Nightcap

  1. Christianity and the West: which came first? Jonathan Sumption, Spectator
  2. Argentina’s infernal cycle Branko Milanovic, globalinequality
  3. Good riddance to the INF Treaty Andrew Erickson, Foreign Affairs
  4. The assault on American excellence? Nicholas Lemann, New York Times

Nightcap

  1. American Indian? Bruno Cortes, Claremont Review of Books
  2. Italy is the new Argentina Alberto Mingardi, Politico
  3. The case for Kavanaugh Randy Barnett, Volokh Conspiracy
  4. Israel’s Russia problem is dangerous Michael Koplow, Ottomans & Zionists

Nightcap

  1. The fantastic truth about China Alec Ash, ChinaFile
  2. Civilization in the wilderness (Argentina) JN Nielsen, The View from Oregon
  3. Giving psychiatry another look Pierre Joseph, Aeon
  4. Immigration and the Commerce Clause Ilya Somin, Cato Unbound

George Halm against Common Wisdom on Currency Boards

Motivated by the recent decision of Argentina’s government to ask for an stand-by loan to the I.M.F., after a run on the peso, the last The Economist’s Bello section gives an account of the history of the relationship between them and makes a remark about the Argentine currency board experience between 1991-2002 that today is almost common wisdom: Since convertibility meant forgoing exchange-rate flexibility and an independent monetary policy, fiscal discipline was all-important for its success.”

But by the time the I.M.F. was being created, that was not an unanimous opinion. We have the example of George N. Halm who, in his book Economics of Money and Banking, stated that every Currency Board must implement a countercyclical policy on reserve requirements to be held by the commercial banks. Thus, the Currency Board could neutralize or mitigate an expansion or contraction of the base money by alternatively increasing or lowering the reserve requirements of the banks. For George Halm, a Currency Board could be almost in full command of monetary policy -and even more with respect to any other system, since it retains its political independence.

It is hard to imagine a Halm’s Currency Board that promotes a rapid economic growth which, in turn, could bring any popularity to its implementation. But it is as hard to imagine as the probability that a monetary system as such could end up in a bank run.

Eye candy: Azimuthal Argentina, 1975

NOL map Argentina 1975
Click here to zoom

Azimuthal is a type of map. (Wiki) Argentina has 13 bases in Antarctica (6 permanent ones, 7 seasonal ones), with 230 people living in the 6 permanent ones, and one of only two civilian settlements on the continent (Chile supports the other one). (Wiki)

What is the best book about Argentina?

A couple of days ago, Tyler Cowen asked which is “the best book about each country:”

To count, the book must have some aspirations to be a general survey of what the country is or to cover much of the history of the country.   So your favorite book on the French Revolution is not eligible, for instance…

He explicitly skips South America. I can’t blame him, as I’ve never found a book that fully captures (the interrelationship between) the five things that make Argentina Argentina:

1. The fight between Buenos Aires and the Interior for fiscal resources. This was the main cause behind the civil wars of the XIXth century, and the eventual solution — the creation of a federal state that could check the power of Buenos Aires, and where the provinces of the interior would be politically over-represented — continues to be a defining feature of the country’s political economy to this day.

2. The division between “unitarios” and “federales,” which also began in the XIXth century. Although this cleavage was ostensibly about how to organize the country territorially, we should not forget that “politics is not about policy:” the actual division was about the relative status of different social groups. Specifically, he federales fell in the “Trumpian” side of the spectrum, praising the common, unsophisticated man “from here” as opposed to the high-brow cosmopolitanism promoted by the unitarios. Again, this division did not end in the XIXth century; Argentina’s political history during the XXth and beyond — and most notably the phenomenon Peronism — simply cannot be understood without making reference to this opposition.

