Economist runs chart showing just how badly Argentina 'never learns' on inflation
Most nations that have been through an economic crisis and hit rock bottom have a hairtrigger reaction against any event that could ... possibly ... get them in the same mess as last time.
The most famous example of this is Weimar Germany, with its hyperinflation and wheelbarrows full of cash. The hard money inflexible stance of the German Bundesbank, and then the European Central Bank, tells the story of a nation that went through hyperinflation again and doesn't ever want to see it again.
Other examples are out there, too -- the currency meltdowns in Southeast Asia from 1997 to 1998 which created such havoc on the prosperity of the impressive rise-up-from-nothing Tiger economies created some of the most uncompromising fiscal policies in the world. They don't want to ever become targets of speculators such as George Soros who was blamed for some of the activity, or client-states of the International Monetary Fund, with its chief grinning over them as they signed over their sovereignty, or see their people in the streets eating cats and dogs.
Russia is similarly situated based on its 1998 experience and whatever you think of Vladimir Putin, has had some of the most responsible monetary management with one of the world's best-run central banks.
Ecuador had so much hyperinflation it threw up its hands and went straight to the U.S. dollar for its currency. It simply couldn't take it any more.
It's basically a rule, an immunity, an absolute aversion to the kind of things that got them in trouble, an Alcoholics nonymous dynamic seen among nations that have endured monster monetary and fiscal crises.
But then ... there's Argentina.
They've got the wretched distinction of being "exceptional" in this regard. They've gone back to 100% inflation, same as plagued them in varying degrees since the days of Juan Peron.
The respected economist Javier Corrales, whose work I have followed since the days of Hugo Chavez, lays out what he sees with that news:
If I had to pick a chart showing what it means to say “we refuse to learn from experience,” it would be this one. I started my career studying Argentina’s remarkable defeat of inflation in 1991, and look at this; country is back to 91. No learning. pic.twitter.com/jepCfNia56— Javier Corrales (@jcorrales2011) March 19, 2023
Once upon a time, Argentina literally destroyed inflation with its institution of a currency board-like system, which tied most of its local currency to the U.S. dollar as a means of controlling government spending. One economist who promoted this idea was top monetary economist Steve Hanke from Johns Hopkins University,. I don't recall the extent to which Hanke advised on what Argentina installed, but Argentina did take up with the idea in the early 1990s under now-former President Carlos Menem. The country installed a currency board and became an economic powerhouse in just a few short years. One caveat, though: It was not a "pure" currency board with full dollar backing as Hanke would have insisted, but it came close enough. The result? Inflation was killed dead and the Argentine peso became worth holding in a way that the decades before had never seen. It was enough to create an economic miracle, for about a decade, until all the compromises the Argentine central bank had made on the board eventually broke what was supposed to be a hard peg and their money went back to acting like it usually does, which is falling in value. An interesting history from Mark Spiegel of the San Francisco Federal Reserve, can be read here.
So the Argentines had a solution in their hands, and they lost it, going right back to the way they were with hyperinflation instead of proper currency.
It's sad stuff because they had weak Democrat party-style leadership susceptible to union pressure and political pressure and the political urge to spend, as well as little knowledge of their place in the global economy which they could have used to their advantage as the Asian economies had. Eventually the whole thing fell apart and for awhile there, they were scruffing along. But with the election of a new leftist government, on the Joe Biden model of eternal spending, they've rapidly moved back to their old hyperinflation default mode, having learned nothing.
It's sad stuff because they had the answer in their hands. They knew what not to do, which is what other nations internalize, and they did it anyway.
Where does that disconnect come, and why is it so famous in Argentina. Is it the Argentinian disease? That's a pretty good way to classify it, because if it's a disease, the next question is, can it spread?
Over here, we know that under Joe Biden it can. That's a reminder to us of why he's got to be thrown out of office come 2024.
Image: Picryl / public domain