo régimen. Alberto J. Pani 1923-1933. En: Ludlow L. (coord.). Los secretarios de Hacienda y sus proyectos (1821-1933) TOMO II, 381-407, UNAM, México. https://n9.cl/c7n6q
https://n9.cl/c7n6q... ).Thousands of current Mexican pesos.

Figure 4: Mexico: Percentage growth of tax collection, 1926-1934

Source: Own elaboration based on Guerrero (2012Guerrero, M. (2012). La transición fiscal en la reconstrucción mexicana. Documentos de Trabajo no. 40, 24-52. IELAT, Instituto Universitario de Investigación en Estudios Latinoamericanos.). Shaded area refers to the GD.

Figure 5: Mexico: Real GDP 1925-1936, 1925 = 100

Source: Own elaboration based on INEGI (2022INEGI. (2022). Banco de Información Económica. https://n9.cl/10keu (Accessed on March 24, 2022).
https://n9.cl/10keu... ).

Figure 6: Mexico: Presidential approval, 2018M12-2022M02

Source: Own elaboration based on Oraculus (2022Oraculus. (2022). Aprobación presidencial. https://n9.cl/xjsfr
https://n9.cl/xjsfr... ).

Figure 7: Extraordinary fiscal support as % of GDP, 2020

Source: Own elaboration based on IMF (2021IMF. (2021). [International Monetary Fund]. World Economic Outlook. January 2021 January 2021 https://n9.cl/bhc7q (Accessed on May 8, 2021).
https://n9.cl/bhc7q... ).

Figure 8: Mexico: Subsidies and Transfers and Public Investment (% of GDP) 1990-2021

Source: SHCP (2022SHCP (2022). Estadísticas Oportunas de Finanzas Públicas . Accesed on April 4, 2022. http://presto.hacienda.gob.mx/EstoporLayout/estadisticas.jsp
http://presto.hacienda.gob.mx/EstoporLay... ).

Figure 9: Tax revenue (% of GDP), 1990-2020

Source: Own elaboration based on SHCP (2021SHCP (2021). [Secretaría de Hacienda y Crédito Público]. Estadísticas Oportunas de Finanzas Públicas. https://n9.cl/srmvm (Accessed on June 1, 2021).
https://n9.cl/srmvm... ).

Figure 10: GDP growth, 2020 and 2021

Source: Own elaboration based on FRED (2022FRED. (2022). Economic Data. https://fred.stlouisfed.org/ (Accessed on February 23, 2022).
https://fred.stlouisfed.org/... ).* IMF (2021IMF. (2021). [International Monetary Fund]. World Economic Outlook. January 2021 January 2021 https://n9.cl/bhc7q (Accessed on May 8, 2021).
https://n9.cl/bhc7q... ) estimates for 2021, October 2021.** IMF (2022bIMF. (2022b). World Economic Outlook Update. https://n9.cl/w29j79 (Accessed on April 21, 2022)
https://n9.cl/w29j79... ) estimates for 2021, January 2022.Average drop in 2020: -4.8%. Average growth in 2021: 5.8%.

Figure 11: Foreign Direct Investment and Remittances (% of GDP), 1980-2020

Source: Own elaboration based on Banco de México (2022)Banco de México (2022). Sistema de Información Económica. https://n9.cl/te4ik (Accessed on March 22, 2022).
https://n9.cl/te4ik... .

Figure 12: Gross fixed capital formation, 2015Q1 = 100 2015Q1-2021Q2

Source: Own elaboration based on OCDE (2022OCDE. (2022). Estudios Económicos de la OCDE: México, 2022. OECD Publishing. https://read.oecd-ilibrary.org/economics/estudios-economicos-de-la-ocde-mexico-2022_8b913f19-es#page4
https://read.oecd-ilibrary.org/economics... ).

Figure 13: Mexico: Economic growth. Structural changes by periods, 1980-2024

Source: Own calculations. Linear (log) estimations based on CEMPE (2022CEMPE. (2022). Pronósticos de la economía mexicana. https://n9.cl/a7sv8 (Accessed on April 20, 2022).
https://n9.cl/a7sv8... ).

Table 1: Mexico: Government narrative towards the Coronacrisis, 2020

Phrases	Date
“We have to hug each other, there is no big deal”	3 March
“The president’s strength is in his moral; Covid is not a contagious force”	16 March
“The protective shield is honesty, that is what protects us. Stop, enemy! The heart of Jesus is with me!”	18 March
“Do not stop going out, keep taking the family out to eat to restaurants, to inns”	23 March
“We are going to come out stronger; this situation fits like a glove to strengthen the purpose of the transformation of Mexico “	2 April
“The pandemic has been tamed rather than triggered […] here the growth of the pandemic has been horizontal”	26 April
“There is a light at the end of the tunnel”	25 November
“The mask is not essential, there are other measures, and I think it is better to take a healthy distance and take care of ourselves”	2 December

Source: Own elaboration based on Presidencia de la República (2020Presidencia de la República. (2020). Versión Estenográfica de la Conferencia de Prensa Matutina [Multiple dates]. https://n9.cl/lfc6cq
https://n9.cl/lfc6cq... ). Except for the second phrase, which is by Hugo López-Gatell, Undersecretary for Prevention and Health Promotion and czar of the pandemic in the country, the rest are from Mexico’s President Andrés Manuel López Obrador.

Table 2: Mexico: Growth accounting by periods, 1970-2019¹⁹ 19 We make the estimation up to 2019 because the Coronacrisis completely affected all variables and can generate analytical bias.

Period	Y	C	IP	IG	CG	NX	II
1970-1981	6.80	0.64	0.15	0.14	0.12	-0.01	-0.04
1982-1988	0.30	0.30	-0.05	-2.35	0.50	1.21	1.39
1989-1994	3.86	0.80	0.26	0.09	0.09	-0.27	0.02
1996-2008	3.08	0.86	0.33	0.11	0.05	-0.10	-0.25
2010-2019	2.38	0.74	0.28	-0.08	0.07	-0.92	0.96

Source: Own elaboration based on INEGI (2022INEGI. (2022). Banco de Información Económica. https://n9.cl/10keu (Accessed on March 24, 2022).
https://n9.cl/10keu... ).
Y = GDP growth of the period, C = Private Consumption, IP = Private Investment, IG = Government Investment, CG = Current Public Expenditure, NX = Net Exports, II = Inventories.
All variables are percentage contributions to GDP growth.

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Mexico: the Great Depression and the Coronacrisis, 1929 and 2020

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[TFN1] Source: Own elaboration based on Presidencia de la República (2020Presidencia de la República. (2020). Versión Estenográfica de la Conferencia de Prensa Matutina [Multiple dates]. https://n9.cl/lfc6cq
https://n9.cl/lfc6cq... ). Except for the second phrase, which is by Hugo López-Gatell, Undersecretary for Prevention and Health Promotion and czar of the pandemic in the country, the rest are from Mexico’s President Andrés Manuel López Obrador.