How was the poverty rate of Argentina calculated? I expect it is complicated and even more so in Argentina with those crazy inflation numbers and recent regulations slashed
"Based on household income, the National Institute of Statistics and Censuses (INDEC) measures whether they have the capacity to satisfy their food and non-food needs considered essential."
So there's a "Basket" just for food (which is were the 4% monthly inflation figure comes from) and then a "Total Basic Basket" covering food, clothing, transportation, education, and health. Less than 1 TBB is considered poor, from 1 to 3.5 baskets is Middle Income and more than that is High Income.
Right now a TBB is about 600-700 US dollars and the food basket is 250-300, depending on if you use the official or the unofficial exchange rate.
Of note is that this Total Basic Basket doesn't include housing, and renting a 500 square feet appartement in Buenos Aires costs about 500-600 US per month.
I guess what I meant that it was unnerving that the basket was updated just 9 years ago. If it's getting updated every 9 years, that seems suspicious. On the other hand, nobody said how long the definitions had remained unchanged before 2016. If they had remained unchanged for 30 Plus years, I guess I have nothing to worry about.
My thought too. Poverty rates are often reported using country-specific thresholds: what's considered poverty is different in Ethiopia, Argentina, or the US. Why do journalists write about poverty rates without specifying what they mean, and why does Scott repost them without realizing he has no idea what they mean (sorry if I'm wrong)? It's often not even necessarily useful for comparisons over time, since the (real) threshold may change automatically (in some countries it's defined as something like 60% of the median wage) or manually (even if it's defined as something like "essential" goods, what's considered an essential level has surely changed over time). Since it's often defined in a way that depends either automatically or de facto on the average person's living standards, it's often more of an inequality measure than a poverty measure.
A lot has been said about the 53% poverty figure, but that value cannot be easily compared to other countries, even in the region, as they use different thresholds.
Poverty numbers are only useful for tracking change over time, not absolute values
I also worry somewhat about tracking over time in an environment of uneven hyperinflation; it seems like the way the rate is calculated could lag changing prices, or vary based on the fluctuating inflation rate, or etc.
What I’m unclear about is how much actual power he has. He doesn’t have a ruling party behind him as I understand it but how that affects what he can and can’t do I don’t know. Seems an important part of the puzzle though!
He has enough power to put policy items into serious discussion in Congress and the media, but not enough to force everything he wants through peronist opposition. He must make some concessions to the center-right coalition party which helped him win in the ballotage against the peronists and holds about a third of congress.
So if it was up to Milei, he would blow up the central bank, the argentine peso, labour laws, state-owned companies and, why not, the government as a whole with himself included without a second thought. But the enemies of his enemies which are for now his allies believe in a more gradualist approach, so he can't.
Gosh, Peron. Haven't heard that name in a while. This is why comparisons to other economies gets tricky, the political DNA is a critical element in any attempt to drive change. Unless of course you just lock up the opposition...
I think you should disregard American priors on how hard it is to get bipartisan policy passed. The American system is uniquely bad in the extend that it creates zero-sum dynamics
Working as designed! While it makes it hard to fix things, it also makes it hard to break them: which is one reason, I suppose, that the USA did not get into Argentinas bad economic position in the first place.
It wasn’t designed to be hard to do *anything*. It was assumed that Congress would mostly be working together to achieve the central goals of society, the way the board of your department or your movie club or your corporation or anything else works. But at a certain point, American politics became focused on the disagreements between the parties, rather than the agreements, and now there is an incentive to use any veto point you can for anything done by the other party, even if you secretly believe their policy will do more good than harm.
The bill that they did agree on was a good step in that direction, and if implemented might have inspired more good steps being agreed on. Unfortunately somebody decided that his election chances were better if nothing was done about the border this year, and that was that.
In addition to the obvious border security bill, I believe there are many instances of permitting reform and health insurance fixes and things like that, that don’t even get talked about much because they are non-starters.
The Constitution was absolutely not designed with a party system in mind. It was assumed that our Congressmen would avoid partisanship for the greater good of the country. Deeply naive, but I guess you don't know until you know
To be fair, in 1787 they were designing almost entirely from hypotheticals. E.g. nothing like modern party systems existed in the UK, and there weren't any other genuine representative democracies in the world for any jurisdiction larger than a New England town. And hadn't been for a very long time.
So I've personally got a long list of criticisms of what the Framers came up with. But, "how much better could it have come out knowing what _they_ could possibly have known" yields a rather different feeling about the Constitution.
But the Founders abhorred the political parties that existed in Europe the time, even in their nascent state. Obviously, hindsight is 20/20, but it still seems naive for them to think that American politicians were going to avoid the factionalism that existed at the time.
The latest Psmith review, Fears of a Setting Sun, makes it pretty clear that the founders were very aware of the issue of factionalism. George Washington in particular was convinced by the end of his second term that America was doomed and the parties were going to ruin it.
Argentina has more-or-less the exact same kind of "make it very hard to fix and/or break things" system as we have in the United States, with lots of veto points.
This is a big part of why they got stuck in this mess: replacing a bad president embroiled in scandal involves a long and difficult impeachment process that leaves the vice-president in charge anyway, rather than Argentina.
"Nothing gets done" is probably a bad summary of the US system—it's more like "Nothing happens 95% of the time, then someone lucks their way into a big trifecta and every single law gets rewritten all at once". In Argentina, they just finished up a cycle with a huge Peronist trifecta, which is why they're dealing with this mess.
Definitely! In almost all cases, it is easier to break something than to fix it. Any system is likely to produce fewer fixes for things broken then things broken. So it’s generally better to aim at making it harder to break things than easier to fix them.
Even if you are a massive Milei bull, you should still expect Argentinian inflation to outstrip dollar I flatiron by a lot. Better to buy either government bonds or company stocks of Argentina.
Even if ARS inflates faster than USD, you could still potentially profit using call options on the ARS/USD pair. That would give you the right to sell ARS for USD at a price which might be better than the actual exchange rate at the option expiration date. This is very risky though, of course.
Lol, I guess buying the peso might be a bad move either way, then! Unless what happens is something between the two. But I agree with Arie that current inflation is way too high to justify buying the peso as a serious strategy.
You can buy shares in an Argentinian equities ETF. The main drawback of this is that not only does Milei have to succeed, you have to hope that when the opposition inevitably gets back into power that they don’t tear everything down again.
Seems like it should be counted as a failure for Milei's approach if his direct impact is immediately wiped out by his successors. His pitch is, "This is how you fix the mess the last guys left us." But if 'fix' is a temporary holding pattern that goes straight back to the previous trendline, what's the point?
Exactly. If you think Milei's reforms will be recognized as clearly better than his predecessor by the people of Argentina, you should also think that his movement will gain more representation in the next government.
What's frustrating is that the thing we can measure (Milei's electoral popularity at some future date) is a few steps removed from the thing we care about (the efficacy of Milei's economic reforms). But isn't that how it normally goes? Especially in national political economics, we can't run the counterfactual as a control.
