Archive for the ‘Argentina’ Category

Two days ago, I contrasted the views of Pope Francis and Walter Williams about capitalism and morality.

I explained that Walter had the upper hand because free markets are a positive-sum game based on voluntary exchange while redistribution (at best) is a zero-sum game based on coercion.

That’s the theoretical argument. Now let’s look at the empirical data, specifically focusing on which approach is best for the less fortunate.

Thomas Sowell, the great economist at Stanford University’s Hoover Institution, is not impressed by the Pope’s analysis. Here some of what Prof. Sowell wrote for Investor’s Business Daily.

Pope Francis has created political controversy…by blaming capitalism for many of the problems of the poor. …putting aside religious or philosophical questions, we have more than two centuries of historical evidence… Any serious look at the history of human beings over the millennia shows that the species began in poverty. It is not poverty, but prosperity, that needs explaining. …which has a better track record of helping the less fortunate — fighting for a bigger slice of the economic pie, or producing a bigger pie? …the official poverty level in the U.S. is the upper middle class in Mexico. The much criticized market economy of the U.S. has done far more for the poor than the ideology of the left. Pope Francis’ own native Argentina was once among the leading economies of the world, before it was ruined by the kind of ideological notions he is now promoting around the world.

I briefly discussed the failure of the Peronist Argentinian model last month, but let’s take a closer look at Professor Sowell’s assertions about the U.S. and Argentina.

My colleague at the Cato Institute, Marian Tupy, has put together a great fact-filled website called Human Progress, and it allows users to access all sorts of databases to produce their own charts and tables.

And here’s what the data shows about per-capita economic output in Argentina and the United States.

Not exactly a ringing endorsement of the supposedly more compassionate system in Argentina.

As you can see from this table, Argentina actually was slightly richer than the U.S. back in 1896. But that nation’s shift to statism, particularly after World War II, hindered Argentina’s growth rates.

And seemingly modest differences in growth, compounded over decades, have a huge impact on living standards for ordinary people (i.e., inflation-adjusted GDP per person climbing nearly $27,000 in the U.S. vs an increase of less than $6,700 in Argentina).

By the way, this is not an endorsement of America’s economic policy. We have far too much statism in the United States.

But compared to Argentina, which generally has ranked in the bottom quartile for economic freedom, the United States has a more market-friendly track record.

To help make the bigger point about the importance of economic liberty, let’s now compare the United States with a jurisdiction that consistently has been ranked as the world’s freest economy.

Look at changes in economic output in America and Hong Kong from 1950 to the present. As you can see, Hong Kong started the period as a very poor jurisdiction, with per-capita output only about one-fourth of American levels.

But thanks to better policy, which led to faster growth compounding over several decades, Hong Kong has now caught up to the United States.

What’s most remarkable, if you look at the table, is that per-capita output over the past 65 years has soared by more than 1,275 percent in Hong Kong.

Needless to say, if the U.S. is out-performing Argentina and Hong Kong is out-performing the U.S., then a comparison of Hong Kong and Argentina would yield ever starker results.

I actually did something like that back in 2011 and the results further underscore that there’s a very powerful relationship between economic policy and economic performance.

Which brings us back to the fundamental issue of what system is best for the less fortunate in society?

I suppose that’s a judgement call, but poor people obviously have higher incomes and more opportunity when there’s strong economic growth.

But as Margaret Thatcher famously explained, some people are so consumed by disdain for success that they’re willing to accept more suffering for poor people if they can simultaneously lower the incomes of rich people.

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What’s the greatest economic tragedy in modern history?

The obvious answer is communism, which produced tens of millions of needless deaths and untold misery for ordinary people. Just compare living standards in North Korea and South Korea, or Chile and Cuba.

But if there was a second-place prize for the world’s biggest economic failure, Argentina would be a strong contender.

Here’s one fact that tells you everything you need to know. In 1946, when Juan Perón came to power, Argentina was one of the 10-richest nations in the world. Economic policy certainly wasn’t perfect, but government wasn’t overly large are markets generally were allowed to function. Combined with an abundance of natural resources, that enabled considerable prosperity.

But Perón decided to conduct an experiment in statism.

Here’s how Wikipedia describes his economic policy.

