Argentina: Are conservatives wrong about markets or money?

Argentina offers an interesting lesson in the relative importance of monetary policy and structural reforms.  During the period from 1991-97 it grew very rapidly with neoliberal reforms.  Then in 1998-2001 the economy experienced deflation.  After 2002 a new left wing government came in and adopted a very inflationary monetary policy.  It also moved away from neoliberalism, adopting all sorts of statist economic policies.

So was real growth higher in the 1998-2001 period or the period since 2002?

It’s not even close.  The period from 1998-2001 was a disaster, one of the worst depressions of modern times.  And since 2002 the economy has seen fast growth, which led to the current government recently winning a landslide election victory.  

Conservatives in America have recently adopted the position that monetary stimulus doesn’t help, even when NGDP has fallen dramatically below trend.  They also believe in pro-market policies and oppose statism (unless they are actually in government of course.)  So it seems to me that Argentina discredits conservatism.  You have a country that got much higher growth from shifting from a deflationary monetary policy to an inflationary monetary policy.  And all this despite the adoption of horrible statist policies.

So are conservatives wrong about markets, or money?

The answer is simple.  They are right about markets and wrong about money.  Argentina shows just how important it is to get monetary policy right.  If you don’t, even the most misguided statist policies can look far better than anything the more pro-market party has to offer.

Even today Argentina is a “failed” economy by any reasonable standard.  It’s no longer one of the richest countries on Earth, as it was 100 years ago.  But it’s also much less “failed” than 10 years ago, an inconvenient truth for all the RBC-types who deny the importance of nominal shocks.

PS.  Nothing in this post should be construed as praising recent Argentine policies.  The monetary policy has been too expansionary, leading to high inflation.  The government has covered up the inflation.   I get all that.  But the depression of 1998-2001 was far worse.  Something the Argentine voters clearly understand.


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37 Responses to “Argentina: Are conservatives wrong about markets or money?”

  1. Gravatar of Nicolas Cachanosky Nicolas Cachanosky
    12. November 2011 at 15:02

    This is a very interesting post, to which I find myself in agreement.

    I should add, however, that the economic policies during the 90s, despite being more “friendly” to neoliberal reforms with respect to the 80s, it still followed an unsustainable path.

    A key problem was fiscal deficit that resulted in a too rapid increasing debt (a broadly similar situation to present European problems). Was the decline after 1998, and ultimately the default in 2001, just the result of a change in policy, or was it the outcome of the fiscal problems in the previous years?

    Argentina during the 90, even though it looks more neoliberal, than during the 80, let alone the post 90s, it still seems to fit better a Keynesian dress with fiscal deficit. Sure, deregulation and more pro free-market did happen and were helpful.

    During the 80s fiscal spending was financed with inflation, during the 90s with privatization and foreign debt. Same problem, but with different sources to finance big amounts of government spending. The post 90s is not following a too different path than the 80s, just add confiscation to finance government spending.

  2. Gravatar of marcus nunes marcus nunes
    12. November 2011 at 15:26

    Scott Just to show you how “attached” people can be to their “pet projects”, just 2 years ago Domingo Cavallo, Argentinian Economic Minister during the “currency board” years said that Argentina should never have dropped the dollar peg!

  3. Gravatar of Ram Ram
    12. November 2011 at 16:46

    Another way of making this point is to observe that variation in quarterly NGDP growth explains about 2/3rds of the variation in quarterly RGDP growth. The other 1/3rd, presumably, is explained by supply-side factors. In short, unless you’ve completely done away with the market economy altogether, getting monetary policy right is twice as important as getting supply-side policies right (if RGDP is the metric). I realize this is very simplistic, but I think it is suggestive. The trend rate of RGDP growth for a very, very long time has been 3% per year in the US (more or less). This despite the US government lurching from one pole to another and back again (all within the bounds of capitalism, though, loosely defined) in that time period. The biggest deviations from that trendline are periods like the Great Depression where the case is strongest that bad monetary policy is at least a very important part of the story.

  4. Gravatar of Craig Craig
    12. November 2011 at 16:57

    But how did you measure growth? By taking nominal growth times some arbitrary assumption of inflation?