If he stays in power long enough, this should not be a problem. All he needs is enough time that the people can see the longer term trends. If they're positive, he'll get the credit even if that's not accurate. If the trends remain negative, then he'll have to convince them that will change or perhaps that it's the fault of his opposition that will not let him do the truly important things.
That's not quite correct: this has to do with *awfully-governed* democracies, specifically any system with center-squeeze. In a plurality-elimination system (e.g. plurality-with-primaries, two-round system, or RCV), there really isn't a way of preventing wild, discontinuous swings in the ideology of the government.
A majority-rule (Condorcet) system, or a rated voting system, wouldn't have this issue because the median voter theorem means policy responds smoothly to changes in public preferences.
If it showcases that it actually improves things notably, then that makes it harder to repeal. If it works well enough in time, then that also makes so he (or someone more aligned with him) is more likely to be re-elected.
Most laws to try to improve an area have this issue, that they can just be repealed and lose ~all of the benefits. You can avoid this somewhat with more gradual transformations, but obviously you're not going to have as much effect.
(But also reverting some of his actions is probably harder, recreating a bunch of governmental ministries is probably harder than it was for him to tear them down.)
Yeah, basically, austerity is for improving the stability of the economy in good times when you can afford to slow down the economy, in bad times you have to suck up deficit spending that's tightly targeted at getting the economy back on track first.
Of course Argentina has been a clusterfuck for a while, so who knows if any of the conventional arguments apply there.
Er. Wasn't that Venezuela doing the oil-economy thing, not Argentina? Wikipedia puts Argentina's mining-related activities (including oil and gas) at 4% of their GDP, hardly "staking their economic fate" on it.
The classic statement of Argentine weirdness is that they thought they were a developed country before they actually were due to an agricultural export boom about a century ago, and ended up with an entrenched welfare state they can't get rid of. I've no idea how accurate/drastically oversimplified that is, though.
I think it's a half-truth. Yes, all the takes about Argentina dropping down development levels is misleading, because during the 'baseline' period (early 20th century) they were propped up by an agricultural export boom.
However, other countries which experienced the same boom (New Zealand and Australia come to mind) and spent a lot on public welfare nevertheless managed to translate that into continuing high income status (while continuing to rely heavily on primary exports).
My intuition is that its not the welfare state as such but more the general quality of government/institutions, which tended to tax the productive part of the economy (ag exports) to fund elite, urban consumption/corruption (as well as welfare). This saps the economy over time, why invest in increased production when the government expropriates a third of your soy export revenue. Poor institutions also showed up in mismanagement of the monetary system that depresses investment.
In terms of foreign exchange, Australia largely pivoted to mining; it has an absurd quantity and diversity of mineral reserves relative to its population. New Zealand is even more reliant on agricultural exports than Argentina is (although it also makes a fair bit from tourism these days); it had a rough time in the 1970s and 1980s before becoming pretty much a model country for foreign investment, and it's the world's least corrupt country (and even then, it hasn't become ultra-rich - living standards are somewhere in the Spain-Italy range). Not sure how viable either of those would be for Argentina (although Chile could probably learn some things from Australia).
Yeah fair points, no two countries are ever going to be perfect parellels (for one, NZ and Australia were somewhat insulated economically by being part of the British Commonwealth, at least until 1970 or so). I'm not really trying to say what Argentina could do today, just speaking against the idea that Argentina's problem was primarily a welfare state that couldn't be supported after agriculture prices dropped.
I'd push back on Australian mining a bit. According to this: https://ourworldindata.org/grapher/natural-resource-rents?country=ARG~AUS it wasnt until the 21st century that Australia moved ahead in a big way (in absolute terms and compared to Argentina) in natural resource rents. I think its another case where superior institutions/government helped; Australia simply managed the windfalls more wisely than Argentina. Probably does help explain why Australia is so much richer than New Zealand today (unfortunately for me as a Kiwi!).
“ why invest in increased production when the government expropriates a third of your soy export revenue”
Because you get the other two thirds. Like… the government likely takes about 20% or more of your income. Presumably you still maintain employment. Hell, I bet you still seek higher income.
I mean, obviously there is still some incentive to produce. But directionally, yes of course a tax on revenue reduces production at the margin, particularly discouraging long term investments.
More concretely, if there is a potential investment to increase production by 10%, you'll do it if it costs 8% of your current revenue. However if the government takes a third of the increased revenue, you won't.
If you think about it, you're basically arguing the supply curve for crops is vertical, and therefore prices don't effect production.
Argentina's big export sector is agriculture. I'm having trouble finding the article in IIRC the WSJ but apparently one of the things that makes the country incredibly weird is that is has *enormous* regional and sectoral disparity in productivity, so much so that they adopted different exchange rates for different classes of transaction to try to address the lopsidedness that it created.
In essence, AIUI Argentina and especially the pampas plains are basically comically productive and support a robust export market, which would normally cause currency appreciation as it creates external demand for pesos to buy ag sector exports.
But the ag sector in Argentina, like that in other countries, is capital (especially land) intensive without being commensurately labor intensive, so you still have most of the population living in urban centers and working in things other than ag, and Argentina's other sectors are nowhere near as productive or competitive as their ag sector, but would by default find themselves saddled without the capacity for currency depreciation to make them internationally competitive because the ag sector's productivity saddles them with the same peso. This is basically the same problem that Germany and Greece both using the Euro causes, except in this case it's not an inter-country currency union, it's intra-country.
Argentina tried (not sure if they still do this) to alleviate this with ag-sector specific exchange rates to try to deal with the issue -- which is a conceptually bizarre approach done by basically no one else -- but I believe that it's one among the innumerable other problems that contribute to the Argentinian economy making no sense and being unable to effectively equilibrate.
I don't see how "currency depreciation to make them internationally competitive" would be good for Argentine urban workers. You can always stay competitive by accepting whatever pay you can get on the market. Currency devaluation allows you to get higher wages or avoid a wage cut, but it increases prices by the same amount: the prices of imported goods for obvious reasons, but domestic prices also increase if wages increase. Currency devaluation just changes the units, on a free market it shouldn't change either wages or prices in real terms; on a free market, external devaluation (i.e. currency devaluation) and internal devaluation (keeping a strong currency but cutting wages and prices) should be more-or-less equivalent.
The only reason I see countries sometimes prefer to devalue their currency is that nominal wage cuts are extremely unpopular, and in some cases made legally prohibited or disincentivized (by laws that are themselves extremely unpopular to repeal). If in some sectors and regions the real market value of labor decreases, it results in unemployment and reluctance to hire, especially on highly regulated labor markets. Having some general inflation allows aligning people's wages with the market value of their work without the unpopularity of a nominal wage cut; it's essentially a way to dupe people into tolerating a real wage cut.
But inflation in Argentina has steadily been high enough that this isn't a problem anywhere; there has never been a problem of the currency appreciating because of the productivity of farmers, it's always been depreciating rapidly.
