Sobering article in yesterday's BA Herald
Almost ninety years have gone by since an inflationary explosion devastated Germany’s middle class, but folk memories of the days when it took a wheelbarrow full of banknotes to buy a bus ticket still scare the living daylights out of the grandchildren and great-grandchildren of the people who actually experienced it. Whenever inflation threatens to raise its head, Germans do whatever it takes to make it go away, a habit that has not made them very popular among their fellow Europeans. But Argentines are made of sterner stuff. Though they never suffered anything quite as dramatic as the catastrophe that put paid to the Weimar Republic and, according to some historians, opened the doors of power to the Nazis, their encounter with the beast lasted for a great deal longer. However, instead of deciding it would be foolish to let it go back on the rampage, many came to the conclusion that they should simply learn to put up with its destructive habits.
In view of the damage inflation has done to Argentina, the ruling elite’s refusal to take it seriously is unfortunate. It is true that confronting it is difficult; for well nigh four decades, prices kept rising at a rate that others would have found intolerable, pushing aside everything a series of governments, among them several ruthless military ones, tried to put it their path. However, during that period, Argentina slipped lower and lower down the economic league tables. Half-way through the twentieth century, its per capita income was far higher than those of Spain and Italy. By the time the third millennium started, it was a mere fraction.
No doubt the inflationary mentality, the notion that it is better to let things slide than to face up to them while there is time, had much to do with an on-going debacle that many outside observers still find inexplicable. It certainly contributed to the attrition of the once dominant middle class and the increase of poverty. Many who are now trapped in insalubrious neighbourhoods remember the 1970s with nostalgia not because they feel attracted by the political lunacy that characterized that wretched decade but because before June 1975, when president Isabel Perón’s government was forced by circumstances to devalue the peso and abolish many price controls, they or their parents could afford to eat properly, buy a car and a house and do lots of other desirable things.
It was not until Domingo Cavallo decided, in early 1991, that the time had come to in effect replace the peso — or austral, as the Radicals called their version of the national currency — with the US dollar, that Argentina could enjoy a few years of price stability. Thanks to what happened later, it is now widely assumed that the nineties was a terrible decade, but Cavallo’s currency board would still be working had people, especially politicians, businessmen and trade union bosses, allowed it to; much like the Greeks and Spaniards once they switched to the euro, too many made the most of the country’s improved credit-rating to pile up debts they would later find impossible to repay. It should not have been that hard for Argentines to be as fiscally disciplined as their contemporaries in the US, but too many politicians and businessmen found the very idea impossibly outlandish.
This being so, it is not that surprising that, for the umpteenth time, Argentina boasts one of the world’s highest inflation rates. This year it could top 30 or even 40 percent. Unless something pretty drastic is done, next year it could go through the ceiling. Neither is it surprising that the government responsible for unleashing the monster is refusing to do much about it apart from mistreating tradesmen it accuses of price-gouging. Instead of tackling the phenomenon head-on, President Cristina Kirchner prefers to let the local inflation czar, Guillermo Moreno, continue to have a great time playing Whack-A-Mole with grocers, supermarket managers, petrol-station owners and farmers, in the mistaken belief that if he manages to hide the symptoms the disease will simply vanish. Equally useless has been Moreno’s attempt to dampen expectations by fiddling the numbers provided by the country’s once respected statistics bureau. As far as most people are concerned, Indec’s output is irrelevant.
Unluckily for many Argentines, there is much more to inflation than commercial greed. Preventing it from gathering pace, let alone stopping it in its tracks, requires stern measure. That is why Argentina is so vulnerable. Hereabouts, “adjustment,” that is to say, reducing public spending so it bears some relation to the available resources, is a dirty word. Trade unionists also insist that there is no such thing as wage-push inflation.
Over the years, Argentine thinkers have produced hundreds of books, papers and academic studies they imagine show that, despite what “orthodox” economists may have to say, defanging inflation can be painless. This, apparently, is the view of the new Central Bank president, Mercedes Marcó del Pont: as inflation is the result of too much money chasing too few goods, the best way to deal with it is not to reduce the supply of the former but to increase greatly that of the latter. It is a most beguiling theory, but experience suggests that trying to put it into practice will only make matters far worse.
