Just want to plug agreement with what I assume others below have already said - dollarization is not stupid.
Your main objection seems to be that it makes monetary expansion harder. For all cases where one needs monetary expansion because of global trends, you can trust the Federal Reserve to have lower interest rates (and they have international operations). In the case of a national emergency, you still have plenty of fiscal debt issuance responses available. Confer Panama's response to 2008.
Rashid Griffith has done some good interviews about dollarization on the Caribbean Progress Studies Institute page.
"But why does Argentina have such a small financial sector? Unsurprisingly, it’s the “having a very f****d up economy” of it all. Very high inflation is also very persistent and very volatile, which means that it’s really hard to forecast real or nominal variables beyond “the rest of the year”, and it also means that conducting monetary policy, and thus setting and providing guidance on interest rates, is very hard because the relationship between inflation and monetary variables is very, well, variable. Basically, to provide any sort of credit to anyone, you need to have a clear signal of what the rate of return is going to be, which depends on the real interest rate." - from Some Unpleasant Arithmetic
@mattyglesias
is dollarization really so stupid in this context?
This feels a little hand wavy about the headwinds to implementing some of these policies. Like, the Jones Act sucks and our political system is a lot more functional than replacement level countries. Nevertheless, it persists! Rent control is just a generally bad idea and yet it's entrenched in every major city. Tons of subsidies for favored industries. A lot of useless government departments were wiped away in a way that seemed anti-woke but also genuinely helpful for overhead, unlike the DOGE effort. Doing all this at roughly the same time was quite impressive even if the economic intuition behind them seems obvious and conventional.
One thing I find annoying about media coverage of Trump is when they focus on stuff he does that is merely weird instead of actually bad. His obsession with McDonald's, for instance. Milei is case in point as to why I hate this. As a person, he is easily just as weird as Trump. He apparently talks to the ghost of one of his dogs. However, his policy-making is much better. Weirdos can have good or bad policies and focusing on weirdness doesn't neccessarily tell you anything.
"I would not mind the aesthetics of Trumpism — the over-the-top rhetoric, the bombast, the cringe memes, the aspects of personality cult — if he were implementing smart, technocratically sound reforms."
I disagree strongly with this.
Which is somewhat ironic, because I'm always the first to say "never focus on style when you can focus on substance." But there are limits! Trump's "over-the-top rhetoric" is PART OF THE PROBLEM, not some harmless peccadillo, because he uses it to demonize his opponents *and* to make it okay for his followers to hate his opponents. And before anyone says, "Oh drosophilist, you hypocrite, the left does it too," I want to emphasize the difference between a random troll shitposting on Xitter and the freaking President of the United States of America shitposting on Xitter. Do random left-wing social media users insult and mock Trump voters? Sure. Did Biden or Obama ever talk about GOP voters the way Trump talks about Democratic voters? Never.
Compare typical social media posts from Biden and Trump on the occasion of any national or widely celebrated holiday:
Biden: "Jill and I wish a happy and peaceful Easter to all who celebrate."
Trump: "Happy Easter to all, including the CRAZY LYING MEDIA who are being SO UNFAIR, and to all the UNAMERICAN WOKE SOCIALIST TERRORIST SCUM who let our Great Country be Overrun by ILLEGAL IMMIGRANT RAPISTS and KILLERS who are turning our cities into HELLHOLES! They are Very Nasty People!!!!"
This is not anywhere close to okay! FFS, the President of the United States, regardless of his party affiliation, has two essential tasks: a) comport himself with the dignity and decorum befitting his office (at least in public and on formal occasions; we know that many former presidents would say some very undignified/rude crap in private, see: LBJ for starters); b) at least *pretend* to care about all Americans.
If you're Biden and a bunch of Republican voters get killed/have their homes destroyed by a hurricane in Florida, you publicly say something like "This is a terrible tragedy, my heart/thoughts/prayers go out to the victims and their families, my administration will do everything in our power to help." If a member of the opposing political party gets shot dead in their own home, you don't shrug and go, "Maybe I'll call the governor of that state, maybe I won't. He's a very crazy incompetent person." I mean, WTAF?
So, no. Trump's "aesthetic" choices are helping disintegrate what's left of our social fabric, this is NOT okay, and I would not be totes cool with it if only Trump were better on policy!