If Argentine farmers get less pesos for a dollar when exporting their goods than factories do under a separate exchange rate system, that's effectively just a redistribution program from farmers (especially landowners) to the urban workers, except in a roundabout, inefficient way. Note that this is different from if Greece had its own currency and devalued it: Argentine workers can use the same pesos they get for the export goods they produce to buy food from Argentine farmers, while the different exchange rate applied to farmers reduces the prices farmers can get by exporting (as measured in pesos); while Greeks would have to buy expensive euros (as measured in drachmas) if they wanted to buy goods from Germans.
Also, when it comes to which sectors would "need" a currency devaluation to remain competitive without nominal wage cuts, what matters are the rates of change of productivity in each sectors, not the current productivity: if agriculture is more productive than industry (in what sense? international comparisons?), that doesn't mean industry "benefits" from currency devaluation (the differences in productivity are presumably already priced into the wages and land rents people are used to), only if agricultural productivity is increasing faster than industrial productivity, or especially if the latter is decreasing outright, does.
“Currency devaluation just changes the units, on a free market it shouldn't change either wages or prices in real terms; on a free market, external devaluation (i.e. currency devaluation) and internal devaluation (keeping a strong currency but cutting wages and prices) should be more-or-less equivalent.“
There is no such thing as a free market, anywhere, ever. And when you’re talking currency, you’re handicapping yourself to act like there is.
The reason that it’s generally unwise to pursue significant currency manipulation is that it’s risky. Policies of intentionally devaluing your currency can be pursued but carry the danger of sparking hyperinflation. Some would say even the indirect devaluation of moderate government debt spending is so risky (though you can mitigate this through progressive taxation, since it forces people who might have the means to trade in foreign currencies to pay a premium for your currency at least some of the time).
In the real world, currency manipulation is a high-risk, high reward strategy that has been proven so effective that you have to punish it in international trade agreements lest you be placed at a disadvantage.
Promising to give free money back to people who are presumably annoyed it has been taken away from them is always a good pitch. Look how hard it is to reform anything relating to subsidises in the US, for example.
What you call free money is not necessarily free money. That's your ideological framing. I believe social programs represent people being paid what they are owed
Do all social programs represent people being paid what they are owed? If the government sets up a social program to print money to give everyone in the country $1000 a week with no conditions, are they still being paid what they are owed?
I mean, that's called a UBI. If a country was just a closed economy what that actually would be equivalent to is taxing all sorts of monetary assets (bank accounts, stocks etc) and redistribute the money uniformly to the entire population. It would thus encourage investing money as quickly as possible into capital, since it's not going to be much good on its own. It's by no means some kind of insane proposition, per se; the main problem is that the currency changing value also affects the import-export trade balance because the other currencies don't change necessarily at the same pace.
The point of welfare here is also: people all participate in a social contract, whose purpose is to provide well-being to society as a whole. Thus, shouldn't they all get a share of the windfall, regardless of their specific contributions (which might see them more or less successful), and merely on the basis that they uphold that contract? Similarly, given that those that succeed spectacularly can only do so thanks to the framework of civilization upheld by everyone around them, don't they owe something in exchange?
That's the philosophical and ethical argument. Then we can go into the technical one of how this or that implementation shapes economic incentives and thus what actually happens. But they're two different levels; you could probably make a case that economically speaking killing the elderly would boost the GDP, that does not mean people will think that killing the elderly is OK. Material well-being is *part* of people's objective function but it's not the whole story.
Economic movement is what counts so the removal of any stimulus is risky. The end game tends to be just exposing national assets to foreign acquisition which tends to send the revenue in the wrong direction. So, as undesirable as subsidies may seem they are essentially a protective measure against aggressive acquisition and asset stripping.
Pre and post Soviet Russia gives a classic example this shift of ownership and the political consequences. Yes the assets were handed to apparatchiks but they weren't exactly turned into local economic activities.
“This shit won’t work, and will just make people suffer more” would be my guess. I’m sympathetic to that idea, and this being my first exposure to the guy I am going to assume that if/when he fucks shit up in some new way, libertarians will dutifully explain how his ancap ideas would have worked if only they were done harder.
Libertarians and Communists believe themselves very distinct. But both are very unwilling to admit that when anyone makes a real go of implementing their ideas at scale it turns into a clusterfuck of new suffering. For reasons that can be distinct or remarkably similar.
Unfortunately the inflation metrics above are a good example of the reason it will be very difficult to get anyone to agree what actually went on here. Clearly what was happening before wasn’t working, but libertarians tend to be like communists in another way. They are often able into identify problems but suck ass at prescribing solutions.
Libertarians _do_ have a list of "here's the times someone tried our ideas, and the time our guy was in power is widely regarded as 'the good times' by those who lived through them, until non-libertarians attained power and returned everything to crap."
The United States of America is founded on something that is essentially a libertarian or classical liberal ideal. And that has worked out very well, indeed better than anything else has ever worked.
All of which, even if you want to lay at the door of libertarianism or classical liberalism, are not even blips on the contribution to human welfare that the US system of classical/market liberalism has made. (You could also note that those are norms that were very much standard at the time, and the US got rid of it, at least in part, because of its founding principles)
I mean, slavery was not the *fault* of liberalism, but it's ridiculous to say that a country that literally still had millions of slaves was founded on an ideal of libertarianism. At the very least it had to be founded on some kind of very dirty, very approximate compromise, because slavery is kind of very very much not libertarian.
As others have said, there's always a chance that a good chunk of the overall average welfare of the US is just due to a bunch of factors that have little to nothing to do with politics. Plenty of natural resources, plenty of land, a geographic position that makes them into a fortress, two oceans on the sides, a narrow bottleneck to the south and a friendly country full of ice to the north. And even putting aside slavery, the way the US dealt with the native populations and conquered all that land and all those resources isn't exactly stuff that would pass the NAP test.
I wouldn't call it libertarian, there's still plenty of state intervention. Also it depends on what counts as "working well" for our purposes. Becoming the foremost military and economic power of the world? Sure. But the US have more internal inequality and poverty than other western countries. If your metric is not the sum total of wealth, but having a distribution of quality of life that has both high mean and reasonably short tail in the bad end, then Scandiavian states have the US beat by a wide margin.
Well, I can imagine a lot of things worse than libertarianism, many of which have actually happened; sometimes you're stuck implementing a suboptimal policy (such as dollarization) because if you tried one that's better (managing your own money supply responsibly) you'd fuck it up.
Russia has a war-economy. Structurally, the country is being surgically stripped clean of anything of value for a post-war-economy, which is why everybody is eager to keep this pointless stalemate going for years to come
Russia has a bunch of ideologically aligned countries that are still willing to trade with it. Plus, they get to count artillery as production, but don't have to count spent artillery shells on the negative side of the ledger.
Meanwhile, it looks like exports from Estonia to Russia in 2020 were about $1.5B worth (compared to their biggest trading partner, Finland, at around $2.3B). This dipped by about $0.3B/yr by 2023, which isn't quite 1% of their GDP. Maybe the simple export number isn't capturing the full story of loss of Russian cooperative economic activity.
Wages are up, unemployment is down, but for basically the same reason that happened during the Black Death - because everyone available is being sent to the frontline (~30,000 per month) or, for people with the means and the marketable skills, leaving the country (~900k according to WP). In the medium to long run, Russia's economy is doomed, whether or not they win the war. They are doing their level best to destroy everything of value in Ukraine so they have little to gain there if they win, and they will be the pariah of most of the world in any case. The best they can hope for is to become the mining department of China.
