This recent focus on Argentina has highlighted a common tactic the media likes to use:
- Bad thing happens for long time: ignore, downplay.
- Bad thing continues to happen, but “enemy” person that can be blamed for it appears: suddenly it’s headline news and this new bad person caused the problem.
No one that has paid any attention to Argentina is surprised that the economy is chaotic and undergoing experiments of which the outcome is unclear.
This article "blames" everything that is wrong with Argentina on an "enemy" figure. It is generally accepted that monetary policy has a lead time of at least a couple of months (it took the FED at least one year [1]). The causal relationship implied in the article, regarding having a record high inflation in the month of January is pretty unlikely.
To be fair there's "bad" and there's "more than bad", this looks to be in the "more than bad" territory. And whenever I hear "Shock therapy" being mentioned I shiver, because it reminds me of my childhood and adolescence spent under such an economic policy in Eastern Europe back in the '90s. It was worse than hell, thinking back at it.
So all I can say it's that I wish the Argentinian people all the best, they're going to need it.
For sure I don’t want to come across as if I am on “Team Milei.” I am more just annoyed that these recent Argentina is imploding articles don’t spend any time discussing why the country is in the position it’s in, pretty much entirely because of ideological reasons. They only cover the story because it’s useful for bashing their opponents, not because they actually care.
Exactly, it's not much different from the clickbaity tabloid headlines: "ONG BAD STUFF HAPPENS HERE NOW". Very short sighted, and tend to finger current participants as bad, instead of offering a proper historical perspective, in this case that Argentine has been a repeat offender when it comes to defaults and debt restructurings during the 20th century.
I see the same tactic used by larger media outlets like the Financial Times or NYT all the time. I think it’s a symptom of the media environment as a whole. People subscribing / reading certain publications are self-selecting, and so the publications aren’t going to push news stories that go against whatever that ideology suggests.
People seem to have this expectation that an economic crisis is like a storm. Kind of blows in, out of nowhere and then things are bad. For that sort of person, 2 months is a long time. I don't know why people seem to think that way though because it doesn't make any sense; and economic crisis is usually triggered by past decisions that have destroyed wealth and people are now having to realise it. I'd put Argentina's devaluations in that bucket, and the spending freezes. The wealth isn't there to sustain the policies and that isn't the fault of the current guy. Someone needed to be creating wealth 10 years ago for the generous policies of yesteryear to have a chance.
But I'm not really a fan of the idea of "shock therapy", it is the same sloppy thinking as gets people in to messes. We'll note that China, bone-fide economic miracle, seems to have had a strategy of using charter cities (eg, Shenzhen). That seems less disruptive and probably about as effective as anything else; quarantine the old rules geographically and set up experiments with new rules to figure out what works. Let people move to low-tax regions on their own terms when they think it is better than their current state. Sharp changes are super risky, people do need time to re-learn how to survive in a competitive economy. And just because your ideology is sound doesn't mean your policies will magically be good.
I literally don't understand why people keep insisting on using one policy across entire countries. It is patently obvious that politicians aren't good at figuring out the best policy from the legislature. They need to experiment.
Based on this hard data, I expect I could figure out effective policies 4x faster than the average government if given dictatorial control over Argentina.
I think people underestimate the effect of East-West Germany or North-South Korea style examples for making a point about which policies work better. It is clearly no mystery what policies generate wealth. The US has had this figures out for a while now, you just need to look at the different states to figure out what policy mixes work. I bet that is politically inconvenient for the people pushing destructive policy so they then try to bring their ideas in federally.
Shock therapy like the one in Argentina is what turned the tide of inflation in the 1980s in the US: https://en.wikipedia.org/wiki/Early_1980s_recession_in_the_U.... Milei got a strong mandate, but we will have to see if his mandate and his conviction is ultimately strong enough.
At the time Volcker, the president of the Fed, was a target of many social groups - for example he would get in his mail, along with very explicit an threatening letters, car keys from dealerships that went bankrupt. Reagan himself waged wars against some groups, for example he had a huge falling out with Air Traffic Controllers that resulted in sacking most of them and substantial problems with air traffic management due to understaffing.
But it worked, and we got the prosperous but greedy 80s. Soviet Union never recovered from the inflationary pressures, except that over there the system lacked price discovery so inflation manifested in other ways, through extreme shortages of goods / very long queues.
The situation in the late 1970s was so severe that the US even started issuing bonds in foreign currency! People preaching "the end of the Dollar" or some other similar extreme ideas usually don't realize that we're not even close to the Carter bonds stage yet. And even that stage was ultimately reversed. https://en.wikipedia.org/wiki/Carter_bonds
>But it worked, and we got the prosperous but greedy 80s.
What does it matter that the nominal GDP total is increasing if that doesn't translate to prosperity for most of the people or better objective material conditions? https://wtfhappenedin1971.com/
Sibling comment linked to Wikipedia English article, which describes the overall thing, but I think it lacks a bit on the "being the opposite of shock therapy".
The thing about Plano Real is really about its previous context. In the preceding 10 years, government tried fighting hyperinflation by introducing measures that, by their nature, could not be revealed to society beforehand. They did things like freeze prices of goods, blanket freezes of bank deposits and savings, etc. None of that worked, either because implementing price freezes was impractical and easily circumvented, or because freezing deposits hurt people's ability to invest, etc.