    If there is price deflation then, ipso facto, GDP will drop. That doesn’t mean that there was no economic growth (which is capital growth). Perhaps, you’ve accounted for this, but your post doesn’t explain it.

    GDP depends on inflation for what passes for growth. That’s tautological. If you have found another way to analyze the numbers, we’d all be interested to hear it.

  5. Gravatar of Morgan Warstler Morgan Warstler
    12. November 2011 at 16:58

    “Conservatives in America have recently adopted the position that monetary stimulus doesn’t help, even when NGDP has fallen dramatically below trend.”

    This is simply not true. And your Argentina example proves my argument.

    The point is Dems should only get Monetary Stimulus when they MAKE LIKE CLINTON.

    That’s the whole reason to have an independent Fed, it is just another brake on anything getting too neo-liberal.

  6. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. November 2011 at 17:47

    The “Argentine Road’ spectre was something that was waved around to warn Australians of what can happen if you choose the wrong policies. There was even a book about it. You need steady grinding away at liberalising reform by both sides of politics to turn things around: including policies that ensure there is something for everyone.

    Floating exchange rate with an explicit monetary policy regime is so clearly the way to go, the Australian experience is very strong evidence for it. You can even call it “inflation targeting” if you like, so long as the target is one which is averaged over the business cycle, as the Reserve Bank of Australia does. (Trying to claim that the Oz economy, about one-twelfth the size of the US economy, with a highly volatile mining sector making up about 9% of GDP, is less prone to economic shocks than the US economy is a tad silly.)

    An independent Federal Reserve which won’t tell people explicitly what it is targeting is much more likely to be something of a menace than a macroeconomic anchor.

  7. Gravatar of David Pearson David Pearson
    12. November 2011 at 18:08

    Scott,
    “Argentina shows just how important it is to get monetary policy right.”

    Your post gives the impression that something changed in 1998, when in fact Argentina had the same monetary regime throughout 1991-2001. What you call the “success of neoliberal policies” from 1991-1997 was mostly to do with the country’s ability to end high and variable inflation. This was not unique to Argentina: virtually every Latin country adopted hard money regimes during this time, and the result was a region-wide boom.

    The fact is around 1998 Menem ran out of state firms to sell, and this exposed the structural budget and current account deficits which had been there all along. The 1998-2001 crisis was a fiscal one, not a monetary one. If the country had had a less corruption, a decent tax regime and had addressed its European-style labor laws, it would not have suffered under deflation.

    Argentina is a great analogy for Europe. Southern Europe benefited from German monetary policy in the period after Euro adoption. They got away with having a northern European welfare state AND a southern European tax base (and culture of corruption). Debt is what bridged that gap. Now that the debt is impossible to repay, they want southern European monetary policy again. Let the ECB finance the welfare state, and everything will be okay…

  8. Gravatar of Benjamin Cole Benjamin Cole
    12. November 2011 at 18:26

    I have pondering Argentina of some time; this is an excellent window into their successes and failures.

  9. Gravatar of John John
    12. November 2011 at 18:44

    Scott,

    The 1998-2001 period was Argentina attempting to rebalance after the previously inflationary period. Money and prices rose very fast during the 90s neoliberal period in Argentina. Expansionary monetary policies are at the heart of the boom bust cycle and that’s why conservatives oppose them. Friedman was one of us, not like you.

    I don’t think Friedman would blame the Fed for our current recession. In the face of a huge money shock, they managed to keep money supply measured in M2 growing at a fairly steady rate and they completely avoided any deflation. You may argue that we had deflation in 2009 or 2008 but you’re wrong. Prices were higher at the end of 2008 then the beginning and ditto for 2009. I think he would point to our unemployment insurance and ridiculous environmental crusade as the causes of low growth and high unemployment.

    Similarly with Argentina, I think he would blame inflation for the recession in the late 90s and say that their inflationary policy is setting them up for a bust in the near future.

    One other quick question, how does your view of the business cycle hold up when a country like Armenia sees their real GDP drop 15% and inflation runs at 7%. Do you still think the optimal thing for them to do would be to have been to jack inflation up to 20% to keep a 5% NGDP target. That seems sort of ridiculous.