Campaigning among workers with promises of land, higher wages, and social security, he won a decisive victory in the 1946 presidential elections. Under Perón, the number of unionized workers expanded as he helped to establish the powerful General Confederation of Labor. Perón turned Argentina into a corporatist country in which powerful organized interest groups negotiated for positions and resources. …The state’s role in the economy increased, reflected in the increase in state-owned property, interventionism (including control of rents and prices) and higher levels of public inversion, mainly financed by the inflationary tax. The expansive macroeconomic policy, which aimed at the redistribution of wealth and the increase of spending to finance populist policies, led to inflation. …Perón erected a system of almost complete protection against imports, largely cutting off Argentina from the international market. In 1947, he announced his first Five-Year Plan based on growth of nationalized industries.

So were these policies successful?

Not exactly. In an article published last year, The Economist wrote about Argentina’s sad decline.

…its standing as one of the world’s most vibrant economies is a distant memory… Its income per head is now 43% of those same 16 rich economies… After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall. …As the urban, working-class population swelled, so did the constituency susceptible to Perón’s promise to support industry and strengthen workers’ rights. There have been periods of liberalisation since, but interventionism retains its allure.

The bottom line is that Perón was a disaster for his nation. Not only did he sabotage Argentina’s economy, he also apparently undermined the social capital of the country by somehow convincing a big chunk of the population that “Peronism” is an alluring economic philosophy.

Sadly, Pope Francis appears to be one of those people.

Here are some excerpts from a column in the New York Times.

The Economist recently called Francis “the Peronist Pope,” referring to his known sympathies for Argentina’s three-time president, Juan Perón. In the 1940s and ’50s, the populist general upended Argentina’s class structure by championing the country’s downtrodden. …“Neither Marxists nor Capitalists. Peronists!” was the chant of Perón’s supporters. And it was borrowing from the church’s political thinking that enabled Perón to found his “Third Way.” …It comes naturally, then, to Francis, who became a priest in Argentina’s politically engaged church hierarchy, to adopt a populist political tone… He speaks directly to the region’s poor with a fire found in the “liberation theology” that inspired South America’s leftist revolutionaries of the 1970s. …“If you were to read one of the sermons of the first fathers of the church, from the second or third centuries, about how you should treat the poor, you’d say it was Maoist or Trotskyist,” he said in 2010, when he was archbishop of Buenos Aires.

Pope Francis’ infatuation with statism is very unfortunate for a couple of reasons.

The obvious reason is that he is in a position of influence and he’s using that power to promote policies that will reduce prosperity. And poor people will be the biggest victims, as I explained in this BBC interview.

But there’s another problem with the Pope’s approach. Being charitable to the poor is supposed to be an act of free will, not the result of government coercion. Yet by making statements that – at the very least – are interpreted as supportive of a bigger welfare state, he’s taking free will out of the equation.

Libertarian Jesus” would not approve.

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Before getting to the main topic today, here are some excerpts from a New York Post story that patriotic American readers will appreciate.

It deals with a protest.

…the group Disarm the Police…had announced on social media that they had planned to burn the flag in protest of NYPD policies.

But the event didn’t go as planned, thanks to members of the Hallowed Sons Motorcycle Club.

One of the bikers rushed forward in a fit of rage and kicked over the grill, sending embers flying. He then doused it as members of the pro-flag crowd chanted “USA! USA!” The bikers then started trying to rough up the protesters.

Here’s where the ironic part of the story.

…anti-NYPD protesters needed New York’s Finest to save their skin from a gang of angry bikers who tried to pummel them… The protesters were shielded by the cops and escorted out of the park.

And here’s some evidence that silly government regulations (a New York City tradition) take the fun out of protesting and counter-protesting.

While it’s illegal to openly burn anything in Fort Greene Park, the self-styled anarchists managed to find a loophole in the law that allows cooking in closed barbecue grills.

A few final comments on this story.

I realize I shouldn’t care, but I’m always dumbfounded when left-wing crazies refer to themselves as anarchists. Don’t they realize that you can’t be an anarchist while simultaneously advocating for much bigger government?

Reminds me of this bit of humor from the Libertarian Party.

In any event, the supposed anarchists obviously aren’t very bright since they thought it was a good idea to get on the wrong side of a bunch of bikers.

Since this is America’s Independence Day, I can’t help but think they got what they deserved, even though in the abstract I support their right to protest and burn flags that they bought with their own money (or, more likely, with money from their parents or from the welfare office).


Now for today’s main topic.

I appreciate tax havens for many reasons, mostly having to do with the importance of having some sort of external constraint on the tendency of politicians to over-tax and over-spend.

But I also like these low-tax jurisdictions for non-tax reasons. And high on my list is that I want people to have safe havens for their money as an insurance policy against governments that are incompetent, venal, abusive and/or corrupt.

