Argentina and Inflation

It seems that Argentina has tried virtually every possible method of getting wealthier except working harder. The current government has currency controls, an official exchange rate, laws against changing money at the real rate, a variety of export and import controls, etc. Graffiti demands “Bread. Work. Justice.” This theme has been echoed in demonstrations since the 19th century and is depicted in a 1934 oil painting by Antonio Berni at the MALBA art museum (see accompanying photo album). It is hard to think of a country where mass demonstrations of people demanding that they be made wealthier has resulted in an actual increase in average wealth (the Greeks are trying this right now!).

Finally one could look at the Argentines themselves. The government didn’t throw trash in the streets. It was in each case an individual who was too lazy to walk a block or so to a dumpster. Nor did the government decide to walk a dog without carrying a pick-up bag. On my 2003 trip to the country I remember a young man telling me that the American government, especially the CIA, was responsible for keeping Argentina down. I pointed out that the U.S. government had been unable to get rid of Fidel Castro, 90 miles off the Florida coast, despite four decades of trying. What made him think that the same government was somehow able to stop him, 5000 miles farther south, from going to college or manufacturing a product and selling it to the Chinese?

Why is Argentina so poor?

In January 1912, an impartial observer of Argentina and the United States would have had trouble guessing which had a more promising future. Both enjoyed the low-hanging fruit of abundant, underpopulated land. The Argentine pampas were as fecund, tillable, and flat as the American Midwest. Argentina had a long coastline ideal for exporting the agricultural products that were grown inland. Immigrants from all over the world were rushing in. Argentina had one major advantage over the States: It had never relied so heavily on slavery for agriculture. So it had never experienced such a wrenching civil war, nor was it destined for the racial strife and inequality that would be the major blot on America’s future.
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If you want a one-word answer to the question “Why isn’t Argentina rich?” your best bet is coups. Between 1930 (when, only a year after Black Thursday, Argentina’s future may have looked even brighter than America’s) and 1976, Argentina endured at least six. Until 1930, its per capita GDP had closely tracked that of countries like New Zealand, Australia, and Canada. But constant political instability in the decades that followed threw Argentina off track.
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High inflation was the norm in Argentina for most of the 20th century and was renewed in the 21st as President Kirchner steadily eroded the Argentine Central Bank’s independence, using its printing presses to reward friends and paper over the government’s growing debt.

Argentina’s nationalization of YPF — which will win support from all of the country’s major political parties, and the cheers of the public — makes economic sense for the country in the short run, which is exactly why it is being undertaken. Argentina will appropriate natural resources and their cash flows. Only foreigners, mostly Spaniards, will get screwed. In the short run, it’s a free lunch for Argentina. The problem is, the seizure is also a return to the political and economic unpredictability that has ruined Argentina’s chances for prosperity over the past century. What foreigner will invest in the country now (and Argentina desperately needs such investment), in the wake of such a theft?

What’s Wrong with Argentina? A quick tour of the country tells the story clearly.


Mockery, truculence, and minimalist living are best, then enjoy the decline.

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