Just a quick note: I’ve been involved in a comment trail in response to my earlier comment. Even though several of us have disagreed, the discussion has been civil and well argued by commenters. I love a good discussion between people who disagree with an exchange of ideas and opinions, not vitriol.
Keynes didn’t promise that one long party. We are supposed to run budget surpluses in the good times to pay off the deficits we ran in the bad times. We’re supposedly in “good times” now, but with both tax revenues and spending at or near record highs, we are nowhere near a balanced budget, let alone a surplus.
My interpretation of Argentine economic history has long been that it basically tried a developing world approach to industrialization while being, in fact, a developed country.
I feel like that sort of industrial policy rarely works for developed states because it sort of relies on labor cost advantages overwhelming misallocation fiscally and the importance of transitioning subsistence farmers to manufacturing simply guaranteeing long term productivity gains even if the supported industries aren’t ultimately where the country’s advantages lie,
I have seen the fiscal restraint of Clinton and Obama touted dozens of times, but I don't think I've ever seen someone simultaneously note which party controlled the branch of government that passed those budgets.
Yes, there's definitely an argument that both Clinton and Obama would have been freer spending if they'd had Democratic majorities in both houses of Congress through their entire terms. I've been saying for years that I think the sweet spot for American government is a Democratic President with a Democratic Senate and a Republican House, because that way the Republicans can prevent major new government programs from being implemented, but the President is less likely to massively ramp up military spending and with a Democratic Senate remains free to nominate cabinet members and judges in an orderly fashion.
I'm surprised no one in the comments has mentioned immigration and what role it might have played in Argentina's populist turn in the 20th century. To my knowledge, the political scientist Robert Dahl puts an emphasis on this in his book Polyarchy. I find Garett Jones way too determinist on some other matters, but he has also been talking about the Argentina historical case with his latest book on immigration. I'm open to a historical interpretation a lot more than his preferred residuals that shape his worldview in Hive Mind and 10% Less Democracy.
I'd love to know what Matt makes of this argument; did Italian mass immigration cause Argentina spiral off into low institutionalization of democracy and unstable swings in political authority and economic policy? If Argentina had cut off Italian immigration earlier, would it have made a difference or was it mostly a commodity boom doomed to lull anyways? I'd have to read more about Argentina to make this argument at better depth. I just thought someone in the comments would know more about this than me and make the case. Unfortunately, it appears not.
Sigh. Argentina with the rest of Latin America tried import substitution and failed miserably at it begetting only local monopolists with horrible products and prices. The US did it in 18 and 19 centuries but I think it is probably the only country that has managed it successfully. I think it is down to institutions and education. It is far easier to do an investment growth model a la China but that would require the opposite of peronismo.
You talk about the government making mistakes but it’s the Argentine voters who are insisting on all these terrible policies. What I’ve read, and who know how correct it is, is that Argentinian voters really really want to think of themselves as first world Europeans with a first world European welfare state. But for various reasons, as you noted, Argentina isn’t sufficiently industrialized to support that. All their problems, more or less, stem from voters insisting on things that can’t happen.
It’s similar in a way to Venezuela. Venezuelans really really want to think that with all their oil they should be Kuwait or the UAE. But the population is too high to support that kind of system given the amount of oil available.
In the US, many really really want to think of themselves as zeroth world Americans with a first world European welfare state, but only 1% of people pay taxes.
I never knew there was a formal quotation. From whom? Perhaps "live as Englishmen" is a better translation. It's less of an admiration than an impersonation.
I blame the consumer. Even here, articles that touch on hot-button issues get way more engagement and views than the boring ones about (for example) macroeconomic policy.
Is it bad that people pay money for a center-left gadfly blogger's opinions and writing? I doubt it. But the *people who will vote* in elections these politicians are aiming towards are a small fraction of Americans and voters, which is bad. It'd be better if they were forced to pander closer to the average voter. But instead our parties took the pre-Civil Rights Southern primary system and used it to decide who we get to vote for in the general election.
This was a great post. But to be honest, I first thought it was a guest column by Noah Smith until I read the signature phrase ("by the same token") that irrevocably identified it as by the hand of Matt Yglesias.
But it doesn't help that it's actually difficult to find real policy analysis in the mainstream media. Look at the New York Times website right now, which is wall to wall with bullshit about who said what about Trump in the Republican presidential debate last night. All of the television news outlets are worse. I guess you can't really say a for-profit news entity shouldn't give people what they want. But I am not sure that people couldn't be drawn to more intelligent analysis of actual policy differences (in addition to the horse race and personality coverage) . As it is, they barely have the option.
I'd bet $100 dollars that neither of those articles does close to the volume their read on Olivia Rodrigo does. Which (if true) goes to prove you top post - the problem is the audience.
Why do cuts have to be made in Social Security? Eliminating the payroll tax cap would help, as would increases in the minimum wage, as would continuing to support labor organizing (see recent UPS contract), all of which generate more revenue through payroll taxes. Medicare and Medicaid would benefit by moving to a single-payer health system: the US spends ≈ 18% of GDP on healthcare and $12500 per capita; no other developed country spends more than 12.7% or $7500/capita. There are compelling economic reasons to move to a single payer system. (Lecture me not about long wait times in single payer systems; try to get an appointment at Mass General or Brigham and Womens Hospital right now.) All of these would help to reduce or even eliminate wrong headed attempts to cut benefits.
One reason Social Security should be cut is because it's morally indefensible for reasons similar to zoning restrictions in major cities, in that it takes from the young worker and gives to the old middle class. The job of government with regard to public pensions should be to ensure that the elderly do not fall into poverty, and no more than that.
I disagree vehemently. Having served on a local planning board, it's nothing like zoning restrictions (but I agree that they need to be revised everywhere to prevent NIMBY). I paid into SS for 40 years to support my parents and grandparents generations, because I believe it's a moral imperative to support the elderly (a class into which I now fall). One way to achieve your goal would be to cap benefits to those below ($X) in retirement. But your line of thinking suggests that taxes in general are immoral, while I believe that they're the dues we pay to participate in a civilized society.
It's not wrong to pay taxes or to regulate, I'm not a diehard libertarian and I wouldn't ask others to be. it's wrong to operate a system that punishes the young in earnings and employment at the benefit of people who could do perfectly well preparing for retirement at their desired standard of living themselves. In that specific transfer of resources, it greatly resembles zoning for single family homes in expensive metro areas. The benefits accrue to the old middle class at the cost of the young. We should keep the elderly out of poverty, and to that end I support a universal flat pension design that younger workers can opt into at a lower payroll tax rate. But that's not what we have today.
I agree about zoning restrictions. I live in Maine, which is trying to ban single family residence zones, to allow more multifamily as one way to address affordable housing shortages. I know other states are doing so as well--I think Montana has done so with positive results. There is growing pushback, but I'm hoping these effoorts are successful. Several other trends also need to be addressed: AirBnB type businesses are taking homes off the market, and corporate intrusion into this business (purchasing homes, sometimes as small LLCs and others as timeshares) is expanding as well. Residential houses are increasingly being used as profit centers rather than homes.