Conclusion is that Russia is more resilient that it seems. From what I understand it’s thanks to their economy being pretty well managed for an otherwise corrupt and mismanaged state.
Russia's GDP is high because of how much they are investing into the war. Unemployment is also very low because there is intense competition for workers who are being directed into the army at an alarming rate. The problem is that it's likely not sustainable. For now, Russia is relying on its sovereign wealth fund, but the enterprises that helped it build that wealth fund are running at a loss for the first time ever. Russia will eventually run out of money to spend and will start having to run a huge deficit to keep up this level of investment in the war. They've already stopped investing as much in the civilian sector and the civilian populace is already suffering as a result.
If they keep losing 300k men per year and those men are mostly the least productive / poorest members of society (such as Wagner's prisoners), it's quite possible that it will end up being sustainable thanks to Russia's economy being mostly based off natural resources.
Russia was running a birth deficit even before the war. That is not sustainable for any economy. And if anything, an extraction-based economy is more reliant on less-skilled labor than an economy that is based on manufacturing and other high-skill jobs.
They’ve got Uzbekistan and Kazakhstan nearby, both with a 3+ fertility rate over the past two decades. They don’t need Russian labor and things get more automated over time.
My guess was that Russian GDP decline was already “priced in,” that sanctions had done all the damage they were going to do and GDP growth would no longer be effective. I looked it up and:
They only have data through 2022, but it looks like Russian GDP peaked just before their invasion of Crimea, steeply declined after that, and then started a rebound which was somewhat affected by the outbreak of the broader war.
1) Sanctions on Russia are very leaky due to a mix of preparing for them, extended period of sanctions leading to new trade routes, and a significantly larger proportion of world GDP held by non-NATO countries who are not participating in said sanctions.
2) Economic stimulus: Russia is both running a deficit and drawing down in very large reserves accumulated in the 2010s. It is also taking huge numbers of economically unproductive young men (prisoners, unemployed men in small villages and from the poorest regions) and effectively giving huge cash infusions to their regions via pay and very large cash bonuses to their families if those men die (which many, many have). It is, in practice, an extremely large cash transfer to poor people and areas.
It's not that. Lithuania also shifted a lot of business from Russia, but is doing very well and growing. The problem is that Estonia has the lowest debt in EU, and continues to resist spending, thus imploding from inside with self caused austerity, when in fact they should borrow, invest and spend. The situation is inverse to that of Argentina, Estonians are “too responsible” for their own fault. There is an economic phenomenon called paradox of thrift, this is what is going on in Estonia. Furthermore, they are inflicting even more pain to themselves by significantly raising taxes (VAT is 22% from 20% and will increase to 24% next year). Also, they are increasing other taxes. This is deflationary and will further sink their economy. It's self harm, someone should help them.
Yes, this is true. Of course, the government inflicting these high taxes on businesses is rather unpopular and will probably be replaced by the opposition soon (which means right-wing populists, whatever that's good for). We are also about to inflict some new "going green" type of economic self harm any time now, more than most European countries, as I understand (the place was lately ranked #1 for Environmental Performance among countries, another example of being highly Responsible).
This won't happen, EUR is a stable and predictable currency used by almost all of Estonia's trade partners, and also gives credibility for foreign investors in the country. EUR was introduced exactly because of it.
No, Estonian economy was not so tightly integrated with Russia's, though some supply lines have been disrupted. The recession is more closely related to the cooling of the markets in Scandinavia. "Sales in foreign markets have been constrained by the fact that the main markets for Estonian exports have performed worse than the European economy as a whole and by the appreciation of the exchange rate against the Nordic countries", as per economy gurus. Locals are wary of the future and save instead of spending; interest rates for loans are huge, energy is expensive. Still, I don't understand how it's so much better in Latvia.
Edit: ok, apparently, pre-war the trade with Russia accounted for 8% of Estonia’s exports, 10% of its imports and 46% of natural gas imports. That's not nothing.
Worth noting that at least in Finnish discussions Estonia (which has quite a bit more of a deregulated economy, lower taxes etc. than here) has been treated for ages kind of like how libertarians internationally are treating Argentina now, ie. prime example of the virtues of market that's going to zoom past us Any Minute Now.
In the UK it's treated as the shining example of digital government, with op-eds along the lines of, "In Estonia, the entire fisheries ministry is now based in the cloud."
i'm not an expert on eastern european economics but i get the impression from flipping through the charts of nearby countries since the 70s and 80s that estonia is leading the pack
we don't exactly have great experimental methodology, and there's tons of confounders obviously, but this doesn't exactly look like an example of failed policy
when i compare gdp growth % per year to, say, the whole european union, it looks pretty impressive
although i'm not sure exactly how much stock to put into that
Yeah, Estonia is the shining star of post-Soviet republics. It's a fundamentally sound country with some temporary economic problems that are mostly over by this year. Being a neighbor of Russia's creates an inherent swinginess.
Spanish liberal economist Juan Ramón Rallo argues in this thread that incomes are rising again and poverty is alleviating: https://x.com/juanrallo/status/1839650359154807108?s=46
How was the poverty rate of Argentina calculated? I expect it is complicated and even more so in Argentina with those crazy inflation numbers and recent regulations slashed
"Based on household income, the National Institute of Statistics and Censuses (INDEC) measures whether they have the capacity to satisfy their food and non-food needs considered essential."
So there's a "Basket" just for food (which is were the 4% monthly inflation figure comes from) and then a "Total Basic Basket" covering food, clothing, transportation, education, and health. Less than 1 TBB is considered poor, from 1 to 3.5 baskets is Middle Income and more than that is High Income.
Right now a TBB is about 600-700 US dollars and the food basket is 250-300, depending on if you use the official or the unofficial exchange rate.
Of note is that this Total Basic Basket doesn't include housing, and renting a 500 square feet appartement in Buenos Aires costs about 500-600 US per month.
Do we know if the basket of goods that are considered essential has been constant over the period discussed?
It's the same since 2016
This does not inspire confidence.
Why? The relevance is that if it stays the same during the period discussed, then comparing poverty rates over time is actually a valid comparison.
Same as if the bucket included buggy whips, and now it no longer does because those are no longer a common good.
Probably worth noting that this approximately how inflation is calculated everywhere
I guess what I meant that it was unnerving that the basket was updated just 9 years ago. If it's getting updated every 9 years, that seems suspicious. On the other hand, nobody said how long the definitions had remained unchanged before 2016. If they had remained unchanged for 30 Plus years, I guess I have nothing to worry about.
Unrelated but it would be cool if there was a stablecoin based on one of those baskets.