3. The great immigration. Between the end of the XIXth and the beginning of the XXth century, Argentina embarked in a great social experiment that sought to transform the country by importing huge numbers of European immigrants. During this period, Argentina was the country that most immigrants received as proportion of its population, being second only to the US in the absolute number of immigrants it received. The assimilation of such immigrants was mostly successful, but also had profound consequences in terms of demographics, language, culture, cuisine and surnames (where do you think mine comes from?), as well as the way Argentineans perceive themselves: as a middle-class country of immigrants in which hard work allows you to get ahead in life.

4. Nationalism. One of the unintended consequences of the great immigration was the (government-sponsored) construction of a new national identity, defined in terms of territory rather than blood, race, or national history. This is the origin of Argentines’ sickly relationship with national boundaries, most patently seen in relation to the Malvinas/Falklands issue.

5. Pretorian politics. Between 1930 and 1983, Argentina was governed by no less than five different military regimes (in 1930, 1943, 1958, 1966 and 1976, respectively). The last of them (1976-1983) was especially murderous, as the military  systematically “disappeared” thousands of guerrilla members, political activists, union leaders and Left-wing sympathizers in a vain attempt to engineer a new political system. It is impossible to make sense of the political, social and cultural attitudes that have predominated in the country since 1983 without understanding this past.

Unfortunately, no book comes even close to capturing all these factors simultaneously. That said, the ones that best approach this ideal are the following:

1. Juan José Sebreli, Crítica de las Ideas Políticas Argentinas [A Criticism of Political Ideas in Argentina]. As far as I’ve seen, it’s only available in Spanish, however.

2. Larry Sawers, The Other Argentina. The Interior and National Development. As far as I know, it hasn’t been translated; please tell me I’m wrong.

3. Nicolas Shumway, The Invention of Argentina. There is also a Spanish edition.

PS. If you’re going for some XIXth-century work, don’t get swayed by the beguiling prose of Sarmientos’s Facundo; it’s too dominated by mood affiliation. Juan Bautista Alberdi’s Bases y Puntos de Partida para la Organización Política de la República Argentina [Bases and Starting Points for the Political Organization of the Argentine Republic] is a far better choice.

Digging Deeper into Populism: A Short Reply to Derril Watson

Derril Watson offer some critical remarks on my short post about populism in Latin America. In short, Watson is arguing that (1) I’m stating something obvious (populism diminishes economic freedom) and (2) that I’m wrong when I say that populism fails to produce economic growth.

Seems I haven’t been quite clear, because I state none of the above. The intention of my post is not to show that populism decreases economic freedom, I think this is uncontroversial. The point of the post is to show, with a very simple calculation, how fast economic freedom is reduced. I might be wrong, but I have the impression that most individuals do not realize how fast they can loose their economic liberties under this type of government. This is the message carried in the title of the post “How fast does populism destroy economic freedom in Latin America?” rather than “Does populism destroy economic freedom in Latin America?”

With respect to the second point, my claim is not that under populism there is no growth of GDP, my claim is that “populist governments failed to increase GDP per capita consistently faster than the region.” My original post is just a small bite of a paper that is still work in progress and I’ll share in due time. I wasn’t expecting this claim to be controversial. Still, the figure below shows the ratio of GDP per capita (PPP) of each of he countries I observe with respect to Latin America. All countries are centered in year 0 as the first year of populism as defined in my original post. That’s the first dot in the graph. The second dot shows either the last data available or the end of populism. None of these countries show a consistent higher growth rate than the rest of the region.

Populism - Fig 1

It seems to me that Watson is confusing growth with recovery. The fact that economic growth produces a growth in GDP does not mean that a growth in GDP is due to economic growth. The recovery mentioned by Watson in Argentina happens after the largest crisis in the history of the country and the largest default worldwide at the time. As I mentioned in my post, Argentina hits stagflation in 2007. This suggests to me a rapid recovery with no significant growth and built upon an unsustainable policy (for instance, Argentina fails to improve its relative income with respect to the region, it rather stagnates in 2007 and starts to fall a few years after.) I can show a large increase in my personal GDP as measured by consumption by depleting my savings (consuming my capital stock at the country level). I wouldn’t call that personal economic growth. The Kirchner government, for instance, failed to reduce poverty below the levels seen in the 1990s. It does, of course, if that is compared with the poverty levels around the years of the crisis (which is what Watson’s table is doing.) It should also be kept in mind that official poverty measures in Argentine were hampered by the government.