  10. Gravatar of Morgan Warstler Morgan Warstler
    12. November 2011 at 19:35

    David just said the same thing as me.

    The Greeks wont get away with it, because the Germans are in charge.

    And neither will Obama, for the same reason.

  11. Gravatar of ChacoKevy ChacoKevy
    12. November 2011 at 19:44

    Argentina isn’t the only country to consider. Bolivia began their walk down the statist path in 2003, and has seen GDP nearly triple since. It’s due to nationalization of natural resources, and who knows where future investment will come from, but in the meantime, good luck trying to sell Bolivia on the virtues of markets.

  12. Gravatar of Morgan Warstler Morgan Warstler
    12. November 2011 at 21:04

    Delay of gratification. Do not eat the marshmallow. Defines success.

    The difference between consumption and investment is gratification.

  13. Gravatar of Argentine lessons for Greece « The Market Monetarist Argentine lessons for Greece « The Market Monetarist
    12. November 2011 at 23:02

    […] 2 (November 13): Scott Sumner is out with an excellent comment on the lessons from Argentina. Share this:TwitterFacebookLike […]

  14. Gravatar of Lars Christensen Lars Christensen
    12. November 2011 at 23:06

    Excellent post Scott. I complete agree. We can learn a lot from the Argentine lesson.

    I think that especially the political dynamics of trying to holding to monetary regime that is killing NGDP growth is interesting. In that case the Argentine story is relevant as I see it to especially Greece. I have done a few blog posts on the that recently.

    See here for example:

    http://marketmonetarist.com/2011/11/05/argentine-lessons-for-greece/

  15. Gravatar of RebelEconomist RebelEconomist
    13. November 2011 at 03:59

    Scott, surely you know that Argentina has had a large transformation of its terms of trade in its favour since the early 2000s due to the rise in commodity prices, especially soya beans. If you don’t you probably should not be writing about Argentina’s economy; if you do, you ought to have mentioned it to be objective.

    I wish you would stop writing so many posts; neither you nor your readers can do them justice.

  16. Gravatar of StatsGuy StatsGuy
    13. November 2011 at 05:53

    I guess I have to partially disagree here –

    The Argentina situation was largely a result of debt. You should review.

    http://en.wikipedia.org/wiki/Argentine_debt_restructuring

    Also note that much of the expansion from 1991-1998 was driven by foreign borrowing for investments in FOREIGN CURRENCY, either in actuality or in effect due to the currency peg being written into law. This protected those debts from unilateral adjustment through inflation (and was one of the key aspects of the dollar peg that helped resolve the inflation crisis).

    It’s debatable whether the boom was sustainable, but the immediate crisis was triggered by the dollar revaluation in 91-98 (during our own internet boom and disinflation), and Argentina realized this. The idiocy of the right in Argentina, however, was holding to the dollar peg waaayyy to long in the vain hope of regaining access to international capital markets, and refusing for too long to repudiate debt.

  17. Gravatar of StatsGuy StatsGuy
    13. November 2011 at 06:02

    Oh, here’s one more excellent link

    http://fpc.state.gov/documents/organization/8040.pdf

    Note the progression of events. Of particular interest (it’s been a while since I reviewed this) was the IMF’s ludicrous intervention. First a small package, then a big package, BOTH TIMES massively overestimating the ability of the Argentine economy to grow as a result of “pro-growth” internal reforms and budget cuts AND insufficient monetary adjustment. And this, after many years of below trend growth while debts accumulated.

    Note a couple key events, and note how public laws affected private debt denominated in non-pesos:

    Jan 2002 Senator Duhalde sworn in as President. He blames Argentina’s economic
    problems on the free-market system and vows to change economic course.
    Except for debt moratorium, new economic policies are unclear.

    January 23 The Argentine Senate passes bankruptcy law that would use capital
    controls to restrict payment of foreign private debt payments through
    December 2003.

    January 17 The government announces that dollar denominated loans exceeding
    $100,000 will be converted to pesos at 1.4 for fixed rate, deepening the
    balance sheet mismatch of banks.

