The "among the richest countries on Earth" statement is frequently trotted out, but I think it's kind of misleading. Argentina was rich largely because it had lots of raw materials and agricultural products that, at the time, could be exported at high prices. That's great while it lasts, but it doesn't necessarily lead to a long-term sustainably rich country.
You're right it doesn't necessarily lead to long-term sustainability, but it is a strong economic lever if used correctly. Argentina was considered equally rich to Canada before WWII [1], and though Canada benefitted greatly from it's proximity to the US, Australia, has also managed their resources well, even though it is geographically challenged.
This is compared to Argentina's mismanagement of finances and resources, which is what is being measured.
IMO when people say "one of the richest countries on Earth" the mental model is the United States or the European Union countries whose wealth is kind of self-sustaining at this point. Like it would take many massive proactive mess ups for the US not to be so wealthy.
This does not describe Argentina in the early 1900s because the country's wealth was mostly from raw resource exports which are always unstable. It's like Venezuela being (relatively) wealthy from oil is the early 2000s. In this case transitioning from "one of the richest countries on Earth" to poor doesn't require you to mess up proactively - if the price of oil swings the wrong way, you're suddenly poor, as for Venezuela, without doing anything wrong yourself.
> This does not describe Argentina in the early 1900s because the country's wealth was mostly from raw resource exports which are always unstable.
At the start of the 20th century, Argentina and Australia were in rather similar situations: southern hemisphere countries with mostly European settler ancestry, and an economy dominated by exports of agriculture and mining. And yet, across that century, Australia's economy just went up and up, while Argentina's stagnated (especially post-1950). Yes, Australia was also faced with instabilities from resource export prices, but it managed to weather them. Why?
The fundamental difference between Argentina and Australia is Australia had much better economic management. And a big factor behind that, is it also had much better political stability. Which could be (at least partly) due to differences in political systems (parliamentary for Australia, presidential for Argentina) and political cultures (British-derived vs Latin American)
I agree it is an oversimplification - yes, in 1951, Artie Fadden was making sensible (even if unpopular) economic decisions in Australia, while Perón was making foolish (albeit popular) economic decisions in Argentina. But the same pattern has been repeated many times since. If Argentina had learned its lesson from Perón‘s mistakes and chosen not to repeat them, it would be in far better economic shape today - arguably much closer to where Australia is. Instead, it has chosen to repeat them again and again and again
Someone pointed out to me fairly recently that Argentina used to have a massive amount of sea-trade passing by, as ships went south through the Magellan straight.
Then in 1914 the Panama canal opened. And these once busy sea ports that anchored these countries to the world order faded.
I'm not saying there weren't decades of mismanagement nor oligarchic control or whatever (I have no clue). But the canal changed the geo-political lay-up severely, & with enormous suddenness; it's impossible for me to see how these countries were going to maintain position/status/wealth after a physical shortcut was built cutting them off from global traffic.
"among" is doing a lot of lifting in the sentence. It's a myth really. GDP estimations back then are really not reliable. Also, population was around 1 million, it's one of those typical statistical aberrations.
Argentina was one of the richest on a per-capita basis, ahead of France, Germany, and Italy. India was never rich on a per-capita basis: https://www.livemint.com/Opinion/Nb7KkZ3yOVSNW3vHf9K1oM/Worl.... For example during Roman times India had a lower GDP per capita than Italy, and it remained at basically the same level until the 20th century.
This is false and for some reason repeated over and over again on the internet.
Argentina was never a rich country and at its highest point in per-capita wealth most of it was concentrated in a few land-owning oligarch families while the rest of the population lives in the abject poverty that was common in the rest of the Americas at the time.
> The massive wave of European immigration they promoted—second only to the United States'—led to a near-reinvention of Argentine society and economy that by 1908 had placed the country as the seventh wealthiest[65] developed nation[66] in the world.
If every village has 1 cow and it takes 3 years to produce the first calf, how do you show growth in the meantime?
You steal cows from the neighbouring villages.
Therefore some villages have fantastic GDP growth.
So much so they start an IMF to lend stolen cows back to these unenlightened villages as long as they pay interest or cut wages or sell off more of their assets.
“The government also adopted cost-cutting measures while inflation rates increased, allowing nearly 300 per cent annual inflation to erode real public spending on wages and pensions.”
