They took it seriously about “fighting against the capital”

Roberto H. Cachanosky

Member of the Academic Council of Libertad y Progreso. Degree in Economics from Universidad Católica Argentina. He is an economic consultant and author of the books "Economía para todos" (Themes, 2002) and "El SindromeArgentino" (Ediciones B, 2006). He serves as a columnist in the newspaper La Nación. Previously, he worked the same task for the newspapers La Prensa (1985-1992), El Cronista Comercial (1992-2001) and La Nueva Provincia de Bahía Blanca (1992-1998). He's the host of the cable TV show "The Economic Report." Lecturer in Applied Economics of the Master of Economics and Administration of ESEADE, senior lecturer in Macroeconomic Theory of the Master of Economics and Administration of CEYCE. President of the Center for Economic and Institutional Studies. He was Economic Adviser to the Argentine Chamber of Commerce (1983-2002) and to the Argentine Chamber of Importers (1992-1993).

INFOBAE – “The excess of exchange and price regulations, together with the increase in taxes, discourages investment by existing companies. Some leave and others look to friendlier countries to do so

While the government thinks it is going to mobilize the economy by increasing public spending, having a consolidated fiscal deficit of 17% of GDP, including quasi-fiscal spending by the BCRA, companies are leaving the country and not precisely because of the pandemic. In any case due to the eternal quarantine but above all because 1) Argentina has not grown since 2011 and we are in decline with no future prospects, 2) Argentina is the second country with the highest tax burden on companies according to a study published by the World Bank, 3) has labor legislation that means that when a company hires a person, in fact, it adopts him for life, 4) there is the enormity of regulations and price controls, 5) there is no predictability in the rules of gambling and 6) legal certainty is, to put it mildly, weak.

The investment rate is at very low levels, approximately 15% of GDP, when in its periods of high growth it comfortably exceeded 25% of GDP.

How does the current divestment situation affect the population’s standard of living?

Let’s imagine Robinson Crusoe on the island he lives, he has to climb trees to lower the coconuts and fish with his hands. Suppose Crusoe spends 8 hours looking for his food. If you spend the 8 hours lowering coconuts from the trees, you get 10 fish and 30 coconuts, as can be seen in figure 1

Figure 1

Crusoe can move to the lake of the curve spending time to get fish and another time to lower coconuts from the tree. Let’s say if you spend half the day on one thing and the other half on the other, you get P1 of fish and C1 of coconuts.

Graph 2

Now, if Crusoe saves part of the coconuts that he goes down every day as well as part of the fish that he catches with his hands and, supplied with food, he spends a few days building a ladder to lower the coconuts and a net to fish (increases his capital stock), increases his productivity and gets 40 coconuts instead of 30 and 15 fish instead of 10. Crusoe enters a path of progress because he increases his productivity. In the same work time, he gets more goods, with which, he can save more to stock up and build a hut or and other things that he may need. Their quality of life is improving.

This elementary example, such as that as investment increases, the productivity of the economy and real wages improve and that for this to happen there must be savings, does not seem to enter the head of the political leadership. An example that is almost for boys, becomes a hidden science for a political leadership that only thinks about spending to get votes.

Graph 3

Graph 3 shows us what happens to Crusoe’s economy, if he behaves like the Argentine political leadership and breaks the ladder, the net to fish and works fewer hours waiting for someone to appear, from a neighboring island, to support him with a social plan. Their productivity goes down and they will have fewer goods and services.

When at the end of the 19th century and until the 30s in the 20th century, Argentina cultivated the culture of work, it had currency because there was no inflation, the economy was open to the world, savings were not confiscated, social plans were not the business From politicians, investments flowed into the country, the productivity of the economy improved, Argentina ranked among the top 20 countries in the world in per capita income.

When we switched to the culture of giving, we found out on a downward slope that already leads us to unimaginable levels of poverty.

Do they believe in the government that by putting an exchange cap they will get capital to enter to invest, create jobs and improve the productivity of the economy? Who enters capital in a country from which they cannot then leave through the stocks?

Do you really think that because people can cut their hair in installments they are going to reactivate consumption?

Do you really think that they can do public works by issuing currency because they have a phenomenal fiscal deficit, because despite charging the highest taxes in the world, they are not enough to pay the salaries of public employees?

What monetary policy can the BCRA try if the peso is not a currency?

If the political leadership does not understand such elementary things as that Argentina has to move in the sense of graph 2 because on this path we are moving in the sense of graph 3, it will not be long until we see an economic and social collapse with derivations major policies.

The government has a consolidated fiscal deficit of 17% of GDP as indicated before, the rates of public services are treading, the demand for currency was artificially increased to the point that quarantine already seems to be part of the economic policy to avoid a run exchange rate and financial, the BCRA has a debt in LELIQs and Passes that it cannot pay and ran out of reserves, for this reason the tightening of the stocks to the point that for people to buy dollars they have to go to the blue market. This is all an explosive cocktail.

In summary, the short-term prospects are extremely worrying, but it seems more difficult for the political leadership to understand that the country needs to move in the direction of graph 2, because they continue to be determined to move in the direction of graph 3, ensuring more and more poverty. by taking seriously that of fighting capital.