    Much of the events of 1999-2002, and the instability, had to do with a badly managed de-dollarization of the economy, and a political party in power that was willing to sacrifice EVERYTHING to keep the dollar standard.

  18. Gravatar of StatsGuy StatsGuy
    13. November 2011 at 06:15

    Lars’ post is frightening – so many parallels to Greece.

    ChacoKevy is right about Bolivia too – when debts exceed repayment potential + cost of adjustments, countries perceive themselves as better off giving up some of the virtues of the markets in order to avoid peonage.

    @ David P.

    “The 1998-2001 crisis was a fiscal one, not a monetary one.”

    The trigger was not the fiscal problems, per se, but the dollar ascendance. Brazil, for instance, has many of the same corruption problems (and perhaps great challenges managing the federal apparatus), but it was able to devalue 30% and avoid much of the pain. Nor did its long term growth seem to suffer… Likewise, the market reformers did not suffer quite the same massive loss of public support and popularity that they suffered in Argendina.’

    Interesting thread…

  19. Gravatar of David Pearson David Pearson
    13. November 2011 at 07:01

    Statsguy,
    Your thesis is being made by Europe monetary stimulus proponents today. I think it ignores the broader political-economic context.

    Argentina suffered from decades of instability and chronically slow growth due to its addiction to central bank financing of deficits. Convertibility was the country’s chance to escape the orbit of that “permanent” dynamic. The same is true of southern Europe: those countries regularly resorted to competitive devaluations to shore up their finances, and this created an unstable (monetarily) Europe with high inflation and high unemployment. They had one chance to escape this dynamic: adopting German monetary policy.

    In both cases, the “escape” required changing fiscal regimes as well as monetary. This did not happen. The structural tendencies were left intact and covered up with debt. When debt-issuance capacity ran out, they both blew up as a result.

    In isolation, this seems a monetary policy problem: why not devalue and have the ECB/Arg. central bank finance deficits for a little while? Because its not a little while. Its going back to an old monetary regime that is bound to fail in the long run. I agree they have no choice. They failed to act when they should have, and so the fault is fiscal, not monetary.

  20. Gravatar of David Pearson David Pearson
    13. November 2011 at 07:06

    BTW, Rebel Economist is exactly right. Commodity prices were crashing after 1998, and this helped expose the country’s imbalances. The Kirchner’s have had commodity price booms at their back. Discussing Argentine, Russian, Canadian or Australian economic performance without mentioning commodity prices is ignoring the 800-lb gorilla standing in the corner.

  21. Gravatar of ssumner ssumner
    13. November 2011 at 08:03

    Nicolas, I don’t think the depression was caused by unsustainable fiscal policies, but rather really tight money.

    That tight money caused the fiscal problems to get much worse.

    Marcus, Voters don’t allow politicians to maintain failed monetary policies beyond a certain time period. Which is good.

    Ram, I partly agree, but not entirely. My hunch is that reducing NGDP instability might be even more than 2/3, in terms of policies than can address the business cycle. That’s because many non-monetary factors (such as oil shocks) can’t be addressed with any policy.

    But long term growth is only addressed by supply-side factors, and I don’t see that as being unimportant as you do. I think the importance is masked by two factors:

    1. The coincidence that the worse supply side policies occurred when technological progress was delivering the fastest growth (world-wide), say 1933-73.

    2. Small differences in long run growth lead to large differences in levels, if maintained for long periods. If Europe is 25% behind the US, that could be explained with a 0.25% annual growth drag over 100 years.

    craig, I doubt any economist in the world denies Argentina suffered a huge depression in the 1998-2001 period. All the data point that way, not just RGDP.

    Morgan, It certainly is true.

    Lorenzo, Good point about Australia.

    David, You said;

    “Your post gives the impression that something changed in 1998, when in fact Argentina had the same monetary regime throughout 1991-2001.”

    This is flat out wrong, and hence everything else in your comment is beside the point. The monetary regime did not change, as you say, but monetary POLICY got dramatically tighter after 1997, there can’t be any serious dispute about that. The main cause was the much stronger dollar. The resulting deflation (falling NGDP) in Argentina was what caused the depression. I don’t see how anyone can seriously argue that point.