What’s really sad is not that our president is an overgrown child who like to troll his opponents for lolz; it’s that half the country is ok with it, and when you point out how messed up that is, you get shushed and called a moralizing elitist.
And no, pointing this out is not an “overreaction.”
You didn’t, but it’s a common refrain from various centrist pundits. And absolutely nothing about any of this makes me happy. I wanted a sane, rational president and administration.
While I’m supportive of clinical trial improvement I’m deeply skeptical whatever is being done is going to spur a giant leap. Developing drugs is super hard - many many smart people have been working on this a long time.
Matt I'm a big fan but I think you're underselling Milei here. A government...any government...actually implementing spending cuts and austerity like he has deserves plaudits. Sure, what he's doing is theoretically "standard", but actually DOING it is far from standard. Ronald Reagan couldn't cut spending... the fact that Milei actually has is remarkable.
I think is very on point but more abstractly I think there is often a tendency for comment to assume some kind of abstract international best practice point of departure- and an ideological baseline from own-country so reflexively opposing "deregulation" e.g. w/o asking oneself "well what is the point of departure" - although this aligns with the Abundance and reforms arguments by Klein et al - to get away from knee jerking
Would a more moderate, less bombastic, less populist conservative like Bullrich have had the political capital to implement and actually commit to boring, technocratic, neoliberal reforms?
"It’s true that the Guardian ran that letter from 100 economists. But there are a lot of economists in the world..."
I'm glad economists are allowed to use this defense, but public health is forever discredited because a bunch of random grad students signed a letter during the pandemic saying protesting is fine if it's against racism.
True. But I think the connotation is that “trust the science” etc. (which are usually left-coded comments) are predicated on similar foundations (a segment of experts). And we should stop doing that unless the statement really is near-universal in that field.
I had a lovely trip to Argentina about two years ago. Part of Matt’s previous writing is to look at the actual impact of policies and who it benefits or harms; eg rent control is a handout to existing tenants, inclusive zoning is a tax on new construction.
Part of what made the trip so lovely was that a large number of Argentinian policies clearly favored me. My AirBnB was cheap because so many units were pulled off the market due to rent control. I feasted on fantastic Argentinian steak and wine for a fifth of the price it would have cost in the US, because of subsidies to ranchers and vineyards. I could walk into a Western Union with a fist full of dollars and walk out with twice as many pesos as I could have gotten at a currency exchange, because the country was so starved for foreign currency to subsidies imports. But of course there’s a cost on the other side of the ledger for all of these, and it was clearly being born by the Argentinian people through the scourge of inflation. More taxi drivers wanted to talk to me about the exchange rate, or inflation rate, or macroeconomic reforms than they did about the River Plate game I was going to, even in that football-mad country.
I understand why Matt would want to downplay the reforms in this column; “hacking the safety net and subsidies to the poor can unleash economic growth” does not follow the cozy paternalistic ideals usually shared here. But it is clearly working, and I wish Milei and the rest of Argentina continued success.
This wiki article on the Argentine economy has an interesting graph of its GDP from 1880 to 2022. It uses constant dollar prices. Even with zigs and zags of policy the GDP keeps growing. Also mentioned in the article is that Argentina suffered a recent drought which is very important for a agricultural product exporter. My wife's family had Finnish relatives in Argentina back in the before times.
Looks like Matt did a long form post on my question last week. Cool.
Not much to add. Milei has crazy vibes but has implemented sensible policy; spending cuts for an economy wracked by inflation plus sensible deregulation. He's really only similar to Trump in style, mostly not on substance.
What I find important and relevant is Milei's ability to enact extreme fiscal austerity and gain in popularity. I'm thinking of how something similar could translate to the US, maybe starting at the local level. As a Chicagoan, I'd fully support someone coming in and saying-- "the city and state aren't jobs programs. We're enacting huge spending cuts, re-writing pension rules, and focusing on attracting businesses. There will be pain involved, but it's necessary to right the course." Does it come down to having the political talent to sell this message?
The biggest difference between Chicago and Argentina is that at this point, there’s very little Brandon Johnson or any Chicago mayor could do to solve the problem. Chicago needs constitutional reforms to pensions that reduce liabilities and/or the city needs a bailout from the state or federal government to cover past underfunding.