I'm not opposed to increasing SS benefits to people earning below $(X)/year while capping payouts to people making more than $(X)/year. But asking people at or below median income is pie in the sky, especially today, because housing, healthcare, childcare, and education take so much of their income that savings is difficult at best. Add to that the fact that defined benefit pensions have and continue to disappear, and matched 401Ks are going as well (unless the current labor shortage reverses those trends). But there's real problem with stopping the current system: everyone has paid into SS for their entire careers and have been promised returns, influencing retirement provisions. Changing the rules will be difficult, and probably politically impossible. There are other targets for cost reductions as well, as I note elsewhere.
I don’t get the “sense of entitlement.” But ok. I guess I’m a Keynesian, in that deficit spending is important during a recession to stimulate recovery. But deficits should be eliminated during a booming economy, because tax revenues increases, and debt should be paid down, even it requires tax increases to do so. The problem in the US is that the GOP keeps cutting taxes during strong economies, driving deficits higher. Democrats inherit the deficits and often a recession, and increase spending to stimulate the economy. Then the economy recovers and taxes get cut again, increasing the deficit. No one has stepped up to reverse those trends (although the deficit was eliminated during the Clinton administration, Bush then cut taxes and increased spending!). To eliminate the debt, taxes will have to rise, and Defense will have to be cut. As I’ve noted elsewhere here, Medicare and Medicaid can be cost reduced through a single payer system and by negotiating prescription drug costs at the national level. SS problems can be reduced by eliminating the payroll cap, increasing the minimum wage nationally, and by increasing organizing activities (union jobs just pay more). Defense will have to be cut, which will be difficult because pretty much every congressional district has some Defense facility, making cuts a political hot potato for every representative. But mandating a reasonable accounting system and auditing Defense Department regularly would be a good start. Until something comprehensive is done, the debt will rise. It wasn’t a big deal with interest rates low, because debt payments were still historically low, as a % of GDP, until inflation kicked in and those rates have risen. Another way to look at debt, though, is as a % of assets: The US has many $ trillions of assets and, as Dean Baker has noted, you could eliminate the debt entirely if you sold off assets-- but that’s a political minefield as well!
I'm sorry, I should have been more clear in my comment, because it seems like you are replying to something I was not trying to say.
What I wanted to say was that you seemed to vaguely claim to be entitled to SS benefits in retirement as a result of paying into the program. Maybe you weren't claiming that. I would say that the current cohort of retirees really isn't owed anything. Sure, they paid into SS, but their elected reps borrowed countless trillions and did not pay it back, passing the debt onto present-day workers like me.
Your comment suggests you are critical of those persistent deficits.
I support SS in its current form, but would like to see benefits distributed more to those in need. The deficits, and thus growing debt, are not because of SS. They’re because tax cuts have been enacted to reduce revenue in a specific plan to defund the federal government (read the CBO report on Paul Ryan’s “budget”). Then, when the deficits grow, those driving the tax cuts claim that we need to cut benefits. No, we need to maintain the benefits that citizens have supported for >80 years, and set a tax structure to support those benefits. My diatribe above discusses this. Dean Baker has been writing about this issue for years, as has Robert Reich.
Because making the single largest part of our federal budget elderly people is not a great or even fair strategy? We're spending I believe $1.2 trillion dollars on SS every year now. If you sat down and designed a social welfare system from scratch, prioritizing the elderly would probably not be your #1 priority. Why not spend half that money on children instead?
First of all, fairness shouldn’t be the primary reason for economic decisions; if it was, would capping SS payroll taxes be fair? Would financial transactions taxed at lower rates than earned income be fair? But both exist. Would pushing more elderly American citizens into poverty be fair, when the Top 1% control more of US wealth than ever, be fair? The elderly have and will continue to contribute to the US economy. Second, moving healthcare to a single payer system would almost certainly reduce overall US costs, unless we’re so incompetent that we’ll do worse than every other developed country. Third, why is it a decision to spend on the elderly OR children? If I were designing it, I’d increase taxes, across the board, on the wealthy, both by increasing rates and reducing deductions; audit--it’s outrageous that, in the 21st Century, no knows how Defense funds are spent--and reduce military costs; continue to invest in fostering American industries; create a single payer healthcare system, especially negotiating significant drug cost reductions; expand community college access, even making it free to state residents; expand childcare access (to your point); ban college legacy admissions; eliminate all petroleum industry related tax benefits, and more. The issue isn’t fairness: it’s what’s best for the long term interests of the US and its citizens.
"If you sat down and designed a social welfare system from scratch, prioritizing the elderly would probably not be your #1 priority."
I disagree. Given that SS is a retirement savings program and the elderly also tend to need much higher medical care than any other group, it seems incredibly likely that we are going to spend more money on seniors than other groups. Having said that, the second largest group we spend money on is children with almost a trillion dollars a year on just education expenses.
I'm not referring to the federal budget. I'm talking about overall government spending. Most of education spending is done on the state and local level.
edit for correction. I got those reversed. Its actually 45% state and local spending to 55% federal spending. Still significant.
" Eliminating the payroll tax cap would help": this would be a significant marginal tax increase on everyone making above the cap. Politicians seem loathe to increase taxes on the < $400k group. (15% if you count employer amount. Maybe employer amount should only be partially attributed to employee, since that helps employer with _their_ taxes, but somewhere north of 7%)
I'm assuming also you're eliminating the cap without increasing benefits on people who put in that money.
If you could get this to pass, you've also now eliminated all future tolerance for other tax increases. I'm think they probably should raise my taxes in the 5-7% range but the payroll tax does all of that.
(I prefer means-testing benefits. If you paid near the cap your whole life but ended destitute for some reason, at least you're getting the money you're 'owed', but people with good savings (hopefully myself) can just get by on less)
It _does_ help employer with their taxes, it's deductible.
But you're correct in that it's equivalent to wages, so it's equivalent to them of giving me a raise of the same amount, so they have incentive to treat it as if they'd given me a raise of the same amount (from a "how much can they afford" standpoint)
in the last 20 years of my career (now retired), I often stopped paying SS payroll taxes before June. I thought it was ludicrous then and still think it is. And I don’t need or want increased benefits, nor will most people earning enough to reach those caps. I’d rather it go to keeping SS viable for my descendants.
I'm all for rethinking the SS limits. But you would have been doing more for your descendant's wealth by taking 7.65% of your pay (after June) and putting it into a savings vehicle for their use.
I've actually been putting that into accounts for my grandchildren. But that's not the point. How many people lost significant investment wealth in 2008? I personally lost 25% (but continued to invest and made it all back within a few years). But If I had been read to retire, it would have been delayed for 5 years, and that can be catastrophic for many. And what about the millions who never never reach the cap????
The cap also means that people with income below the cap are paying higher average rates than those with income above the cap. Lifting the cap would make the system less regressive. That would seem to be a good thing to me.
Is SS supposed to be a wealth transfer or social insurance? If it is a transfer, then taxes can be progressive. If it is social insurance, they can't be. Taxes will need to be high on everyone.
Since its inception, SS is a transfer from currently-working people to formerly-working people, funded mostly like social insurance, and marketed like a personal retirement savings account.
I think rationalizing that trade off would be good, but also need to be cognizant that dropping the cap is going to impact the ability to raise taxes on this group for other things. E.g. someone making 250k is going to see their taxes jump by 6.2%. If we raise their taxes another 5% to help slow the rising deficit, then their marginal rate is going to be over 50% with state and local taxes.
*That's assuming no impact on the company side. That could impact their pay/tax rate further.