    Thanks Ben.

    John, You said;

    “The 1998-2001 period was Argentina attempting to rebalance after the previously inflationary period. Money and prices rose very fast during the 90s neoliberal period in Argentina.”

    Actually just the opposite, inflation slowed dramatically from hyperinflation levels in the 1980s to far lower levels in the 1990s. The economy grew quickly despite that slowdown. They could have continued low inflation after 1997, and would ahve avoided the depression.

    Chacokevy, Bolivia has never been anything but a statist economy, which is why it’s the poorest in South America. The Bolivians should look next door to Chile if they want to see the virtues of markets.

    Pointing to Bolivia as a model for South American is about like pointing to Haiti as a model for the Caribbean.

    I doubt the RGDP growth is what you claim, but have no time to look up the data–maybe someone else will.

    Thanks for the link Lars.

    Rebeleconomist, That’s right, but the growth spurt occurred well before the commodity boom. There’s no doubt in my mind that devaluation helped growth, just as in the US after 1933.

    I stated very clearly that I think Argentina has a bad economic model, I’m just trying to show the relative contribution of monetary stimulus. Leaving out the commodity boom that occurred later did not material affect my argument.

    If you think I post too much, stop reading them.

    Statsguy, Debt problems are usually a symptom of deflation, and Argentina is no different. People confused cause and effect, just as they did in America post-2008. The deflation caused the depression, nothing else. Debt problems don’t cause depressions.

    You said;

    “ChacoKevy is right about Bolivia too – when debts exceed repayment potential + cost of adjustments, countries perceive themselves as better off giving up some of the virtues of the markets in order to avoid peonage.”

    This makes no sense. You don’t give up markets, you default, and then move toward free markets. Bolivia went in the wrong direction.

    David, You said;

    “BTW, Rebel Economist is exactly right. Commodity prices were crashing after 1998,”

    Yes, in dollar terms, which is exactly my point.

    Chile shows that inflation targeting can work in a country that previously suffered hyperinflation. That would have been a much better choice than fixing the peso to the dollar, which was a disaster.

    Everyone, The Argentina boom, depression, and rapid recovery was almost identical to the US in the 1920s and 1930s. Including the initial misdiagnosis of the problem as being “capitalism.” Now we know the problem of the early 1930s was tight money linked to the gold peg. Argentina was basically the same.

  22. Gravatar of ChacoKevy ChacoKevy
    13. November 2011 at 10:07

    @ssumner: You said: “Chacokevy, Bolivia has never been anything but a statist economy”

    That simply isn’t true. The 80’s and 90’s were indeed a period of neo-liberal market reforms in Bolivia. Indeed, this is where Jeff Sachs got his start as 3rd world developer. By and large, the IMF called the economic shots for over two decades. 2003 was the return to nationalization.

    But I don’t mean to hold it up as a model, either. I agree that Bolivia needs foreign investment to get to all the tasty lithium, and they need the US as a stronger trading partner to buy it!

  23. Gravatar of David Pearson David Pearson
    13. November 2011 at 11:15

    Scott,
    I’m surprised that, as an economic historian, that you don’t take a longer view. The convertibility regime solved one of Argentina’s biggest historical problems: the lack of independence of its central bank. This type of credibility-building regime necessitates that the country endure periods of tight money, especially in reaction to external shocks such as falling commodity prices. You can’t have the boom of 1991-1998 without the promise that you’ll allow policy to tighten as it did in 1998. Rather than being beside the point, it was Menem’s corruption and fiscal ineptitude that made the 1998 period too difficult to endure. The same is true of Greece and Italy.

    To say the Kirchners have been “successful” is to look at the situation with historical blinders on. Their central bank is now a laughing stock, a puppet of Kirchner. Anyone can see how this will end.

    Yes Depressions are nasty; they also tend to be short relative to the decades-long periods of inflation and instability that have infected Argentina.

  24. Gravatar of RebelEconomist RebelEconomist
    13. November 2011 at 13:02

    “If you think I post too much, stop reading them.”