My thought too. Poverty rates are often reported using country-specific thresholds: what's considered poverty is different in Ethiopia, Argentina, or the US. Why do journalists write about poverty rates without specifying what they mean, and why does Scott repost them without realizing he has no idea what they mean (sorry if I'm wrong)? It's often not even necessarily useful for comparisons over time, since the (real) threshold may change automatically (in some countries it's defined as something like 60% of the median wage) or manually (even if it's defined as something like "essential" goods, what's considered an essential level has surely changed over time). Since it's often defined in a way that depends either automatically or de facto on the average person's living standards, it's often more of an inequality measure than a poverty measure.
A lot has been said about the 53% poverty figure, but that value cannot be easily compared to other countries, even in the region, as they use different thresholds.
Poverty numbers are only useful for tracking change over time, not absolute values
I also worry somewhat about tracking over time in an environment of uneven hyperinflation; it seems like the way the rate is calculated could lag changing prices, or vary based on the fluctuating inflation rate, or etc.
What I’m unclear about is how much actual power he has. He doesn’t have a ruling party behind him as I understand it but how that affects what he can and can’t do I don’t know. Seems an important part of the puzzle though!
He has enough power to put policy items into serious discussion in Congress and the media, but not enough to force everything he wants through peronist opposition. He must make some concessions to the center-right coalition party which helped him win in the ballotage against the peronists and holds about a third of congress.
So if it was up to Milei, he would blow up the central bank, the argentine peso, labour laws, state-owned companies and, why not, the government as a whole with himself included without a second thought. But the enemies of his enemies which are for now his allies believe in a more gradualist approach, so he can't.
Gosh, Peron. Haven't heard that name in a while. This is why comparisons to other economies gets tricky, the political DNA is a critical element in any attempt to drive change. Unless of course you just lock up the opposition...
I think you should disregard American priors on how hard it is to get bipartisan policy passed. The American system is uniquely bad in the extend that it creates zero-sum dynamics
Working as designed! While it makes it hard to fix things, it also makes it hard to break them: which is one reason, I suppose, that the USA did not get into Argentinas bad economic position in the first place.
It wasn’t designed to be hard to do *anything*. It was assumed that Congress would mostly be working together to achieve the central goals of society, the way the board of your department or your movie club or your corporation or anything else works. But at a certain point, American politics became focused on the disagreements between the parties, rather than the agreements, and now there is an incentive to use any veto point you can for anything done by the other party, even if you secretly believe their policy will do more good than harm.
These features are not working as designed.
What are some examples of things that Republicans and Democrats agree on that aren't being done?
Border security
The bill that they did agree on was a good step in that direction, and if implemented might have inspired more good steps being agreed on. Unfortunately somebody decided that his election chances were better if nothing was done about the border this year, and that was that.
Republicans and Democrats agree about doing nothing on border security so I guess that's working as intended.
Border security and help for Ukraine for a start.
Border security is a good example, but I don't think the Republicans even want to help Ukraine.
In addition to the obvious border security bill, I believe there are many instances of permitting reform and health insurance fixes and things like that, that don’t even get talked about much because they are non-starters.
The Constitution was absolutely not designed with a party system in mind. It was assumed that our Congressmen would avoid partisanship for the greater good of the country. Deeply naive, but I guess you don't know until you know
To be fair, in 1787 they were designing almost entirely from hypotheticals. E.g. nothing like modern party systems existed in the UK, and there weren't any other genuine representative democracies in the world for any jurisdiction larger than a New England town. And hadn't been for a very long time.
So I've personally got a long list of criticisms of what the Framers came up with. But, "how much better could it have come out knowing what _they_ could possibly have known" yields a rather different feeling about the Constitution.
But the Founders abhorred the political parties that existed in Europe the time, even in their nascent state. Obviously, hindsight is 20/20, but it still seems naive for them to think that American politicians were going to avoid the factionalism that existed at the time.
The latest Psmith review, Fears of a Setting Sun, makes it pretty clear that the founders were very aware of the issue of factionalism. George Washington in particular was convinced by the end of his second term that America was doomed and the parties were going to ruin it.
Argentina has more-or-less the exact same kind of "make it very hard to fix and/or break things" system as we have in the United States, with lots of veto points.
This is a big part of why they got stuck in this mess: replacing a bad president embroiled in scandal involves a long and difficult impeachment process that leaves the vice-president in charge anyway, rather than Argentina.
"Nothing gets done" is probably a bad summary of the US system—it's more like "Nothing happens 95% of the time, then someone lucks their way into a big trifecta and every single law gets rewritten all at once". In Argentina, they just finished up a cycle with a huge Peronist trifecta, which is why they're dealing with this mess.
Do you think that there is a meaningful distinction between “not fixing things” and “breaking things”?
Definitely! In almost all cases, it is easier to break something than to fix it. Any system is likely to produce fewer fixes for things broken then things broken. So it’s generally better to aim at making it harder to break things than easier to fix them.
Is there a real money market for this? I'm eager to bet on Milei
Buy Argentine pesos?
Even if you are a massive Milei bull, you should still expect Argentinian inflation to outstrip dollar I flatiron by a lot. Better to buy either government bonds or company stocks of Argentina.
Even if ARS inflates faster than USD, you could still potentially profit using call options on the ARS/USD pair. That would give you the right to sell ARS for USD at a price which might be better than the actual exchange rate at the option expiration date. This is very risky though, of course.
Milei's explicit plan is to abandon the peso.
Lol, I guess buying the peso might be a bad move either way, then! Unless what happens is something between the two. But I agree with Arie that current inflation is way too high to justify buying the peso as a serious strategy.
You can buy shares in an Argentinian equities ETF. The main drawback of this is that not only does Milei have to succeed, you have to hope that when the opposition inevitably gets back into power that they don’t tear everything down again.
Seems like it should be counted as a failure for Milei's approach if his direct impact is immediately wiped out by his successors. His pitch is, "This is how you fix the mess the last guys left us." But if 'fix' is a temporary holding pattern that goes straight back to the previous trendline, what's the point?
In a democratic society, there really isn't a way of preventing some future government from undoing the current government's policies.
Doing things that are clearly good in retrospect works. It’s just hard to be confident of that in prospect.
Exactly. If you think Milei's reforms will be recognized as clearly better than his predecessor by the people of Argentina, you should also think that his movement will gain more representation in the next government.
What's frustrating is that the thing we can measure (Milei's electoral popularity at some future date) is a few steps removed from the thing we care about (the efficacy of Milei's economic reforms). But isn't that how it normally goes? Especially in national political economics, we can't run the counterfactual as a control.
If he stays in power long enough, this should not be a problem. All he needs is enough time that the people can see the longer term trends. If they're positive, he'll get the credit even if that's not accurate. If the trends remain negative, then he'll have to convince them that will change or perhaps that it's the fault of his opposition that will not let him do the truly important things.
That's not quite correct: this has to do with *awfully-governed* democracies, specifically any system with center-squeeze. In a plurality-elimination system (e.g. plurality-with-primaries, two-round system, or RCV), there really isn't a way of preventing wild, discontinuous swings in the ideology of the government.
A majority-rule (Condorcet) system, or a rated voting system, wouldn't have this issue because the median voter theorem means policy responds smoothly to changes in public preferences.
Sounds like the first thing a serious investor would do is to overthrow the democracy.
