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Home Publications Blogs Beat the Press The NYT Doesn't Like Argentina's Economic Policy

The NYT Doesn't Like Argentina's Economic Policy

Saturday, 05 February 2011 22:03

That is what readers of an article on inflation in Argentina would likely conclude. The article tells readers that Argentina's government: "has tried to quell concerns about mounting inflation by continuing to keep the economy growing at China-like rates."

The implication is that having China-like growth rates is a silly distraction from inflation. In fact, China-like growth rates create the possibility of enormous improvements in living standards. Most countries would be delighted to have growth rates half as fast as China has been able to maintain over the last three decades or that Argentina has sustained since 2002. The problem of even relatively high rates of inflation seem small by comparison. In fact, the reason why economists view inflation as a problem is that it can lead to slower growth.

This article is also somewhat confused in trying to describe the problem that inflation is causing in Argentina. It claims that wages are not keeping up with food prices, but that is not the relevant issue. The question is whether wages have kept pace with inflation. The article does not address this issue.

The article includes a quote from Domingo Cavallo that is highly critical of the government. Cavallo is identified only as "a former economy minister." It would have been worth pointing out to readers that Mr. Cavallo was the minister who designed the policies that led to Argentina's crisis in 2001-2002. The Kirchners' government broke sharply with Mr. Cavallo's policies setting Argentina on a path of solid growth. Without this information, readers might think that Cavallo was a disinterested commentator on the economic situation.

Comments (3)Add Comment
The Other Half ...
written by Benedict@Large, February 05, 2011 10:52
So this must be the other half of the German-Austerity-Is-Good article, suggesting that if we don't slash our spending, inflation will turn us into another Argentina/Brazil/Venezuela/Zimbabwe/Weimar Republic. [Did I miss any?]
Stupid Liberals Don't Understand Risks Necessary for Growth
written by izzatzo, February 06, 2011 9:51
... "has tried to quell concerns about mounting inflation by continuing to keep the economy growing at China-like rates."

Any economist knows that more free-market growth from the supply side is always the solution to inflation from the demand side. Higher prices and profit always draw in more supply.

This is why conservatives understand that inflation, shortages and deficits are necessary risks to successful growth. They are mere tabloid distractions created by a liberal media designed to mask the true power of the supply side to create real and substantial growth.

Only stupid liberals are fooled by the distractions. Conservatives know that it's command-and-control China-like growth rates that serve as the real fuel for free market growth and full employment necessary for the USA to achieve the same living standards as Argentina.

Stupid liberals.
Avoid an Untimely Death by Committing Suicide
written by NewsFromAnnArbor, February 06, 2011 5:25

I've recently gotten a kick out of conventional arguments about why inflation is bad. These arguments seem like someone trying to argue that the best way to avoid an untimely death is by committing suicide. Let's see, they go something like this: inflation is bad because it reduces real growth so let's cure it by slowing growth (raising interest rates and throwing people out of work.) In other words, lower wages = higher living standards (contain inflation by throwing people out of work which contains wage growth so people can live better?)

The real answer is that inflation drives up interest rates which discount the NPV of financial assets more heavily. If inflation is also accompanied by robust wage growth, that wage growth pinches profit margins which, again, discounts NPV more heavily. Anybody who works for wages should really give a rat's ass about NPV's. Inflation is a wealthy person's concern.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.