And for the same reason, I like alternative currencies such as bitcoin (click here is you want to see a short and informative primer). These “cryptocurrencies” give people a way of protecting themselves when government mis-manage or mis-use monetary and financial systems.

And we have some very compelling real-world examples of how this works.

We’ll start with Greece, where people with bitcoins still enjoy liquidity. Those using the banking system, by contrast, are in trouble because of irresponsible government policy.

Here are some excerpts from a Reuters story.

There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. Although absolute figures are hard to come by, Greek interest has surged in the online “cryptocurrency”, which is out of the reach of monetary authorities and can be transferred at the touch of a smartphone screen. New customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400 percent between May and June, according to its founder Thanos Marinos, who put the number at “a few thousand”. The average deposit quadrupled to around 700 euros.

Why are people shifting to bitcoin?

One part of the answer is that bitcoins are insulated from political risk.

Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country. …the bitcoin buyers’ main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency.

And is anyone surprised that there’s interest from other failing welfare states?

Coinbase, one of the world’s biggest bitcoin wallet providers, which is not currently accessible to Greeks, said it had seen huge interest from Italy, Spain and Portugal.

And it’s just a matter of time, I suspect, before there will be interest from France, Belgium, Japan, etc.

Now let’s look at Argentina, another corrupt and dysfunctional government that has a sordid history of abusing both the monetary system and the financial system.

The New York Times in May had an in-depth report on how people in that nation have been using bitcoin to circumvent bad government policy.

His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina…to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. …Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. …before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s.

Why are so many people interested in bitcoin?

Because the government is debasing and manipulating the official currency in ways that indirectly steal from the citizenry.

Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks.

And don’t forget that Argentina’s government is one of the nations with a track record of stealing money when it’s left in banks.

Commerce of this sort has proved useful enough to Argentines that Castiglione has made a living buying and selling Bitcoin for the last year and a half. …The money brought to Argentina using Bitcoin circumvents the onerous government restrictions on receiving money from abroad. …It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations. Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

Bitcoin protects consumers from rapacious and feckless politicians.

…in the fall of 2012, when the Argentine government ordered PayPal to bar direct payments between Argentines, part of the government’s effort to slow the exchange of pesos into other currencies. …Argentines were using Bitcoin to circumvent the government’s restrictions. “…competition eliminates all currencies from noneffective governments,” it said… In Argentina, the banks refuse to work with Bitcoin companies like Coinbase, which isn’t surprising, given the government’s tight control over banks. This hasn’t deterred Argentines, long accustomed to changing money outside official channels.

In an ideal world, of course, there would be no need for bitcoin. At least not as a hedge against bad government policy (if a world of private monies, of course, cryptocurrencies presumably would be one of the market-based options).

But we don’t live in an ideal world. Some of us already live in nations where government financial and/or monetary policy make bitcoin a very important alternative.

And others of us live in countries where there is good reason to worry about future instability because of misguided fiscal, monetary, and economic policy. So it will be good if we have options such as bitcoin.

That doesn’t mean, to be sure, that the average person should transfer all their liquid wealth into bitcoin. Indeed, I’ve specifically stated that “I wouldn’t put my (rather inadequate) life savings in bitcoin.

But I certainly want that option if future events warrant a change of strategy.

P.S. If you’re in a patriotic mood (and if you like the Second Amendment), then you’ll definitely enjoy this slideshow.

P.P.S. If you enjoyed the six-frame image about bitcoin owners, you’ll probably like a similar image portraying libertarians.

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Okay, the title of this post is a huge overstatement. I’ve already noted here that Argentina is not a good role model and warned here how that Obama is repeating many of the mistakes that undermined Argentinian prosperity.

But I’m nonetheless impressed that Argentina actually allows people at the Lujan Zoo to freely choose whether to enter cages with potentially deadly animals.

Here at the Lujan Zoo near Buenos Aires visitors can ride lions, cuddle bears, stroke tigers and feed cheetahs. Cages are accessible to everyone who paid $50 and signed the paper saying that if you are eaten, the Zoo is not responsible. Lujan Zoo is about 50 miles from from Buenos Aires, has an entrance fee of just £5. Visitors can even pick up the smaller animals and manhandle them at risk to themselves and the creatures. Shockingly there doesn’t appear to be much in the way of safety regulations.

I would probably be a wimp if I went to this zoo, so I would limit myself to the lion cubs or something like that. But I support the right of other people to engage in risky behavior

(h/t: Marginal Revolution)

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Welcome Instapundit readers. Thanks, Glenn.