I mean he could try and kill all peronists but I really don't think that's in the cards.
If it showcases that it actually improves things notably, then that makes it harder to repeal. If it works well enough in time, then that also makes so he (or someone more aligned with him) is more likely to be re-elected.
Most laws to try to improve an area have this issue, that they can just be repealed and lose ~all of the benefits. You can avoid this somewhat with more gradual transformations, but obviously you're not going to have as much effect.
(But also reverting some of his actions is probably harder, recreating a bunch of governmental ministries is probably harder than it was for him to tear them down.)
What's the opposition's pitch? "Let's turn the money printer back on"?
>He eliminated ... the Ministry of Women, Gender, and Diversity
Doesn't seem too hard to guess.
Yeah, basically, austerity is for improving the stability of the economy in good times when you can afford to slow down the economy, in bad times you have to suck up deficit spending that's tightly targeted at getting the economy back on track first.
Of course Argentina has been a clusterfuck for a while, so who knows if any of the conventional arguments apply there.
Er. Wasn't that Venezuela doing the oil-economy thing, not Argentina? Wikipedia puts Argentina's mining-related activities (including oil and gas) at 4% of their GDP, hardly "staking their economic fate" on it.
The classic statement of Argentine weirdness is that they thought they were a developed country before they actually were due to an agricultural export boom about a century ago, and ended up with an entrenched welfare state they can't get rid of. I've no idea how accurate/drastically oversimplified that is, though.
It's not entirely true, but it's true enough. Funnily enough, it happened twice.
I think it's a half-truth. Yes, all the takes about Argentina dropping down development levels is misleading, because during the 'baseline' period (early 20th century) they were propped up by an agricultural export boom.
However, other countries which experienced the same boom (New Zealand and Australia come to mind) and spent a lot on public welfare nevertheless managed to translate that into continuing high income status (while continuing to rely heavily on primary exports).
My intuition is that its not the welfare state as such but more the general quality of government/institutions, which tended to tax the productive part of the economy (ag exports) to fund elite, urban consumption/corruption (as well as welfare). This saps the economy over time, why invest in increased production when the government expropriates a third of your soy export revenue. Poor institutions also showed up in mismanagement of the monetary system that depresses investment.
In terms of foreign exchange, Australia largely pivoted to mining; it has an absurd quantity and diversity of mineral reserves relative to its population. New Zealand is even more reliant on agricultural exports than Argentina is (although it also makes a fair bit from tourism these days); it had a rough time in the 1970s and 1980s before becoming pretty much a model country for foreign investment, and it's the world's least corrupt country (and even then, it hasn't become ultra-rich - living standards are somewhere in the Spain-Italy range). Not sure how viable either of those would be for Argentina (although Chile could probably learn some things from Australia).
Yeah fair points, no two countries are ever going to be perfect parellels (for one, NZ and Australia were somewhat insulated economically by being part of the British Commonwealth, at least until 1970 or so). I'm not really trying to say what Argentina could do today, just speaking against the idea that Argentina's problem was primarily a welfare state that couldn't be supported after agriculture prices dropped.
I'd push back on Australian mining a bit. According to this: https://ourworldindata.org/grapher/natural-resource-rents?country=ARG~AUS it wasnt until the 21st century that Australia moved ahead in a big way (in absolute terms and compared to Argentina) in natural resource rents. I think its another case where superior institutions/government helped; Australia simply managed the windfalls more wisely than Argentina. Probably does help explain why Australia is so much richer than New Zealand today (unfortunately for me as a Kiwi!).
“ why invest in increased production when the government expropriates a third of your soy export revenue”
Because you get the other two thirds. Like… the government likely takes about 20% or more of your income. Presumably you still maintain employment. Hell, I bet you still seek higher income.
It’s the same thing.
I mean, obviously there is still some incentive to produce. But directionally, yes of course a tax on revenue reduces production at the margin, particularly discouraging long term investments.
More concretely, if there is a potential investment to increase production by 10%, you'll do it if it costs 8% of your current revenue. However if the government takes a third of the increased revenue, you won't.
If you think about it, you're basically arguing the supply curve for crops is vertical, and therefore prices don't effect production.
Argentina's big export sector is agriculture. I'm having trouble finding the article in IIRC the WSJ but apparently one of the things that makes the country incredibly weird is that is has *enormous* regional and sectoral disparity in productivity, so much so that they adopted different exchange rates for different classes of transaction to try to address the lopsidedness that it created.
In essence, AIUI Argentina and especially the pampas plains are basically comically productive and support a robust export market, which would normally cause currency appreciation as it creates external demand for pesos to buy ag sector exports.
But the ag sector in Argentina, like that in other countries, is capital (especially land) intensive without being commensurately labor intensive, so you still have most of the population living in urban centers and working in things other than ag, and Argentina's other sectors are nowhere near as productive or competitive as their ag sector, but would by default find themselves saddled without the capacity for currency depreciation to make them internationally competitive because the ag sector's productivity saddles them with the same peso. This is basically the same problem that Germany and Greece both using the Euro causes, except in this case it's not an inter-country currency union, it's intra-country.
Argentina tried (not sure if they still do this) to alleviate this with ag-sector specific exchange rates to try to deal with the issue -- which is a conceptually bizarre approach done by basically no one else -- but I believe that it's one among the innumerable other problems that contribute to the Argentinian economy making no sense and being unable to effectively equilibrate.
That’s really interesting!
I don't see how "currency depreciation to make them internationally competitive" would be good for Argentine urban workers. You can always stay competitive by accepting whatever pay you can get on the market. Currency devaluation allows you to get higher wages or avoid a wage cut, but it increases prices by the same amount: the prices of imported goods for obvious reasons, but domestic prices also increase if wages increase. Currency devaluation just changes the units, on a free market it shouldn't change either wages or prices in real terms; on a free market, external devaluation (i.e. currency devaluation) and internal devaluation (keeping a strong currency but cutting wages and prices) should be more-or-less equivalent.
The only reason I see countries sometimes prefer to devalue their currency is that nominal wage cuts are extremely unpopular, and in some cases made legally prohibited or disincentivized (by laws that are themselves extremely unpopular to repeal). If in some sectors and regions the real market value of labor decreases, it results in unemployment and reluctance to hire, especially on highly regulated labor markets. Having some general inflation allows aligning people's wages with the market value of their work without the unpopularity of a nominal wage cut; it's essentially a way to dupe people into tolerating a real wage cut.
But inflation in Argentina has steadily been high enough that this isn't a problem anywhere; there has never been a problem of the currency appreciating because of the productivity of farmers, it's always been depreciating rapidly.
If Argentine farmers get less pesos for a dollar when exporting their goods than factories do under a separate exchange rate system, that's effectively just a redistribution program from farmers (especially landowners) to the urban workers, except in a roundabout, inefficient way. Note that this is different from if Greece had its own currency and devalued it: Argentine workers can use the same pesos they get for the export goods they produce to buy food from Argentine farmers, while the different exchange rate applied to farmers reduces the prices farmers can get by exporting (as measured in pesos); while Greeks would have to buy expensive euros (as measured in drachmas) if they wanted to buy goods from Germans.