Help me understand how the inflation has not slowed down in Argentina. I am looking at Argentina peso to usd chart over the past one year, and recent devaluation of peso is relatively flat compared to the declining rate a few months ago.
Milei has committed to dollarization, so at some point pesos are likely to be worthless. The government probably will (?) offer to exchange pesos for dollars but the government doesn’t have many dollars so their rate is likely to be terrible. He has removed many of the controls which were intended to protect the peso.
He could also just go with a "soft dollarisation" in which USD is declared to be legal tender, alongside the peso–and then see what happens next.
From what I heard (from Argentines I know), a lot of Argentine professionals desire to be paid by their employers in USD not peso, but that is technically illegal (not to say it doesn't sometimes happen anyway). Making that completely legal could be a step towards increasing use of USD and reducing use of peso in the Argentine economy.
anybody who believes this hasn't been paying attention to Spanish language sources.
It's clear to everybody now the government is cooking the books trying to get another IMF loan. It's all creative accounting hiding away the debt to importers (they are just not paying).
Milei brought in Caputo, the mastermind behind 2015-2019 admin that took huge loans from the market and later the IMF and defaulted in 2019. They set >70% (real) interest rates that straight up killed the real economy. Every single productive industry is picking up and moving to Brazil.
I wouldn’t bet against the United States growing its way out of the current debt-to-GDP ratio (which, while mildly alarming, is far from unprecedented either here or elsewhere at various stages in history). The current revenue/spending mismatch could be solved with modest tax increases.
I'm a bit disturbed by state of the US finances. I'm really disturbed by the political response to those finances. Nominally the Democratic party is committed to modest tax increases in the same way that the Republican party is committed to modest spending cuts.
It would be nice to see either party advance in any way towards those commitments. Whenever either party has the opportunity (i.e. control of Congress and the Executive) to do anything they invariably either cut taxes (GOP) or increase spending (Democrats) or both.
Fiscally only a divided government moves closer to fiscal sensibility.
No, it does not. The (e.g.) UK has, over its history, been in far "worse" financial shape than the US is or ever was. The UK was over 150% debt-to-GDP multiple occasions, as well as over 200%, and at one point (post-WW2) almost 250%:
And yet they've managed to survive and be a pretty decent place to live. Most of the economic troubles they've gone through were either global in scale (Great Depression, GFC) or self-inflicted (Gold Standard post-WW1 (too high a peg), Thatcherism, Brexit), that had little/nothing to do with debt.
One does have to be mindful that debt servicing costs don't crowd out more important spending (education, health), but to think there's some magic number that causes issues has not been born out by the historical record; see Reinhart and Rogoff retraction:
The bill does eventually come due. You pay for the interest and the debt, either through taxes or money printing (hidden tax of inflation.) There's no free lunch.
For Argentina, they were paying with money printing and that's why they had out of control inflation. So far the US is doing the same, and that's why inflation spiked. I think this is the long-term plan to finance the US debt. We're not going back to that 1-2% inflation. Probably 3-5% is the new normal.
I agree with you that there's no magic number of debt to GDP where things just fall apart. But there is certainly a number where they do. We don't know it, and it will be different for each country. Japan is sitting at 263% right now and doing OK (not great, but OK.)
Obviously debt weighs on future growth. This happens at the household level and at the company level and at the state level. That's well established.
The US right now is spending more on interest than defense. And that will keep rising. I'm not saying it will cause the US to fall. But between eroding the dollar through inflation, and weaponzing it aginst other countries - I think it will lose its status as a reserve currency. Not overnight, but I do expect to live to see it happen.
> The bill does eventually come due. You pay for the interest and the debt, either through taxes or money printing (hidden tax of inflation.) There's no free lunch.
Stop with the "printing money" non-sense: it is private banks where money is created, not central banks or governments.
The cuts Milei is doing are purely ideological and not even the most reticent of budget hawks )including the IMF) ever considered these cuts necessary or sustainable. The man is mentally insane and despises every public institution.
What they’re not saying here is that tax revenue is dropping and will wipe out any of these gains and that installed industrial activity dropped by over 30% since he assumed office.
