So.... I’m currently working in Argentina. In fact I’m in a taxi in terrible traffic on my way to immigration to get my work Visa. Been here for 5-days, but work here pretty regularly. I have lots of Argentinian friends and coworkers. So here are some observations and anecdotes.
The blue dollar rate is about 700 right now. Double the official rate of 350. And things are already fairly inexpensive.
The blue dollar has become so prevalent that businesses are will post prices in dollars and accept them openly. Before it was more hidden.
My project manager who is a good friend and most of the engineers support the new libertarian dude because as guys with good jobs they are the ones footing the taxes for the unemployed.
When I say good jobs... that’s relative. They make way less that I do in the US even though they are my bosses.
The justification for voting for Milei even though anyone knows he is crazy (his nick name) is that the smart politicians have fucked things up so badly, so better new mistakes than old mistakes.
The steak here is overrated.
People seem a tiny bit more stressed, less happy than I’ve seen in past.
LNG powered taxis are very popular here. They all have compressed gas tanks in trunks and have vehicles modified.
The cooler weather in BA is welcome compared to the heat in the US.
There is a housing shortage for rentals right now. The Government passed a law saying that landlords can only raise rent once a year. Given the 150% anticipated inflation rate, many landlords are reluctant to rent, or have to ask for higher prices to anticipate the future rates... people instead do a lot of short term contracts.
So many Russians have applied for asylum here due to the war and fear of being drafted.
Argentinians either buy dollars and store them in safes or spend their money asap. Putting pesos in a bank is like throwing money away.
The largest bill is 1000, which is basically a dollar fifty. It make’s carrying money hard. If wads if cash.
Houses are sold in cash only. Literally. People bring bags of cash.
Great Pizza.
I love Argentina and it’s heartbreaking to see such a great country suffer from compounded mistakes.
There is no way to get out of current situation without a lot of pain. So government’s keep kicking can down road.
A few years ago there was big backlash against Venezuelans. Seems to have died down.
I don’t think there is so many Russians that it’s an issue. Many are working in hospitality due to language ability.
Immigration is generally good. But in Argentina, the unemployment and other issues are so bad, I’m not sure it’s a positive or negative. Definitely not the same benefits if they went to US instead.
Yeah, I think a generally well-run economy like America's could absorb people more smoothly than one like Argentina's.
And I do wish the US (and the EU, and a lot of other countries) would think more about how to encourage educated Russians to leave the country permanently.
Especially if we select for, recruit for those that will make a big contribution.
I know of and Indian tech company that makes the US it's world headquarters. They manage the work and resident permits well enough, but basically we ought to hand them resident permits and applications for citizenship as soon s they get off the plane.
So of course my eyes focused on the important things; which good is overrated and underrated.
I shouldn’t be surprised that pizza is quite good given the long history of Italian immigration to Argentina. But good to know regardless. I am curious why you think Argentinian steak is overrated. I’m wondering if it’s like wine. Italian and French wines are great but it’s not all that clear French or Italian wine is on average better wines from different regions. It really depends on the climate and what grapes are suited to that climate. So with steak is it “can be quite good but not sure it’s better than a good steakhouse in America” or “actually Argentinian steaks isn’t that good at all”.
Argentines generally like their steak well done. You sometimes have to fight with the waitstaff a bit to get a true medium rare or rare. That was the main obstacle for me. I had some great medium rare steaks when they were actually medium rare.
So of course now I’m wondering why people in Argentina like their steak well done. That seems like on oddly specific cultural phenomenon. Like I genuinely can’t think of a good reason why that would be a norm. Best guess is years ago, it was done as a way to make sure you didn’t get sick. And since modern sanitation didn’t come to large parts of Argentina compared to America until much later, this norm has stuck around. But again a hypothesis/guess at best.
But even for steak that isn't really an issue is it? Burgers benefit from being well done for sanitation/health, but steaks just need the outside to be cooked, AFAIK.
Right. I should add qualify “half baked hypothesis/guess at best”. I’m genuinely trying to figure out the why here. Maybe some chef years ago was famous for well done steaks. He became influential and the rest is “path dependency” history.
So do give another example. At first glance it seems weird that European countries prefer beer warmer. But if I’m not mistaken I think this is an odd legacy of prohibition. Namely beer made in prohibition was watered down. When prohibition ended, watered down beer became a norm and one way to deal with beer tasting not as good was keeping to very cold.
Not entirely sure this 100% accurate but at least it’s a plausible story of what seems at first glance a random cultural difference.
I've heard people give the sanitation/health rationale but can't say with any confidence if it's actually true.
You'll have no trouble getting a medium rare steak at one of the pricier places. If you have US dollars, it's still very affordable. At cheaper places you just need to be very adamant and it helps to use some of the local terminology like "jugoso" (juicy) for medium rare.
Argentine steak is cooked "on the embers" of charcoal. Ie over a very low heat and much longer time than Americans are used to. As a result, well done steak is actually quite tender and tasty, as opposed to the shoe leather you would get in the US.
Thanks for posting this, I enjoyed it. Small thing, but I enjoyed hearing that the steak was overrated and the pizza was good. I've heard Argentina is the place to move for cheap and good steak and wine.
There are a fair number of Argentinian restaurants in Miami that are basically Italian/Latin fusion. That Argentina would have good pizza doesn’t surprise me at all. But it’s not definitive proof of your sanity.
You had me until great pizza... I don't know how the Italian immigrants screwed it up, but I've had pizza all over the world, and Argentina has some of the worst (it's basically all cheese, so the crust becomes inedible). Otherwise, the food is great and inexpensive.
100% agree with this take. My memory of pizza from when I lived there 16 years ago is all soggy cheese, making it basically impossible to not have a doughy pizza and also either no sauce or weird sauces. Also, 100% on your empanada take below.
Very true. When I was last in BA almost 10 years ago, the only memorable (in a good way) pizza that I had was at a Neapolitan-style place called Siamo Nel Forno. I tried Argentine-style pizza a few times from places like Kentucky Pizza (actually quite a popular local chain, apparently), but also some of the other more respected spots like Pizzeria Guerin. Not a fan, needless to say. Their empanadas, however, are a different story, and I think they do them better than any other countries I've tried them in (baked but not fried, interesting mix of fillings, sometimes relatively healthy ones). With the right fillings, they're pretty much the perfect on the go food.
Boise might be out there, but we have a place that sells Argentinian Empanadas they actually have two locations. Delicious. If you are ever there, check it out.
but, yeah... Brazil has some good ones... Argentinian is the best.
LNG Taxis were (are?) big in Turkey starting in the late 90s. We found them a bit terrifying at first (and they fit less luggage) but they don’t seem to actually be that dangerous in practice.
Thinking about it, taxis seem like an ideal application for LNG. Lots of time in densely populated places where air pollution is a concern, and they presumably go to some central location at night where they can be trickle-refueled.
I lived in Argentina 16 years ago, so I really enjoyed your comment and take on the situation today. I sympathize with the waiting in traffic to get to your visa appointment, and to visa issues in general. I still have a very vivid memory of waiting to get my visa renewed and sitting for what felt like hours as the visa officials just passed around the mate. I will have to disagree with you on the pizza though. At least from my memory it was worse than pizza in the states (though obviously much cheaper) and sometimes truly bad in bizarre ways.
I am not a big pizza fan, so I’m not gonna argue that your opinion isn’t more correct than mine. I just happen to have some really good pizza yesterday.
I know you are joking but just thinking about it, another go would really be a nightmare. Both sides (but mostly the Argentinians) inadvertently made choices that limited casualties they inflicted.
Remember the personal success formula that went around a few years ago -- get at least a high school education, work full time, and marry before having children? Generated a lot of discussion.
There is a similar formula for countries: Property rights, the rule of law and a market economy. Those three are foundational. You can put all sorts of tax-and-redistribute policies on top of this foundation, but without those three, there isn't enough productivity and growth to redistribute much. And if redistribution goes so far as to weaken property rights, the foundation starts to crumble.
I'm not an expert (heck, barely a novice !) on Argentina. But I suspect the underlying issue is the foundational items aren't present. And those are cultural more than something the IMF can impose. I wish I could be optimistic.
A fourth pillar that I’d add is “central government that reliably pays its debts.” This lets your government borrow at reasonable cost (for operating cash flow, positive-EV investment, war/emergency response, and macroeconomic stimulus purposes) and creates a safe financial asset in your currency (which facilitates pretty much every kind of more complicated financial activity.)
Argentina is particularly bad at this in ways that have incurred huge costs, and if I were a voter there, I’d cast a ballot for Patricia Bullrich (who wants to put Argentina through shock therapy but doesn’t want to abolish the central bank) in large part because getting the country back to something like creditworthiness would have a huge impact.
Hamilton was extremely right about this, and his success at convincing the rest of the US’s early elite to take it seriously is one of a bunch of favorable factors that helped the US become a powerhouse.
I agree, but it's truly one of the weirder things historically speaking -- Hamilton saw this issue despite having far fewer past examples to look at then many other subsequent nation-builders, who not only had more examples but also specifically had the example of Hamilton available to them.
