Trump's Peronist approach is the wrong formula
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.
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.
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.
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.
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.
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.
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.
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.
"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.
The Republican party was never interested in growth and economic freedom it seems. Not do they (the base) seem interested in abortion, to judge from last night's debate.
All of the time they were just waiting for a guy who would treat non-white males badly in words and deeds, and make liberals cry. That is seemingly the entire agenda, the very core of what it means to be a Republican.
Ok, late to the party, but it looks like Matt mostly agreed with my take. This guy is kind of crazy, but his particular type of crazy might just be a broken clock that is right for Argentina. We'll see.
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.
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.
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.