Sunday, August 13, will go down in history as the day when frustration and disappointment began a new and highly probable period of political and economic instability. While a heterogeneous and unreasonable sector of society celebrates the triumph of the formula headed by Javier Milei, in the markets and in the most democratic and moderate sectors of it the beginning of a cycle of uncertainty and threat is reflected.
The increasingly radical declarations of the Milei-Villarruel formula and the disassociation of his ideas from reality together with the promise of unrealizable projects, which seem to come out of a script from the “Harry Potter” saga, only feed back into the climate of fear. The panic is similar to what happened in the past, where in other distant societies collective suicides began that culminated in processes where democracy was replaced by violence and arbitrariness, both on the left and on the right. We cannot stop thinking about some milestones that will undoubtedly leave the reader with goosebumps. Episodes such as the elections in the Weimar Republic of 1933, the Spanish elections of 1936 or those of Chile in 1970 are, without a doubt, the mirror where we should look at ourselves to try to understand the possible future crisis that is coming. Following Arturo Valenzuela in the Break of Democracy in Chile (1983), from UDP editorial, the radicalization of the extremes embodied in the discourse of both Milei and Grabois determine a shift of the political center towards the extremes that increase the chances of a breakdown or a democratic destabilization. In those cases of the past, the collapse of the republic gave rise to unusual violence and major economic crises.
The confusion is so great that, for many economists and political analysts, confused by the surprise and biased by their beliefs, the stress suffered by the markets would be a consequence of the sum of events in the past, such as the monetary imbalance, the weakness of the government or the internal fights of the political groups in conflict.
According to the theory of rational expectations raised by the economist John F. Muth (1961), it is possible to give a more accurate explanation of what is happening to us. Before the elections, market agents, based on the information available at the time of decision-making, assigned probabilities of occurrence and risks to the results of the election.
The August 13 result left markets with their expectations misaligned with the new reality. The victory of a candidate with radical ideas, with a high probability that his implementation will be through unlawful and/or violent acts, that is, contrary to the Constitution that he must respect, and whose proposals appear prima facie inconsistent and impracticable, generated the reaction of the markets that reassigned probabilities of occurrence to future events and came to the conclusion that under this scenario the future would almost always be worse in any circumstance.
If the scenario expected by the markets has come to pass, it is very likely that today we would not be suffering an exchange rate run without a ceiling and a drop in the price of our sovereign bonds. It remains to be asked, according to the signals emitted by the contending protagonists, what options are left to us.
Against this, we can only conclude that the risk has risen sharply and therefore the economy will go through a period of higher inflation in the near future, the consolidation of the recession that began last April, a growing risk of unleashing hyperinflation, greater insecurity, greater poverty and precariousness in every sense.
There is no doubt that the spasmodic result of our economy could only diminish if the LLA candidate began to moderate his speeches and surround himself with highly competent and democratic people in light of economic agents. Otherwise, his voting intention will begin to decrease.
The lack of reality in the approach and implementation of their fiscal proposals, the ignorance of the adequate timing to carry out reforms, the foreseeable lack of legislative support for them, the announced project of a new and confiscatory “Plan Bonex”, the shortcomings of a incomplete, inconsistent and unilateral dollarization plan, make it clear that the LLA project is nothing more than a set of slogans where the common denominator is improvisation and messianic thinking with magical overtones.
Today and as events are taking place, not only our economic stability is in danger, but also our republic. If the LLA candidate, Javier Milei, wins in October and maintains his current positions, social unrest is a certain possibility.
If society does not come to interpret that the inclination towards one end of the ideological spectrum, which seems close to anti-democratic positions, entails a high risk of social violence and a greater economic crisis, the Republic will unfortunately have begun to travel a path of difficult return where Some of the original good ideas that Javier Milei put forward in the past will be buried forever and associated in the collective thought with a past far removed from the liberal ideas that he claims to represent. And this will surely be used as a flag by the leaders of political spaces who wish to implement public policies based on ideologies contrary to our Magna Carta.
*Mariano Fernández, @CalixtoLiber, Economist, Full Time Professor, CEMA University.
**Adolfo Paz Quesada, @Dofipaz, Lawyer, Professor of Constitutional Law, UBA.
The authors’ points of view do not necessarily represent the position of the University of CEMA or UBA.
by Mariano Fernández* & Adolfo Paz Quesada**
