Consequences
July 13, 2025
Luis Rubio
The cult of the state and the allure for public spending as an instrument involve a deeply seductive feeling. Who better than “the State” to solve problems, plan for the future, and serve the citizenry? That production should happen in Mexico; that nothing should be imported—even what isn’t produced or can’t be produced domestically; that the government (or increasingly, the military) should build and manage; that spending should go to unproductive things because the political payoff is implacable. The potential for justifying ever-expanding government activism is literally infinite. But it is also, as economist Thomas Sowell says, “first-stage thinking.” When one asks “then what happens?” (the second stage of thinking), it becomes clear that each of these “priorities” entails distortions, increasingly high costs, enormous inefficiencies, and—as we are seeing these days—ever slower economic growth. The state-centric logic we are living through has consequences.
Morena won the 2024 elections by relying not only on all the traditional electoral tricks, but also on the riskiest one of all: public spending. After years of fiscally conservative governments —including the early years of AMLO himself— the dominant logic became to win the election at any cost and by any means. Now, the government that triumphed in that election is paying the price of those excesses in the form of severe fiscal constraints. However, instead of seeking new ways to address these, its instinct is more government, and therefore less productivity, efficiency, and economic growth. It’s impossible to separate one from the other.
The question is whether this logic stems from an ideological dogma (perhaps partly attributable to Morena’s founding father) or from the entrenched interests of the ruling party. It may be a bit of both, but what is beyond doubt is the devotion the current government continues to lavish on the previous president. What perhaps is not being considered (because I doubt these are calculated reflections) is that, as Sowell would say, while first-stage thinking suggests that what worked before will necessarily keep working in the future, second-stage thinking would require recognizing that the conditions that characterized the country (and the world) in previous years bear little resemblance to the current ones.
To begin with, AMLO benefited from an extraordinarily favorable fiscal situation at the start of his term, the result of three decades of effort by his predecessors to build a stable and sustainable economic platform that would prevent the kind of crises that had dominated the landscape in the latter decades of the previous century. Although aware of the importance of avoiding a fiscal crisis, AMLO tempted fate from the day he canceled the Mexico City airport—and when nothing seemed to happen, he proceeded to increasingly abuse public finances, depleting trust funds and mortgaging the country to secure the subsequent electoral victory. Today it is clear that traditional indicators such as exchange rate stability are more closely tied to the influx of foreign currency from exports and remittances than to the health of public finances—but nothing guarantees that a severe deterioration in the latter would allow that stability to hold. Tempting fate involves obvious risks.
The current government is now facing the consequences of its predecessor’s wastefulness, which has not led it to question the underlying equation. Quite the opposite —the government is convinced of the path it is on and, to the extent possible, is moving forward at full speed. Not only is the statist logic not being questioned; it is being deepened. The case of PEMEX illustrates the cost of these obsessions: it has long ceased to be a source of revenue to fund the government and parts of the economy. It is now a bottomless drain on resources—a circumstance that Morena accepts as logical and natural.
The problem for the current government is that it does not enjoy any of the elements that allowed AMLO to govern without apparent cost. Beyond public finances, his dominant and aggressive personality allowed him to avoid criticism and even dodge pressure from the U.S. government. None of those advantages are present today: fiscal problems are well-known and intractable under the rationale the government follows, while Trump has a Mexico-focused agenda that differs greatly from Biden’s more cautious approach to AMLO—and it implies extraordinary pressures, many of which relate to interests close to Morena. Believing that it will be possible to navigate the potential storms with more social controls and no better strategies for security and economic development is not only naïve—it is reckless.
“The problem with committing political suicide,” argued Churchill, “is that you live to regret it.” The government’s strategy is unsustainable and will not allow it to meet the growing spending demands driven by Morena’s goals and interests. From that perspective, its only options are to change course or accept Churchill’s logic. Neither is attractive—but the cost and consequences of the latter are infinitely higher.
@lrubiof