In re your second paragraph, my recollection is that many years ago (pre-SB, maybe at Vox?) Matt argued that lifting the payroll cap would improve the solvency of the Social Security trust fund even if benefits were proportionately increased for high earners.
Interesting. That would make it a lot more palatable. I'd still personally rather have you means test my benefits than tax me more and give me more, but I could buy it more as a political argument.
The US isn't significantly richer than most other developed countries (per capita) but is certainly not 50% and more richer, while our healthcare spending is 50% and more above all.
That would be a valid argument if the US was achieving higher standards of healthcare. But the US lags other developed nations in life expectancy, infant mortality, obesity, diabetes, childbirth mortality, and more. I was able to book an appointment with a local community hospital, but have had increasing problems getting into top end hospitals (where my spouse and I go for primary care and long term specialists), with some dates out as much as a year--this in new since Covid.
Life expectancy, obesity, and diabetes are primarily lifestyle related, not healthcare related. And it’s not true that infant mortality in the US is significantly worse than other countries.
“Our analysis suggests that many factors, ranging from how vital events are registered to broad social and economic policies, contribute directly or indirectly to observed differences in infant mortality.”
I've read these arguments before and agree, to a point, that healthcare is only one factor when considering infant mortality. But in the end they are just rationalizations. Considering economic status as a mitigating factor just amplifies the fact that those with low income don't have equitable access to primary and obstetric care, for example. From that article: "Although different measures yield somewhat different numbers, the United States has child poverty rates strikingly higher than European countries." That is a healthcare as well as an economic issue. A similar issue is higher rates of women dying of childbirth related issues in the US: it's mainly an access to healthcare problem. A single-payer system helps to minimize those access issues.
Your argument was that “the US lags other developed nations” in healthcare, but that just isn’t true. What the US lacks that other rich countries have is providing healthcare at little or no cost to poor people.
I’ve experienced healthcare across New England, and currently go to Boston to one of the finest hospitals in the world for both primary and specialist care. The best of US healthcare is at least on a par with the best worldwide. But not all places offer that level of care. And access to the best is becoming increasingly difficult and expensive. As I note elsewhere, trying to get appointments at that hospital has become increasingly difficult; my spouse recently was told that an appointment would be at least a year out, from 2 different specialties. And we’ve had significant issues with several different community hospitals (although I just had a great experience at one).
That's not the original argument though, right? The statement was that, as a rich country, and the rich spending even more on healthcare, we should expect that healthcare costs are higher here (in the aggregate)
When you're looking per-capita you're including all those richer people who pay more for healthcare, and you said we were paying more and having worse outcomes for that healthcare, which doesn't seem to be accurate (I thought maybe with infant mortality, but that seems to be incorrect)
That said, we _can_ provide more support to low income people to get better healthcare - the ACA did a lot of this. But the fact that we spend so much more doesn't necessarily mean we're doing something wrong with the money we _do_ spend.
The US is 50th in infant mortality worldwide, below Russia, Bulgaria, Cuba, Greece, and Belarus. And it's not just infant mortality, as I note above. All of the rationalizations keep looping back to inadequate healthcare access to those with minimal or no insurance, and a single-payer system helps resolve most of those access issues. It's not the whole answer, but it helps, and, as I note above, it will reduce costs unless we're the most incompetent deveoped country on Earth.
Obesity/Diabetes could be diet/culture lots of other things other than healthcare.
The Infant Mortality one surprises me though, enough to look it up to see if you got it wrong but doesn't look like it. Even leaving out Norway or something with it's very low rate, the CIA website (presumed unbiased on this) has us at like 5.1/1000 vs U.K. 3.79
(The numbers for the US from different sites vary from 5.1 up to almost 5.9, but even the low one at 5.1 is well above the U.K. number, and the U.K was the first country I saw that I thought 'we should be similar to them')
>US costs are high because we also provide treatment to a lot of people like chronic drug addicts that other countries would just let die, as we see in the Canadian MAID program.<
Healthcare in America costs more than in any other rich country mostly because medical goods and services are more expensive in the US (unit costs). It has virtually nothing to do with keeping people alive who would be allowed to die in Europe or Canada.
Thanks for pointing out the profligacy of Reagan, Bush II, and Trump, and the deficit reducing policies of Clinton and Obama. It cannot be reiterated enough. I swear, people love Republican rhetoric more than reality.
I don't think it's coincidence, but it's definitely a pattern. Reagan's defense spending, Bush II's unfunded wars, and Trump's unfunded tax cuts were deliberate deficit spending. The Democrats elected afterwards righted the ship and acted responsibly. And I guess thank goodness, because Democrats could act to enrich themselves just like the Republicans did, enshroud it in "freedom" language just like they do, and we'd be in the deficit spiral Argentina is in.
It’s actually quite stunning to see what a basket case Argentina has been economically for about 100-120 years now. If I’m not mistaken they are one of the few examples out there of a country going from being a “rich” country on a per capita basis to a “middle income” or even poor one*. Again if I’m not mistaken almost every “rich” country circa 1900 is still a “rich” country today even if their relative status compared to other countries has declined (France is a good example).
I know the glib answer is political turmoil and bad economic policy but again, see 20th century France. Partially occupied by a hostile military twice in 50 years. Immense political turmoil resulting in multiple new republics. Some extremely left wing economic policy that even a progressive like me thinks is harmful and counterproductive. And yet even today, we’d say France is one of the richer and more pleasant places to live in the world.**
*If I had to take a stab at which country is most likely to follow Argentina’s path next 50-100 years it’s U.K. Their economic sluggishness is now going on 15 years. Combined with an aging population whose older voters are seemingly way more reactionary than even older voters in America. If I had to bet, I’d still say UK is likely to still be a “rich” country in 25-50 years (their central bank being much more trustworthy and sound then Argentinian is one big reason) but man wouldn’t shock me.
** If I had to guess I think policy debates about best economic path to take just wildly underrated first mover advantage and path dependency. With notable exceptions of places like South Korea and Singapore, rich countries today are the same as 120 years ago. Heck China is really still a “middle income” country and it seems like they are heading into serious economic headwinds that could stall their growth on a long term basis.
I think that serial debt defaulting is a big part of Argentina’s idiosyncratically bad path. Not paying your bills —> higher borrowing costs —> more difficulty managing your fiscal situation in the future.
Agreed. But still interesting to think why they’ve been uniquely terrible when it comes to defaulting (after all, not only county to default or have runaway inflation)
Thinking about this, the Argentina example sort is evidence that the “the great man of history” theory of history has merit. Or “the terrible man of history” as in this case the uniquely destructive variable may be Peron himself. It’s amazing to think about but it’s possible to argue that Peron was more damaging to the long term economic prospects of his country than either Stalin or Mao. Which is nuts to even contemplate but again might actually be true.
Peronism was bad for Argentina’s growth trajectory, but the country’s history of fiscal instability is much older (it defaulted on sovereign debts in the 1820s and 1890s), Peron himself never defaulted, and the hard-right juntas that tossed the Peronists out of power in the 1950s and 1970s defaulted three times.
I actually think that the common denominator has been a succession of relatively weak/low legitimacy state institutions which were bad at raising revenue (or, in the case of the Videla regime, were afraid of raising taxes because they depended on particular business interests for support.)