    I thought you might say something unhelpful like that.

    The danger for you is that people who are not already familiar with your ideas, who are presumably the ones you want to get to, find it just too much trouble to get into the discussion, and your blog becomes just a talking shop for NGDP targeting enthusiasts.

  25. Gravatar of StatsGuy StatsGuy
    13. November 2011 at 14:06

    ssumner:

    “The deflation caused the depression, nothing else.”

    In the case of Argentina (and Weimar Germany), this is not accurate. Their debt is denominated in foreign currency. They needed a default; nominal targeting or higher inflation would not solve the problem. This is fundamentally different than the US, or Britain. It is, however, similar to Greece.

    “You don’t give up markets, you default”

    First, I agree, but in reality, the opposite happens. The party in power does not WANT to default, they are often intellectually and economically allied with the international capital markets. That means severe temporary pain, so they prolong the agony by negotiating with the IMF to get just another hit of loans in exchange for whatever the IMF is asking, pretending that somehow austerity will augment economic growth in the short term and regain the faith of the capital markets. Ask yourself, how many times has the IMF said that growth in Greece, Ireland, etc. would boom without monetary/debt relief, if they could just cut more spending? How many times have projections been revised?

    Eventually, the population gets so ticked off at seeing 40% of their national income extracted for debt repayment that they revolt, vote out the party in power, and vote in a leftist regime that defaults on the debt. IF the left party also manages to cut government to avoid hyperinflation, it has won considerable credibility, particularly if the capital markets come back 3 years later and start offering more loans.

  26. Gravatar of StatsGuy StatsGuy
    13. November 2011 at 14:09

    @ David P

    I understand your argument, and accept that the problem may not have triggered in the first place but for fiscal problems (if they’d had solid fiscal performance, they would never have needed to dollarize or get dollar denominated loans to get a lower rate). However, existing fiscal problems (including corruption) were heavily exacerbated by monetary shifts (especially the exchange rate).

  27. Gravatar of Greg Ransom Greg Ransom
    13. November 2011 at 18:32

    No one more strongly made the case for sound monetary policy for the non-pathological functioning of a market economy than F. A. Hayek.

    On other matters,

    I love it how — typically — Scott misreports & fails to engage the substance of Nicolas’s comment:

    “Nicolas, I don’t think the depression was caused by unsustainable fiscal policies, but rather really tight money.

    That tight money caused the fiscal problems to get much worse.”

  28. Gravatar of ssumner ssumner
    13. November 2011 at 18:51

    ChacoKevy, There’s a big difference between Jeff Sachs giving advice and neoliberal policies. He gave advice to Russia–were they neoliberal? Someone should check Bolivia’s ranking in the Heritage and Fraser rankings during the 1990s.

    I just checked and per capita GDP in Bolivia is less than half of Ecuador, and a third of Colombia. And those countries are poor by South American standards. Bolivia’s a disaster.

    David, You said;

    “To say the Kirchners have been “successful” is to look at the situation with historical blinders on. Their central bank is now a laughing stock, a puppet of Kirchner. Anyone can see how this will end.”

    This completely misrepresents what I said in the post. I said Argentina has a bad economy that only looks good compared to the utter disaster of 1998-2001. Obviously Argentina’s got big problems today.

    But they should have adopted inflation targeting like Chile, not a fixed exchange rate. The (right wing) people who did that are ultimately responsible for the stupid left wing policies we see today. Just as Hoover gave us FDR.

    Rebeleconomist, I post less than many of the best and most successful bloggers (Yglesias, DeLong, MR, Krugman, etc.) The problem isn’t that I post too much, it’s that the quality of my posts isn’t as high as those guys.

    Statsguy, It doesn’t seem like you disagree with me, rather you are claiming that these countries (or their leaders) are too stupid to follow my suggestions. Maybe so, but one must keep giving the right advice, and not worry about whether it’s politically infeasible at this precise moment. Obviously whatever is done at a moment in time is the most politically feasible decision at that moment in time. But it doesn’t seem totally beyond the realm of imagination that some day Argentina will look across the border and see what’s happening in Chile.