The recent historical comparison that informed Hamilton’s thinking was Great Britain (formed a stable central bank in the late 17th century, got very fiscally reliable) vs France (kept accumulating way too much debt by trying to fight everyone in Europe at once, central bank imploded in early 18th century after stupid land speculation, serial defaults via currency debasement.)
Over the period, Britain had more functional state institutions, enjoyed more growth, and saw significantly less inflation than France did. Hamilton recognized the value of its approach.
Hamilton’s background as a private sector banker probably also helped him— and unlike bankers turned finance ministers in Europe (ie: John Law in France), he was also a prominent former military commander with an independent political power base, which gave him both a lot of credibility with other decision-makers and he really cared about building state capacity.
> A fourth pillar that I’d add is “central government that reliably pays its debts.” This lets your government borrow at reasonable cost
This is a pop-econ take that does not reflect the empirical evidence.
One of the enduring puzzles in sovereign debt econometric research is that defaults DON'T seem to have significant impact on borrowing costs or access to lending.
From one paper on the subject, "Theory predicts that sovereign defaults result in reputational damage and the government’s exclusion from capital markets. But empirical support for this proposition is weak at best, as shown by 30 years of research."
Lots of sophisticated analysis have tried to understand why decades of research finds this. The MOST you could say is what one pair of recent research notes: "Despite the importance of the question, there is little consensus in the literature."
It is hardly the obvious slam-dunk that would warrant being elevated to one of the four pillars, since it is based on feelings rather than evidence.
Sovereign debt spreads on same-currency instruments strongly imply that investors charge higher interest rates when they perceive more credit risk. Default not affecting perceived credit risk seems… almost unbelievable?
Edit: It’s also plausible that investors can, at least probabilistically, foresee defaults, and start pricing them in before they happen (especially since most are haircuts or term adjustments rather than total repudiation).
The question here is not access to capital markets, but on what terms?
There is a reason Argentina was involved in a nasty court dispute with a vulture fund, for years, which led to things like ships being seized in third countries and obscure US district court judges becoming household names in the country
The people who are interested in investment in a country which has those kinds of issues are doing so because they see a chance for some really unequal bargaining power, and are willing to play hardball
Retail investors flocked to making currency swaps on the South African Rand after it suffered ratings downgrades and numerous financial scandals in the government and revenue agency. SA had plenty of exposure to capital markets, but on terms that were ruinous
College macro courses teach those three fundamental laws of a successful economy on day 1. It’s basically impossible to generate sustained prosperity absent a competent and trustworthy government.
I hold out some hope that one great leader can engender that sort of long-term confidence in the public, but in my reading of history you usually need to see several decades of sound policy management before a nation’s economy takes off. Needless to say, Argentina is not on that track.
For a country like Argentina I agree these are the correct set of prescriptions.
For Kenya or Ghana they take a back seat to building state capacity and then engaging in fiscal repression to build infrastructure and incentivize foreign manufacturing firms to employ folks and transfer expertise. You need a degree of rule of law and some market openness but not a ton.
Only once you have a foot on the ladder in a meaningful sense do these recommendations really come to the fore.
And even then you need a fourth: facilitate the citizenry capturing a majority of income and productivity growth.
Good post. Poor >> Middle income and Middle income >> rich are different problems which require different policy toolboxes.
Both stages need strong state capacity and a government that can raise revenues and pay its debts well, but the level of complexity you need to get really rich requires a strong private sector to take on more of the planning work.
Worked perfectly well for basically every successful second-mover industrializing nation from the United States on, with varying balances of foreign investment and expertise.
The US, Germany (first time), Japan (first time), Germany (second time) Japan (second time), South Korea, Taiwan, Malaysia, China, Poland, Indonesia, Bangladesh… all pretty much the same (era-adjusted) playbook executed with varying degrees of commitment. Brazil and Mexico executed moderately well on that same playbook between 1930 and 1980 before the Latin American crisis imploded both.
Property rights, the rule of law, investments in education, and ensuring that public money constructs a welfare state and supports middle and working class consumption gets you from China or Argentina to the United States, it does not, in the main, get you from Kenya to China.
If anything this model goes further in smaller countries because the distortions it introduces globally are smaller and it therefore engenders less opposition abroad.
EDIT: I left out the extraordinarily obvious example, the USSR. Fiscal repression and knowledge/capital transfer explain the period 1925-1970 well, as does its failure to pivot thereafter, mistakes China is busily reprising.
Two reasons: if it's much below 90%, that means that some people didn't become literate not because they didn't study at school, but because they never went to school, and that means you completely threw away some brilliant talented people by never giving them the opportunity.
Second reason: even if your 20% illiterate is only people who, even if they learned to read and write were never going to be brilliant super-productive people, you now have real flexibility problems with your labor force.
As a rule of thumb, if people get 4-5 years in school, even not very good school, ~90% end up with basic literacy. You can increase it way above that by concentrated effort, and modern rich countries do exactly that, which is why we get 97 to 99 per cent literacy. But if it's noticeably below 90%, then it suggests that some groups aren't getting a basic education. And that's *bad* because it means you're taking some of your best, most talented people and leaving them on the sidelines.
Universal primary schooling does not ensure that the smart poor kids will have a chance to truly cultivate their minds. In belle epoch France, primary school was near universal, but only one boy in 40 went to secondary school. Very few sons of proletarians and peasants made it into the professions. These kids almost certainly benefited from literacy and numeracy, which could help them become foremen or better farmers. Universal primary school is definitely worth paying for, I just think you are too sanguine
Though I am inclined to write "necessary but not sufficient" for the second time in this thread.
"Universal primary schooling does not ensure that the smart poor kids will have a chance to truly cultivate their minds". True, but the absence of it ensures that they won't.
It's hard to write clearly "if you don't do X then Y will not happen" without implying "if you do X then Y will happen", and I take full responsibility for not doing so.
the absence of a necessary condition makes something impossible. the presence of a sufficient condition makes it certain. there is a huge range of probabilities in between, eg 0.001% to 99.999%.
my point is that free primary education ending after five years might raise the odds of a very smart proletarian reaching his full potential from ~0% to 3%. a couple will get scholarships and go on, most will become higher level drones.
Necessary but not sufficient. It's definitely one of the things that's held back the relatively-well-governed countries in Africa (outside of the, like, five that actually are at 90%). Places like Kenya which have rule of law and property rights but struggle to make 80% literacy have a bunch of productivity problems.
U.S. politics is going to get more Latin American between both of the parties. The disagreement on Medicare is pretty decisive; vast new income taxes will be needed for the new spending Dems want to transfer from Medicare's growth, and I worry Republicans will respond by gradually cheering on grey market economic sectors that are free from reporting taxes.
Yes, TAX and redistribution. The problem is when the redistribution is done via screwing up market prices. That's where US "Neoliberalism" went off the rails. It tried to allow markets to work better (it did not work hard enough and not enough markets but it tried), combined it with tax cuts for the rich and deficits.
The besetting sin of US policy is to try to use other other policies for redistribution and externalities (mainly CO2 accumulation) instead of taxes.
Just saw a clip from gop debate. The only one that matters. Candidates are asked if they’d support trump as nominee even if convicted in a court of law. Egged on by the crowd all but one raised their hands! This doesn’t bode well for the future of the us.
ehhh. I try not to get too worked up about silly things said during a primary. The audience -- GOP primary voters -- is both pretty small and really weird.
P.S. it seems that the crowd loves Ramaswamy. A child* with zero political experience, who is pro Russian and I believe a polytheist** The gop lost its way completely.
*older than me. I still think people under 40 shouldn’t run for President with very few exceptions which he isn’t.
** I have no problem with polytheism as such. However the fact that the gop also doesn’t seems to shows how radically they’ve lost their way. It truly is the party of the mob now.
I wondered about that. Guy says his first of ten truths is "God exists" but he's also a practicing Hindu. My limited understanding of Hinduism is that its a polytheistic religion. Just read his Atlantic interview, this contradiction was not covered at all. What am I missing?
No question. But candidates have to say some things to possibly get some of those Trump voters to switch.
I wish the charges currently being brought against Trump would have happened 18-24 months ago rather than now. Having those trials in the midst of a campaign opens up the possibility for a really bad time over the next 12 months.
There were a number of criticisms of Trump for a few candidates. But I think a lot of them are basically auditioning for Trump's VP slot or cabinet, meaning they don't want to criticize him too harshly.
The US has gone through periods where corruption and officeholder criminality were dramatically more prevalent than they are now (including the high growth late 19th century period) and come out more than okay.
Trump getting re-elected would be bad, and the number of people who are totally fine with it is bad, but the US is very resilient and I wouldn’t bet against its long-term performance.
I don't trust Trump to leave the US electoral system intact, or respect their results if he loses. He already tried to violently overthrow an election; what makes you think he wouldn't be willing to use even more force next time?