Also, when it comes to which sectors would "need" a currency devaluation to remain competitive without nominal wage cuts, what matters are the rates of change of productivity in each sectors, not the current productivity: if agriculture is more productive than industry (in what sense? international comparisons?), that doesn't mean industry "benefits" from currency devaluation (the differences in productivity are presumably already priced into the wages and land rents people are used to), only if agricultural productivity is increasing faster than industrial productivity, or especially if the latter is decreasing outright, does.
“Currency devaluation just changes the units, on a free market it shouldn't change either wages or prices in real terms; on a free market, external devaluation (i.e. currency devaluation) and internal devaluation (keeping a strong currency but cutting wages and prices) should be more-or-less equivalent.“
There is no such thing as a free market, anywhere, ever. And when you’re talking currency, you’re handicapping yourself to act like there is.
The reason that it’s generally unwise to pursue significant currency manipulation is that it’s risky. Policies of intentionally devaluing your currency can be pursued but carry the danger of sparking hyperinflation. Some would say even the indirect devaluation of moderate government debt spending is so risky (though you can mitigate this through progressive taxation, since it forces people who might have the means to trade in foreign currencies to pay a premium for your currency at least some of the time).
In the real world, currency manipulation is a high-risk, high reward strategy that has been proven so effective that you have to punish it in international trade agreements lest you be placed at a disadvantage.
yeah sorry I shouldn't do this before coffee. Thanks!
Argentina has it notoriously difficult to borrow, for all the obvious reasons.
Runaway inflation means that first, you have to handle that, and it's rarely a pleasant time. Most of the time, it means _creating_ a recession.
Promising to give free money back to people who are presumably annoyed it has been taken away from them is always a good pitch. Look how hard it is to reform anything relating to subsidises in the US, for example.
What you call free money is not necessarily free money. That's your ideological framing. I believe social programs represent people being paid what they are owed
Owed by whom? Is this true by definition of every social program?
Owed by the public. Not true by definition of every social program.
OK. So to rephrase for you, some social programs represent people being paid what they are owed. Thus I assume some don’t.
Do all social programs represent people being paid what they are owed? If the government sets up a social program to print money to give everyone in the country $1000 a week with no conditions, are they still being paid what they are owed?
You've answered your own question. Guess there's nothing for me to do here..
I mean, that's called a UBI. If a country was just a closed economy what that actually would be equivalent to is taxing all sorts of monetary assets (bank accounts, stocks etc) and redistribute the money uniformly to the entire population. It would thus encourage investing money as quickly as possible into capital, since it's not going to be much good on its own. It's by no means some kind of insane proposition, per se; the main problem is that the currency changing value also affects the import-export trade balance because the other currencies don't change necessarily at the same pace.
The point of welfare here is also: people all participate in a social contract, whose purpose is to provide well-being to society as a whole. Thus, shouldn't they all get a share of the windfall, regardless of their specific contributions (which might see them more or less successful), and merely on the basis that they uphold that contract? Similarly, given that those that succeed spectacularly can only do so thanks to the framework of civilization upheld by everyone around them, don't they owe something in exchange?
That's the philosophical and ethical argument. Then we can go into the technical one of how this or that implementation shapes economic incentives and thus what actually happens. But they're two different levels; you could probably make a case that economically speaking killing the elderly would boost the GDP, that does not mean people will think that killing the elderly is OK. Material well-being is *part* of people's objective function but it's not the whole story.
Economic movement is what counts so the removal of any stimulus is risky. The end game tends to be just exposing national assets to foreign acquisition which tends to send the revenue in the wrong direction. So, as undesirable as subsidies may seem they are essentially a protective measure against aggressive acquisition and asset stripping.
Pre and post Soviet Russia gives a classic example this shift of ownership and the political consequences. Yes the assets were handed to apparatchiks but they weren't exactly turned into local economic activities.
"Make Inflation Great Again"?
“This shit won’t work, and will just make people suffer more” would be my guess. I’m sympathetic to that idea, and this being my first exposure to the guy I am going to assume that if/when he fucks shit up in some new way, libertarians will dutifully explain how his ancap ideas would have worked if only they were done harder.
Libertarians and Communists believe themselves very distinct. But both are very unwilling to admit that when anyone makes a real go of implementing their ideas at scale it turns into a clusterfuck of new suffering. For reasons that can be distinct or remarkably similar.
Unfortunately the inflation metrics above are a good example of the reason it will be very difficult to get anyone to agree what actually went on here. Clearly what was happening before wasn’t working, but libertarians tend to be like communists in another way. They are often able into identify problems but suck ass at prescribing solutions.
Libertarians _do_ have a list of "here's the times someone tried our ideas, and the time our guy was in power is widely regarded as 'the good times' by those who lived through them, until non-libertarians attained power and returned everything to crap."
Do tell.
The United States of America is founded on something that is essentially a libertarian or classical liberal ideal. And that has worked out very well, indeed better than anything else has ever worked.
Personally, I suspect the U.S.'s success is moreso due to oceanic buffers and self-sufficiency.
Albania on the other hand, after they escaped the grips of communism, they also went turbo capitalism and the entire country fell for a Ponzi Scheme.
Did you not hear that our “libertarian ideal” resulted in thirty extra years and a horrific war for us to finally outlaw chattel slavery?
All of which, even if you want to lay at the door of libertarianism or classical liberalism, are not even blips on the contribution to human welfare that the US system of classical/market liberalism has made. (You could also note that those are norms that were very much standard at the time, and the US got rid of it, at least in part, because of its founding principles)
Thank you for letting me know that there is no pressing need to ever take your views seriously. It’s a real time saver.
I mean, slavery was not the *fault* of liberalism, but it's ridiculous to say that a country that literally still had millions of slaves was founded on an ideal of libertarianism. At the very least it had to be founded on some kind of very dirty, very approximate compromise, because slavery is kind of very very much not libertarian.
As others have said, there's always a chance that a good chunk of the overall average welfare of the US is just due to a bunch of factors that have little to nothing to do with politics. Plenty of natural resources, plenty of land, a geographic position that makes them into a fortress, two oceans on the sides, a narrow bottleneck to the south and a friendly country full of ice to the north. And even putting aside slavery, the way the US dealt with the native populations and conquered all that land and all those resources isn't exactly stuff that would pass the NAP test.
I wouldn't call it libertarian, there's still plenty of state intervention. Also it depends on what counts as "working well" for our purposes. Becoming the foremost military and economic power of the world? Sure. But the US have more internal inequality and poverty than other western countries. If your metric is not the sum total of wealth, but having a distribution of quality of life that has both high mean and reasonably short tail in the bad end, then Scandiavian states have the US beat by a wide margin.
Well, I can imagine a lot of things worse than libertarianism, many of which have actually happened; sometimes you're stuck implementing a suboptimal policy (such as dollarization) because if you tried one that's better (managing your own money supply responsibly) you'd fuck it up.
my astral projection of this post worked ✨️
Seriously, what is up with Estonia?
I assume its economy was too integrated with Russia's: sanctions, war, etc.