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Next year inflation could go through the ceiling
The monster is back
Almost ninety years have gone by since an inflationary explosion devastated Germany’s middle class, but folk memories of the days when it took a wheelbarrow full of banknotes to buy a bus ticket still scare the living daylights out of the grandchildren and great-grandchildren of the people who actually experienced it. Whenever inflation threatens to raise its head, Germans do whatever it takes to make it go away, a habit that has not made them very popular among their fellow Europeans. But Argentines are made of sterner stuff. Though they never suffered anything quite as dramatic as the catastrophe that put paid to the Weimar Republic and, according to some historians, opened the doors of power to the Nazis, their encounter with the beast lasted for a great deal longer. However, instead of deciding it would be foolish to let it go back on the rampage, many came to the conclusion that they should simply learn to put up with its destructive habits.
In view of the damage inflation has done to Argentina, the ruling elite’s refusal to take it seriously is unfortunate. It is true that confronting it is difficult; for well nigh four decades, prices kept rising at a rate that others would have found intolerable, pushing aside everything a series of governments, among them several ruthless military ones, tried to put it their path. However, during that period, Argentina slipped lower and lower down the economic league tables. Half-way through the twentieth century, its per capita income was far higher than those of Spain and Italy. By the time the third millennium started, it was a mere fraction.
No doubt the inflationary mentality, the notion that it is better to let things slide than to face up to them while there is time, had much to do with an on-going debacle that many outside observers still find inexplicable. It certainly contributed to the attrition of the once dominant middle class and the increase of poverty. Many who are now trapped in insalubrious neighbourhoods remember the 1970s with nostalgia not because they feel attracted by the political lunacy that characterized that wretched decade but because before June 1975, when president Isabel Perón’s government was forced by circumstances to devalue the peso and abolish many price controls, they or their parents could afford to eat properly, buy a car and a house and do lots of other desirable things.
It was not until Domingo Cavallo decided, in early 1991, that the time had come to in effect replace the peso — or austral, as the Radicals called their version of the national currency — with the US dollar, that Argentina could enjoy a few years of price stability. Thanks to what happened later, it is now widely assumed that the nineties was a terrible decade, but Cavallo’s currency board would still be working had people, especially politicians, businessmen and trade union bosses, allowed it to; much like the Greeks and Spaniards once they switched to the euro, too many made the most of the country’s improved credit-rating to pile up debts they would later find impossible to repay. It should not have been that hard for Argentines to be as fiscally disciplined as their contemporaries in the US, but too many politicians and businessmen found the very idea impossibly outlandish.
This being so, it is not that surprising that, for the umpteenth time, Argentina boasts one of the world’s highest inflation rates. This year it could top 30 or even 40 percent. Unless something pretty drastic is done, next year it could go through the ceiling. Neither is it surprising that the government responsible for unleashing the monster is refusing to do much about it apart from mistreating tradesmen it accuses of price-gouging. Instead of tackling the phenomenon head-on, President Cristina Kirchner prefers to let the local inflation czar, Guillermo Moreno, continue to have a great time playing Whack-A-Mole with grocers, supermarket managers, petrol-station owners and farmers, in the mistaken belief that if he manages to hide the symptoms the disease will simply vanish. Equally useless has been Moreno’s attempt to dampen expectations by fiddling the numbers provided by the country’s once respected statistics bureau. As far as most people are concerned, Indec’s output is irrelevant.
Unluckily for many Argentines, there is much more to inflation than commercial greed. Preventing it from gathering pace, let alone stopping it in its tracks, requires stern measure. That is why Argentina is so vulnerable. Hereabouts, “adjustment,” that is to say, reducing public spending so it bears some relation to the available resources, is a dirty word. Trade unionists also insist that there is no such thing as wage-push inflation.
Over the years, Argentine thinkers have produced hundreds of books, papers and academic studies they imagine show that, despite what “orthodox” economists may have to say, defanging inflation can be painless. This, apparently, is the view of the new Central Bank president, Mercedes Marcó del Pont: as inflation is the result of too much money chasing too few goods, the best way to deal with it is not to reduce the supply of the former but to increase greatly that of the latter. It is a most beguiling theory, but experience suggests that trying to put it into practice will only make matters far worse.
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http://www.buenosairesherald.com/BreakingNews/View/28160
