Hungary: A Test Case for Implementing Conservative Economic Policy

And Conservative Economic Policy is Failing the Test

Hungary recently voted in a right wing government, and like any Conservative government, the government implemented the traditional right wing economic policy. Corporate taxes were cut, as were income taxes for high income earning individuals.  The results, according to The Economist magazine (a center-right publication itself) was this.

A year ago the government’s plans looked ambitious, if risky: slash corporate and personal taxes to boost growth and domestic consumption among the middle classes. It has not worked. Only a minority of earners benefited; many in low-income brackets were left worse off. Now the forecast is darkening. The central bank expects inflation to reach 4.7% next year. The IMF predicts growth of just 1.7%. Anybody earning more than 202,000 forints a month will have to pay a “temporary contribution”.

So the experiment in what will soon be Republican economic policy forced upon the country (in 2013 if currently political trends continue) will have expected results like Hungary.  Now the U. S. is indeed different from a small central European country, so our experience may be different, but if so, someone has to come up with reasons why.

Another facet of Conservative governing philosophy is that the government should not interfere in the private sector, and should certainly not manage private financial markets.  It turns out that in Hungary right wing government did not follow this philosophy with respect to mortgages.  The problem is this.

For some reason mortgages in Hungary are taken out in Swiss Francs.  So when the Swiss Franc appreciated relative to the Hungarian Forint (doesn’t "Florint" sound like something out of The Princess Bride?) mortgage payments started going up.  A true Conservative government, one true to its ideals would say that’s too bad, but would stay out of the issue. 

Instead the Hungarian government got involved.

Viktor Orban’s right-wing Fidesz government has ridden to the rescue. A new law means that Hungarians can now repay the entirety of their mortgages at just 180 forints ($0.85) to the franc. (This week the franc was trading at around 235 forints.) The banks will be forced to swallow the difference. Austrian- and Italian-owned banks, which have been active in Hungary’s home-loan market, say that the government is undermining the rule of law

Now if this doesn’t sound much like Conservative governing, the answer is that it is not.  In the face of popular opinion Conservatives are just as likely to turn against themselves as any other governing group. So one hopes that Conservatives will not be quite as "holier than thou" about their policy in the future, but as with most things involving Conservatives, don't expects hopes to be realized.