I think it was probably only possible because things had gotten SO bad in Argentina.
Same applies to US entitlements and debt levels. We know there is a huge problem, we know it will probably end badly, but voters don't want change until the fiscal apocalypse hits.
To understand why Trumpists love Millei and why the left hates him, I think you also need to consider his non-economic policies. He’s extremely antiestablishment. He’s anti-abortion. He’s against mandatory vaccines. He’s anti union. He’s anti transgender rights. He has intentionally aligned himself with Trump and Bolsonaro.
I think it's a bit of an easy criticism to say "Milei just did what mainstream economists and the IMF have been saying Argentina should do since forever". Yes, that's true, but we've known what this is for a long time, and no one was able to deliver a surplus until him.
What foreigners need to understand is that the Argentine political center is relatively far to the left. That means that even when a neoliberal like Macri took over in 2015, he still had to negotiate laws in a coalition with allies that don't agree that cutting costs has more benefits than it provides, with a general public and unions that are used to taking to the streets and staging huge protests, etc all making it very difficult to do the austerity everyone agrees is needed.
Even today, when Milei has tamed inflation, has brought down poverty, stabilized the currency, etc as a direct result of having a surplus the Senate just passed a set of entitlement bills that would cost 2.6% of GDP and send us back to a deficit. The political class (including the conservative party) are still happy to spend their way to impoverishment.
So the merit in Milei is that he was able to use his media savviness to convince a significant portion of the electorate that surpluses are good, that he had enough zeal to push through with deep cuts in record time (Macri took 4 years to deliver a deficit of 0.6%, Milei gave us a surplus in 4 months), some of them very unpopular, and that he was not afraid of popular protests and dismantled the system of paid protesters.
The policy mix itself was known for a while but he's the only one willing and able to execute it. it's hard to think of anyone else in the political system that would have tried. (Sidenote: Massa might have claimed to want austerity as a candidate, but he was the minister of Economy that spent his way to 220% inflation...)
This is making me sound like a Milei super fan and I'm anything but, I would've voted for Bullrich if I still lived there as I'm not a fan of his populist streak and following. But give credit where credit is due.
Matt spent a lot of time on the Ezra Klein pod talking about how Trump had backed himself into a corner with all his wacky tax cut promises, and absent a miracle from DOGE didn't have a mandate to raise taxes/cut spending enough to run a surplus.
Meanwhile Milei is able to enact strict austerity measures without any backlash, even though the measures he's enacting don't include the central policy he ran on.
I think there's an alternate version of this column titled "What Trump can learn from Milei about policy in an inflationary environment", where Milei's ability to back off from dollarization and remain popular due to good overall economic management is contrasted with Trump's inability to drop expensive promises, even when they box in other parts of his agenda.
I'm married to an Argentine. Just wanted to emphasize your point that Americans have no sense of how expansive the welfare state is in Argentina. Over half of adults in Argentina are "employed" by the government, which is obviously not sustainable when a significant portion of those employees don't actually work. 100% annual inflation is also not something we can conceive of.
Absolutely. People don't really understand just how over regulated, profligate, overprotected, and overtaxed the Argentine economy is. We are so far to the left that any market reforms would yield good results.
And Milei is doing a lot of good things in these areas. He has a minister of Deregulation who has been painstakingly analyzing laws and regulations that make us inefficient and fixing them, he has a surplus, he has proposed law to get rid of ~190 taxes that bring in less than 10% of the state revenue, and he's pushing to access more markets (although being in a trade union with Lula's Brazil is making this challenging). His economic policies are genuinely libertarian, but it will take us over a decade of Milei-like governments to get somewhere sane given our starting point.
That said, it's not true that half the people work for the government, it's "just" 37% of employees. Although some provinces do reach 70% public jobs as a share of all employees.
Just want to plug agreement with what I assume others below have already said - dollarization is not stupid.
Your main objection seems to be that it makes monetary expansion harder. For all cases where one needs monetary expansion because of global trends, you can trust the Federal Reserve to have lower interest rates (and they have international operations). In the case of a national emergency, you still have plenty of fiscal debt issuance responses available. Confer Panama's response to 2008.
Rashid Griffith has done some good interviews about dollarization on the Caribbean Progress Studies Institute page.