For Plano real, everything was laid out by the team proposing it far in advance, everything was clearly communicated by the government, all dates of transitions and rules were known in advance by all actors of the economy.
Really, the only unknown variable was the final conversion rate, but everyone knew it was going to kind of resemble the dollar ratio. In fact, I remember it crisp in my mind (I was a child), the final rate was CR$ 2750 = 1 R$.
And it worked.
Oh, and we also won the world cup that year, whiiiich in my mind, helped.
I wouldn't consider myself to be knowledgeable about Argentina, but this is a blatantly misleading article.
All the conclusions here are based on the government's official USD/peso exchange rate, which until a recent devaluation, had been completely out-of-sync with the black market exchange rate.
"The previous government sought to deny reality by strictly limiting Argentinians’ ability to exchange pesos into U.S. dollars or other foreign currencies. As a result, the official exchange rate made the peso look stronger than it actually was — around 400 pesos for every U.S. $1 before the devaluation that Milei’s government announced Tuesday. But no one was fooled. The black market has lately pegged the peso at around 1,000 per $1."
"At the heart of Milei’s audacious economic agenda is his plan to devalue the peso from 400 to 800 per $1 U.S. dollar and then by an additional 2% each month. Part of the goal is to make Argentina’s exports less expensive — and thus more competitive — overseas and reduce the country’s gaping trade deficit."
"Some economists worry that Milei’s devaluation doesn’t actually go far enough. His plan would narrow — but not close – the gap between the official exchange rate and the 1,000-peso-to-$1 rate in the black market."
If he is turning from "economic independence" offered by BRICS it would mean that he is much more sane than many would believe. BRICS has nothing to offer and nothing in common apart from being against the western world.
I genuinely don’t understand. Shouldn’t we expect bias regardless of their orientation? Conservative, libertarian, liberal, progressive, Marxist - whatever ideology someone has, whether it has a name or not, whether it is coherent or not, it’s going to contain their bias. Not to be too reductive but that’s how human beings work.
I guess some people use “bias” that way, but I use it as simply “all people are biased”. Even if they agree with me. Because I am biased, because all people are biased.
To be fair, double digits inflation numbers have been happened in Argentina for years now and the population wants it to stop. Imagine inflation being more than 20% per month. That is Argentina.
That is the reason they voted Milei, that was very clear in what needed to be done.
It is working, inflation rates are going down. They are getting super habit for the first time in decades. They will get investment.
The reason Argentina is where it is is Marxism. Argentina is geopolitically rich, people is educated, has so many resources, like Venezuela. The only reason it is a poor country is leftist ideas that were ingrained in the population, like "debt doesn't
matter", "you can print money to grow" and so on.
This webpage is marxist, so obviously they are so afraid, specially if it works in the end.
This is well known in Argentina. Many Milei voters knew that if the accounts are put in order and the distortions created by subsidies, privileges, etc. are eliminated, and with a Central Bank with negative equity, the only way to stay afloat is to finish sinking and bounce off the bottom. A year ago, a consulting firm predicted that if poverty in Argentina is measured accurately and distortions are eliminated, the number would be close to 70%. It's the economy resulting from 23 years of continuous socialism, corruption, and plundering of public coffers. With an almost unpayable external debt, there is no credit institution to which Argentina does not owe an astronomical amount, making it impossible to obtain external financing to "soften" the fiscal and monetary correction needed. Therefore, the only thing left for Argentines is "blood, sweat, and tears."
Is this a marxist blog? Seems very opinionated. Milei's plans for Argentina's economic recovery is very unique & interesting, and should be a good example for other countries who struggle with massive public spending. Economic "shock therapy" is obviously painful in short term, especially for the beneficiaries of previous policies.
"The people are worse off, but the country is much better!"
You call that being opinionated, and yet you're okay (fascinated even) with an economy policy that brutalizes and starves in the short term? In a country like Argentina?
The whole idea is to swallow the bitter pill now in exchange for prosperity later. There are worse fates than brutality and starvation in the short term: witness Venezuela, which has been trying to wish away its economic problems for decades now, and keeps going from bad to worse.
On the other hand, we all know what Chicago Boy orthodoxy has wrought in Chile with Pinochet, or in southern European countries in the wake of the forced IMF/ECB bailouts.
Nowhere IMO, just appealing to OP's better sense given that Argentina has been trying for decades the same monetary policy to fix the issues it created!
They have already been "brutalized and starved" for decades. Argentina used to be in top 10 countries of per capita GDP [0]. Argentina is a prime example of how socialist policies can destroy a country, and that's why reversing these policies can also fix a country.
You compare it to the US GDP which is quite unfair prior to the 60s. And don't account for the Panama canal creation either, which should have been quite a blow. but really, the r'long period when Argentina was really declined in quality of life was the 70s, until at least the late 80s. I think it's rather a prime example of US intervention ism during the cold War, and how it create corrupt countries.
Shock therapy is what created the modern Russian state, arguably the biggest geopolitical threat the west faces right now. Just one of many arguments why you should think twice if you think this policy will bring unmitigated good if just the proles withstand starvation for a few years.
.png){kind=link}
- Bad thing happens for long time: ignore, downplay.
- Bad thing continues to happen, but “enemy” person that can be blamed for it appears: suddenly it’s headline news and this new bad person caused the problem.
No one that has paid any attention to Argentina is surprised that the economy is chaotic and undergoing experiments of which the outcome is unclear.