In May 2012: “Down Argentina Way”
Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.
I’d just add something else: press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right. We keep getting stories about Ireland’s recovery when there is, in fact, no recovery — but there should be, darn it, because they’ve done the “right” thing, so that’s what we’ll report.
And conversely, articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly.
Today: “Macroeconomic Populism Returns”
Matthew Yglesias says what needs to be said about Argentina: there’s no contradiction at all between saying that Argentina was right to follow heterodox policies in 2002, but it is wrong to be rejecting advice to curb deficits and control inflation now. I know some people find this hard to grasp, but the effects of economic policies, and the appropriate policies to follow, depend on circumstances.
I would add that we know what those circumstances are! Running deficits and printing lots of money are inflationary and bad in economies that are constrained by limited supply; they are good things when the problem is persistently inadequate demand. Similarly, unemployment benefits probably lead to lower employment in a supply-constrained economy; they increase employment in a demand-constrained economy; and so on.
At the time I did a post to convey my disagreement with Krugman/Yglesias:
Maybe Argentina´s “remarkable success story” is about to close out. The recent expropriation of YPF Repsol Oil Company by the government is a good measure of how desperate they are to grab funds for their “do good” populist actions. According to Alvaro Vargas Llosa (Mario´s son):
Meanwhile, the government realized that the money it was squeezing out of farmers in order to subsidize the millions of urban voters it was intent on turning into a permanent political constituency was not enough to sustain this socioeconomic model. Therefore several companies owned by foreigners, although none as important as YPF, were nationalized. But that was not enough either. The private pension system and the central bank´s reserves were subsequently taken over by the government. Then came draconian capital controls in order to slow what was becoming a massive capital flight (some $75 billion left the country in four years.)
But, of course, even that was not enough to sustain what was left of the Kirchner model. The takeover of YPF was the natural step to take. The president needed three things. One: a new foreign scapegoat (the campaign to regain control of the Falklands had worked as a temporary distraction but had run out of steam.) Two: fresh money, since the only alternative at that point was to spend the already dwindling foreign currency reserves. And three: direct control of the giant Vaca Muerta shale formation recently discovered by YPF in the Neuquén Basin, which in the eyes of the government could be the key to the perpetual funding of the populist model for years to come. The president´s supporters are already preparing the ground for a constitutional change that would lift the impediment to her reelection and ensure her perpetuation in the Hugo Chavez way.
Yes, Messrs.’ Krugman and Yglesias, a “remarkable success story” indeed! Only those kinds of success stories don´t usually last.
Why did it take almost two years for them to view Argentina from the right (populist) perspective. And it´s not because Krugman is oblivious to what has been going on in Argentina for a long time. He´s often down in South America for 50K speeches (plus all the props)!
Update: I don´t know if Scott was less or even more critical of Krugman!
Marcus Nunes has a highly critical post contrasting Paul Krugman’s views on Argentina in 2012 and today. I won’t be quite as critical. As is often the case with Krugman it’s almost impossible to figure out what he is “really saying.” So let’s do something else instead. Let’s look at where the stress falls (title taken from an set of essays by Susan Sontag.)