The point is not to balance a budget. The point is to rein in persistently triple-digit inflation. Everyone wants to have their cake and eat it too, but the reality is that you fight inflation by cooling economic activity for a period.
A 30-40% real drop in economic activity and a reduction by half in purchases of medical consumer items isn't "cooling"; it is an active destruction of the real economy that has absolutely no rationale.
You literally just made that up. You probably think that everyone's salary got cut in half when the government stopped lying about the value of their currency.
"Celebrate" is not the right word. The government stop founding oncology patients, stop sending food to community kitchens, raise the poverty level to 60% among other things.
So nothing to celebrate, no merit on having budget surplus by starving your people.
After many decades of mismanagement, it has a GDP per capita roughly equal to the likes of Mauritius (which 30 years ago was a far poorer place).
This is compared to Argentina's mismanagement of finances and resources, which is what is being measured.
https://www.vaia.com/en-us/textbooks/economics/macroeconomic....
This does not describe Argentina in the early 1900s because the country's wealth was mostly from raw resource exports which are always unstable. It's like Venezuela being (relatively) wealthy from oil is the early 2000s. In this case transitioning from "one of the richest countries on Earth" to poor doesn't require you to mess up proactively - if the price of oil swings the wrong way, you're suddenly poor, as for Venezuela, without doing anything wrong yourself.
At the start of the 20th century, Argentina and Australia were in rather similar situations: southern hemisphere countries with mostly European settler ancestry, and an economy dominated by exports of agriculture and mining. And yet, across that century, Australia's economy just went up and up, while Argentina's stagnated (especially post-1950). Yes, Australia was also faced with instabilities from resource export prices, but it managed to weather them. Why?
The fundamental difference between Argentina and Australia is Australia had much better economic management. And a big factor behind that, is it also had much better political stability. Which could be (at least partly) due to differences in political systems (parliamentary for Australia, presidential for Argentina) and political cultures (British-derived vs Latin American)
https://www.abc.net.au/listen/programs/abc-news-daily/iyl-ar...
I agree it is an oversimplification - yes, in 1951, Artie Fadden was making sensible (even if unpopular) economic decisions in Australia, while Perón was making foolish (albeit popular) economic decisions in Argentina. But the same pattern has been repeated many times since. If Argentina had learned its lesson from Perón‘s mistakes and chosen not to repeat them, it would be in far better economic shape today - arguably much closer to where Australia is. Instead, it has chosen to repeat them again and again and again
Most of that is down to bad policy from Peron onward.
Then in 1914 the Panama canal opened. And these once busy sea ports that anchored these countries to the world order faded.
I'm not saying there weren't decades of mismanagement nor oligarchic control or whatever (I have no clue). But the canal changed the geo-political lay-up severely, & with enormous suddenness; it's impossible for me to see how these countries were going to maintain position/status/wealth after a physical shortcut was built cutting them off from global traffic.
Argentina was never a rich country and at its highest point in per-capita wealth most of it was concentrated in a few land-owning oligarch families while the rest of the population lives in the abject poverty that was common in the rest of the Americas at the time.
https://en.wikipedia.org/wiki/Argentina
https://chequeado.com/ultimas-noticias/javier-milei-la-argen...
You steal cows from the neighbouring villages.
Therefore some villages have fantastic GDP growth.
So much so they start an IMF to lend stolen cows back to these unenlightened villages as long as they pay interest or cut wages or sell off more of their assets.
Google "Super Imperialism"
No one forced them to borrow from the IMF. They always had the option of reducing spending or increasing taxes to balance their budget.
That’s one way to do it.
The entire process would also need to be secret, to preserve the value of the peso as much as possible.
From what I heard (from Argentines I know), a lot of Argentine professionals desire to be paid by their employers in USD not peso, but that is technically illegal (not to say it doesn't sometimes happen anyway). Making that completely legal could be a step towards increasing use of USD and reducing use of peso in the Argentine economy.
It's clear to everybody now the government is cooking the books trying to get another IMF loan. It's all creative accounting hiding away the debt to importers (they are just not paying).
Milei brought in Caputo, the mastermind behind 2015-2019 admin that took huge loans from the market and later the IMF and defaulted in 2019. They set >70% (real) interest rates that straight up killed the real economy. Every single productive industry is picking up and moving to Brazil.