  29. Gravatar of ssumner ssumner
    13. November 2011 at 18:55

    Greg, Yes, he made a very good comment overall. I was just pointing to one area where I slightly disagreed. In other respects I agree with him.

  30. Gravatar of Jason Odegaard Jason Odegaard
    14. November 2011 at 05:42

    Hi John,

    You had commented:
    “Expansionary monetary policies are at the heart of the boom bust cycle and that’s why conservatives oppose them. Friedman was one of us, not like you.”

    Milton Friedman was more like Scott Sumner than like an Austrian economist. While Friedman may not have favored inflation, he certainly favored expansionary monetary policy. Friedman thought that the Federal Reserve should be replaced by a computer that expands the monetary supply at a regular rate to support growth (there didn’t seem to be much thought to changes in money velocity, which is why NGDP targeting is advocated by the “market monetarists”).

    Plus, Milton Friedman was no fan of the gold standard – in fact he argued that today’s US Government should just auction off all the remaining gold reserves and be rid of it – governments had no need to own gold.

    And lastly, he continued to recommend that the Bank of Japan could escape their “lost decade” through expansionary monetary policy. He argued the BoJ should continue buying government securities until economic expansion ensued. The BoJ tried it, but did not *sustain*. They always contracted the previous expansion, and as such, their so-called expansionary monetary policy was not.

    Boom and bust cycles existed before central banks. If anything, the boom-bust nature of economies seems to be a product of human beings congregating into cities, which provides the communication and cooperation that enhances the boom, and deepens the bust. If we all were living hunter-gatherer lives and bartered, there would scarcely be a boom/bust cycle as we would all be bartering for goods, and not using money – if we traded with other humans at all. But none of us would like to live like that.

  31. Gravatar of Doc Merlin Doc Merlin
    15. November 2011 at 00:30

    “Conservatives in America have recently adopted the position that monetary stimulus doesn’t help, even when NGDP has fallen dramatically below trend.”

    Straw man.

  32. Gravatar of Doc Merlin Doc Merlin
    15. November 2011 at 00:51

    “The (right wing) people who did that are ultimately responsible for the stupid left wing policies we see today. Just as Hoover gave us FDR.”

    GAAAAA. Please! you are better than this drivel!
    Hoover was /not/ a right winged president.
    Now, his tenure as Sec of Commerce may have been somewhat right winged, his presidency was anything but.

    Just reading wikipedia would have told you that hoover wasn’t a conservative.

    Here are some examples:

    “Hoover expanded civil service coverage of Federal positions”
    Not conservative.

    “, canceled private oil leases on government lands”
    Not conservative.

    “He appointed a commission that set aside 3 million acres (12,000 km²) of national parks and 2.3 million acres (9,000 km²) of national forests;”
    Not conservative

    “created an antitrust division in the Justice Department”
    Not conservative.

    “proposed federal loans for urban slum clearances”
    Not conservative.

    “proposed a federal Department of Education (not enacted)”
    Not conservative.

    “advocated $50-per-month pensions for Americans over 65 (not enacted)”
    Not conservative.

    “chaired White House conferences on child health, protection, homebuilding and home-ownership;”
    Not conservative.

    “From before his entry to the presidency, he was a proponent of the concept that public-private cooperation was the way to achieve high long-term growth”
    Not conservative, this is almost identical to FDR’s policy.

    ” Lee Ohanian, from UCLA, has argued that Hoover adopted pro-labor policies after the 1929 stock market crash that “accounted for close to two-thirds of the drop in the nation’s gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression”.”
    Not conservative.

    “over the objection of many economists, Congress approved and Hoover signed into law the Smoot-Hawley Tariff Act. ”
    Not conservative.

    “Started the Reconstruction Finance Corporation” “The RFC’s initial goal was to provide government-secured loans to financial institutions, railroads and farmers.”
    Not conservative.

    Signed “the Revenue Act of 1932, which was the largest peacetime tax increase in history.”
    Not conservative.

    Signed the “Emergency Relief and Construction Act.”
    Not conservative.

    Refused to pay promised bonuses to soldiers after ww1.
    Not conservative.

    Massive foreign aid to Germany and Russia after ww1.
    Not conservative.

