5/9/2024 - Economy and Finance

The Law of Gravity

By Horacio Gustavo Ammaturo

  The Law of Gravity

The physicist and theologian Issac Newton is credited with having enunciated both the physical phenomenon and the mathematical formula for the calculation of the well-known Law of Gravity or Law of Universal Gravitation.

Basically, it considers the relationship between the mass of bodies and the distance between them.

For example, the free fall of a body on the earth's surface.

The mass of the planet attracts us to it and acts on our mass by imparting an acceleration. Therefore, an object falling for one minute impacts harder than an object of the same mass falling for one second.

Under normal conditions, nothing and no one can escape this supreme law of physics. Any attempt to modify, hide or deny this reality demands efforts and resources that must be sustained over time.

In today's Argentina, facing the radical changes that are being sought could be akin to going against the law of gravity.

To deny structural, cultural, social, political, legal and economic issues would be to assume that by throwing a stone into the sky it will remain floating in the firmament indefinitely.

Without wishing to take sides on the fundamental issues, i.e., whether one model is better than another, or whether there is an extreme with which I feel more identified, I propose to visualize in the following table part of the discussion we are talking about:

For 21 years, we Argentines have lived in a country in which

  • Faced with the lack of private investment, as a result of legislative pendularity and executive and judicial discretionality, the only alternative was for the state to be the investor of first instance.

  • Within the same logic, the crisis of consumption, recession, unemployment and poverty, the rulers of those times understood that market protectionism would serve to recondition a paralyzed and outdated productive apparatus.

  • The state should also intervene in employment, hiring more people, beyond the real needs, granting subsidies and regulating, even more, private employment.

  • By delaying the exchange rate to sustain the purchasing power of the peso, which was depleted by its own over-issuance.

  • Keeping interest rates in local currency negative in the face of inflation, something that encouraged consumption and, also, savings in foreign currency outside the local financial system.

These policies relaxed some muscles and overdeveloped others.

  • Price and productivity competition became less important, giving way to the search for contacts, relationships and circumstantial opportunities.

  • Commercial and entrepreneurial risk was replaced by the risk of regulatory changes.

  • Sales gymnastics were relegated in the face of supply difficulties.

  • The improvement in labor performance, that which promotes social advancement and better income, in many cases was tinged with wage adjustments agreed in collective bargaining agreements, mandatory and compulsory, distributing the same between the just and the sinners.

  • Labor legislation and its application encouraged marginal work and, in the case of regularized employees, meant increases in the cost of goods and services due to the incidence of lawsuits and labor claims.

  • The financial system, saturated with pesos without incentives to hoard them, was used by the State to finance its own deficit, sucking up any currency or reserve value asset that might exist.

To sustain the incentives that served to get out of a consumption and unemployment crisis similar to the one that occurred in 2001 ended up discouraging fundamental issues of any market:

  • Productivity, efficiency and scale.

  • Entrepreneurial risk based more on the business than on the regulatory environment.

  • Lower prices to sell more.

  • Be a good employee to have better income, job and social advancement.

  • Make it profitable to save in one's own currency within the local financial system.

Now, clearly, the abusive use of these tools ended up breaking them.

However, before undertaking similar changes, there must be adaptation and training stages.

Already in Argentina we have been going for a long time against "the law of gravity in the economy", burning resources and, mainly, atrophying fundamental muscles to be able to sustain ourselves in "normal circumstances" and developing mass where it should not be needed.

As with the example of the stone that is thrown into the sky, in its ascent it rises with a decreasing force, until a moment in which it seems to remain still or floating, and then, in milliseconds it falls with a force proportional to its weight and the height from where it comes.

To discuss if the force of gravity exists or if it is convenient is totally abstract, it is there, it exists.

The same happens with the model that regulated our country for more than two decades.

The weight and the time elapsed have accustomed us to a system of enormous and impressive mass, thrown from the highest of heights.

It is up to the authorities whether it is a landing, more or less soft, or whether we crash to the ground.

Paradoxically, according to how this happens, the change of model will take place or not.

Do you want to validate this article?

By validating, you are certifying that the published information is correct, helping us fight against misinformation.

Validated by 0 users
horacio gustavo ammaturo

Horacio Gustavo Ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.

Twitter Linkedin

Total Views: 0