The US should pay attention, it’s on the same path right now. If they don’t get the spending under control, it will end in pain.
The bill eventually comes due.
It would be nice to see either party advance in any way towards those commitments. Whenever either party has the opportunity (i.e. control of Congress and the Executive) to do anything they invariably either cut taxes (GOP) or increase spending (Democrats) or both.
Fiscally only a divided government moves closer to fiscal sensibility.
It’s not sustainable at all.
No, it does not. The (e.g.) UK has, over its history, been in far "worse" financial shape than the US is or ever was. The UK was over 150% debt-to-GDP multiple occasions, as well as over 200%, and at one point (post-WW2) almost 250%:
* https://en.wikipedia.org/wiki/File:UK_debt_as_GDP_percent.pn...
* https://en.wikipedia.org/wiki/United_Kingdom_national_debt#M...
There were times when just interest was 10% of GDP:
* https://en.wikipedia.org/wiki/File:UK_National_Debt_interest...
The UK has bonds dating back to South Sea Bubble crisis of 1720, the Napoleonic and Crimean wars, the Irish potato famine, and World War 1:
* https://www.theguardian.com/business/2014/oct/31/uk-first-wo...
And yet they've managed to survive and be a pretty decent place to live. Most of the economic troubles they've gone through were either global in scale (Great Depression, GFC) or self-inflicted (Gold Standard post-WW1 (too high a peg), Thatcherism, Brexit), that had little/nothing to do with debt.
One does have to be mindful that debt servicing costs don't crowd out more important spending (education, health), but to think there's some magic number that causes issues has not been born out by the historical record; see Reinhart and Rogoff retraction:
* https://archive.ph/PtwWF / https://www.newyorker.com/news/john-cassidy/the-reinhart-and...
For Argentina, they were paying with money printing and that's why they had out of control inflation. So far the US is doing the same, and that's why inflation spiked. I think this is the long-term plan to finance the US debt. We're not going back to that 1-2% inflation. Probably 3-5% is the new normal.
I agree with you that there's no magic number of debt to GDP where things just fall apart. But there is certainly a number where they do. We don't know it, and it will be different for each country. Japan is sitting at 263% right now and doing OK (not great, but OK.)
Obviously debt weighs on future growth. This happens at the household level and at the company level and at the state level. That's well established.
The US right now is spending more on interest than defense. And that will keep rising. I'm not saying it will cause the US to fall. But between eroding the dollar through inflation, and weaponzing it aginst other countries - I think it will lose its status as a reserve currency. Not overnight, but I do expect to live to see it happen.
Stop with the "printing money" non-sense: it is private banks where money is created, not central banks or governments.
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
And if you think inflation is bad, try deflation. If you think a fixed money supply is good:
* https://delong.typepad.com/sdj/2013/10/the-great-depression-...
* https://archive.ph/FWKcL / https://www.theatlantic.com/business/archive/2012/08/why-the...
* http://www.nber.org/chapters/c11482
* https://en.wikipedia.org/wiki/Great_Bullion_Famine
> I agree with you that there's no magic number of debt to GDP where things just fall apart. But there is certainly a number where they do.
"Certainly". Sure. The South Sea Bubble was in the 1720s, it is now 2024. Somehow the UK has managed to muddle through for three hundred years.
> We don't know it, and it will be different for each country. Japan is sitting at 263% right now and doing OK (not great, but OK.)
So the US debt can double to reach the current levels of Japan (or past levels of the UK) and nothing happen.
> The US right now is spending more on interest than defense.
And yet, as a percentage of GDP, it's not even as high as it was in the recent past:
* https://fred.stlouisfed.org/series/FYOIGDA188S
> And that will keep rising.
Unless it drops. Like it has in the past.
> I think it will lose its status as a reserve currency.
There is nothing to replace it with, so I find this doubtful.
There isn't always a path forward that leaves everyone happy.
What they’re not saying here is that tax revenue is dropping and will wipe out any of these gains and that installed industrial activity dropped by over 30% since he assumed office.
How does that reduce inflation and cause a surge in bond prices?
He was going to stop that train on a dime. Things take time, they have more pain before the restoration.
official rate was accelerated to catch up
revs chainsaw
Maybe it still doesn't, but at least something new is being tried.