>I actually think that the common denominator has been a succession of relatively weak/low legitimacy state institutions which were bad at raising revenue
I'd add that bicameral presidential systems have a tougher time getting laws passed- you have to navigate 3 separately elected bodies who are all answering to a different electorate. A President is the nominal but not real head of their party- everyone in the House and Senate got elected separately from him/her, so they don't really owe them that much.
Then throw in that they're all using proportional representation, so now the President's party probably has 20% in 1 or 2 houses, 30% if he's lucky. Imagine poor Lula trying to get legislation passed in Brazil- he's got to navigate 40 (!) separate political parties.... Just a disastrous way to run a country
It's exponential for the catching-up countries too. Just because our peculiar method of measurement requires the use of logarithms doesn't actually make the problem harder.
A few nuggets “By 1913 Argentina was among the world’s 10 wealthiest states per capita”. And “first three decades of 20th century, Argentina outgrew Canada and Australia in total population, total income and per capita income”. I highlight the last two because these are also two countries who’s economies have grown in large measure due to abundance of natural resources.
I will say I agree that petro states seems like the most likely candidates to have precipitous economic falls given advances in green tech and lack of investment in non oil parts of their economies.
Does not being English-based make it harder for Argentina to get knowledge-economy immigration(vs your examples of Canada and Australia)? Spanish is very widely spoken, but mainly (AFAIK) as a first language, so not something learned by potential emigrants to another country, unlike English.
That is, if a potential programmer from Vietnam wants to immigrate, is it more likely that that person knows English or Spanish?
(Edit: Added a parenthetical to clarify a statement)
"Does not being English-based make it harder for Argentina to get knowledge-economy immigration(vs your examples of Canada and Australia)?"
No, but a basket-case economy does; if your economy relies on immigrants for productivity growth, then a short period of economic mismanagement can induce a vicious spiral.
In its previous try, Argentina had a currency board: every peso in circulation was backed by a dollar in the central bank vault and you get a dollar for your peso. Same system was used elsewhere. HK with the USD, Estonia and Bulgaria with the DM and later the Euro (and Ecuador before with the USD). A currency board is a much tighter arrangement than a mere peg but both mean giving up monetary policy. If you have a currency board or peg, basically your interest rates follow those of the Fed (Bundesbank, ECB etc) and your central bank interest rates are those that are set to best meet the US (German, Euro area) policy problems, not your own. If the US economy needs high interest rates while you're economy needs a push in the back, you're screwed.
Btw, Argentinian trade with the Euro Area far exceeds theirs with the US. The USD may not be the optimal partner.
There is a not very technical macroeconomics/monetary economics textbook on monetary unions that is updated every couple of years, especially in the light of Euro area experience: Economics of the Monetary Union, by Paul De Grauwe - recommended. De Grauwe is a great author (professor, ex-senator, ex-central bank manager) and found the best explanation in the aftermath of the banking crisis why Spanish interest rates on public debt were so much higher than UK rates despite their much lower debt/GDP.
Argentina's a great holiday destination. Nice people, outstanding nature - mountains, glaciers, lakes! great food (a poster here said steaks were overrated: Argentinians like their steaks almost raw which is at the opposite end of the spectrum from typical American taste :) ). And Buenos Aires is a beautiful city. Its nice neighbourhoods are like Paris and Madrid neighbourhoods with 4-6 floor high apartment building but done even better. Unfortunately, decades and decades without maintenance, a lck of painting, corrosion, missing street tiles etc. Very sad.
While it may be harder to help Argentina move to the dollar, it would be in the national interest to have such a large regional neighbor on the same currency. Foreign investment from tourism can really affect their coffers at a time of need and that’s way easier to push with a stable currency (& beautiful country!) which was only 1-2% of gdp before covid. In the shifting geopolitics today the US should make the over-investment in our south american neighbors as a sign that we’re committed to the region
Kind of nit picky but Buenos Ares is ~4.4k miles away from Miami. For comparison LA-NYC is 2.5k miles and NYC-London is 3.4k miles. Argentina is not close to the United States at all.
Sometimes I think people figure we’re closer to the lower half of South America than we are just because we share the same landmass.
Attitudes on this may have changed, but my understanding back when Argentina first tried dollarization was that the Federal Reserve hated it because it complicates U.S. monetary policy.
Yeah this seems like it's *at best* recapitulating the problems with the Euro (monetary union without fiscal union causing Argentinian prices and debt instrument interest rates to become unmoored from the underlying dynamics of the Argentinian economy and subordinate to U.S. monetary policy) and under any kind of reasonable set of assumptions allows Argentina to distort global demand for dollars in a way that makes the Fed's interest-rate setting job harder.
Matt argues that a credible currency peg can solve part of this because there doesn't need to be direct demand for dollars, just enough credibility from the banking system that redemption for dollars is unnecessary. but (as Matt also points out) Argentina is in the position of having already crossed that Rubicon....arguably multiple times. Also to the extent the peg remains fixed it still seems like it recapitulates Eurozone disease by turning dollar inflation into peso inflation.
There are certainly risks, but OTOH being able to stabilize a country with the size and opportunity of Argentina provides incredible benefits as well for all sorts of economic & diplomatic reasons in the long term. We can learn our lessons from other efforts too, the sheer physical distance between the two countries allows for far more unique monetary levers that could be pulled between countries than the Europe could feasibly accomplish. Pumping dollars into specific Argentinian sectors if needed shouldn’t really impact the US markets much if it’s not needed here.
I unfortunately don't recall the specifics at this point as it was just briefly mentioned in a class on economic development I was taking and I haven't had much other reason to think about it since.
Just a quick note: I’ve been involved in a comment trail in response to my earlier comment. Even though several of us have disagreed, the discussion has been civil and well argued by commenters. I love a good discussion between people who disagree with an exchange of ideas and opinions, not vitriol.
Maybe they should cut out the middlecurrency and just have Jerome Powell set monetary policy directly for them.
Keynes didn’t promise that one long party. We are supposed to run budget surpluses in the good times to pay off the deficits we ran in the bad times. We’re supposedly in “good times” now, but with both tax revenues and spending at or near record highs, we are nowhere near a balanced budget, let alone a surplus.
My interpretation of Argentine economic history has long been that it basically tried a developing world approach to industrialization while being, in fact, a developed country.
I feel like that sort of industrial policy rarely works for developed states because it sort of relies on labor cost advantages overwhelming misallocation fiscally and the importance of transitioning subsistence farmers to manufacturing simply guaranteeing long term productivity gains even if the supported industries aren’t ultimately where the country’s advantages lie,
I have seen the fiscal restraint of Clinton and Obama touted dozens of times, but I don't think I've ever seen someone simultaneously note which party controlled the branch of government that passed those budgets.
Yes, there's definitely an argument that both Clinton and Obama would have been freer spending if they'd had Democratic majorities in both houses of Congress through their entire terms. I've been saying for years that I think the sweet spot for American government is a Democratic President with a Democratic Senate and a Republican House, because that way the Republicans can prevent major new government programs from being implemented, but the President is less likely to massively ramp up military spending and with a Democratic Senate remains free to nominate cabinet members and judges in an orderly fashion.