I certainly think he’s likely to try, but I’m very skeptical that he could succeed for any appreciable length of time. You need a lot of cooperation from the intelligence services, the military officer corps, and the civil service to pull off a coup, and Trump doesn’t have those things.
Freedom House does not measure the three things I mentioned, though there is likely a loose correlation between high scores on their ranking and economic success.
From their website: "Since 1973, Freedom House has assessed the condition of political rights and civil liberties around the world."
I suspect that being a small nation in the middle of a large ocean is a very economically difficult situation even with excellent leadership making optimal decisions.
I like the acknowledgment here of the similarities between Trump and Peron, who I think is a much underused analog. Trump's influence over the Republican party definitely seems to have a lot of similarities and I suspect once Trump dies or is incapacitated you'll see a somewhat similar "right Trumpism" (emphasizing tax cuts, deregulation, and anti-LGBTQ policies) versus "left Trumpism" (emphasizing industrial policy and protectionism) dynamic develop.
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
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.
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.
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.
Keynesian stimulus is like drinking wine when you feel sad. It works! Wine works even when you aren’t sad, and stimulus will fuel a boom even if the economy is already at full employment.
Old time politicians used to hand out grog on election day. Post world war two politicians went hard for stimulus in election years. Both are smart politics.
Alas, booze and stimulus both have cumulative toxicities. Too much booze gives you cirrhosis and too much stimulus cases Argentinitis. If you simply can’t control yourself, it’s probably best to abstain. However, abstinence is inferior to temperance, which delivers most of the benefits with few of the drawbacks.
But what, exactly does temperance look like? That is both a philosophical and technical question.
No. "Stimulus," I guess you mean fiscal deficits, does not fuel a boom when you are already at full employment. IF the central bank offsets the stimulus enough to stay on its inflation target, the deficit will raise interest rates and shift resources from private investment to consumption and that may be politically popular.
Total abstinence from fiscal deficits is best. [Well, borrowing to finance high-yielding investments is OK but even there raising the revenues with consumption taxes would be better.]
I strongly disagree with TLH here - I think the Keynesian arguments for consumption-smoothing during economic depressions seem extremely strong and well-vindicated - but the steelman position for an anti-deficit viewpoint seems to me to be roughly threefold:
(1) Interest payments on the Federal Debt are basically just taking tax dollars - that is, skimming money from the productive exchange of goods and services in the real economy -- and setting them on fire. It's imposing deadweight loss on future generations (viz., taxation) to fund present expenditures *at best,* and increasing the risk of de facto insolvency[1] at worse (the great irony of interest rates being that as you increase the rate to cover insolvency risk you *also* increase the risk of insolvency[2].) Furthermore, once interest rates become a problem they have a tendency to become an albatross around the fiscs's neck: a massive opportunity cost with respect to other spending priorities that is *also* a drag on the real economy due to the need to scrounge up the funds to cover payments.
(2) Investment into assets that yield higher returns than the interest moneys due *in theory* totally obviates (1), but it's not necessarily going to be the case that the Federal government is all that great at calling balls and strikes in the manner required. Infrastructure is plausibly a high RoR investment, but we also already *have* a fuckton of roads and bridges and airports and whatnot, and ensuring that we're optimizing for interest-rate-beating RoR rather than pork seems hard, noisy, and unreliable. [3].
Moreover, we know for a fact that the government makes a lot of spending commitments that are plausibly negative-RoR but enormous in magnitude and difficult to cut -- e.g., all of Social Security. You don't have to hate old people to recognize that "shoveling money to retirees" is one of the least efficient allocation of capital you could make if your goal is to raise future aggregate economic output above current prevailing interest rates. So one can be reasonably skeptical of the the "Federal government as prudent investor" rationale for allowing it to incur the interest rate burden of point (1).
(3) Some pundits - for example, I believe Krugman - note that inflation + nominal GDP growth can predictably make long-term deficits basically irrelevant -- today's 2.5% deficit is tomorrows 1% and the next day's .5%.
The trouble is that the validity of this observation is obviously strongly sensitive to actual prevailing rates and growth numbers (even assuming the rosy picture of perpetual GDP growth and nominal inflation) and it has no self-evident limiting principle at which the Federal government is obligated to keep deficits restrained --including during good times when Keynesian economics says to pay down the debt rather than engage in deficit spending.
In practice, we see that the tendency to profligacy does appear to dominate the impetus for prudence, at least in the last 23 years or so - we seem to go through epochs of relative stability in debt-to-GDP ratio for years at a time followed by punctuated leaps in those numbers to its current value of roughly 123% debt-to-GDP (compare in e.g., the 60% range in the 90s).
So the empirical case that the U.S. is just *bad at being a responsible Keynesian actor* could conceivably militate towards an argument not to engage in deficit spending in the first place because the country is demonstrably bad at responsibly managing its debt load during expansionary periods - that its fundamentally intemperate with debt and thus should prefer abstinence in view of its unwillingness to rein in spending.
The best counterargument that I'm aware of to this particular line of argument is that debt-to-gdp ratio doesn't seem to actually *matter* to, e.g., Japan, like, at all...but AFAIK most observers are still basically scratching their heads over why, since it doesn't seem to make a lot of sense even if it's demonstrably true.
[1] Printing money to cover debt payments in an inflation spiral is not a solution and I don't think the commentariat needs much convincing otherwise.
[2] This is obviously interest-rate dependent, strongly modulated in the U.S. by the "exorbitant privilege" of being a world reserve currency and treated as a risk-free asset, but given debt-ceiling brinksmanship and the whole (admittedly somewhat stupid) credit downgrade debacle it's not nothing.
[3] The advantage of Keynesian spending is that boosting consumption becomes a good in itself with much less pressure to make positive-sum bets rather than needing the government to make the right calls as to allocations in public goods.
Japan gets away with 200%+ debt/GDP because they have such a high internal savings rate. The US doesn't have that.
Sidebar: home prices in Japan have a tendency to deflate over time rather than inflate, which means that they are not a good investment vehicle. I wonder if Japan's high savings rate has to do with that?
From what I understand it is customary to knock down and rebuild homes in Japan, rather than occupy a 'used' home. Thus the building itself doesn't store much value, since any buyer is likely to completely replace it.
This is somewhat less likely than it used to be, because Japan stopped building houses out of tissue paper and they now actually have things like insulation.
I can see why a high savings rate would be deflationary (and why deflation can make savings relatively more favorable), is the idea that deflation (or less inflation) boosts the real RoR of government bonds because future yen are relatively more valuable, and thus the higher RoR compensates for possible solvency risk? Or is there a mechanism by which the high savings rate somehow directly contributes to reduced risk of insolvency?
Both? Best I can tell is bonds and stocks denominated in yen are the best investments for regular Japanese. They don't have many other good options, so they accept lower interests rates, which is good for government borrowing costs. Add in stagnant productivity growth, a shrinking population, and now decades of central bank monetary stimulus, low interests rates have been sustained.
It’s not that, it’s “nothing anyone but the central bank does matters because monetary policy can/should/must correct for all of it to achieve employment/inflation goals.”
Which is just profoundly, wildly out of step with observed reality.
The problem in Argentina is that even dollarization will not work. It too can be undone. Pending fiscal and trade reforms, the best thing the central bank can do would be not peg at all, it's the least costly way to be fiscally irresponsible.
The Euro was mistake. Trade integration made a lot of sense; money no. Specifically what screwed southern Europe was a) lots of investors mistakenly thought that the removal of currency risk on loans -- everything was denominated in good old Euros -- removed credit risk, that the loans would not in fact be invested well enough to be repaid. (Chinese real estate, anyone?). But it is worse. The inflow of investment raised the prices of non-traded goods and wages relative to Northern Europe. Precisely because Southern Europe could not devalue you got unemployment further reducing the ability to repay loans. (Mortgage defaults in the US 2009, anyone?). But even this could have worked out OK if the ECB had engineered enough inflation in Germany and northern Europe to let relative prices in southern Europe fall. But the ECB had an insane fixation on low inflation -- much worse than the US Fed at the same time -- and the adjustment was much slower and more painful.
If you think that the Euro was a mistake, would you say the same thing about Alabama and Mississippi having the same currency as California and New York?
I think its been pointed out many times that the difference between the two is that the US has a monetary AND fiscal union, while the Euro is only a monetary union. One without the other is hard.
Yeah, but the problem isn't the Euro. The Euro is great and solves a lot of problems (try needing a currency exchange every time you cross a state border or try having companies that operate in multiple states need to account for multiple currencies). The problem is the fiscal policy (and also the education policy, and the R&D policy, and the welfare state policy and...).
Croatia joined the Euro just this year! I think that it's not an accident that no country has left the Eurozone (even though one country has left the EU), but new countries are joining. I also don't think that Southern Europe would have done much better without, for example, access to the Euro area banks and funds (and vice versa, I don't think that it would have been better for Banco Santander to have a barrier to deal with the Eurozone).
It's much easier to fix the fiscal and education policies than have one country (which is the end goal of the EU project) with multiple currencies.
