Um convidado especial: Antoninho de Botucatu

O mestre Antoninho colabora com "A Mão Visível":

Short-bio

• Born in Botucatu a long time ago, grew up in poverty and never met his dad (mother was a local whore).
• Has a Phd in Economics and in Statistics.
• Speaks Russian (advanced), English (advanced) and Portuguese (intermediate);
• Currently living in a dark corner of East Europe, where teaches Ballet classes

Admiral Nelson and captain Barbarossa are in charge of the Economy now. Some say they are actually the same person. That I cannot tell. What I know, though, is that these guys think the real exchange rate is a choice variable! And in the past advocated demand-boosting policies as if there were no supply-side (or future) in the Economy. And it was not an innocent, albeit dumb, academic proposition: they really implemented these crazy ideas when in government. As a result, inflation skyrocketed and growth faltered. 

Now Nelson-Barbarossa (henceforth, NB) ask(s) us to trust him (them?). But how can I possibly do that? Let aside the basic fact that this government became a lame-duck in the first year of its renewed mandate, and is utterly unable to get any bill approved. Let's, for the sake of this piece, pretend this is not true. Dilma chooses a fiscal mad-man to carry out a fiscal adjustment plan?! Does that make any sense??

Some smart commentators have put forth the "Nixon in China" argument when discussing Barbarossa's possibilities. The idea was dubbed after Nixon based on the fact that only a hawkish like him could reestablish relations with a communist country, as he in fact did. As the argument goes, Nixon succeeded because, given his credentials, resuming talks with China couldn't possibly be interpreted as a leftist, unworthy move. Put it differently, a soft Democrat (possibly more akin to an average human being than Nixon) would have been unable to convince the electorate it was in the best interest of the American people to reopen relations. Similarly, if Barbarossa goes out defending fiscal retrenchment, it is because it must really be necessary. In theory, this all makes sense. 

However, this is not the unique political economy model in the shelf. Let me spell out another one very briefly. In an uncertain world, people will try to infer policymaker's true intentions so as to make right investment decisions. They do this via a sort-of Bayesian update method: prior + likelihood = posteriors. Suppose Barba's pragmatism, the sheer direness of the situation, and his initial steps all deliver us a good likelihood. Let's grant him this, just to help us in the exercise. Even so, the problem is: the posterior is not only a function of the likelihood, but also depends on prior beliefs. If priors are too damn low -- as they are in this case, since Rossa is the inventor of the "New - Fucked - Us- All - Matrix" -- the posterior cannot possibly be too high. Markets remained unconvinced.

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