Last week, we, the Argentinian citizens, witnessed an illuminating economic event. The price of the black market US dollar – “Dólar Blue” for locals -, with its ups and downs, showed its true essence: it is unpredictable, there is no way of knowing where it will move tomorrow. Here goes again and in bold, just in case you were distracted. There is no way of knowing where the price of the black market dollar will move tomorrow.
In this context, what happened in the public sphere deserves our attention. After a week of strong fall, several economists came out to explain why it was falling. Afterwards, after last week’s rebound, others came out to explain why it was rising again. Of course, when it has already happened everybody can explain why it occurred. The curious thing is that most opinions reveal an extraordinary knowledge pretension. By the way in which it is explained, it seems obvious (“natural”) that the Dólar Blue has followed the path that it followed.
In this framework, I feel the need of insisting with what I said in the beginning: THERE IS NO WAY OF KNOWING WHICH THE PRICE OF THE DÓLAR BLUE WILL BE IN THE FUTURE (in case you want to frame it, here it is in the form of poetry). But, let’s wait a second.
Does this mean that we, the economists, don’t know anything? No, please, of course not! Does it mean we are kind of chamuyeros (smooth talkers)? Maybe, but it is not the point.
The point is that the world is hyper complex. There is a multitude of variables, effects and causes operating simultaneously. Each phenomenon is affected by infinite forces. Some are relevant, some are not; some are known, some are not. The fact is that the result of each phenomenon depends on the confluence of all of them. In other words, it requires a knowledge impossible to gather.
In this chaotic world, it is necessary that we, the economists, look each other in the eye, make some funny faces, eat some croissants and then assume the difficult scenery and ask ourselves: to what kind of knowledge can we aim?
What we can contribute with
The good news is that, in this complex scenario, there is still an important space where the economists can make relevant contributions. Even though there is no way of anticipating the future (price of the dollar, financial crisis, etc.), we can aim to understand the effect of the most significant variables of the phenomenon we want to study (which necessarily must be linked to the problem we want to solve).
Let’s continue with our Dólar Blue example. All the time countless of factors are affecting the dollar price. Government pressures, the official price, the BCS rate (blue chip swap rate), the inflation, the inflation expectation, the expectation of change in government, the uncertainty about the next adventure of our Minister of Economy, everybody’s decision on what to do with their savings, etc., etc., etc. What is interesting is to understand that all this infinite information is reflected in a price: the Dólar Blue is sold at $13,46.
Honestly, how would I know (or how would anybody know) how all these variables are going to converge on the future to determine tomorrow’s dollar price. Impossible. However, we can aspire to know how some of them impact separately. For example, on the one hand, high inflation – and people’s expectations – push the Dólar Blue price up, as well as the uncertainty about the next steps politicians will make. But simultaneously there are other factors that pull the dollar price down, as the prospect of entering the international credit circuit -waiting for and agreement with the holdouts in January- or the bonds tied to the value of the dollar -with expiration date during the next government period- that are being launched.
From theory to practice
Note that we just mentioned a few of the many variables that affect the value of the dollar (for relevancy I left out what each of us is going to do in our vacation). And this is basically what the economic science can contribute; as a (theoretical) economist, you aspire to know which the most relevant variables are, and how they affect the phenomenon you are interested in studying. And even though this is NOT enough to predict what it is going to happen, it is very useful since it gives the policy makers tools to act and solve the problem they are facing (and that, let’s say it, is a great deal). Here it goes again, because I have just made a great revelation: knowing how different factors affect a given phenomenon allows us to do something better than anticipating what is going to happen: it allows us to intervene. Or, to reduce it to one phrase: the economic knowledge serves as a guide for action.
Buuuuutttt…… Beware. When it is time to act, those who make the real decision have the last word. I mean, it is in the hands of those responsible for the economic policy to choose which tools to put into practice, and how. And here is where a whole new window opens, which deserves its own great discussion. I’ll just make a comment: in addition to the difficult question of how to know which the suitable tools are, and how to use them, there is what I understand as the great mystery between theory and practice. If something goes wrong, where was the problem, in the tool or in the user? Or, to put it in concrete terms: **the current economic problem in Argentina, is it the fault of the economic theories (**orthodoxy, heterodoxy, neoliberalpopulism) or of those who design and apply the economic policy (government, ministers, central bank, **** ”me quiero ir”)?
And what can this be used for?
We don’t know, what we do is basic scientific research
How nice, we kill ourselves by pushing rocks and dragging wild animals, while the lords entertain themselves by making things that are good for nothing.