Croatia joining the Euro doesn't mean that the Euro is a great idea. It probably means that if you want to become richer in Europe, you want to be in the same system as the rich countries there, even if it means having to accept some of the bad aspects of that system, as Greece (and to a lesser extent Italy) found out to their dismay a while back.
I think that once you are in a union, getting out is usually a bad idea e.g. the UK compared to the Swiss or Norway. That being said, I think Greece would have been better off being out of the Euro than in for the last decade. Less certain about Italy, but if pushed, I would say be out.
It’s funny. There are arguments to be made on a pure economic level that America is not actually an ideal fiscal union for reasons you allude to. A single currency for both NYC and Alabama is probably not ideal given vast economic differences, most important of which is the former being much richer than the latter
What makes it work is our fiscal union that delivers big net fiscal transfers from NYC to Alabama. It’s generally used as somewhat cheap political points to bash people like Mitch McConnell and Rand Paul for their sort of fake fiscal conservatism*. But it’s also pretty
true that like 7 metro areas in America transfer tax receipts on net to the rest of the country.
* I say cheap political points because Democrats like me are supposed to be in favor of something like this. One of the core reasons I’m a democrat is I think it’s a good thing that tax dollars from a finance bro like me goes to help a poor child in east KY get a doctors appointment.
Should clarify. Meant to say in some ways we’re not an ideal fiscal OR monetary union. I think I got my point across from context with what I wrote next but feel like I should make a little more clear.
I've never understood this argument. The federal government runs a perpetual deficit, has every year of the country's existance except for like three years in the 1830s. Every state gets more money than they pay in, because the federal government pays out more than it takes in.
(Italy is a G7 country and one of the pillars of the EU economy.)
The EU has transferred a lot of money to the former communist countries since 2004 to help them catch up (and that's the right thing to do), as it had done also in previous enlargements. I think that helping all these formerly poor countries converge to the EU average (and some have done so definitely better than others but that's a story for another day) is one of the greatest accomplishments of the EU.
Yes. To put it another way, California and Mississippi are covered by the same fiscal policy, same federal budget, both receive the same Social Security, Medicare, Medicaid, etc. Not the case with Germany and Italy.
California and Mississippi aren't covered by the same state budgets (Medicaid covers even different categories of people in the two states). It might be less known in the US, but there is an EU budget (I just found out that it even has its own Wikipedia page!).
I just opened the page of the Connecting Europe Facility which finances infrastructure projects throughout the EU with EU funds (https://cinea.ec.europa.eu/programmes/connecting-europe-facility_en) and on the first page they advertise: 1) a new railway bridge over the Regalica river in Poland, 2) a greener port in Genoa in Italy, and 3) a trans-European road for Poland. Before that there were things like the 2014–2020 Financial Framework. Should the EU budget become even larger? Sure! But it's not nothing. During the economic crisis I happened to have been on vacation in affected Southern European places and the EU-funded roads there were honestly much better than most (all?) US Interstates I've been to.
I mean, come on. The ratio of federal spending to state spending in Mississippi is high. The ratio of EU spending to national spending in Italy is low. It's a really, really big difference in scale.
Sure, but I think that the largest part of the US budget is Social Security, Medicare, Medicaid, and the military. Pensions, healthcare, and the military are all handled at the member state level in the EU and with the exception of the military, I think that it's a good idea to do so. Also, why are we talking about Italy again? It's a G7 country! Bulgaria is an example of a country that disproportionately needs (and disproportionately gets) funds.
PS: I find it a bit funny that this conversation started with me asking "Why is the Euro bad?" and everyone is responding about how the fiscal policy is the real problem. I agree!
I’d tweak and say Germany had (and continues to have) an insane fixation on low inflation and deficits. It’s not a mistake that the best ECB chair was an Italian.
Has the ECB had a lot of German Presidents? I agree that Draghi was great, but I also think that an underrated factor for this was his education. I think that Americans just can't quite get how much better MIT (and UC, Berkeley and Stanford and...) is compared to anything the EU has to offer.
Agree about education. I mean quality of our universities is an underrated comparative America has over the rest of the world (one GOP pols seem determined to ruin to win short term political points but I digress).
I should clarify. You’re right to say that strictly speaking there haven’t been many German presidents. But from I’ve read, German influence on ECB thinking and actions has historically been very strong. And simply by being the biggest economy in the EU they exert pretty huge influence on general EU policy.
I think maybe a good analogy is influence of Silicon Valley and Wall Street on American policy. On the one hand it’s true that actual political representation of NYC and SF in the federal government is quite small. In fact as Matt correctly points out, it’s the opposite; they are wildly politically underrepresented on a Federal level. And yet I don’t think I’m blowing anyone’s minds away in saying interests of Silicon Valley and NYC finance have wildly disproportionate impact on fiscal and FED policy. Even if it’s not strictly true that a hedge fund manager or VC exec is in charge of the FED or a sitting President.
I mostly agree with your analysis, but I would like to say that German influence goes through a lot more democratic control. I would say that in my view German influence is more evident in the Eurogroup (which is a political body) than the ECB (which tries to stay above politics). The Eurogroup isn't a dictatorship and Schäuble had all this power during the Euro crisis in large part because he expressed the feelings (and had the votes) of the non-PIGS members towards PIGS. He was far from the only hardliner in the negotiations; if anything, I would say that Merkel may have forced him at different stages to be more "lenient" than what he (and the Dutch and the Finns and...) would have liked. The US doesn't operate in the same way, with its economy run by a committee with one member from each state, so it's hard to find a good example here, but I think that Americans tend to underrate that a (large, I think) portion of German power in the EU comes through the support of other member states.
Yes, I'm mad about a lot of things that happen in the EU. The US is great, but explaining that "my homeland sucks in this and that respect, so I now live in the US" isn't a great feeling. I would say though that a good example in American history of what's going on with the EU is (in my opinion) the trajectory from the Articles of Confederation to the Constitution. It's just much harder to do with established nation states that have fought a billion wars against each other. But I hope we'll get there!
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 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.
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.
Yes, I remember back when Obamacare was being passed and all the coverage was about what people thought was in the bill, but basically none of the coverage was interested in what was actually in it.
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.
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.
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.
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?
"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.
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.
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.
" 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 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.
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.
>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.
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.
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.
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).
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')
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.
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.
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.
So.... I’m currently working in Argentina. In fact I’m in a taxi in terrible traffic on my way to immigration to get my work Visa. Been here for 5-days, but work here pretty regularly. I have lots of Argentinian friends and coworkers. So here are some observations and anecdotes.
The blue dollar rate is about 700 right now. Double the official rate of 350. And things are already fairly inexpensive.
The blue dollar has become so prevalent that businesses are will post prices in dollars and accept them openly. Before it was more hidden.
My project manager who is a good friend and most of the engineers support the new libertarian dude because as guys with good jobs they are the ones footing the taxes for the unemployed.
When I say good jobs... that’s relative. They make way less that I do in the US even though they are my bosses.
The justification for voting for Milei even though anyone knows he is crazy (his nick name) is that the smart politicians have fucked things up so badly, so better new mistakes than old mistakes.
The steak here is overrated.
People seem a tiny bit more stressed, less happy than I’ve seen in past.
LNG powered taxis are very popular here. They all have compressed gas tanks in trunks and have vehicles modified.
The cooler weather in BA is welcome compared to the heat in the US.
There is a housing shortage for rentals right now. The Government passed a law saying that landlords can only raise rent once a year. Given the 150% anticipated inflation rate, many landlords are reluctant to rent, or have to ask for higher prices to anticipate the future rates... people instead do a lot of short term contracts.
So many Russians have applied for asylum here due to the war and fear of being drafted.
Argentinians either buy dollars and store them in safes or spend their money asap. Putting pesos in a bank is like throwing money away.
The largest bill is 1000, which is basically a dollar fifty. It make’s carrying money hard. If wads if cash.
Houses are sold in cash only. Literally. People bring bags of cash.
Great Pizza.
I love Argentina and it’s heartbreaking to see such a great country suffer from compounded mistakes.
There is no way to get out of current situation without a lot of pain. So government’s keep kicking can down road.
Sorry for any grammatical mistakes. I’m on phone.
Bonus fact: they love love Messi and Inter Miami games are played everywhere (on repeat)
Sounds like taking in a lot more skilled Russian immigrants would make at least a marginal contribution to the economy's supply-side issues.
A few years ago there was big backlash against Venezuelans. Seems to have died down.
I don’t think there is so many Russians that it’s an issue. Many are working in hospitality due to language ability.
Immigration is generally good. But in Argentina, the unemployment and other issues are so bad, I’m not sure it’s a positive or negative. Definitely not the same benefits if they went to US instead.
I’m happy the Russians got out.
Yeah, I think a generally well-run economy like America's could absorb people more smoothly than one like Argentina's.
And I do wish the US (and the EU, and a lot of other countries) would think more about how to encourage educated Russians to leave the country permanently.
Especially if we select for, recruit for those that will make a big contribution.