I'm surprised no one in the comments has mentioned immigration and what role it might have played in Argentina's populist turn in the 20th century. To my knowledge, the political scientist Robert Dahl puts an emphasis on this in his book Polyarchy. I find Garett Jones way too determinist on some other matters, but he has also been talking about the Argentina historical case with his latest book on immigration. I'm open to a historical interpretation a lot more than his preferred residuals that shape his worldview in Hive Mind and 10% Less Democracy.
I'd love to know what Matt makes of this argument; did Italian mass immigration cause Argentina spiral off into low institutionalization of democracy and unstable swings in political authority and economic policy? If Argentina had cut off Italian immigration earlier, would it have made a difference or was it mostly a commodity boom doomed to lull anyways? I'd have to read more about Argentina to make this argument at better depth. I just thought someone in the comments would know more about this than me and make the case. Unfortunately, it appears not.
Also Uruguay manages just fine with agriculture and just a little more orthodoxy.
Sigh. Argentina with the rest of Latin America tried import substitution and failed miserably at it begetting only local monopolists with horrible products and prices. The US did it in 18 and 19 centuries but I think it is probably the only country that has managed it successfully. I think it is down to institutions and education. It is far easier to do an investment growth model a la China but that would require the opposite of peronismo.
You talk about the government making mistakes but it’s the Argentine voters who are insisting on all these terrible policies. What I’ve read, and who know how correct it is, is that Argentinian voters really really want to think of themselves as first world Europeans with a first world European welfare state. But for various reasons, as you noted, Argentina isn’t sufficiently industrialized to support that. All their problems, more or less, stem from voters insisting on things that can’t happen.
It’s similar in a way to Venezuela. Venezuelans really really want to think that with all their oil they should be Kuwait or the UAE. But the population is too high to support that kind of system given the amount of oil available.
In the US, many really really want to think of themselves as zeroth world Americans with a first world European welfare state, but only 1% of people pay taxes.
Argentina also really underperformed when it was under military dictatorship— the 20th century sovereign defaults happened under junta rule.
Liked, but I'm guessing the second sentence in the second paragraph should read "they should be Kuwait . . . ."
Fixed
Think they are British and act like they’re French
I never knew there was a formal quotation. From whom? Perhaps "live as Englishmen" is a better translation. It's less of an admiration than an impersonation.
"the press is covering everything but the concrete policy stakes in the campaign."
I think this is one of the biggest problems in our democracy.
I blame the consumer. Even here, articles that touch on hot-button issues get way more engagement and views than the boring ones about (for example) macroeconomic policy.
I realize I'm in the minority but *I fucking love macroeconomic policy*.
Is it bad that people pay money for a center-left gadfly blogger's opinions and writing? I doubt it. But the *people who will vote* in elections these politicians are aiming towards are a small fraction of Americans and voters, which is bad. It'd be better if they were forced to pander closer to the average voter. But instead our parties took the pre-Civil Rights Southern primary system and used it to decide who we get to vote for in the general election.
This was a great post. But to be honest, I first thought it was a guest column by Noah Smith until I read the signature phrase ("by the same token") that irrevocably identified it as by the hand of Matt Yglesias.
Noah has been open about Matt being a huge inspiration for him, so I'm not that surprised
But it doesn't help that it's actually difficult to find real policy analysis in the mainstream media. Look at the New York Times website right now, which is wall to wall with bullshit about who said what about Trump in the Republican presidential debate last night. All of the television news outlets are worse. I guess you can't really say a for-profit news entity shouldn't give people what they want. But I am not sure that people couldn't be drawn to more intelligent analysis of actual policy differences (in addition to the horse race and personality coverage) . As it is, they barely have the option.
I found these two policy-focused stories on the front page yesterday: https://www.nytimes.com/2023/08/23/business/economy/minimum-wage.html
https://www.nytimes.com/2023/08/23/us/politics/biden-foreign-investment-factories.html
I'd bet $100 dollars that neither of those articles does close to the volume their read on Olivia Rodrigo does. Which (if true) goes to prove you top post - the problem is the audience.
The Olivia Rodrigo read is pretty good though...
Why do cuts have to be made in Social Security? Eliminating the payroll tax cap would help, as would increases in the minimum wage, as would continuing to support labor organizing (see recent UPS contract), all of which generate more revenue through payroll taxes. Medicare and Medicaid would benefit by moving to a single-payer health system: the US spends ≈ 18% of GDP on healthcare and $12500 per capita; no other developed country spends more than 12.7% or $7500/capita. There are compelling economic reasons to move to a single payer system. (Lecture me not about long wait times in single payer systems; try to get an appointment at Mass General or Brigham and Womens Hospital right now.) All of these would help to reduce or even eliminate wrong headed attempts to cut benefits.
One reason Social Security should be cut is because it's morally indefensible for reasons similar to zoning restrictions in major cities, in that it takes from the young worker and gives to the old middle class. The job of government with regard to public pensions should be to ensure that the elderly do not fall into poverty, and no more than that.
https://www.nationalaffairs.com/publications/detail/why-is-social-security-regressive
I disagree vehemently. Having served on a local planning board, it's nothing like zoning restrictions (but I agree that they need to be revised everywhere to prevent NIMBY). I paid into SS for 40 years to support my parents and grandparents generations, because I believe it's a moral imperative to support the elderly (a class into which I now fall). One way to achieve your goal would be to cap benefits to those below ($X) in retirement. But your line of thinking suggests that taxes in general are immoral, while I believe that they're the dues we pay to participate in a civilized society.
It's not wrong to pay taxes or to regulate, I'm not a diehard libertarian and I wouldn't ask others to be. it's wrong to operate a system that punishes the young in earnings and employment at the benefit of people who could do perfectly well preparing for retirement at their desired standard of living themselves. In that specific transfer of resources, it greatly resembles zoning for single family homes in expensive metro areas. The benefits accrue to the old middle class at the cost of the young. We should keep the elderly out of poverty, and to that end I support a universal flat pension design that younger workers can opt into at a lower payroll tax rate. But that's not what we have today.
https://manhattan.institute/article/rejuvenating-social-security-a-better-option-for-future-generations
I agree about zoning restrictions. I live in Maine, which is trying to ban single family residence zones, to allow more multifamily as one way to address affordable housing shortages. I know other states are doing so as well--I think Montana has done so with positive results. There is growing pushback, but I'm hoping these effoorts are successful. Several other trends also need to be addressed: AirBnB type businesses are taking homes off the market, and corporate intrusion into this business (purchasing homes, sometimes as small LLCs and others as timeshares) is expanding as well. Residential houses are increasingly being used as profit centers rather than homes.
I'm not opposed to increasing SS benefits to people earning below $(X)/year while capping payouts to people making more than $(X)/year. But asking people at or below median income is pie in the sky, especially today, because housing, healthcare, childcare, and education take so much of their income that savings is difficult at best. Add to that the fact that defined benefit pensions have and continue to disappear, and matched 401Ks are going as well (unless the current labor shortage reverses those trends). But there's real problem with stopping the current system: everyone has paid into SS for their entire careers and have been promised returns, influencing retirement provisions. Changing the rules will be difficult, and probably politically impossible. There are other targets for cost reductions as well, as I note elsewhere.
Does the fact of persistent growth in debt-to-gdp temper your sense of entitlement at all? Given your views on taxes..