"But why does Argentina have such a small financial sector? Unsurprisingly, it’s the “having a very f****d up economy” of it all. Very high inflation is also very persistent and very volatile, which means that it’s really hard to forecast real or nominal variables beyond “the rest of the year”, and it also means that conducting monetary policy, and thus setting and providing guidance on interest rates, is very hard because the relationship between inflation and monetary variables is very, well, variable. Basically, to provide any sort of credit to anyone, you need to have a clear signal of what the rate of return is going to be, which depends on the real interest rate." - from Some Unpleasant Arithmetic
@mattyglesias
is dollarization really so stupid in this context?
This feels a little hand wavy about the headwinds to implementing some of these policies. Like, the Jones Act sucks and our political system is a lot more functional than replacement level countries. Nevertheless, it persists! Rent control is just a generally bad idea and yet it's entrenched in every major city. Tons of subsidies for favored industries. A lot of useless government departments were wiped away in a way that seemed anti-woke but also genuinely helpful for overhead, unlike the DOGE effort. Doing all this at roughly the same time was quite impressive even if the economic intuition behind them seems obvious and conventional.
One thing I find annoying about media coverage of Trump is when they focus on stuff he does that is merely weird instead of actually bad. His obsession with McDonald's, for instance. Milei is case in point as to why I hate this. As a person, he is easily just as weird as Trump. He apparently talks to the ghost of one of his dogs. However, his policy-making is much better. Weirdos can have good or bad policies and focusing on weirdness doesn't neccessarily tell you anything.
"I would not mind the aesthetics of Trumpism — the over-the-top rhetoric, the bombast, the cringe memes, the aspects of personality cult — if he were implementing smart, technocratically sound reforms."
I disagree strongly with this.
Which is somewhat ironic, because I'm always the first to say "never focus on style when you can focus on substance." But there are limits! Trump's "over-the-top rhetoric" is PART OF THE PROBLEM, not some harmless peccadillo, because he uses it to demonize his opponents *and* to make it okay for his followers to hate his opponents. And before anyone says, "Oh drosophilist, you hypocrite, the left does it too," I want to emphasize the difference between a random troll shitposting on Xitter and the freaking President of the United States of America shitposting on Xitter. Do random left-wing social media users insult and mock Trump voters? Sure. Did Biden or Obama ever talk about GOP voters the way Trump talks about Democratic voters? Never.
Compare typical social media posts from Biden and Trump on the occasion of any national or widely celebrated holiday:
Biden: "Jill and I wish a happy and peaceful Easter to all who celebrate."
Trump: "Happy Easter to all, including the CRAZY LYING MEDIA who are being SO UNFAIR, and to all the UNAMERICAN WOKE SOCIALIST TERRORIST SCUM who let our Great Country be Overrun by ILLEGAL IMMIGRANT RAPISTS and KILLERS who are turning our cities into HELLHOLES! They are Very Nasty People!!!!"
This is not anywhere close to okay! FFS, the President of the United States, regardless of his party affiliation, has two essential tasks: a) comport himself with the dignity and decorum befitting his office (at least in public and on formal occasions; we know that many former presidents would say some very undignified/rude crap in private, see: LBJ for starters); b) at least *pretend* to care about all Americans.
If you're Biden and a bunch of Republican voters get killed/have their homes destroyed by a hurricane in Florida, you publicly say something like "This is a terrible tragedy, my heart/thoughts/prayers go out to the victims and their families, my administration will do everything in our power to help." If a member of the opposing political party gets shot dead in their own home, you don't shrug and go, "Maybe I'll call the governor of that state, maybe I won't. He's a very crazy incompetent person." I mean, WTAF?
So, no. Trump's "aesthetic" choices are helping disintegrate what's left of our social fabric, this is NOT okay, and I would not be totes cool with it if only Trump were better on policy!
Those tweets and comments by Trump are bait, designed to elicit this overreaction from you. Don't fall for it.
What’s really sad is not that our president is an overgrown child who like to troll his opponents for lolz; it’s that half the country is ok with it, and when you point out how messed up that is, you get shushed and called a moralizing elitist.
And no, pointing this out is not an “overreaction.”
I didn't call you a moralizing elitist. And I apologize. Get worked up as much as you want. Whatever makes you happy.
You didn’t, but it’s a common refrain from various centrist pundits. And absolutely nothing about any of this makes me happy. I wanted a sane, rational president and administration.