I know of and Indian tech company that makes the US it's world headquarters. They manage the work and resident permits well enough, but basically we ought to hand them resident permits and applications for citizenship as soon s they get off the plane.
Argentina isn't a normal country with normal inflation.
Anyone out of Russia who is high skilled probably isn't settling in Argentina. But I am sure there is some human capital coming.
Argentina has a large Russian dysphoria already, so they will fit right in.
So of course my eyes focused on the important things; which good is overrated and underrated.
I shouldn’t be surprised that pizza is quite good given the long history of Italian immigration to Argentina. But good to know regardless. I am curious why you think Argentinian steak is overrated. I’m wondering if it’s like wine. Italian and French wines are great but it’s not all that clear French or Italian wine is on average better wines from different regions. It really depends on the climate and what grapes are suited to that climate. So with steak is it “can be quite good but not sure it’s better than a good steakhouse in America” or “actually Argentinian steaks isn’t that good at all”.
Argentines generally like their steak well done. You sometimes have to fight with the waitstaff a bit to get a true medium rare or rare. That was the main obstacle for me. I had some great medium rare steaks when they were actually medium rare.
So of course now I’m wondering why people in Argentina like their steak well done. That seems like on oddly specific cultural phenomenon. Like I genuinely can’t think of a good reason why that would be a norm. Best guess is years ago, it was done as a way to make sure you didn’t get sick. And since modern sanitation didn’t come to large parts of Argentina compared to America until much later, this norm has stuck around. But again a hypothesis/guess at best.
But even for steak that isn't really an issue is it? Burgers benefit from being well done for sanitation/health, but steaks just need the outside to be cooked, AFAIK.
Right. I should add qualify “half baked hypothesis/guess at best”. I’m genuinely trying to figure out the why here. Maybe some chef years ago was famous for well done steaks. He became influential and the rest is “path dependency” history.
So do give another example. At first glance it seems weird that European countries prefer beer warmer. But if I’m not mistaken I think this is an odd legacy of prohibition. Namely beer made in prohibition was watered down. When prohibition ended, watered down beer became a norm and one way to deal with beer tasting not as good was keeping to very cold.
Not entirely sure this 100% accurate but at least it’s a plausible story of what seems at first glance a random cultural difference.
I've heard people give the sanitation/health rationale but can't say with any confidence if it's actually true.
You'll have no trouble getting a medium rare steak at one of the pricier places. If you have US dollars, it's still very affordable. At cheaper places you just need to be very adamant and it helps to use some of the local terminology like "jugoso" (juicy) for medium rare.
Argentine steak is cooked "on the embers" of charcoal. Ie over a very low heat and much longer time than Americans are used to. As a result, well done steak is actually quite tender and tasty, as opposed to the shoe leather you would get in the US.
I’ve found the meat a little tougher relative to good American steaks. But honestly, I could just be picky or unlucky.
100% on the Italian influence. I’m not a big pizza fan, but do enjoy it here.
Argentian beef is generally grass-fed, not grain fed like most American beef. That makes it less tender, but more flavorful.
Thanks for posting this, I enjoyed it. Small thing, but I enjoyed hearing that the steak was overrated and the pizza was good. I've heard Argentina is the place to move for cheap and good steak and wine.
It could just be me being unlucky. The steak isn’t bad. And isn’t expensive. But just hasn’t wowed me.
I second Pizza > Steak in Buenos Aires.
Thanks. Then I’m not crazy?
There are a fair number of Argentinian restaurants in Miami that are basically Italian/Latin fusion. That Argentina would have good pizza doesn’t surprise me at all. But it’s not definitive proof of your sanity.
That proof doesn’t exist.
You had me until great pizza... I don't know how the Italian immigrants screwed it up, but I've had pizza all over the world, and Argentina has some of the worst (it's basically all cheese, so the crust becomes inedible). Otherwise, the food is great and inexpensive.
100% agree with this take. My memory of pizza from when I lived there 16 years ago is all soggy cheese, making it basically impossible to not have a doughy pizza and also either no sauce or weird sauces. Also, 100% on your empanada take below.
Very true. When I was last in BA almost 10 years ago, the only memorable (in a good way) pizza that I had was at a Neapolitan-style place called Siamo Nel Forno. I tried Argentine-style pizza a few times from places like Kentucky Pizza (actually quite a popular local chain, apparently), but also some of the other more respected spots like Pizzeria Guerin. Not a fan, needless to say. Their empanadas, however, are a different story, and I think they do them better than any other countries I've tried them in (baked but not fried, interesting mix of fillings, sometimes relatively healthy ones). With the right fillings, they're pretty much the perfect on the go food.
ha. I respect your views.
Yeah, I mean they like it. Anyway, at least they have the best empanadas in Latin America
Boise might be out there, but we have a place that sells Argentinian Empanadas they actually have two locations. Delicious. If you are ever there, check it out.
but, yeah... Brazil has some good ones... Argentinian is the best.
Reading this mini travel blog reminds me of something -- you’ll be in New York soon, right?
Gotta get that SB meet-up going!
unfortunately the schedule changed. No New York as of now. But things change all the time.
Ah bummer! But hey, if you can swing it, you should come of your own accord. New York is the best in the fall -- bring the kids!
I do want to take my wife there... no kids!
Isn't that a brutally long flight? One thing that puts me off of visiting Argentina is that the flight is, like, a week long.
10 hour flight from Houston. But I get upgrades to business so I have lay flat seats to sleep.
They deserve it for overcooking their meat and being proud of it.
Tell me you have been to Argentina without telling me you have been to Argentina. You nailed it.
LNG Taxis were (are?) big in Turkey starting in the late 90s. We found them a bit terrifying at first (and they fit less luggage) but they don’t seem to actually be that dangerous in practice.
Thinking about it, taxis seem like an ideal application for LNG. Lots of time in densely populated places where air pollution is a concern, and they presumably go to some central location at night where they can be trickle-refueled.
The best steak I’ve ever had was a picanha in Mendoza, it’s definitely not overrated.
I lived in Argentina 16 years ago, so I really enjoyed your comment and take on the situation today. I sympathize with the waiting in traffic to get to your visa appointment, and to visa issues in general. I still have a very vivid memory of waiting to get my visa renewed and sitting for what felt like hours as the visa officials just passed around the mate. I will have to disagree with you on the pizza though. At least from my memory it was worse than pizza in the states (though obviously much cheaper) and sometimes truly bad in bizarre ways.
I am not a big pizza fan, so I’m not gonna argue that your opinion isn’t more correct than mine. I just happen to have some really good pizza yesterday.
Not at all.
UK's not doing so hot either these days. Maybe they should give it another go!
I know you are joking but just thinking about it, another go would really be a nightmare. Both sides (but mostly the Argentinians) inadvertently made choices that limited casualties they inflicted.
It pulled the UK out of the doldrums last time, why not give it another go.
Remember the personal success formula that went around a few years ago -- get at least a high school education, work full time, and marry before having children? Generated a lot of discussion.
There is a similar formula for countries: Property rights, the rule of law and a market economy. Those three are foundational. You can put all sorts of tax-and-redistribute policies on top of this foundation, but without those three, there isn't enough productivity and growth to redistribute much. And if redistribution goes so far as to weaken property rights, the foundation starts to crumble.
I'm not an expert (heck, barely a novice !) on Argentina. But I suspect the underlying issue is the foundational items aren't present. And those are cultural more than something the IMF can impose. I wish I could be optimistic.
A fourth pillar that I’d add is “central government that reliably pays its debts.” This lets your government borrow at reasonable cost (for operating cash flow, positive-EV investment, war/emergency response, and macroeconomic stimulus purposes) and creates a safe financial asset in your currency (which facilitates pretty much every kind of more complicated financial activity.)
Argentina is particularly bad at this in ways that have incurred huge costs, and if I were a voter there, I’d cast a ballot for Patricia Bullrich (who wants to put Argentina through shock therapy but doesn’t want to abolish the central bank) in large part because getting the country back to something like creditworthiness would have a huge impact.
The ghost of Alexander Hamilton is repeatedly clicking "Like" on this.
Hamilton was extremely right about this, and his success at convincing the rest of the US’s early elite to take it seriously is one of a bunch of favorable factors that helped the US become a powerhouse.
I agree, but it's truly one of the weirder things historically speaking -- Hamilton saw this issue despite having far fewer past examples to look at then many other subsequent nation-builders, who not only had more examples but also specifically had the example of Hamilton available to them.
The recent historical comparison that informed Hamilton’s thinking was Great Britain (formed a stable central bank in the late 17th century, got very fiscally reliable) vs France (kept accumulating way too much debt by trying to fight everyone in Europe at once, central bank imploded in early 18th century after stupid land speculation, serial defaults via currency debasement.)
Over the period, Britain had more functional state institutions, enjoyed more growth, and saw significantly less inflation than France did. Hamilton recognized the value of its approach.
Hamilton’s background as a private sector banker probably also helped him— and unlike bankers turned finance ministers in Europe (ie: John Law in France), he was also a prominent former military commander with an independent political power base, which gave him both a lot of credibility with other decision-makers and he really cared about building state capacity.
