Uno Momento Por Favor, Senor Krugman
I am not going to bother employing my army of employees to fact-check this, but it looks plausible enough to quote and walk away… (HT2 somebody in the comments of an earlier post.)
Paul Krugman, May 2012:
Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.
I’d just add something else: press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right. We keep getting stories about Ireland’s recovery when there is, in fact, no recovery — but there should be, darn it, because they’ve done the “right” thing, so that’s what we’ll report.
And conversely, articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly. Never mind this…
After this text, Krugman posts a chart showing that Argentina’s real GDP is growing better since 2002 than Brazil’s.
Juan Carlos Hidalgo, November 2012:
Today La Nación of Buenos Aires reports [in Spanish] that Argentina will have the worst record in terms of inflation and growth in South America in 2012. The Argentine economy will barely grow 1% this year and inflation will be above 20%, while the rest of the region enjoys healthy growth and low inflation rates.
Ah but see, Argentina is in the Southern hemisphere, whereas the United States is in the Northern, Juan, so your argument is invalid.
And yet citing Argentina’s economic problems in 2012 does refute what Krugman wrote about its overall real GDP growth since default.
Looking at the GDP figures here – apart from 2012, where it looks like they are falling into a recession – they don’t look at bad at all:
http://www.tradingeconomics.com/argentina/gdp-growth
You agree it refutes what Krugman wrote? Or was that a Freudian slip?
How is barely 1% real growth and 20% inflation a “success story”?
Haha, “apart from 2012”. That’s the year Krugman said Argentine is a success story.
But yes, if you ignore the bad years, then the remaining years “don’t look bad”.
Not that I am endorsing GDP as a valid measure of standard of living.
Aahhh!!! For a moment, I was really worried 🙂
I should use the nick “I am not necessarily endorsing my technical arguments.”
That works for Ireland too, they dragged themselves from being an agricultural backwater with most of the you people emigrating (approx 30 years ago) to a reasonably dynamic and high-tech modern economy, and they did it pretty quickly, but borrowed massively in the process.
It was a high-risk and high-gain strategy and when the credit dried up they took it hard… but using IMF figures for Ireland:
1980 GDP per capita was $7k
2010 GDP per capita was $39k
that’s using purchasing-power-parity so there’s some sort of price inflation adjustment built into that. Factor of 5.5 gain over 30 years (equivalent to about 6% real growth every year if all years were the same).
Do the same calculation for Argentina over the same 30 years and you get an equivalent to 4% real growth every year (again, presuming all the years are the same).
So Ireland are still a growth powerhouse even after they have taken their recent knocks.
MF, Krugman is saying Argentina’s default in 2002 was a success, not 2012. He’s saying the 2002 default could be a model for a euro zone default.
I know, it just sounded funny.
Do you agree with Yglesias that Spain should quit the Euro?
(Comment directed at LK)
If there is no prospect of change in Eurozone policy, then yes. Many countries should leave, not just Spain.
Well I agree with that. What proposal do you support for Spain, Ireland, Greece etc. to leave in an orderly fashion?
If the argument for why Spain should leave the Euro is that they have fiscal control but not monetary control, then does that not imply that provinces and states within countries, because they also cannot print their own money, that they should leave their respective countries as well and start their own currencies?
If not, then why can countries leave a monetary order they don’t have control over, but provinces and states, indeed, even cities and individual households, cannot leave a monetary order they don’t have control over?
If Spain going bankrupt because they can’t create their own money (and cease paying taxes in the money they don’t create) is justification for them to be free of the money they don’t create, then why can’t individuals going bankrupt because they can’t create their own money (and cease paying taxes in the money they don’t create), be justification for them to be free of the money they don’t create?
If the argument for why Spain should leave the Euro is that they have fiscal control but not monetary control, then does that not imply that provinces and states within countries, because they also cannot print their own money, that they should leave their respective countries as well and start their own currencies?
MF, US states have monetary, fiscal and political union.
I am talking about monetary sovereignty, not “union.”
Spain or Greece leaving the Euro would entail an abolition of monetary sovereignty of the Euro, and introduction of a new monetary sovereignty.
MF, I think the argument against the Euro is that the member states need to either “unite” more closely like the US states or break up.
You’re saying that if people say the Euro zone should break up then should US states break up, but that’s wrong because people are saying that the Euro zone is not like the US where we’re united fiscally and politically (as least more so than the euro zone) as well as monetarily.
Whether the US states should break up or unite more closely is a different question.
Something else to keep in mind is that the Fed (supposedly) has a dual mandate for prices and employment, but the European central bank has only one for prices. (Or at least it used to, I think. I haven’t been keeping up.)
Giving central banks mandates to control prices is like giving a sinister apothecary a “mandate” to stop the poisonings in town…
I agree that US states, private banks, and even private individuals (such as Bernard NotHaus, or the folks behind Bitcoin) should be completely free to establish their own currencies to supplement/replace the US dollar.
In the case of Europe, I think decentralized monetary orders are preferable to the Euro (with complete freedom in money, credit, and banking even better).
MF, do you object to the White/Selgin-style Free Banking?
Sorry, to respond again, but the reason for breaking up the Euro isn’t just that Spain lacks monetary sovereignty, but that the monetary union lacks the will to enact better policy so that staying in the union is too costly.
If you check the CIA world fact book (real GDP growth):
ZIMBABWE: 9.4% (2011) 9.6% (2010) 6.3% (2009)
UNITED STATES: 1.8% (2011) 2.4% (2010) -3.1% (2009)
So when we say, “Hey, you might end up like Zimbabwe” what that means is, you could find yourself with an impressive real GDP growth rate… just as soon as the government gives up control of the money supply.
As for Ireland, they are doing a lot better now than they were 3 years ago, some might see that as recovery. Their problem was that they offered such generous bank bailouts, so they are now hampered by investments that should have been liquidated but never were.
Bob, Wikipedia (and other sources) has Argentine growth for 2010 and 2011 as above 8 percent. It also has their unemployment rate as below the US rate. (Trading economics has lower growth for Argentina, this may be due to a dispute about how they report inflation.)
Google (Eurostat) has Ireland’s unemployment at 15 percent and Greece at 25 percent. And (World Bank) both had negative growth in 2011 and growth projections revised downward thus far below 1 (Trading Economics shows them negative) percent in 2012.
At least according to Wikipedia Argentina is deliberately slowing its economy, possibly because of overheating, with an “austerity” program called “fine tuning”. This would seem to contrast with Greece and Ireland pursuing austerity in a recession.
Also, the “official” growth projection for 2012 were around 3 percent as of September, but who knows if they’re fudging the numbers.
Fitch downgrades Argentina, Predicts Default
What a “remarkable success story”.
Keynesianism is like a bullet being shot at a person in super slo mo, with the advocates denying anything is wrong in the interim.
Right, but the advocaters know the bullet will eventually arrive, and instead of them thinking it’ll be a ballistic encounter, they think it will be a piñata.
PK: “Seriously, guys, nothing’s wrong. But in a few years, expect a lot of candy in Argentina.”