I don’t get the “sense of entitlement.” But ok. I guess I’m a Keynesian, in that deficit spending is important during a recession to stimulate recovery. But deficits should be eliminated during a booming economy, because tax revenues increases, and debt should be paid down, even it requires tax increases to do so. The problem in the US is that the GOP keeps cutting taxes during strong economies, driving deficits higher. Democrats inherit the deficits and often a recession, and increase spending to stimulate the economy. Then the economy recovers and taxes get cut again, increasing the deficit. No one has stepped up to reverse those trends (although the deficit was eliminated during the Clinton administration, Bush then cut taxes and increased spending!). To eliminate the debt, taxes will have to rise, and Defense will have to be cut. As I’ve noted elsewhere here, Medicare and Medicaid can be cost reduced through a single payer system and by negotiating prescription drug costs at the national level. SS problems can be reduced by eliminating the payroll cap, increasing the minimum wage nationally, and by increasing organizing activities (union jobs just pay more). Defense will have to be cut, which will be difficult because pretty much every congressional district has some Defense facility, making cuts a political hot potato for every representative. But mandating a reasonable accounting system and auditing Defense Department regularly would be a good start. Until something comprehensive is done, the debt will rise. It wasn’t a big deal with interest rates low, because debt payments were still historically low, as a % of GDP, until inflation kicked in and those rates have risen. Another way to look at debt, though, is as a % of assets: The US has many $ trillions of assets and, as Dean Baker has noted, you could eliminate the debt entirely if you sold off assets-- but that’s a political minefield as well!
I'm sorry, I should have been more clear in my comment, because it seems like you are replying to something I was not trying to say.
What I wanted to say was that you seemed to vaguely claim to be entitled to SS benefits in retirement as a result of paying into the program. Maybe you weren't claiming that. I would say that the current cohort of retirees really isn't owed anything. Sure, they paid into SS, but their elected reps borrowed countless trillions and did not pay it back, passing the debt onto present-day workers like me.
Your comment suggests you are critical of those persistent deficits.
I support SS in its current form, but would like to see benefits distributed more to those in need. The deficits, and thus growing debt, are not because of SS. They’re because tax cuts have been enacted to reduce revenue in a specific plan to defund the federal government (read the CBO report on Paul Ryan’s “budget”). Then, when the deficits grow, those driving the tax cuts claim that we need to cut benefits. No, we need to maintain the benefits that citizens have supported for >80 years, and set a tax structure to support those benefits. My diatribe above discusses this. Dean Baker has been writing about this issue for years, as has Robert Reich.
Because making the single largest part of our federal budget elderly people is not a great or even fair strategy? We're spending I believe $1.2 trillion dollars on SS every year now. If you sat down and designed a social welfare system from scratch, prioritizing the elderly would probably not be your #1 priority. Why not spend half that money on children instead?
First of all, fairness shouldn’t be the primary reason for economic decisions; if it was, would capping SS payroll taxes be fair? Would financial transactions taxed at lower rates than earned income be fair? But both exist. Would pushing more elderly American citizens into poverty be fair, when the Top 1% control more of US wealth than ever, be fair? The elderly have and will continue to contribute to the US economy. Second, moving healthcare to a single payer system would almost certainly reduce overall US costs, unless we’re so incompetent that we’ll do worse than every other developed country. Third, why is it a decision to spend on the elderly OR children? If I were designing it, I’d increase taxes, across the board, on the wealthy, both by increasing rates and reducing deductions; audit--it’s outrageous that, in the 21st Century, no knows how Defense funds are spent--and reduce military costs; continue to invest in fostering American industries; create a single payer healthcare system, especially negotiating significant drug cost reductions; expand community college access, even making it free to state residents; expand childcare access (to your point); ban college legacy admissions; eliminate all petroleum industry related tax benefits, and more. The issue isn’t fairness: it’s what’s best for the long term interests of the US and its citizens.
> if it was, would capping SS payroll taxes be fair
Yes, because SS payments are also capped.
> Would financial transactions taxed at lower rates than earned income be fair
Yes, because money used in financial transactions is first taxed as earned income.
The money you use to finance those transactions are taxed as income, not necessarily the money you make.
You seem to be confusing capital gains taxes and financial transaction taxes.
"If you sat down and designed a social welfare system from scratch, prioritizing the elderly would probably not be your #1 priority."
I disagree. Given that SS is a retirement savings program and the elderly also tend to need much higher medical care than any other group, it seems incredibly likely that we are going to spend more money on seniors than other groups. Having said that, the second largest group we spend money on is children with almost a trillion dollars a year on just education expenses.
>the second largest group we spend money on is children with almost a trillion dollars a year on just education expenses
What specific programs are you referring to here? I'm not familiar with anything even remotely close to that in the federal budget
I'm not referring to the federal budget. I'm talking about overall government spending. Most of education spending is done on the state and local level.
edit for correction. I got those reversed. Its actually 45% state and local spending to 55% federal spending. Still significant.
https://en.wikipedia.org/wiki/Government_spending_in_the_United_States#/media/File:2020_Total_US_Government_Spending_Breakdown.png
" Eliminating the payroll tax cap would help": this would be a significant marginal tax increase on everyone making above the cap. Politicians seem loathe to increase taxes on the < $400k group. (15% if you count employer amount. Maybe employer amount should only be partially attributed to employee, since that helps employer with _their_ taxes, but somewhere north of 7%)
I'm assuming also you're eliminating the cap without increasing benefits on people who put in that money.
If you could get this to pass, you've also now eliminated all future tolerance for other tax increases. I'm think they probably should raise my taxes in the 5-7% range but the payroll tax does all of that.
(I prefer means-testing benefits. If you paid near the cap your whole life but ended destitute for some reason, at least you're getting the money you're 'owed', but people with good savings (hopefully myself) can just get by on less)
“Maybe employer amount should only be partially attributed to employee, since that helps employer with _their_ taxes”
It does no such thing. FICA is a cost of employment the same as wages and benefits are.
It _does_ help employer with their taxes, it's deductible.
But you're correct in that it's equivalent to wages, so it's equivalent to them of giving me a raise of the same amount, so they have incentive to treat it as if they'd given me a raise of the same amount (from a "how much can they afford" standpoint)
in the last 20 years of my career (now retired), I often stopped paying SS payroll taxes before June. I thought it was ludicrous then and still think it is. And I don’t need or want increased benefits, nor will most people earning enough to reach those caps. I’d rather it go to keeping SS viable for my descendants.
I'm all for rethinking the SS limits. But you would have been doing more for your descendant's wealth by taking 7.65% of your pay (after June) and putting it into a savings vehicle for their use.
I've actually been putting that into accounts for my grandchildren. But that's not the point. How many people lost significant investment wealth in 2008? I personally lost 25% (but continued to invest and made it all back within a few years). But If I had been read to retire, it would have been delayed for 5 years, and that can be catastrophic for many. And what about the millions who never never reach the cap????
Then you should have used those as your examples, rather than "...keeping SS viable for my descendants." 😀
But I want to keep SS viable for my descendents (and yours, and everyone else's)!
The cap also means that people with income below the cap are paying higher average rates than those with income above the cap. Lifting the cap would make the system less regressive. That would seem to be a good thing to me.
Is SS supposed to be a wealth transfer or social insurance? If it is a transfer, then taxes can be progressive. If it is social insurance, they can't be. Taxes will need to be high on everyone.
Since its inception, SS is a transfer from currently-working people to formerly-working people, funded mostly like social insurance, and marketed like a personal retirement savings account.