There’s still another important issue regarding GDP measures of Argentina. As it became well known, GDP series were hampered by the government (also inflation and poverty rates were hampered.) By 2014 official GDP values were overestimating the size of the economy by 24%. Another sign is the evolution of real wages in Argentina, which hits a ceiling again in 2007 with a level similar to the one at the end of 2001 (just before the crisis). In 2008, 2009, and 2010 real wages decline.

As a final comment, I’m not sure to what comment of mine Watson refers to. I don’t see a comment entry of mine in my original post, nor I remember doing so. In any case, I don’t get into the definition of populism precisely for how difficult that task can be. The problem of defying populism is one of the areas covered in my yet unfinished paper.

How fast does populism destroy economic freedom in Latin America?

The turn of the twentieth century has seen an increase in populist government in Latin America. That populism is no friend of free markets is well known. And even if their movement against free markets if fairly quick, it is common for individuals to loose track of how fast they are loosing their economic freedoms.

There are five cases of populist governments in Latin America that can work as benchmarks for the region. In particular, we can look at the behavior of governments in Argentina, Bolivia, Brazil, Ecuador, and Venezuela for the time frames depicted in the following table.

Table 1

During this time period, populist governments failed to increase GDP per capita consistently faster than the region. The only exception is Argentina. But its fast increase in GDP is largely explained as recovery after the 2001 crisis and by consuming capital stock, not as an expansion of potential output. It is no accident that Argentina met stagflation in 2007. In the last three issues of the Economic Freedom of the World (Fraser Institute) Argentina ranks among the bottom 10 free economies in the world.

The following figure shows the fall in ranking of each country in the Economic Freedom of the World.

Figure 1

We can translate the information shown in the above into loss of ranking position per year of populist government. This is what is shown in the next table.

Table 2

This table offers a few readings:

  1. Argentina is the country that fall in the ranking of economic faster than its peers.
  2. Ecuador shows a very slow fall. This is due to two reasons: (1) Ecuador already starts from a low ranking position. (2) The last year of the index (2015) shows an improvement (without this improvement the fall is quite sharp as well.) Ecuador does not represent a case of “good populism.”

What this table is showing is that if an individual is born in any of these countries ranking 1st in economic freedom the same year a populist government takes office, then the same country will rank at the bottom of the world before he retires. In the case of Argentina, in 27.8 years the country will be at the bottom of the list, this means that by the time this individual starts to work, Argentina will already have a very repressed economy. By retiring time, this individual will have no experience of living and working in a free economy.

This numbers are not just descriptive of populism in Latin American countries. They also serve as a sort of warning for Europe and the United States, regions that have already seen some signs of populist behavior in their governments and political groups in the last few years. Populism can be emotionally attractive, but is very dangerous for our economic freedoms.

Some Comments on the Latin America Liberty Forum 2017

The Latin American edition of the Liberty Forum took place in Buenos Aires, Argentina, last week. From almost all of the addresses delivered by the speakers, the attendees could single out two main patterns. The first one: a shift from mere utilitarianism to the acknowledgement of the importance of emotions and moral values in the defense of individual liberties. In this sense, the legacy of David Hume was present and I celebrate it. Moreover, we could expect that in a few years’ time we would get rid of an argumentation exclusively articulated in terms of instrumental reason and recover a sense of a substantive raison d’être of the case for liberty.

