Thursday, April 02, 2009

Argentina: How Not To Manage Your Economy

We've noted before how Argentina's economy was destroyed by the Peron socialist movement.

Scott Grannis has been studying Argentina since he married an Argentinan in the '80s. He was Chief Economist from 1979-2007 at Western Asset Management, a global manager of fixed-income portfolios. He keeps up and blogs on economics, markets, and politics from his condo overlooking Calafia Beach on the Southern California coast. Now Scott is blogging from Argentina while visiting with his Argentinian wife of 37 years.

He recently presented some fabulous--if anecdotal--evidence of how government meddling destroys the economy:

Our friends tell us that a year ago the city [of Mendoza, Argentina] was doing very well, thanks to hugely expanding exports of wine. Our local Costco store (in Dana Point, CA) now has a whole section devoted just to Argentine Malbec, which is a close cousin to Cabernet Sauvignon. Most of the Malbec in Argentina is grown around Mendoza. Lately exports have fallen off sharply, and the locals, one of whom we talked to today over lunch, blame it on the Kirchner [Argentinian] administration for sharply increasing tariffs on just about all exports. Governments never learn, it seems, especially not here in Argentina.

However, his view is not built upon anecdotes, as he explains:

I've followed the economic history of the country since 1980, and I've seen them make the same mistakes countless times: devaluations to boost exports, taxes on exports to boost government revenues, capital controls to keep money from fleeing overseas, wage controls to keep inflation under control, etc. These things never work, they just exacerbate the underlying problems.

He appears to know what he is talking about, and we ought to listen.

Here in the U.S., our leaders are also meddling with the economy, imbued with an indomitable belief in their own invincibility. Their interference is ostenibly to help the economy, but instead, they are acting with the improvement of their political base and manifestation of socialsim as their goal.

If we truly wish to revive the economy, we ought to empower those that read, understand and acknowledge the only proven method for improving the economy: removal of barriers to capitalism.

(Via El Opinador Compulsivo)


Gringo said...

I worked in Argentina during the "Plata Dulce" ( sweet money) period, when Martinez de Hoz, the junta's economics wizard, had the cockamanie idea that the way to bring inflation down was to overvalue the peso. Didn't work, but I had a job in Argentina as long as the peso was overvalued.

Every so often one thinks that Argentina has finally "got it." Such as after the collapse of 1989, they got rid of many of the government-owned companies: rails, planes, oil, etc. (Most of these government owned companies were the creation of Peron four decades before.) THAT stopped hyperinflation, as the government no longer printed money to cover the companies' deficits.This was one of the few times a Peronist (Menem)implemented a good economic policy.

Menem's keeping the peso on par with the dollar: not sure if that was a good idea. But what killed it was that the government kept borrowing money abroad to pay for expanding unproductive government bureaucracies. After all, they were Peronist.

Nestor and Evita III have continued the Peronist boludeces (stupidities). While subsidies for energy might have been a viable idea when the economy tanked in 01-02, it was downright stupid to continue them when the economy rebounded at 8% growth for 4-5 years. Without the energy subsidies, there wouldn't have been the need to go for the export taxes.

BTW, back in the 40s, Peron also scotched the economy with export taxes.

Peronists are like the Bourbons. They never learn, and they never forget.

OBloodyHell said...

> Peronists are like the Bourbons. They never learn, and they never forget.

Thus leading the Argentines to need a good shot of... Bourbon.

Gringo said...

Actually OBH, the Argentine response would be to down a liter of vino tinto ( red wine), along with a kilo of asado ( barbecued beef).

Though where I worked,in Salta, the local white was preferred. Even though the peso was overvalued, a gallon of the local white went for around $4.