> A fourth pillar that I’d add is “central government that reliably pays its debts.” This lets your government borrow at reasonable cost
This is a pop-econ take that does not reflect the empirical evidence.
One of the enduring puzzles in sovereign debt econometric research is that defaults DON'T seem to have significant impact on borrowing costs or access to lending.
From one paper on the subject, "Theory predicts that sovereign defaults result in reputational damage and the government’s exclusion from capital markets. But empirical support for this proposition is weak at best, as shown by 30 years of research."
Lots of sophisticated analysis have tried to understand why decades of research finds this. The MOST you could say is what one pair of recent research notes: "Despite the importance of the question, there is little consensus in the literature."
It is hardly the obvious slam-dunk that would warrant being elevated to one of the four pillars, since it is based on feelings rather than evidence.
Sovereign debt spreads on same-currency instruments strongly imply that investors charge higher interest rates when they perceive more credit risk. Default not affecting perceived credit risk seems… almost unbelievable?
Edit: It’s also plausible that investors can, at least probabilistically, foresee defaults, and start pricing them in before they happen (especially since most are haircuts or term adjustments rather than total repudiation).
This sounds like a real-world case of "if you owe the bank a billion dollars, it's the bank's problem".
The question here is not access to capital markets, but on what terms?
There is a reason Argentina was involved in a nasty court dispute with a vulture fund, for years, which led to things like ships being seized in third countries and obscure US district court judges becoming household names in the country
The people who are interested in investment in a country which has those kinds of issues are doing so because they see a chance for some really unequal bargaining power, and are willing to play hardball
Retail investors flocked to making currency swaps on the South African Rand after it suffered ratings downgrades and numerous financial scandals in the government and revenue agency. SA had plenty of exposure to capital markets, but on terms that were ruinous
College macro courses teach those three fundamental laws of a successful economy on day 1. It’s basically impossible to generate sustained prosperity absent a competent and trustworthy government.
I hold out some hope that one great leader can engender that sort of long-term confidence in the public, but in my reading of history you usually need to see several decades of sound policy management before a nation’s economy takes off. Needless to say, Argentina is not on that track.
Put me in coach
¿Vos hablás castellano?
For a country like Argentina I agree these are the correct set of prescriptions.
For Kenya or Ghana they take a back seat to building state capacity and then engaging in fiscal repression to build infrastructure and incentivize foreign manufacturing firms to employ folks and transfer expertise. You need a degree of rule of law and some market openness but not a ton.
Only once you have a foot on the ladder in a meaningful sense do these recommendations really come to the fore.
And even then you need a fourth: facilitate the citizenry capturing a majority of income and productivity growth.
Good post. Poor >> Middle income and Middle income >> rich are different problems which require different policy toolboxes.
Both stages need strong state capacity and a government that can raise revenues and pay its debts well, but the level of complexity you need to get really rich requires a strong private sector to take on more of the planning work.
Worked perfectly well for basically every successful second-mover industrializing nation from the United States on, with varying balances of foreign investment and expertise.
The US, Germany (first time), Japan (first time), Germany (second time) Japan (second time), South Korea, Taiwan, Malaysia, China, Poland, Indonesia, Bangladesh… all pretty much the same (era-adjusted) playbook executed with varying degrees of commitment. Brazil and Mexico executed moderately well on that same playbook between 1930 and 1980 before the Latin American crisis imploded both.
Property rights, the rule of law, investments in education, and ensuring that public money constructs a welfare state and supports middle and working class consumption gets you from China or Argentina to the United States, it does not, in the main, get you from Kenya to China.
If anything this model goes further in smaller countries because the distortions it introduces globally are smaller and it therefore engenders less opposition abroad.
EDIT: I left out the extraordinarily obvious example, the USSR. Fiscal repression and knowledge/capital transfer explain the period 1925-1970 well, as does its failure to pivot thereafter, mistakes China is busily reprising.
I think there's a fourth element to the formula: primary education. A country with literacy below 90% or so is going to have serious problems.
why 90%? a successful economy might have 20% of its workers in agriculture or casual jobs that don’t require literacy.
this is really just a quibble
Even menial workers are a lot more valuable if you can communicate with them using text.
Two reasons: if it's much below 90%, that means that some people didn't become literate not because they didn't study at school, but because they never went to school, and that means you completely threw away some brilliant talented people by never giving them the opportunity.
Second reason: even if your 20% illiterate is only people who, even if they learned to read and write were never going to be brilliant super-productive people, you now have real flexibility problems with your labor force.
As a rule of thumb, if people get 4-5 years in school, even not very good school, ~90% end up with basic literacy. You can increase it way above that by concentrated effort, and modern rich countries do exactly that, which is why we get 97 to 99 per cent literacy. But if it's noticeably below 90%, then it suggests that some groups aren't getting a basic education. And that's *bad* because it means you're taking some of your best, most talented people and leaving them on the sidelines.
Universal primary schooling does not ensure that the smart poor kids will have a chance to truly cultivate their minds. In belle epoch France, primary school was near universal, but only one boy in 40 went to secondary school. Very few sons of proletarians and peasants made it into the professions. These kids almost certainly benefited from literacy and numeracy, which could help them become foremen or better farmers. Universal primary school is definitely worth paying for, I just think you are too sanguine
Fair!
Though I am inclined to write "necessary but not sufficient" for the second time in this thread.
"Universal primary schooling does not ensure that the smart poor kids will have a chance to truly cultivate their minds". True, but the absence of it ensures that they won't.
It's hard to write clearly "if you don't do X then Y will not happen" without implying "if you do X then Y will happen", and I take full responsibility for not doing so.
the absence of a necessary condition makes something impossible. the presence of a sufficient condition makes it certain. there is a huge range of probabilities in between, eg 0.001% to 99.999%.
my point is that free primary education ending after five years might raise the odds of a very smart proletarian reaching his full potential from ~0% to 3%. a couple will get scholarships and go on, most will become higher level drones.
Russia's literacy rate is over 99%.
Necessary but not sufficient. It's definitely one of the things that's held back the relatively-well-governed countries in Africa (outside of the, like, five that actually are at 90%). Places like Kenya which have rule of law and property rights but struggle to make 80% literacy have a bunch of productivity problems.
National education doesn’t have much effect on growth.
U.S. politics is going to get more Latin American between both of the parties. The disagreement on Medicare is pretty decisive; vast new income taxes will be needed for the new spending Dems want to transfer from Medicare's growth, and I worry Republicans will respond by gradually cheering on grey market economic sectors that are free from reporting taxes.
Yes, TAX and redistribution. The problem is when the redistribution is done via screwing up market prices. That's where US "Neoliberalism" went off the rails. It tried to allow markets to work better (it did not work hard enough and not enough markets but it tried), combined it with tax cuts for the rich and deficits.
The besetting sin of US policy is to try to use other other policies for redistribution and externalities (mainly CO2 accumulation) instead of taxes.
Just saw a clip from gop debate. The only one that matters. Candidates are asked if they’d support trump as nominee even if convicted in a court of law. Egged on by the crowd all but one raised their hands! This doesn’t bode well for the future of the us.
ehhh. I try not to get too worked up about silly things said during a primary. The audience -- GOP primary voters -- is both pretty small and really weird.
P.S. it seems that the crowd loves Ramaswamy. A child* with zero political experience, who is pro Russian and I believe a polytheist** The gop lost its way completely.
*older than me. I still think people under 40 shouldn’t run for President with very few exceptions which he isn’t.
** I have no problem with polytheism as such. However the fact that the gop also doesn’t seems to shows how radically they’ve lost their way. It truly is the party of the mob now.
I wondered about that. Guy says his first of ten truths is "God exists" but he's also a practicing Hindu. My limited understanding of Hinduism is that its a polytheistic religion. Just read his Atlantic interview, this contradiction was not covered at all. What am I missing?
Did no one dare ask him about it explicitly? It's very surprising.
Like the Holy Trinity means Christianity is a polytheistic religion? Theology is strange.
Trump is going to win that primary. He is then going to have a very real shot at returning to the wh. that’s the problem.
No question. But candidates have to say some things to possibly get some of those Trump voters to switch.
I wish the charges currently being brought against Trump would have happened 18-24 months ago rather than now. Having those trials in the midst of a campaign opens up the possibility for a really bad time over the next 12 months.
If they can get a jury to convict him it will increase my already high trust in the American judicial system.
There were a number of criticisms of Trump for a few candidates. But I think a lot of them are basically auditioning for Trump's VP slot or cabinet, meaning they don't want to criticize him too harshly.
The US has gone through periods where corruption and officeholder criminality were dramatically more prevalent than they are now (including the high growth late 19th century period) and come out more than okay.
Trump getting re-elected would be bad, and the number of people who are totally fine with it is bad, but the US is very resilient and I wouldn’t bet against its long-term performance.
I don't trust Trump to leave the US electoral system intact, or respect their results if he loses. He already tried to violently overthrow an election; what makes you think he wouldn't be willing to use even more force next time?
