It was difficult for me to find much of substance within this blizzard of words. More like a comedy piece than the solid stuff we get from you, Noah.
Not saying Argentinian economic policy hasn't been a mess for many decades. But somehow, the Argentinians are still there and food is still on the table. How do they do it? A deeper dive would have been more enlightening. How does Argentina's vast underground economy really work?
It's cheap and easy to make fun of someplace using chance encounters so you can produce a little writing on the side while vacationing with your girlfriend. Hope the author didn't spill too much Malbec on the keyboard.
Spent time in BA and Ushuaia early this year (blue mkt was around 400 vs official nearer 200). People are very relaxed and are living their lives. They have seen this all before- multiple times in recent decades. Tierra del Fuego is the one place where the government makes it hard to get good rates on pesos (ex Western union). The tourism there is part of their hard currency lifeline. I was impressed with Aerolineas, too- much better than Alitalia ever was. I pass for Argentinian (until I open my mouth and use the wrong tu form) but had lots of good conversations with people on the street and those working in hotels and restaurants.
There doesn’t seem to be a groundswell of support for less statist, more prudent policies. Excluding some business owners, they’d rather keep living on borrowed time even if default and devaluation every 5-10 years continues and high inflation is part of life. Plus they won the World Cup. Part of this is the very rich have property and dollars offshore (or holdings in Uruguay). Dollarization won’t help without a change in the economic system - the dollarized system will merely fall apart like the peg did. People are worried about the peso but don’t seem to tie its worries to socialism, cronyism, protectionism and profligacy. They seem to think the peso problem can be solved in isolation.
I worked with a lot of Brazilians in the 1980s during their repeated periods of hyperinflation and devaluation. They were happy, too. Spend cruzerios asap and save dollars is the mantra. Gresham’s law in action.
Funny enough- if you count how many zeros have been lopped off the cruzerio, cruzado, new cruzado, reais, reals, etc over the past 40 years you’d think that anyone dealing in hard currency products (like a soybean farmer) would be a billionaire and the average Brazilian wage earner would never to be able to afford any imported products. The reality is that wage inflation keeps up with devaluation so the wage earner retains some of their international purchasing power (and the soybean farmer pays inflated costs as well).
That sort of inflationary system depletes economic potential and kills investment but it takes many years of high real rates and relative austerity to change behavior and “normalize” so living with inflation on borrowed time can be an attractive alternative….until reality is forced on you.
Selling out wholesale to the Chinese might be an intermediate step
Well written article. The author is very effective at conveying substance and color together without missing the nuance of either. Argentina is a fascinating country with an equally fascinating history. Personally, I would like to see them find their way out of this self-made mess...
I've heard other people say that the airline industry is subsidized by lenient bankruptcy rules, but I don't understand how that works.
Are the bondholders too stupid to take default risk into account? Do they consistently lend at a risk-adjusted rate of return that's below other sectors?
As someone who completely flopped his Economics "A Level" (British 18 yr old tests) and has been playing catch up since, I loved this article in presenting macroeconomic issues with a human face.
Best of all, however, was the picture of a right hand drive Routemaster bus, painted blue, behind a sign for the Falkland Islands.
If the Argentinian government will sell its citizens $200 worth of USD every month for an amount of pesos that is worth approximately $100 in the black market, shouldn't every citizen in the country be lining up monthly to take that deal? Do they?
One interpretation of Argentine economic history is one of the original "Dutch Disease" countries, one sector so productive of internationally traded goods that no other traded good could compete. But rather than reinvest that wealth productively and eventually develop other competitive sectors, it chose unproductive investments. And the mechanisms that it used, over and over, were import controls/multiple exchange rates, public sector spending and deficits.
A fun read, but I could not figure out what I learned from it. Fixed exchange rate and inflation don't mix? Some fiscal deficits are so large that monetary policy cannot and should not offset them and just let prices rise? Sure, but is that news?
OK this is a side-note, but the word for "better" in standard Spanish is "mejor", not "major". Is Argentinian Spanish using some kind of variant of the word, or has the author simply been careless in transcription?
Fantastic rundown Karl! Reading it, I was struck by parallels with what I saw earlier this year on a trip to Lebanon, where government & popular insouciance also seem to conflict eerily with deteriorating public services, bloated national champions, and a complex thicket of exchange rates. Maybe nostalgia and good gastronomy really do dull reformist proactivity, but some urgency desperately needed in both countries.
In any case, would love to have similar guest posts about other economies in the future.
It was difficult for me to find much of substance within this blizzard of words. More like a comedy piece than the solid stuff we get from you, Noah.
Not saying Argentinian economic policy hasn't been a mess for many decades. But somehow, the Argentinians are still there and food is still on the table. How do they do it? A deeper dive would have been more enlightening. How does Argentina's vast underground economy really work?
It's cheap and easy to make fun of someplace using chance encounters so you can produce a little writing on the side while vacationing with your girlfriend. Hope the author didn't spill too much Malbec on the keyboard.