I think rationalizing that trade off would be good, but also need to be cognizant that dropping the cap is going to impact the ability to raise taxes on this group for other things. E.g. someone making 250k is going to see their taxes jump by 6.2%. If we raise their taxes another 5% to help slow the rising deficit, then their marginal rate is going to be over 50% with state and local taxes.
*That's assuming no impact on the company side. That could impact their pay/tax rate further.
In re your second paragraph, my recollection is that many years ago (pre-SB, maybe at Vox?) Matt argued that lifting the payroll cap would improve the solvency of the Social Security trust fund even if benefits were proportionately increased for high earners.
If memory serves, I believe you’re correct. And there are many economists (say, Dean Baker) who have been making this argument for years.
Interesting. That would make it a lot more palatable. I'd still personally rather have you means test my benefits than tax me more and give me more, but I could buy it more as a political argument.
Thanks
The US isn't significantly richer than most other developed countries (per capita) but is certainly not 50% and more richer, while our healthcare spending is 50% and more above all.
That would be a valid argument if the US was achieving higher standards of healthcare. But the US lags other developed nations in life expectancy, infant mortality, obesity, diabetes, childbirth mortality, and more. I was able to book an appointment with a local community hospital, but have had increasing problems getting into top end hospitals (where my spouse and I go for primary care and long term specialists), with some dates out as much as a year--this in new since Covid.
Life expectancy, obesity, and diabetes are primarily lifestyle related, not healthcare related. And it’s not true that infant mortality in the US is significantly worse than other countries.
“Our analysis suggests that many factors, ranging from how vital events are registered to broad social and economic policies, contribute directly or indirectly to observed differences in infant mortality.”
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4193257/
I've read these arguments before and agree, to a point, that healthcare is only one factor when considering infant mortality. But in the end they are just rationalizations. Considering economic status as a mitigating factor just amplifies the fact that those with low income don't have equitable access to primary and obstetric care, for example. From that article: "Although different measures yield somewhat different numbers, the United States has child poverty rates strikingly higher than European countries." That is a healthcare as well as an economic issue. A similar issue is higher rates of women dying of childbirth related issues in the US: it's mainly an access to healthcare problem. A single-payer system helps to minimize those access issues.
Your argument was that “the US lags other developed nations” in healthcare, but that just isn’t true. What the US lacks that other rich countries have is providing healthcare at little or no cost to poor people.
I’ve experienced healthcare across New England, and currently go to Boston to one of the finest hospitals in the world for both primary and specialist care. The best of US healthcare is at least on a par with the best worldwide. But not all places offer that level of care. And access to the best is becoming increasingly difficult and expensive. As I note elsewhere, trying to get appointments at that hospital has become increasingly difficult; my spouse recently was told that an appointment would be at least a year out, from 2 different specialties. And we’ve had significant issues with several different community hospitals (although I just had a great experience at one).
That's not the original argument though, right? The statement was that, as a rich country, and the rich spending even more on healthcare, we should expect that healthcare costs are higher here (in the aggregate)
When you're looking per-capita you're including all those richer people who pay more for healthcare, and you said we were paying more and having worse outcomes for that healthcare, which doesn't seem to be accurate (I thought maybe with infant mortality, but that seems to be incorrect)
That said, we _can_ provide more support to low income people to get better healthcare - the ACA did a lot of this. But the fact that we spend so much more doesn't necessarily mean we're doing something wrong with the money we _do_ spend.
https://worldpopulationreview.com/country-rankings/infant-mortality-rate-by-country.
The US is 50th in infant mortality worldwide, below Russia, Bulgaria, Cuba, Greece, and Belarus. And it's not just infant mortality, as I note above. All of the rationalizations keep looping back to inadequate healthcare access to those with minimal or no insurance, and a single-payer system helps resolve most of those access issues. It's not the whole answer, but it helps, and, as I note above, it will reduce costs unless we're the most incompetent deveoped country on Earth.
Thanks for the link Ken.
Obesity/Diabetes could be diet/culture lots of other things other than healthcare.
The Infant Mortality one surprises me though, enough to look it up to see if you got it wrong but doesn't look like it. Even leaving out Norway or something with it's very low rate, the CIA website (presumed unbiased on this) has us at like 5.1/1000 vs U.K. 3.79
(The numbers for the US from different sites vary from 5.1 up to almost 5.9, but even the low one at 5.1 is well above the U.K. number, and the U.K was the first country I saw that I thought 'we should be similar to them')
https://worldpopulationreview.com/country-rankings/infant-mortality-rate-by-country.
You'll have to leave out more than Norway to get close to the US numbers. While infant mortality rates are declining, they're still too high.
I agreed with you that's what the chart said, even leaving out the outlier of Norway (that's why I picked U.K. and showed it looked bad even vs them)
But Ken's link in the other comment makes a compelling case for it being mostly about how things are recorded.
He got it wrong.
>US costs are high because we also provide treatment to a lot of people like chronic drug addicts that other countries would just let die, as we see in the Canadian MAID program.<
Healthcare in America costs more than in any other rich country mostly because medical goods and services are more expensive in the US (unit costs). It has virtually nothing to do with keeping people alive who would be allowed to die in Europe or Canada.
The US homeless rate is not the worst among developed countries, but even the homeless have more access to healthcare than in the US.
Thanks for pointing out the profligacy of Reagan, Bush II, and Trump, and the deficit reducing policies of Clinton and Obama. It cannot be reiterated enough. I swear, people love Republican rhetoric more than reality.
I don't think it's coincidence, but it's definitely a pattern. Reagan's defense spending, Bush II's unfunded wars, and Trump's unfunded tax cuts were deliberate deficit spending. The Democrats elected afterwards righted the ship and acted responsibly. And I guess thank goodness, because Democrats could act to enrich themselves just like the Republicans did, enshroud it in "freedom" language just like they do, and we'd be in the deficit spiral Argentina is in.
Almost everything I hear about this weird Nick Gillespie cosplaying dude gives me the warm and fuzzies inside.
It’s actually quite stunning to see what a basket case Argentina has been economically for about 100-120 years now. If I’m not mistaken they are one of the few examples out there of a country going from being a “rich” country on a per capita basis to a “middle income” or even poor one*. Again if I’m not mistaken almost every “rich” country circa 1900 is still a “rich” country today even if their relative status compared to other countries has declined (France is a good example).
I know the glib answer is political turmoil and bad economic policy but again, see 20th century France. Partially occupied by a hostile military twice in 50 years. Immense political turmoil resulting in multiple new republics. Some extremely left wing economic policy that even a progressive like me thinks is harmful and counterproductive. And yet even today, we’d say France is one of the richer and more pleasant places to live in the world.**
*If I had to take a stab at which country is most likely to follow Argentina’s path next 50-100 years it’s U.K. Their economic sluggishness is now going on 15 years. Combined with an aging population whose older voters are seemingly way more reactionary than even older voters in America. If I had to bet, I’d still say UK is likely to still be a “rich” country in 25-50 years (their central bank being much more trustworthy and sound then Argentinian is one big reason) but man wouldn’t shock me.
** If I had to guess I think policy debates about best economic path to take just wildly underrated first mover advantage and path dependency. With notable exceptions of places like South Korea and Singapore, rich countries today are the same as 120 years ago. Heck China is really still a “middle income” country and it seems like they are heading into serious economic headwinds that could stall their growth on a long term basis.