  33. Gravatar of Sebastian Sebastian
    15. November 2011 at 08:04

    I agree with what you say as “Argentina has a bad economy that only looks good compared to the utter disaster of 1998-2001.”
    That period was a disaster not only economically (default, “corralito”, “peso-ized” savings accounts in foreign currencies), but socially as well; with riots, kidnappings, mobs stealing food from supermarkets and the like.
    Still, we can´t deny that during the 80s hyperinflation and economic stagnation were present (a dangerous combination for the new democracy). Also, infrastructure and services were basic at best.
    The “neoliberal” policies and currency board peg of the 90s not only brought inflation down to single digits, but opened up the country for a much needed boost of foreing investment: privatizing “dinasour” state companies, revitalizing infrastructure and services so basic as water, electricty and telecommunications. Techonology was allowed in and tourism flourished.
    Certainly, the mistake was not lifting the currency board in time so the peso could slowly float against a very strong dollar, which by the end of the decade was hurting Argentina´s economy as the peso became so strong that made its exports non-competitive in internatinal markets. Agricultural exports are the most important engine of the economy.

    Today, Argentina is extremely overheated. The gov., helped by a decade of strong commodity prices, used the capital to subsidize many services that lost all incentives to invest. Popularized riots and created poor dependency by giving money away disguised under a social “universal” agenda(while Cristina shops for shoes on 5th avenue)in exchange for votes, eroding all incetives for people to be responsible of each ones employment. Insecurity is still a major issue that hasnt been adressed.
    Cristina may have won a landslide election with over 50% of votes, but she lost the economic election (she imposed capital controls as people kept protecting their savings by turning them into dollars).
    Let´s not forget that about 50% of the population live under the poverty line. This was an election that was mainly lost by the weak and fragmented opposition. We can´t give her full credit for it.

  34. Gravatar of ssumner ssumner
    15. November 2011 at 13:03

    Doc, Hoover was much more conservative than FDR, and was conservative on monetary policy–the problem that caused the Depression.

    You deny that most conservatives oppose monetary stimulus right now?

    Sebastian, I agree with your comments and strongly dislike the current government. I agree that the fixed rate was a natural reaction to the previous hyperinflation. But we can do better. Argentina should follow Chile’s lead. By analogy, inflation targeting is better than the high inflation of the 1970s (in America) but we can do still better with NGDP targeting.

  35. Gravatar of Doc Merlin Doc Merlin
    16. November 2011 at 12:40

    “You deny that most conservatives oppose monetary stimulus right now?”

    No, I do not.

    “Doc, Hoover was much more conservative than FDR, and was conservative on monetary policy-the problem that caused the Depression.”

    I completely disagree that monetary policy caused the great depression.

    This explanation is much cleaner:
    You don’t need to make up a fancy monetary policy theory
    -when you have higher than equilibrium price price-controns on almost all basic commodities.
    -When you just at this point institute rules that limit commodity production by making it illegal to farm more than a certain amount.
    – When you impose massive tariffs. When you try to force all the large companies into monopolies.
    – When you ban overtime work for many professions.
    -When you massively increase tax rates.
    -When you ban personal possession of precious metals.
    -This list is a very incomplete list of some of the horrible adverse supply side policies of the Hoover and FDR admin.

    Money supply issues should resolve themselves within a couple years. The great depression may have been /started/ by monetary problems, but it lasted very, very long which suggests that the /continuing/ problem wasn’t monetary in nature, but supply side.

  36. Gravatar of Doc Merlin Doc Merlin
    16. November 2011 at 12:42

    “It’s not even close. The period from 1998-2001 was a disaster, one of the worst depressions of modern times. And since 2002 the economy has seen fast growth, which led to the current government recently winning a landslide election victory. ”

    Actually the current Argentinean government is lying about inflation stats… a lot.
    It looks to be roughly double what is reported. They have prosecuted people who stated such.

  37. Gravatar of ssumner ssumner
    17. November 2011 at 19:07

    Doc, The Depression was already quite bad before those policies you mention.

    And I know all about the lies of the Argentine government, it has no bearing on my argument.

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