Noah, this is yet another fantastic article that would benefit a lot of people in Latin America. How do we go about translating it to Spanish?
Spent time in BA and Ushuaia early this year (blue mkt was around 400 vs official nearer 200). People are very relaxed and are living their lives. They have seen this all before- multiple times in recent decades. Tierra del Fuego is the one place where the government makes it hard to get good rates on pesos (ex Western union). The tourism there is part of their hard currency lifeline. I was impressed with Aerolineas, too- much better than Alitalia ever was. I pass for Argentinian (until I open my mouth and use the wrong tu form) but had lots of good conversations with people on the street and those working in hotels and restaurants.
There doesn’t seem to be a groundswell of support for less statist, more prudent policies. Excluding some business owners, they’d rather keep living on borrowed time even if default and devaluation every 5-10 years continues and high inflation is part of life. Plus they won the World Cup. Part of this is the very rich have property and dollars offshore (or holdings in Uruguay). Dollarization won’t help without a change in the economic system - the dollarized system will merely fall apart like the peg did. People are worried about the peso but don’t seem to tie its worries to socialism, cronyism, protectionism and profligacy. They seem to think the peso problem can be solved in isolation.
I worked with a lot of Brazilians in the 1980s during their repeated periods of hyperinflation and devaluation. They were happy, too. Spend cruzerios asap and save dollars is the mantra. Gresham’s law in action.
Funny enough- if you count how many zeros have been lopped off the cruzerio, cruzado, new cruzado, reais, reals, etc over the past 40 years you’d think that anyone dealing in hard currency products (like a soybean farmer) would be a billionaire and the average Brazilian wage earner would never to be able to afford any imported products. The reality is that wage inflation keeps up with devaluation so the wage earner retains some of their international purchasing power (and the soybean farmer pays inflated costs as well).
That sort of inflationary system depletes economic potential and kills investment but it takes many years of high real rates and relative austerity to change behavior and “normalize” so living with inflation on borrowed time can be an attractive alternative….until reality is forced on you.
Selling out wholesale to the Chinese might be an intermediate step
Well written article. The author is very effective at conveying substance and color together without missing the nuance of either. Argentina is a fascinating country with an equally fascinating history. Personally, I would like to see them find their way out of this self-made mess...
I've heard other people say that the airline industry is subsidized by lenient bankruptcy rules, but I don't understand how that works.
Are the bondholders too stupid to take default risk into account? Do they consistently lend at a risk-adjusted rate of return that's below other sectors?
Just fabulous Karl!
Have you considered updating James Fitzpatrick's fabulous 1930s TravelTalks?
You and Noah could do these as something like EconoWorldTravel short documentaries!
Chile - Land of Charm 1937
https://youtu.be/K5rBiv8w8jY?feature=shared
Floral Japan 1937
https://youtu.be/myd3-ferwDI?feature=shared
Hong Kong - Hub of the Orient - 1937
https://youtu.be/xVVhErxzCIY?feature=shared
Is Argentina the only country in modern history that has undeveloped itself?
I feel like I’ve been hearing about Argintina’s problems for the past 25 years
As someone who completely flopped his Economics "A Level" (British 18 yr old tests) and has been playing catch up since, I loved this article in presenting macroeconomic issues with a human face.
Best of all, however, was the picture of a right hand drive Routemaster bus, painted blue, behind a sign for the Falkland Islands.
If the Argentinian government will sell its citizens $200 worth of USD every month for an amount of pesos that is worth approximately $100 in the black market, shouldn't every citizen in the country be lining up monthly to take that deal? Do they?
Might be the best thing on this Substack (and most things on this Substack are good), thank you for commissioning this Noah!
Thank you. I recognize kindness, even for an old shit poster.
One interpretation of Argentine economic history is one of the original "Dutch Disease" countries, one sector so productive of internationally traded goods that no other traded good could compete. But rather than reinvest that wealth productively and eventually develop other competitive sectors, it chose unproductive investments. And the mechanisms that it used, over and over, were import controls/multiple exchange rates, public sector spending and deficits.
A fun read, but I could not figure out what I learned from it. Fixed exchange rate and inflation don't mix? Some fiscal deficits are so large that monetary policy cannot and should not offset them and just let prices rise? Sure, but is that news?
OK this is a side-note, but the word for "better" in standard Spanish is "mejor", not "major". Is Argentinian Spanish using some kind of variant of the word, or has the author simply been careless in transcription?
Fantastic rundown Karl! Reading it, I was struck by parallels with what I saw earlier this year on a trip to Lebanon, where government & popular insouciance also seem to conflict eerily with deteriorating public services, bloated national champions, and a complex thicket of exchange rates. Maybe nostalgia and good gastronomy really do dull reformist proactivity, but some urgency desperately needed in both countries.
In any case, would love to have similar guest posts about other economies in the future.