I certainly think he’s likely to try, but I’m very skeptical that he could succeed for any appreciable length of time. You need a lot of cooperation from the intelligence services, the military officer corps, and the civil service to pull off a coup, and Trump doesn’t have those things.
telling we both used extended metaphors this morning. yours is good.
Freedom House does not measure the three things I mentioned, though there is likely a loose correlation between high scores on their ranking and economic success.
From their website: "Since 1973, Freedom House has assessed the condition of political rights and civil liberties around the world."
I suspect that being a small nation in the middle of a large ocean is a very economically difficult situation even with excellent leadership making optimal decisions.
I like the acknowledgment here of the similarities between Trump and Peron, who I think is a much underused analog. Trump's influence over the Republican party definitely seems to have a lot of similarities and I suspect once Trump dies or is incapacitated you'll see a somewhat similar "right Trumpism" (emphasizing tax cuts, deregulation, and anti-LGBTQ policies) versus "left Trumpism" (emphasizing industrial policy and protectionism) dynamic develop.
"I like the acknowledgment here of the similarities between Trump and Peron"
Though I never liked the song, "Don't Cry for Me, Slovenia."
Especially because it forces you to pronounce it, "Slow - vuh -NEE - yuh." Who does that? Another Tim Rice atrocity.
Ivanka bears a closer resemblance to Evita and her name is already a diminutive
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
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! 😬
I read the first paragraph and heard alarm bells going off in the UK
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.
"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.
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.
Liked, but I'm guessing the second sentence in the second paragraph should read "they should be Kuwait . . . ."
Fixed
Argentina also really underperformed when it was under military dictatorship— the 20th century sovereign defaults happened under junta rule.
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.
Think they are British and act like they’re French
What's the source on this?
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.
Keynesian stimulus is like drinking wine when you feel sad. It works! Wine works even when you aren’t sad, and stimulus will fuel a boom even if the economy is already at full employment.
Old time politicians used to hand out grog on election day. Post world war two politicians went hard for stimulus in election years. Both are smart politics.
Alas, booze and stimulus both have cumulative toxicities. Too much booze gives you cirrhosis and too much stimulus cases Argentinitis. If you simply can’t control yourself, it’s probably best to abstain. However, abstinence is inferior to temperance, which delivers most of the benefits with few of the drawbacks.
But what, exactly does temperance look like? That is both a philosophical and technical question.
No. "Stimulus," I guess you mean fiscal deficits, does not fuel a boom when you are already at full employment. IF the central bank offsets the stimulus enough to stay on its inflation target, the deficit will raise interest rates and shift resources from private investment to consumption and that may be politically popular.
Total abstinence from fiscal deficits is best. [Well, borrowing to finance high-yielding investments is OK but even there raising the revenues with consumption taxes would be better.]
I really just don’t get your aversion to deficits qua deficits.
Its like a MMT spinoff. NO DEFICITS - just have the fed print money when needed.
The Fed as God: omniscient, omnipotent, omnipresent.
MMTers are correct that the Fed can print as much money as it wants with no legal or structural constraints. They just deny that inflation exists.
I strongly disagree with TLH here - I think the Keynesian arguments for consumption-smoothing during economic depressions seem extremely strong and well-vindicated - but the steelman position for an anti-deficit viewpoint seems to me to be roughly threefold:
(1) Interest payments on the Federal Debt are basically just taking tax dollars - that is, skimming money from the productive exchange of goods and services in the real economy -- and setting them on fire. It's imposing deadweight loss on future generations (viz., taxation) to fund present expenditures *at best,* and increasing the risk of de facto insolvency[1] at worse (the great irony of interest rates being that as you increase the rate to cover insolvency risk you *also* increase the risk of insolvency[2].) Furthermore, once interest rates become a problem they have a tendency to become an albatross around the fiscs's neck: a massive opportunity cost with respect to other spending priorities that is *also* a drag on the real economy due to the need to scrounge up the funds to cover payments.
(2) Investment into assets that yield higher returns than the interest moneys due *in theory* totally obviates (1), but it's not necessarily going to be the case that the Federal government is all that great at calling balls and strikes in the manner required. Infrastructure is plausibly a high RoR investment, but we also already *have* a fuckton of roads and bridges and airports and whatnot, and ensuring that we're optimizing for interest-rate-beating RoR rather than pork seems hard, noisy, and unreliable. [3].
Moreover, we know for a fact that the government makes a lot of spending commitments that are plausibly negative-RoR but enormous in magnitude and difficult to cut -- e.g., all of Social Security. You don't have to hate old people to recognize that "shoveling money to retirees" is one of the least efficient allocation of capital you could make if your goal is to raise future aggregate economic output above current prevailing interest rates. So one can be reasonably skeptical of the the "Federal government as prudent investor" rationale for allowing it to incur the interest rate burden of point (1).
(3) Some pundits - for example, I believe Krugman - note that inflation + nominal GDP growth can predictably make long-term deficits basically irrelevant -- today's 2.5% deficit is tomorrows 1% and the next day's .5%.
The trouble is that the validity of this observation is obviously strongly sensitive to actual prevailing rates and growth numbers (even assuming the rosy picture of perpetual GDP growth and nominal inflation) and it has no self-evident limiting principle at which the Federal government is obligated to keep deficits restrained --including during good times when Keynesian economics says to pay down the debt rather than engage in deficit spending.
In practice, we see that the tendency to profligacy does appear to dominate the impetus for prudence, at least in the last 23 years or so - we seem to go through epochs of relative stability in debt-to-GDP ratio for years at a time followed by punctuated leaps in those numbers to its current value of roughly 123% debt-to-GDP (compare in e.g., the 60% range in the 90s).
So the empirical case that the U.S. is just *bad at being a responsible Keynesian actor* could conceivably militate towards an argument not to engage in deficit spending in the first place because the country is demonstrably bad at responsibly managing its debt load during expansionary periods - that its fundamentally intemperate with debt and thus should prefer abstinence in view of its unwillingness to rein in spending.
The best counterargument that I'm aware of to this particular line of argument is that debt-to-gdp ratio doesn't seem to actually *matter* to, e.g., Japan, like, at all...but AFAIK most observers are still basically scratching their heads over why, since it doesn't seem to make a lot of sense even if it's demonstrably true.
[1] Printing money to cover debt payments in an inflation spiral is not a solution and I don't think the commentariat needs much convincing otherwise.
[2] This is obviously interest-rate dependent, strongly modulated in the U.S. by the "exorbitant privilege" of being a world reserve currency and treated as a risk-free asset, but given debt-ceiling brinksmanship and the whole (admittedly somewhat stupid) credit downgrade debacle it's not nothing.
[3] The advantage of Keynesian spending is that boosting consumption becomes a good in itself with much less pressure to make positive-sum bets rather than needing the government to make the right calls as to allocations in public goods.
Japan gets away with 200%+ debt/GDP because they have such a high internal savings rate. The US doesn't have that.
Sidebar: home prices in Japan have a tendency to deflate over time rather than inflate, which means that they are not a good investment vehicle. I wonder if Japan's high savings rate has to do with that?
From what I understand it is customary to knock down and rebuild homes in Japan, rather than occupy a 'used' home. Thus the building itself doesn't store much value, since any buyer is likely to completely replace it.
This is somewhat less likely than it used to be, because Japan stopped building houses out of tissue paper and they now actually have things like insulation.
Property destruction definitely puts a damper on ROR.
I can see why a high savings rate would be deflationary (and why deflation can make savings relatively more favorable), is the idea that deflation (or less inflation) boosts the real RoR of government bonds because future yen are relatively more valuable, and thus the higher RoR compensates for possible solvency risk? Or is there a mechanism by which the high savings rate somehow directly contributes to reduced risk of insolvency?
Both? Best I can tell is bonds and stocks denominated in yen are the best investments for regular Japanese. They don't have many other good options, so they accept lower interests rates, which is good for government borrowing costs. Add in stagnant productivity growth, a shrinking population, and now decades of central bank monetary stimulus, low interests rates have been sustained.
Japanese cities don't have shrinking populations and do have flat rents.
This is basically a troll at this point and I think everyone would appreciate if you stopped.
I don't mind if he continues to make this point, I would just like him to explain the rationale behind "fiscal deficits are always and everywhere bad"
It’s not that, it’s “nothing anyone but the central bank does matters because monetary policy can/should/must correct for all of it to achieve employment/inflation goals.”
Which is just profoundly, wildly out of step with observed reality.
I guess NGDP targeting is a hellava drug.
https://www.youtube.com/watch?v=d0nERTFo-Sk
Fuck Keynes
The problem in Argentina is that even dollarization will not work. It too can be undone. Pending fiscal and trade reforms, the best thing the central bank can do would be not peg at all, it's the least costly way to be fiscally irresponsible.