I read the first paragraph and heard alarm bells going off in the UK
I think that serial debt defaulting is a big part of Argentina’s idiosyncratically bad path. Not paying your bills —> higher borrowing costs —> more difficulty managing your fiscal situation in the future.
Agreed. But still interesting to think why they’ve been uniquely terrible when it comes to defaulting (after all, not only county to default or have runaway inflation)
Thinking about this, the Argentina example sort is evidence that the “the great man of history” theory of history has merit. Or “the terrible man of history” as in this case the uniquely destructive variable may be Peron himself. It’s amazing to think about but it’s possible to argue that Peron was more damaging to the long term economic prospects of his country than either Stalin or Mao. Which is nuts to even contemplate but again might actually be true.
Peronism was bad for Argentina’s growth trajectory, but the country’s history of fiscal instability is much older (it defaulted on sovereign debts in the 1820s and 1890s), Peron himself never defaulted, and the hard-right juntas that tossed the Peronists out of power in the 1950s and 1970s defaulted three times.
I actually think that the common denominator has been a succession of relatively weak/low legitimacy state institutions which were bad at raising revenue (or, in the case of the Videla regime, were afraid of raising taxes because they depended on particular business interests for support.)
>I actually think that the common denominator has been a succession of relatively weak/low legitimacy state institutions which were bad at raising revenue
I'd add that bicameral presidential systems have a tougher time getting laws passed- you have to navigate 3 separately elected bodies who are all answering to a different electorate. A President is the nominal but not real head of their party- everyone in the House and Senate got elected separately from him/her, so they don't really owe them that much.
Then throw in that they're all using proportional representation, so now the President's party probably has 20% in 1 or 2 houses, 30% if he's lucky. Imagine poor Lula trying to get legislation passed in Brazil- he's got to navigate 40 (!) separate political parties.... Just a disastrous way to run a country
As Matt has noted in what might be his most famous Vox article, there’s a reason America does NOT recommend our system to other countries anymore.
We recommended it to Afghanistan, and it swimmingly over there! 😬
"Economic growth is exponential."
It's exponential for the catching-up countries too. Just because our peculiar method of measurement requires the use of logarithms doesn't actually make the problem harder.
I mean just from Wikipedia. https://en.m.wikipedia.org/wiki/Economic_history_of_Argentina
A few nuggets “By 1913 Argentina was among the world’s 10 wealthiest states per capita”. And “first three decades of 20th century, Argentina outgrew Canada and Australia in total population, total income and per capita income”. I highlight the last two because these are also two countries who’s economies have grown in large measure due to abundance of natural resources.
I will say I agree that petro states seems like the most likely candidates to have precipitous economic falls given advances in green tech and lack of investment in non oil parts of their economies.
Equally shocking when you consider how similar Argentina is, socially and historically, to the US/Canada/Australia.
Does not being English-based make it harder for Argentina to get knowledge-economy immigration(vs your examples of Canada and Australia)? Spanish is very widely spoken, but mainly (AFAIK) as a first language, so not something learned by potential emigrants to another country, unlike English.
That is, if a potential programmer from Vietnam wants to immigrate, is it more likely that that person knows English or Spanish?
(Edit: Added a parenthetical to clarify a statement)
"Does not being English-based make it harder for Argentina to get knowledge-economy immigration(vs your examples of Canada and Australia)?"
No, but a basket-case economy does; if your economy relies on immigrants for productivity growth, then a short period of economic mismanagement can induce a vicious spiral.
In its previous try, Argentina had a currency board: every peso in circulation was backed by a dollar in the central bank vault and you get a dollar for your peso. Same system was used elsewhere. HK with the USD, Estonia and Bulgaria with the DM and later the Euro (and Ecuador before with the USD). A currency board is a much tighter arrangement than a mere peg but both mean giving up monetary policy. If you have a currency board or peg, basically your interest rates follow those of the Fed (Bundesbank, ECB etc) and your central bank interest rates are those that are set to best meet the US (German, Euro area) policy problems, not your own. If the US economy needs high interest rates while you're economy needs a push in the back, you're screwed.
Btw, Argentinian trade with the Euro Area far exceeds theirs with the US. The USD may not be the optimal partner.
There is a not very technical macroeconomics/monetary economics textbook on monetary unions that is updated every couple of years, especially in the light of Euro area experience: Economics of the Monetary Union, by Paul De Grauwe - recommended. De Grauwe is a great author (professor, ex-senator, ex-central bank manager) and found the best explanation in the aftermath of the banking crisis why Spanish interest rates on public debt were so much higher than UK rates despite their much lower debt/GDP.
Argentina's a great holiday destination. Nice people, outstanding nature - mountains, glaciers, lakes! great food (a poster here said steaks were overrated: Argentinians like their steaks almost raw which is at the opposite end of the spectrum from typical American taste :) ). And Buenos Aires is a beautiful city. Its nice neighbourhoods are like Paris and Madrid neighbourhoods with 4-6 floor high apartment building but done even better. Unfortunately, decades and decades without maintenance, a lck of painting, corrosion, missing street tiles etc. Very sad.
While it may be harder to help Argentina move to the dollar, it would be in the national interest to have such a large regional neighbor on the same currency. Foreign investment from tourism can really affect their coffers at a time of need and that’s way easier to push with a stable currency (& beautiful country!) which was only 1-2% of gdp before covid. In the shifting geopolitics today the US should make the over-investment in our south american neighbors as a sign that we’re committed to the region
Kind of nit picky but Buenos Ares is ~4.4k miles away from Miami. For comparison LA-NYC is 2.5k miles and NYC-London is 3.4k miles. Argentina is not close to the United States at all.
Sometimes I think people figure we’re closer to the lower half of South America than we are just because we share the same landmass.
Attitudes on this may have changed, but my understanding back when Argentina first tried dollarization was that the Federal Reserve hated it because it complicates U.S. monetary policy.
Yeah this seems like it's *at best* recapitulating the problems with the Euro (monetary union without fiscal union causing Argentinian prices and debt instrument interest rates to become unmoored from the underlying dynamics of the Argentinian economy and subordinate to U.S. monetary policy) and under any kind of reasonable set of assumptions allows Argentina to distort global demand for dollars in a way that makes the Fed's interest-rate setting job harder.
Matt argues that a credible currency peg can solve part of this because there doesn't need to be direct demand for dollars, just enough credibility from the banking system that redemption for dollars is unnecessary. but (as Matt also points out) Argentina is in the position of having already crossed that Rubicon....arguably multiple times. Also to the extent the peg remains fixed it still seems like it recapitulates Eurozone disease by turning dollar inflation into peso inflation.
There are certainly risks, but OTOH being able to stabilize a country with the size and opportunity of Argentina provides incredible benefits as well for all sorts of economic & diplomatic reasons in the long term. We can learn our lessons from other efforts too, the sheer physical distance between the two countries allows for far more unique monetary levers that could be pulled between countries than the Europe could feasibly accomplish. Pumping dollars into specific Argentinian sectors if needed shouldn’t really impact the US markets much if it’s not needed here.
I unfortunately don't recall the specifics at this point as it was just briefly mentioned in a class on economic development I was taking and I haven't had much other reason to think about it since.