The economic value of certainty

Abstract

All prosperous nations are alike; the decadent ones, on the other hand, recognize their failures as their own evils. The evil that afflicts Argentina is the exceptional uncertainty that has hampered its economic life in recent decades. Both the marked departure from free trade and the degree of markets regulation and socialization of the economy are often cited as primary causes of underdevelopment. This essay attempts to confirm a double hypothesis and a tacit causality: 1) that the fiscal deficit –including the various “parafiscal” imbalances– is the main source of uncertainty; 2) that uncertainty –specifically defined– is the preeminent factor in explaining the material decline that has been recorded since the beginning of the 70s. The idea is that the persistence of unusually high deficits, pendularly financed with inflation tax or external debt, generated a sequence of strong adjustments in relative prices that made it difficult and less reliable to evaluate future profit flows of investment projects, which ended up lowering the endowment of capital per worker, hindering the incorporation of technological progress and, as conclusion, contracting per capita income.

JEL classification: E60 ; H60 ; O11