But the same chart shows Russia itself doing fine! (which I'm also surprised by)
Russia has a war-economy. Structurally, the country is being surgically stripped clean of anything of value for a post-war-economy, which is why everybody is eager to keep this pointless stalemate going for years to come
Russia has a bunch of ideologically aligned countries that are still willing to trade with it. Plus, they get to count artillery as production, but don't have to count spent artillery shells on the negative side of the ledger.
Meanwhile, it looks like exports from Estonia to Russia in 2020 were about $1.5B worth (compared to their biggest trading partner, Finland, at around $2.3B). This dipped by about $0.3B/yr by 2023, which isn't quite 1% of their GDP. Maybe the simple export number isn't capturing the full story of loss of Russian cooperative economic activity.
Wages are up, unemployment is down, but for basically the same reason that happened during the Black Death - because everyone available is being sent to the frontline (~30,000 per month) or, for people with the means and the marketable skills, leaving the country (~900k according to WP). In the medium to long run, Russia's economy is doomed, whether or not they win the war. They are doing their level best to destroy everything of value in Ukraine so they have little to gain there if they win, and they will be the pariah of most of the world in any case. The best they can hope for is to become the mining department of China.
Wages were up after the black death because Europe was at its carrying capacity before it. Not remotely the case in Russia.
So, nothing to do with good old fashioned supply and demand?
> In the medium to long run, Russia's economy is doomed, whether or not they win the war
It was previously said that their short-term economy is doomed as well. Now people have moved the goalposts to "their medium-term economy will fail".
And what conclusions, if any, do you draw from that?
Conclusion is that Russia is more resilient that it seems. From what I understand it’s thanks to their economy being pretty well managed for an otherwise corrupt and mismanaged state.
Russia's GDP is high because of how much they are investing into the war. Unemployment is also very low because there is intense competition for workers who are being directed into the army at an alarming rate. The problem is that it's likely not sustainable. For now, Russia is relying on its sovereign wealth fund, but the enterprises that helped it build that wealth fund are running at a loss for the first time ever. Russia will eventually run out of money to spend and will start having to run a huge deficit to keep up this level of investment in the war. They've already stopped investing as much in the civilian sector and the civilian populace is already suffering as a result.
What would Russia running a deficit look like? Who would lend to them?
Potentially its own citizenry, enticed by a combination of high interest rates on sovereign debt and patriotism?
"Buy war bonds!"
China, maybe, although they're starting to be known as really nasty creditors. Also, possibly India?
If they keep losing 300k men per year and those men are mostly the least productive / poorest members of society (such as Wagner's prisoners), it's quite possible that it will end up being sustainable thanks to Russia's economy being mostly based off natural resources.
Russia was running a birth deficit even before the war. That is not sustainable for any economy. And if anything, an extraction-based economy is more reliant on less-skilled labor than an economy that is based on manufacturing and other high-skill jobs.
They’ve got Uzbekistan and Kazakhstan nearby, both with a 3+ fertility rate over the past two decades. They don’t need Russian labor and things get more automated over time.
My guess was that Russian GDP decline was already “priced in,” that sanctions had done all the damage they were going to do and GDP growth would no longer be effective. I looked it up and:
https://www.macrotrends.net/global-metrics/countries/RUS/russia/gdp-gross-domestic-product#:~:text=Russia%20gdp%20for%202022%20was,a%2011.81%25%20decline%20from%202019.
They only have data through 2022, but it looks like Russian GDP peaked just before their invasion of Crimea, steeply declined after that, and then started a rebound which was somewhat affected by the outbreak of the broader war.
1) Sanctions on Russia are very leaky due to a mix of preparing for them, extended period of sanctions leading to new trade routes, and a significantly larger proportion of world GDP held by non-NATO countries who are not participating in said sanctions.
2) Economic stimulus: Russia is both running a deficit and drawing down in very large reserves accumulated in the 2010s. It is also taking huge numbers of economically unproductive young men (prisoners, unemployed men in small villages and from the poorest regions) and effectively giving huge cash infusions to their regions via pay and very large cash bonuses to their families if those men die (which many, many have). It is, in practice, an extremely large cash transfer to poor people and areas.
It's not that. Lithuania also shifted a lot of business from Russia, but is doing very well and growing. The problem is that Estonia has the lowest debt in EU, and continues to resist spending, thus imploding from inside with self caused austerity, when in fact they should borrow, invest and spend. The situation is inverse to that of Argentina, Estonians are “too responsible” for their own fault. There is an economic phenomenon called paradox of thrift, this is what is going on in Estonia. Furthermore, they are inflicting even more pain to themselves by significantly raising taxes (VAT is 22% from 20% and will increase to 24% next year). Also, they are increasing other taxes. This is deflationary and will further sink their economy. It's self harm, someone should help them.
Yes, this is true. Of course, the government inflicting these high taxes on businesses is rather unpopular and will probably be replaced by the opposition soon (which means right-wing populists, whatever that's good for). We are also about to inflict some new "going green" type of economic self harm any time now, more than most European countries, as I understand (the place was lately ranked #1 for Environmental Performance among countries, another example of being highly Responsible).
Maybe they should have their own currency and actually benefit from being thrifty
This won't happen, EUR is a stable and predictable currency used by almost all of Estonia's trade partners, and also gives credibility for foreign investors in the country. EUR was introduced exactly because of it.
No, Estonian economy was not so tightly integrated with Russia's, though some supply lines have been disrupted. The recession is more closely related to the cooling of the markets in Scandinavia. "Sales in foreign markets have been constrained by the fact that the main markets for Estonian exports have performed worse than the European economy as a whole and by the appreciation of the exchange rate against the Nordic countries", as per economy gurus. Locals are wary of the future and save instead of spending; interest rates for loans are huge, energy is expensive. Still, I don't understand how it's so much better in Latvia.
Edit: ok, apparently, pre-war the trade with Russia accounted for 8% of Estonia’s exports, 10% of its imports and 46% of natural gas imports. That's not nothing.
Worth noting that at least in Finnish discussions Estonia (which has quite a bit more of a deregulated economy, lower taxes etc. than here) has been treated for ages kind of like how libertarians internationally are treating Argentina now, ie. prime example of the virtues of market that's going to zoom past us Any Minute Now.
In the UK it's treated as the shining example of digital government, with op-eds along the lines of, "In Estonia, the entire fisheries ministry is now based in the cloud."
it seems like they're doing pretty damn good?
https://tradingeconomics.com/estonia/gdp
i'm not an expert on eastern european economics but i get the impression from flipping through the charts of nearby countries since the 70s and 80s that estonia is leading the pack
we don't exactly have great experimental methodology, and there's tons of confounders obviously, but this doesn't exactly look like an example of failed policy
when i compare gdp growth % per year to, say, the whole european union, it looks pretty impressive
although i'm not sure exactly how much stock to put into that
Yeah, Estonia is the shining star of post-Soviet republics. It's a fundamentally sound country with some temporary economic problems that are mostly over by this year. Being a neighbor of Russia's creates an inherent swinginess.
We treat them as honorary Nordics. :-)