The second pattern the audience could guess from the speeches concerns the role of education in the formation of public opinion on liberty. Almost everyone agreed on the strong influence of education over the political ideas held by the citizenship. If you look up the state of the opinion, both in academia and the general public, the rest of the conclusions will follow…

Nevertheless, I consider the importance of academia and education in the articulation of public discourse to be overestimated. After all, what educational institutions of every sorts and levels provide to their pupils are adaptive devices to get -or remain- inserted into society. All that the educational system could do to change public opinion is make marginal contributions to be achieved only in the long term.

Since the public opinion is in the short run almost autonomous, the main matter refers to where it dwells. The television? The blogosphere? The radio? The public parks? (In Ancient Rome, by the way, people were very fond of the graffitis). Perhaps it could be a combination of all of them.

They -including education- are stages of the process of production of public opinion –superior stages, to express it in Austrian Economics terms. And if one takes Austrian Economics seriously, one will have to admit that the value of the superior goods is determined by the value of the final good -and not otherwise.

The culture that is Argentina

In Argentina, lawyers take vacations in January and physicians in February.

Those months are the hottest of the Summer in the Southern Hemisphere and, thus, are of the lowest productivity. Moreover, every agreement you reach with somebody during January and February goes void in March!

Cheers!

BC’s weekend reads

  1. Libya Epitomizes Hillary Clinton’s Not-So-Smart Power
  2. Paradoxes of the Gray Zone
  3. The Kurdish Conundrum
  4. The Future of the Arab
  5. Just Following Orders: Leadership Lessons from Argentina’s “Dirty War”

A Victory for the Big Center

“To my left, the wall,” Argentina’s President Cristina Fenández de Kichner (CFK) had expressed some months ago. Many of her detractors agreed with her on this opinion, while some others doubted where exactly to place the wall -and how far. The label of “Populist” might be subject to controversy as well, but everyone will at least agree on one single definition: her political strain could be everything but centrist.

Notwithstanding “Peronism vs anti Peronism,” “Populism vs Rule of Law,” “Left vs Right,” “Kirchnerism vs anti Kirchnerism” were some of the terms articulated along the presidential campaign whose run off has just had been won by Mauricio Macri, from the challenging front “Cambiemos” (Let’s Change), the decisive point of discussion of the past election was “Big Center vs Hegemony.”

The Big Center could be defined as the coalition of the Center-Left and the Center-Right in order to preserve a political system which allows the competition between both wings from the menace of a radical hegemonic force. That is why it would be a mistake to characterize the winning coalition as a Center-Right or a non-Populist political party. “Cambiemos” (Let´s Chance) has won the election with the support of both Centre-Right and Centre-Left voters and both Populist and non-Populist strains. Its political platform contains an orthodox monetary policy as well as the continuity of the policies on helping to alleviate poverty. Mauricio Macri won in the main cities with European ancestry population, such as Buenos Aires, Córdoba, Rosario, Mendoza, and also won in the Province of Jujuy, where he finished his campaign with a ancient ritual salutation to the Pachamama, one of the most important pre-Columbian deities.

By the width of “Cambiemos” coalition one could imagine how much was at stake. Which will be the final turn of the new government is something that generates no concern among its supporters. It is clear that it will remain circumscribed to the “Big Center.” Perhaps the definition will depend upon the ability of the Peronist Party -from now on in the opposition- to reassess its political strain: to turn into a Center-Right party, or into a Center-Left one or to insist on becoming a radical force. Given that “Cambiemos” has been delimiting its political discourse as a mirror of the “Kirchnerism,” we can expect the former to place itself in the political spectrum in reaction to its opposition. Nevertheless, all of us are convinced that Argentina’s political language will return to the categories of the Modern democracies.