After reading below about Argentina’s decline, several people have emailed to ask how Chile compares. Ask and ye shall receive. This post from last month shows shows Chile, Argentina, and Venezuela. Very powerful, which is why I gave the post such a grandiose title.


There’s been a lot of coverage of the recent decision by Standard & Poor to warn that the United States has a “negative” outlook.

As Joe Biden would say, BFD. I’m stunned that anyone would care, particularly since the rating agencies have zero credibility. These clowns completely missed Enron. They missed the collapse of Europe. They blew it on the financial crisis, especially with regard to the corrupt government-created mess at Fannie Mae and Freddie Mac.

The fact that one of the rating agencies belatedly warns that America is heading in the wrong direction should elicit only one response, which is, “Where were you guys when Bush did no-bureaucrat-left-behind, the prescription drug entitlement and TARP? And where were you guys when Obama did the faux stimulus and government-run healthcare?”

One of the problems with the rating agencies in this regard is that they narrowly focus on the ostensible ability of an institution (such as a company or government) to repay debt. That’s an important consideration, especially if you are a bondholder, but (even if the rating agencies did a good job) it doesn’t tell us much about why a government is in good shape or bad shape.

This story – and the failure to recognize what’s truly important – is doubly irritating to me since I’m in Buenos Aires for the Mont Pelerin Society meetings. Many of the speakers have focused on the challenges in Latin America, with a lot of attention focused on what went wrong with Argentina.

If I was forced to compress all the analysis into one brief answer, the problem is crony capitalism. Argentina’s economy, for all intents and purposes, is one giant Fannie Mae/Freddie Mac/Obamacare/General Motors/Goldman Sachs Obamaesque dystopia. Government has enormous influence over every major economic decision. It’s like being in the middle of Atlas Shrugged, as political connections are the way to get rich.

This type of approach is far worse than the Scandinavian welfare state. Yes, the official size of government is bigger in places such as Sweden, but the negative role of government intervention is far more pervasive in Argentina.

What makes this so tragic is that Argentina used to be one of the world’s wealthiest countries. Last night, I had the privilege of listening to one of the nation’s leading free market advocates, Dr. Ricardo H. López Murphy, talk about Argentina’s history. In the 1800s and early 1900s, Argentina looked to the United States for inspiration (back in the days when government was a far smaller burden) and he noted that his country was remarkably successful.

Then, beginning around the 1940s, Argentina began to march in the wrong direction. As you can see from this chart, the consequences have been tragic. The nation’s relative ranking has declined precipitously. A country that used to be one of the world’s richest has now fallen way behind.

I also put Hong Kong on this chart to give further evidence that policy matters. Argentina has pursued an Obama policy of government intervention and has declined. Hong Kong has practiced laissez-faire economics and now is one of the world’s richest jurisdictions.

This is a warning to America. There is nothing magical about the United States. If we copy Argentina (actually, a very bad combination of Argentine-style crony capitalism and Swedish-style high-tax redistribution), we will suffer similar consequences.

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I meant to write about this article when it first came out, but it got buried in my inbox. That being said, this Washington Times column by Richard Rahn makes an excellent point about the dangers of too much government. He points out that Argentina used to one of the world’s most prosperous nations. Unfortunately, decades of statism have taken a harsh toll and the Latin American nation now is an economic basket case. Between Bush and Obama, we’ve had about 10 years of bad policy, so it would require lots of additional bad policy to drag America down to the Argentine level, but the trend is definitely in that direction:

A century ago, if you had told typical citizens of Argentina (which at that time was enjoying the fourth-highest per capita income in the world) that it would decline to become just the 76th richest nation on a per capita basis in 2010, they probably would not have found it believable. They might have responded, “This could not happen; we are a nation rich in natural resources, with a great climate for agriculture. Our people are well educated and largely descended from European stock. We have property rights, the rule of law and an open free-market economy.” But the fact is, Argentina has been going downhill for eight decades, and it has the second-worst credit ranking in the entire world – only Venezuela has a lower ranking. Argentina, despite its natural resources and human capital, has managed to throw it all away. Argentina did not become relatively poor because of having been involved in destructive conflicts. It became poor because it has had a series of both democratically elected leaders and non-elected dictators who never missed an opportunity to make the wrong economic decisions. …The U.S. is not yet Argentina, but, if many of the policies of the Obama administration are not reversed, America will only get poorer and, in as little as 30 years, become a middle-income country, while dozens of other countries will enjoy a higher standard of living.

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