While I’m supportive of clinical trial improvement I’m deeply skeptical whatever is being done is going to spur a giant leap. Developing drugs is super hard - many many smart people have been working on this a long time.
Even with AI?
Yup, Derek Lowe on in the pipeline has shown a lot of skepticism on this. Biology is really hard.
Matt I'm a big fan but I think you're underselling Milei here. A government...any government...actually implementing spending cuts and austerity like he has deserves plaudits. Sure, what he's doing is theoretically "standard", but actually DOING it is far from standard. Ronald Reagan couldn't cut spending... the fact that Milei actually has is remarkable.
The comment by JA below (https://www.slowboring.com/p/what-to-make-of-javier-mileis-early/comment/135442384) - although not contracting closing paragraph and overall view (re bad technical policy)
I think is very on point but more abstractly I think there is often a tendency for comment to assume some kind of abstract international best practice point of departure- and an ideological baseline from own-country so reflexively opposing "deregulation" e.g. w/o asking oneself "well what is the point of departure" - although this aligns with the Abundance and reforms arguments by Klein et al - to get away from knee jerking
So is The Guardian going to publish a letter signed by the same economists where they admit they were wrong?
Nope and nobody will learn from this either.
Would a more moderate, less bombastic, less populist conservative like Bullrich have had the political capital to implement and actually commit to boring, technocratic, neoliberal reforms?
"It’s true that the Guardian ran that letter from 100 economists. But there are a lot of economists in the world..."
I'm glad economists are allowed to use this defense, but public health is forever discredited because a bunch of random grad students signed a letter during the pandemic saying protesting is fine if it's against racism.
True. But I think the connotation is that “trust the science” etc. (which are usually left-coded comments) are predicated on similar foundations (a segment of experts). And we should stop doing that unless the statement really is near-universal in that field.
I had a lovely trip to Argentina about two years ago. Part of Matt’s previous writing is to look at the actual impact of policies and who it benefits or harms; eg rent control is a handout to existing tenants, inclusive zoning is a tax on new construction.
Part of what made the trip so lovely was that a large number of Argentinian policies clearly favored me. My AirBnB was cheap because so many units were pulled off the market due to rent control. I feasted on fantastic Argentinian steak and wine for a fifth of the price it would have cost in the US, because of subsidies to ranchers and vineyards. I could walk into a Western Union with a fist full of dollars and walk out with twice as many pesos as I could have gotten at a currency exchange, because the country was so starved for foreign currency to subsidies imports. But of course there’s a cost on the other side of the ledger for all of these, and it was clearly being born by the Argentinian people through the scourge of inflation. More taxi drivers wanted to talk to me about the exchange rate, or inflation rate, or macroeconomic reforms than they did about the River Plate game I was going to, even in that football-mad country.
I understand why Matt would want to downplay the reforms in this column; “hacking the safety net and subsidies to the poor can unleash economic growth” does not follow the cozy paternalistic ideals usually shared here. But it is clearly working, and I wish Milei and the rest of Argentina continued success.
This wiki article on the Argentine economy has an interesting graph of its GDP from 1880 to 2022. It uses constant dollar prices. Even with zigs and zags of policy the GDP keeps growing. Also mentioned in the article is that Argentina suffered a recent drought which is very important for a agricultural product exporter. My wife's family had Finnish relatives in Argentina back in the before times.
Looks like Matt did a long form post on my question last week. Cool.
Not much to add. Milei has crazy vibes but has implemented sensible policy; spending cuts for an economy wracked by inflation plus sensible deregulation. He's really only similar to Trump in style, mostly not on substance.
What I find important and relevant is Milei's ability to enact extreme fiscal austerity and gain in popularity. I'm thinking of how something similar could translate to the US, maybe starting at the local level. As a Chicagoan, I'd fully support someone coming in and saying-- "the city and state aren't jobs programs. We're enacting huge spending cuts, re-writing pension rules, and focusing on attracting businesses. There will be pain involved, but it's necessary to right the course." Does it come down to having the political talent to sell this message?
The biggest difference between Chicago and Argentina is that at this point, there’s very little Brandon Johnson or any Chicago mayor could do to solve the problem. Chicago needs constitutional reforms to pensions that reduce liabilities and/or the city needs a bailout from the state or federal government to cover past underfunding.
