An economy torn between uncertainty, risk, or certainties?

Political quarrels, war in Russia and inflation, cracks everywhere, sometimes together but not so much, etc., are issues that generate a magnet to pay attention to politics. More than in other countries, in Argentina politics is important to understand how much and in what way it can affect the economy.

The answer is not simple. It depends on whether we are facing a context of risk or uncertainty and the few certainties we have. First three definitions.

The risk it refers to cases for which the probabilities of results and their possible consequences can be previously evaluated: there are experiences or data or some type of theory or model that can be applied. Instead, the uncertainty it occurs in situations where it is not possible to identify or estimate the results, there are no data or there is no frame of reference. A assurance it does not require further explanation: we are all convinced that it will happen (whether it happens later or not is another matter).

In Argentina we have continuous surprises, which actually places us closer to a context of uncertainty. We are surprised by the news, which is often not what is expected. Yes, it is true that we know that there is inflation but we do not know what measures will be taken. We are surprised that it is proposed to extend taxes for 50 years (50 years!!) to encourage some activities, which no matter how valuable, mean a greater burden in a country that needs more economic activity, not less.

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Other issues do not surprise us. For example: that transitory taxes become permanent. Again, without judging whether or not it is a good measure, we know that it has been our experience. In that case, we could even go so far as to say that it will be a assurance.

Whether due to unexpected or inconsistent situations with the objective sought, families and companies seek tranquility or refuge or greater certainty. We are willing to accept more risk (with our money, time or effort) if we believe there will be more profit, but never the other way around. Nobody would deliberately take more risk knowing that they will have worse results. This applies to all orders: few study if they think they won’t get a job, few invest if the business looks unprofitable.

It is striking that there is talk of “calming the economy” if at the same time there are continually new measures that surprise. There are plenty of examples: possible taxes on unexpected rent or empty housing, price controls, expropriation of land, suspension of contracts or exports, etc.

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Taxes are applied to some activities so that the taxed activity is reduced. An old Tato Bores joke is that they would tax the poor so that there is less poverty. I don’t know if it’s a joke when the BCRA, in order to avoid inflation, absorbs the Monetary Base by paying an interest rate, which in turn will increase the Monetary Base, which will then generate inflation. A dog that bites its tail.

The exchange rate policy affects exports and is very attractive to importers. Not only does it make it difficult to accumulate foreign currency, but it also generates an inconsistency: the only way to maintain a fixed exchange rate defined by the BCRA is for it to have enough reserves to defend it. It is not the case. That is why restrictions are placed that one day will have to be removed. As we do not know when, it paralyzes some activities but speeds up others, fundamentally imports, and makes it difficult to sign contracts in the face of a possible devaluation. But if this devaluation were to occur, the cost involved would lead companies to make losses or try to improve their prices. That must be why the books and experience itself say that controlling the exchange rate is not a good anti-inflationary policy.

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We do not know how the political crisis will develop within the government. We don’t even know if there really is a crisis or if it is a way of diluting responsibilities in such a way that if it goes wrong it is the fault of only a few, and if it goes well it is the credit of all. You could say: “win win”.

At the same time, the alternatives proposed by other parties are not clear and, faced with the possibility of a serious economic crisis, they seem like goats measuring the size of their horns (sorry for the metaphor) but without coming to a head-on fight.

If politics were a card game, we wouldn’t know if the next card was a King, an Ace, or just a Four of Cups. The same thing happens with the headlines of the newspapers: will there be a self-coup, better parities, strikes? Dangerously, in the face of crucial problems in the government, only tools that increase costs and do not have much probability of success are used, such as new trusts or Observatories.

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