Putting a stop to the Argenzuela Project

[Editor’s note: The following piece is written by Dr Nicolás Cachanosky, an economist at Metropolitan State University, Denver and a native Argentinian. Dr Cachanosky hails from the same PhD program (at Suffolk University) as Rick, who introduced us. His homepage is here, and he is also a member of the group blog Punto de Vista Económico (which you can find on the blogroll here at NOL). Check out his popular work for the Mises Institute, too. – BC]

For the last 12 years Argentina was under the influence of the Kirchner administration. First by President Néstor Kirchner (NK), and then two terms by her wife (and widow since 2010) Cristina Fernandez de Kirchner (CFK). Their plan, as perceived by many, was to alternate presidential terms between NK and CFK and remain in power endlessly. While this plan came to an end with NK’s death in 2010, CFK started to entertain the idea of reforming the Constitution to be able to run a gain for office. Because this was not possible, she chose Daniel Scioli, the Governor of Buenos Aires Province to be her successor. Last Sunday, November 22nd, Mauricio Macri, Mayor of Buenos Aires City beat Scioli in a ballotage and became president elect starting his term this coming December 10th.

Argentina was in path to become what is referred as Argenzuela. Namely, the Kirchner administration was taking the country, step-by-step, to become the next Venezuela of Latin America in a close way to what has been described as the four stages of populism. Under the Kirchner administration, the government increased their political ties with Venezuela, Iran, and China, at the expense of political relations with countries like the United States, Germany, and the United Kingdom. But the resemblance was not only in terms of political friendship, but on institutional and economic reforms. Argentina became a country where “Republic” is just a word on paper without a real presence in the country’s institutional reality. According to the Fraser Institute’s Economic Freedom of the World, in 2003 Argentina ranked 99 out of 153 countries. By 2012 it ranked 149 out of 152 countries. The loss of economic freedom was fast and significant. Economic troubles and imbalances did not take long to appear.

Macri’s victory in the presidential elections put a stop to the Argenzuela project. We know what a presidency by Macri won’t look like. But it is still hard to say what it will actually look like. Macri is known for his emphasis not in free or unfree markets, but on an efficient administration. While not difficult to be more free market than the Kirchners, it might prove difficult to describe Macri’s political movement, Pro, as a free market party. The Kirchner administration has refused, at least so far, to share information with Macri and his appointed ministers, so the real situation of the economy and the Treasury remains unknown. Macri and his team are working on reform plans half-blinded because they don’t have reliable economic information, if they have it at all.

Specific reforms by Macri are still unknown (at the time of writing these lines), but his team of Ministers has already been announced. The people he’s bringing to the government with him show significant successful careers in government, the private sector, and international organizations (her chosen Chancellor is the Chief of Staff of Ban Ki Moon, General Secretary of the United Nations.) This is a clear contrast with the Kirchner administration, where all the Ministers showed a strong ideological motivation before professional accomplishments.

The economic crisis in Argentina hands Macri a unique opportunity to carry long needed significant reforms. He has, also, a unique political position. His political party has not only won the presidential election, with Pro Macri has also retained the Mayor’s office of Buenos Aires City and also won the Governor elections for the Buenos Aires Province. Macri’s Pro is in charge of the three most economically and political important districts. Let us hope that Macri does not become yet another lost opportunity in Argentina’s history.

Assessing Elections in Poland and Argentina in the Context of Populism and Liberalism in Europe and South America II (liberalism in the classical sense of course).

The Argentine election was for the state president, who is head of government as well as head of state. An expected first round victory for the Peronist party (formally known as the Justicialist Party) candidate Daniel Scoli disappeared as he failed to clear 45%. He is clearly ahead of Mauricio Macri, Mayor of Buenos Aires, running on behalf of a three party centre-right alliance which contains the less statist, and populist elements of Argentine politics, but at least the hope exists of a second round triumph over the Peronists.

The third candidate is also a Peronist, showing the difficulty of overcoming that legacy and why even just turning the Presidential election into a competition between a Peronist and a non-Peronist is a victory of some kind. The sitting President Christine Kirchner pushed at the limits of the Argentine constitution, which prohibits more than two terms for any President, by alternating in power with her late husband Nestór Kirchner. If he had not died in 2010, we might now be looking forward to a fourth consecutive term in power for team Kirchner.