I think it was probably only possible because things had gotten SO bad in Argentina.
Same applies to US entitlements and debt levels. We know there is a huge problem, we know it will probably end badly, but voters don't want change until the fiscal apocalypse hits.
I think it comes down to 1. political talent and 2. things need to be very very bleak.
It worked in DC. Barry turned the city into an utter shithole and the Control Board pulled it out doing essentially what you said
To understand why Trumpists love Millei and why the left hates him, I think you also need to consider his non-economic policies. He’s extremely antiestablishment. He’s anti-abortion. He’s against mandatory vaccines. He’s anti union. He’s anti transgender rights. He has intentionally aligned himself with Trump and Bolsonaro.
anti abortion politics are much more popular in Argentina than the US, right?
Argentine here.
I think it's a bit of an easy criticism to say "Milei just did what mainstream economists and the IMF have been saying Argentina should do since forever". Yes, that's true, but we've known what this is for a long time, and no one was able to deliver a surplus until him.
What foreigners need to understand is that the Argentine political center is relatively far to the left. That means that even when a neoliberal like Macri took over in 2015, he still had to negotiate laws in a coalition with allies that don't agree that cutting costs has more benefits than it provides, with a general public and unions that are used to taking to the streets and staging huge protests, etc all making it very difficult to do the austerity everyone agrees is needed.
Even today, when Milei has tamed inflation, has brought down poverty, stabilized the currency, etc as a direct result of having a surplus the Senate just passed a set of entitlement bills that would cost 2.6% of GDP and send us back to a deficit. The political class (including the conservative party) are still happy to spend their way to impoverishment.
So the merit in Milei is that he was able to use his media savviness to convince a significant portion of the electorate that surpluses are good, that he had enough zeal to push through with deep cuts in record time (Macri took 4 years to deliver a deficit of 0.6%, Milei gave us a surplus in 4 months), some of them very unpopular, and that he was not afraid of popular protests and dismantled the system of paid protesters.
The policy mix itself was known for a while but he's the only one willing and able to execute it. it's hard to think of anyone else in the political system that would have tried. (Sidenote: Massa might have claimed to want austerity as a candidate, but he was the minister of Economy that spent his way to 220% inflation...)
This is making me sound like a Milei super fan and I'm anything but, I would've voted for Bullrich if I still lived there as I'm not a fan of his populist streak and following. But give credit where credit is due.
Matt spent a lot of time on the Ezra Klein pod talking about how Trump had backed himself into a corner with all his wacky tax cut promises, and absent a miracle from DOGE didn't have a mandate to raise taxes/cut spending enough to run a surplus.
Meanwhile Milei is able to enact strict austerity measures without any backlash, even though the measures he's enacting don't include the central policy he ran on.
I think there's an alternate version of this column titled "What Trump can learn from Milei about policy in an inflationary environment", where Milei's ability to back off from dollarization and remain popular due to good overall economic management is contrasted with Trump's inability to drop expensive promises, even when they box in other parts of his agenda.
I'm married to an Argentine. Just wanted to emphasize your point that Americans have no sense of how expansive the welfare state is in Argentina. Over half of adults in Argentina are "employed" by the government, which is obviously not sustainable when a significant portion of those employees don't actually work. 100% annual inflation is also not something we can conceive of.
Absolutely. People don't really understand just how over regulated, profligate, overprotected, and overtaxed the Argentine economy is. We are so far to the left that any market reforms would yield good results.
And Milei is doing a lot of good things in these areas. He has a minister of Deregulation who has been painstakingly analyzing laws and regulations that make us inefficient and fixing them, he has a surplus, he has proposed law to get rid of ~190 taxes that bring in less than 10% of the state revenue, and he's pushing to access more markets (although being in a trade union with Lula's Brazil is making this challenging). His economic policies are genuinely libertarian, but it will take us over a decade of Milei-like governments to get somewhere sane given our starting point.
That said, it's not true that half the people work for the government, it's "just" 37% of employees. Although some provinces do reach 70% public jobs as a share of all employees.
https://www.lanacion.com.ar/economia/empleos/trabajadores-estatales-el-ranking-de-las-provincias-donde-el-empleo-publico-supera-al-privado-nid23052023/
70% sounds ideal