A black swan appeared in the middle of the Suez Canal

The Suez Canal, inaugurated in 1869, ceased operations in 1956, when it was nationalized by Gamal Abdel Nasser, and most likely also in 1973, following the Yom Kippur War. The recent blackout was not due to politics but the grounding of a gigantic ship, a highly unlikely event that has such dramatic consequences that it will surely feature in the next edition of The Black Swan, the book Nassim Nicholas. Taleb published in 2008.

To the economic benefits generated by the channel, we must add that, if it did not exist, Giuseppe Verdi would probably never have created Aida. What lessons emerge from this event?

In this regard, I spoke with the Australian James Bristock Bridgen (1887-1950), who during World War I was seriously injured. By pure chance he ended up in a hospital in Oxford, among which were Edwin Cannan and Francis Ysidro Edgeworth, thanks to which he entered the aforementioned university. According to William Coleman, when he was his country’s official in Washington, his most important job was to keep afloat Australia’s invitation to join the International Monetary Fund, an invitation the country rejected at Bretton Woods.

–The profession remembers you for the monograph you published in 1925, in the first issue of the Economic Record. What is the thesis of this work?

– That a customs tariff on the importation of goods could increase the average standard of living of the population. My working model works with diminishing marginal returns in agriculture (the exportable good) and constant returns in industry (the importable good). The imposition of an import tariff reallocates the labor input, increasing labor productivity in the agricultural sector. This means that the protection has benefited Australia, as well as free trade, Great Britain.

“Didn’t he come back to the subject?

-Yes. The idea behind The Australian Fare: An Economic Inquiry, a report I wrote in collaboration with Douglas Berry Copland and Lyndhurst Falkiner Giblin and published in 1929. The report generated valuable specialist literature. I am referring to the book that Marion Crawford published in 1939.

– The name and surname are familiar to me. Was?

– First wife of Paul Anthony Samuelson. On the analysis proposed by her, a few years later, in collaboration with Wolfgang Friedrick Stolper, PAS published the famous monograph referring to “protection and real wages”.

– A huge freighter ran aground in the middle of the Suez Canal, temporarily interrupting passage through this vital waterway. What do we economists have to say about this?

– First and foremost, that we were faced with a highly improbable event which generated very significant damage. I do not exclude that, to exercise the imagination of the pupils, in the past a teacher asked his pupils: what would happen if a super freighter blocked the operation of the Suez Canal, and how to prepare for it? But surely, if the result of an analysis was sent to the shipping companies, they considered it an “academic” exercise. Well, it happened.

– And in addition, it generated serious problems.

– This is the other component, because unexpected events that do not have serious consequences, are in any case examples of something bad that can be endured.

– What can we expect, in terms of river transport, from this episode?

– Let us distinguish three terms: the immediate, the short and the long. The immediate deadline refers to ships that were stationed at either end of the canal, waiting for them to release the cargo and for traffic to resume. The operations manager of each vessel had to decide between waiting or redirecting the shipment by another, naturally more expensive route.

“Short term?”

–If you are in the middle of a blocked freeway, you have no choice but to wait; But if you are about to embark on a journey and you know that the freeway you were planning to take is blocked, now take alternate paths. Africa, the route taken before the opening of the Suez Canal, is an opportunity; the Arctic route, which Vladimir Putin looks at with enthusiasm, is another. But let us understand that these are transient phenomena, because these roads are again abandoned while the passage through Suez becomes normal.

– And for the long term?

– I am not an expert, but suddenly you may decide to widen the channel, improve the prevention mechanisms during the crossing, etc. By the way: those in charge of the operation of the Panama Canal, following this event, have reviewed the procedures they use. In economics, this is called an external economy: participating in the benefits, without having to pay the costs. The same thing happens when we learn that a friend of ours has been assaulted, as a result of which we increase our precautions.

–The closure of the Suez Canal in 1956 had important consequences for Argentina.

-It’s like that. In 1954, Arturo Frondizi published Petroleum and Politics, recommending that the petroleum sector be exclusively responsible for fiscal oil fields; and when four years later he became President of the Nation, he called it the Battle of Oil, with heavy participation from the private sector.

– For which he was strongly criticized, and caused the resignation of his vice-president, Alejandro Gómez.

– But in this regard, a few points should be recalled. The first, which was announced during the election campaign, so there is no question of surprises. But, for what we are discussing here, the most important thing is that, following the closure of the Suez Canal, the world began to search for oil. And he found it, among other places, in the North Sea. The fact reduced the strategic value of the oil reserves available to the countries, thus establishing the new oil policy, based on a change of circumstances. A point on which Emilio Perina correctly emphasized.

– Does not the event which inspired this conversation justify the importance of the thesis advanced by Taleb?

– It adds an important example, but the relationship between possibility and decision-making remains unknown. The world of the possible is so vast that it is unnecessary to make decisions. Is it possible that a snowfall is falling on the city of Buenos Aires today? It is possible, but I do not know of anyone who, as a result of this possibility, comes out with appropriate clothing for the event. What if it snows? The porteños would do the same as the sailors aboard the stranded freighter.

– Don James, thank you very much.