Peronists or the army have run Argentina almost constantly since the 1940s. The periods of army rule give a good indication of how successful Juan Perón and his widow Isabel (the third wife) were in stabilising Argentine society and political institutions. Nevertheless the Peronists have been the only party with a record of electoral success in Argentina and have improved from the chaos that Juan and Isabel instigated in more recent appearances in government.

As such a dominant party they have relatively centrist technocratic elements (most notably ex-president Carlos Menem) as well as the hard core statist populist nationalists. The Kirchner years have tended increasingly towards the more populist end, stoking nationalist sentiment over the islands in the south Atlantic known in Argentina as the Malvinas and in the UK, which has sovereignty over the islands, as the Falklands.

There has been economic growth under the Kirchners, but it has now very much slowed as policy has tended towards high inflation, currency controls, confrontation on debt owed to foreign creditors and increasing budget deficits. There has been social liberalism, most obviously, on attitudes to the LGBT communities, but in a context of nationalist sovereigntist politics. At least we can hope that if Scoli wins, he will feel obliged to shift towards genuine economic sustainability and a less populist politics.

In general, this adds to a feeling that South America has passed the peak of leftist populism which has influenced most countries outside Colombia in the last two decades. The more respectable end of that spectrum in Brazil’s Workers’ Party, which had been fairly successful economically, appears to be declining under the weight of corruption scandals, economic recession and incapacity in delivering on the more populist side. On the less respectable side, Venezuela has lost its status as model for the world’s radical left as corruption, economic decay, state brutality, election rigging and persecution of the opposition has become too extreme to ignore, particularly since the state socialist hegemony no longer has Hugo Chavez as a charismatic frontman.

Brazil and Venezuela were the models of the left, reformist and revolutionary respectively, and no longer have that status. If there is a model now it is the Evo Morales Presidency in Bolivia, which in some respects is radical left, but not consistently enough to get the kind of model status previously accorded to ‘Lula’ (now caught up in corruption scandals as his successor Dilma Rousseff) in Brazil and Chavez in Venezuela (whose successor Nicolás Maduro is a blatant and charmless neo-Stalinist thug-apparatchik). The Morales regime has received some cautious support from those inclined towards liberty on the grounds that he has pursued an overdue reduction of the power of traditional rent seeking elites in Bolivia and engaged in an economic pragmatism certainly distasteful to former Chavez admirers, and not even entirely comfortable for former admirers of Lula.

The leftist populist tide in south America has not entirely receded, but is now discussed with increasing nostalgia and an increasingly elegiac tone by left socialist observers, and as it has receded has tended to leave only embarrassments for the socialist left or reformist pragmatist examples of at least some interest to the liberty community. We are not looking at a strong shift towards liberty in all its forms in that region, but at least we see some shifts opening the possibilities of new movements towards liberty in markets, rule of law, individual rights, and social openness.

Greece: Democracy in Action

The Greek people expressed themselves with utmost clarity. In response to an incomprehensible question posed to them by their fairly elected Prime Minister, the Greeks voted by a wide margin for the precipice instead of self-discipline. They also voted consciously for blackmail, because their government had explained to them that the “No” vote they gave would put pressure on Greece’s creditors (which include ordinary European Union taxpayers and, to a small extent, through the International Monetary Fund, US taxpayers as well.) The Greek government cynically campaigned for the same “No” vote.

Greece just joined Argentina to form a group of countries where the population deserves what’s coming to it because of its deliberate dishonesty, articulated through perfectly legitimate democratic channels.

As usual the urban poor in Greece – those who have no hens and no apple trees (like my parents in the fifties) – will be the ones to suffer the most as a result of irresponsible collective choices.

When was the last time anything good for the poor ever came out of an election won by any Left at all, anywhere, at any level? Please, remind me.