The Euro was mistake. Trade integration made a lot of sense; money no. Specifically what screwed southern Europe was a) lots of investors mistakenly thought that the removal of currency risk on loans -- everything was denominated in good old Euros -- removed credit risk, that the loans would not in fact be invested well enough to be repaid. (Chinese real estate, anyone?). But it is worse. The inflow of investment raised the prices of non-traded goods and wages relative to Northern Europe. Precisely because Southern Europe could not devalue you got unemployment further reducing the ability to repay loans. (Mortgage defaults in the US 2009, anyone?). But even this could have worked out OK if the ECB had engineered enough inflation in Germany and northern Europe to let relative prices in southern Europe fall. But the ECB had an insane fixation on low inflation -- much worse than the US Fed at the same time -- and the adjustment was much slower and more painful.
If you think that the Euro was a mistake, would you say the same thing about Alabama and Mississippi having the same currency as California and New York?
I think its been pointed out many times that the difference between the two is that the US has a monetary AND fiscal union, while the Euro is only a monetary union. One without the other is hard.
Yeah, but the problem isn't the Euro. The Euro is great and solves a lot of problems (try needing a currency exchange every time you cross a state border or try having companies that operate in multiple states need to account for multiple currencies). The problem is the fiscal policy (and also the education policy, and the R&D policy, and the welfare state policy and...).
It solves problems, but it creates others. The others are worse because they are not being dealt with by fiscal policy, education policy, R&D, etc.
IMO, its a net positive for Northern Europe, but a net negative for southern Europe because of how those problems impact the different countries.
Croatia joined the Euro just this year! I think that it's not an accident that no country has left the Eurozone (even though one country has left the EU), but new countries are joining. I also don't think that Southern Europe would have done much better without, for example, access to the Euro area banks and funds (and vice versa, I don't think that it would have been better for Banco Santander to have a barrier to deal with the Eurozone).
It's much easier to fix the fiscal and education policies than have one country (which is the end goal of the EU project) with multiple currencies.
Croatia joining the Euro doesn't mean that the Euro is a great idea. It probably means that if you want to become richer in Europe, you want to be in the same system as the rich countries there, even if it means having to accept some of the bad aspects of that system, as Greece (and to a lesser extent Italy) found out to their dismay a while back.
I think that once you are in a union, getting out is usually a bad idea e.g. the UK compared to the Swiss or Norway. That being said, I think Greece would have been better off being out of the Euro than in for the last decade. Less certain about Italy, but if pushed, I would say be out.
It’s funny. There are arguments to be made on a pure economic level that America is not actually an ideal fiscal union for reasons you allude to. A single currency for both NYC and Alabama is probably not ideal given vast economic differences, most important of which is the former being much richer than the latter
What makes it work is our fiscal union that delivers big net fiscal transfers from NYC to Alabama. It’s generally used as somewhat cheap political points to bash people like Mitch McConnell and Rand Paul for their sort of fake fiscal conservatism*. But it’s also pretty
true that like 7 metro areas in America transfer tax receipts on net to the rest of the country.
* I say cheap political points because Democrats like me are supposed to be in favor of something like this. One of the core reasons I’m a democrat is I think it’s a good thing that tax dollars from a finance bro like me goes to help a poor child in east KY get a doctors appointment.
The last time Alabama and New York had different currencies it didn't work out too well for the former.
I don't think the difference in currency was the actual problem at that time.
Details, details.
Should clarify. Meant to say in some ways we’re not an ideal fiscal OR monetary union. I think I got my point across from context with what I wrote next but feel like I should make a little more clear.
I've never understood this argument. The federal government runs a perpetual deficit, has every year of the country's existance except for like three years in the 1830s. Every state gets more money than they pay in, because the federal government pays out more than it takes in.
I fully endorse this.
Isn't one big difference that America is much more willing to transfer money from California -> Alabama than Germany->Italy?
(Italy is a G7 country and one of the pillars of the EU economy.)
The EU has transferred a lot of money to the former communist countries since 2004 to help them catch up (and that's the right thing to do), as it had done also in previous enlargements. I think that helping all these formerly poor countries converge to the EU average (and some have done so definitely better than others but that's a story for another day) is one of the greatest accomplishments of the EU.
Yes. To put it another way, California and Mississippi are covered by the same fiscal policy, same federal budget, both receive the same Social Security, Medicare, Medicaid, etc. Not the case with Germany and Italy.
California and Mississippi aren't covered by the same state budgets (Medicaid covers even different categories of people in the two states). It might be less known in the US, but there is an EU budget (I just found out that it even has its own Wikipedia page!).
I just opened the page of the Connecting Europe Facility which finances infrastructure projects throughout the EU with EU funds (https://cinea.ec.europa.eu/programmes/connecting-europe-facility_en) and on the first page they advertise: 1) a new railway bridge over the Regalica river in Poland, 2) a greener port in Genoa in Italy, and 3) a trans-European road for Poland. Before that there were things like the 2014–2020 Financial Framework. Should the EU budget become even larger? Sure! But it's not nothing. During the economic crisis I happened to have been on vacation in affected Southern European places and the EU-funded roads there were honestly much better than most (all?) US Interstates I've been to.
I mean, come on. The ratio of federal spending to state spending in Mississippi is high. The ratio of EU spending to national spending in Italy is low. It's a really, really big difference in scale.
Sure, but I think that the largest part of the US budget is Social Security, Medicare, Medicaid, and the military. Pensions, healthcare, and the military are all handled at the member state level in the EU and with the exception of the military, I think that it's a good idea to do so. Also, why are we talking about Italy again? It's a G7 country! Bulgaria is an example of a country that disproportionately needs (and disproportionately gets) funds.
PS: I find it a bit funny that this conversation started with me asking "Why is the Euro bad?" and everyone is responding about how the fiscal policy is the real problem. I agree!
I’d tweak and say Germany had (and continues to have) an insane fixation on low inflation and deficits. It’s not a mistake that the best ECB chair was an Italian.
Has the ECB had a lot of German Presidents? I agree that Draghi was great, but I also think that an underrated factor for this was his education. I think that Americans just can't quite get how much better MIT (and UC, Berkeley and Stanford and...) is compared to anything the EU has to offer.
Agree about education. I mean quality of our universities is an underrated comparative America has over the rest of the world (one GOP pols seem determined to ruin to win short term political points but I digress).
I should clarify. You’re right to say that strictly speaking there haven’t been many German presidents. But from I’ve read, German influence on ECB thinking and actions has historically been very strong. And simply by being the biggest economy in the EU they exert pretty huge influence on general EU policy.
I think maybe a good analogy is influence of Silicon Valley and Wall Street on American policy. On the one hand it’s true that actual political representation of NYC and SF in the federal government is quite small. In fact as Matt correctly points out, it’s the opposite; they are wildly politically underrepresented on a Federal level. And yet I don’t think I’m blowing anyone’s minds away in saying interests of Silicon Valley and NYC finance have wildly disproportionate impact on fiscal and FED policy. Even if it’s not strictly true that a hedge fund manager or VC exec is in charge of the FED or a sitting President.
I mostly agree with your analysis, but I would like to say that German influence goes through a lot more democratic control. I would say that in my view German influence is more evident in the Eurogroup (which is a political body) than the ECB (which tries to stay above politics). The Eurogroup isn't a dictatorship and Schäuble had all this power during the Euro crisis in large part because he expressed the feelings (and had the votes) of the non-PIGS members towards PIGS. He was far from the only hardliner in the negotiations; if anything, I would say that Merkel may have forced him at different stages to be more "lenient" than what he (and the Dutch and the Finns and...) would have liked. The US doesn't operate in the same way, with its economy run by a committee with one member from each state, so it's hard to find a good example here, but I think that Americans tend to underrate that a (large, I think) portion of German power in the EU comes through the support of other member states.
I think (if I’m reading you right) there are some real structural problems in EU governance that reared its ugly head post 2008.
Yes, I'm mad about a lot of things that happen in the EU. The US is great, but explaining that "my homeland sucks in this and that respect, so I now live in the US" isn't a great feeling. I would say though that a good example in American history of what's going on with the EU is (in my opinion) the trajectory from the Articles of Confederation to the Constitution. It's just much harder to do with established nation states that have fought a billion wars against each other. But I hope we'll get there!
Or specifically in the Draghi case, the superiority of saltwater econ programs over fresh water programs.
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.
"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.
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...
Yes, I remember back when Obamacare was being passed and all the coverage was about what people thought was in the bill, but basically none of the coverage was interested in what was actually in it.
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.
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.
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.
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?
"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
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.
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.
" 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 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.
Thanks
If memory serves, I believe you’re correct. And there are many economists (say, Dean Baker) who have been making this argument for years.
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.
>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.
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.
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.
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).
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')
He got it wrong.
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.
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.
Also Uruguay manages just fine with agriculture and just a little more orthodoxy.
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.
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.
Almost everything I hear about this weird Nick Gillespie cosplaying dude gives me the warm and fuzzies inside.
"some people would even say that the concrete material impact on hundreds of millions of people is even more important!"
Oh but it's so much more fun to watch people yell at each other on the internet about shallow, skin-deep cultural issues.