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?
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)
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.
I assume that it just looks so extreme because of the color coding. Note that ALL countries with 0% to 3% get light green, and ALL countries with -3% to 0% get light red. In data from [1], Estonia is at -0.5%, but Germany at +0.1%, Sweden at +0.2%, Austria at 0.3% could easily have ended in the red zone as well. Estonia is assumed to be bad in 2024, but not "totally outlier bad". They had a very tough year 2023 (second worst in EU after Ireland). I guess the general reasons Estonia was hit hard is the close connections with Russia: it had imported lots of Russian energy, had an economy entangled closely to Russia, has a large Russian minority, and so on. But
Estonia is a great success story. If you look at results at greater time scale, you can clearly see it and also notice that the line is not smooth, it has up and downs all the time. Judging the success or failure at the particular time point is pointless. It could be many reasons why at this time it experiences recession (Russian sanctions, slowdown in Scandinavia) but ultimately it doesn't matter.
Probably the same story is about Argentina. It is meaningless to judge it from such a short time period. If you don't know deeper aspects then these indicators can be misinterpreted. Scott is clueless about these economic aspects. I would trust Noah Smith or someone who knows this stuff much deeper.
For example, nitpicking if Argentina had or didn't have rent controls. Obviously they had. They were different than the rent control in the US. So what? Some may think that it means that Argentina rent controls are not relevant. They are, just in a different way. The fact that availability of rental property has increased, means that abolishing rent controls have a strong effect. It also means greater financial incentives to build more or turn existing space into rental property. It just takes time for owners to react. And of course, the confidence that Milei politics are going to stay is also very important.
Left-leaning commentators will mostly see that poverty has increased. It has but unfortunately it had to happen temporarily. I went through post-Soviet crisis and it was much much worse than Argentina had ever experienced. I am sure that many policies were wrong at that time. Maybe even today we have more poor people than during Soviet times. And yet, the Soviet times were terrible. All people equally poor and miserable, every day waiting in long lines to buy essential items. Today we have all the opportunities that we could never had during Soviet times. We can take care of poor people if needed but don't make that an excuse to stop important economic reforms.
Estonia, if you zoom out, is mostly a straight "line goes up" in post-soviet times. Argentina is much messier and less straightforward (mostly but not entirely in bad ways).
Argentina doesn't have 30 years experience under Milei-type of reforms. Look at the start of those 30 years of post-Soviet Estonia. You could conclude that it was unmitigable disaster.
In fact, even today many powerful people argue that we need to restore the Soviet Union because it was more prosperous.
It sounds like you're Estonian (or at least know more about Estonian economic history than I do), do you have recommendations for anything good to read on post Soviet Estonian economic history?
I am a Latvian but it will be almost the same as Estonian story.
I think Noah Smith has the best review about these economies. In general don't trust natives who are specialist in this field. Most of them will have their own subjective ideas, for example, that their economy is terrible with very little data to back their beliefs.
>He laid off 24,000 government workers (other sources say 70,000).
He announced that he wants to lay off 70,000 workers, but hasn't reached that number yet. Today a lot of government contracts end, so if they don't get renewed (and it has been announced many won't) we could get closer to that.
>(the 195.23% number seems implausibly high to me, but I can’t find any contradictory claims, so I’m nervously letting it stand)
The former rent law was awful and indeed, landlords prefered not renting their properties rather than renting them under that law. So that number does sound believable to me.
Why did so many landlords avoid renting out their property? Isn't the $0 they get from not renting worse than whatever unfair price the rent law forced them to charge?
An occupied unit has higher (and more variable) maintenance costs than one sitting vacant, and a restrictive law might involve nonmonetary costs. If rental revenue divided by hours of compliance paperwork and other managerial hassles is less than the hourly rate you could earn doing some other job, might as well not bother.
I guess one possibility is because inflation is huge and volatile and everything else seems riskier -- at least an empty apartment in Buenos Aires is a reasonable store of value in a country where value tends to go up in smoke.
that's exactly why. investment apartments are used bc of capital controls and wide distrust of banks. they aren't really meant to be rented. my family in SA collectively owns over a dozen empty apartments, bc they can't put their cash anywhere else.
Okay that is wild. Reminds me of some family stories my elder relatives used to tell about the early 1930s when US banks were failing all over the place.
Just wait until you hear about the common practice in some parts of Africa of building houses brick by brick for savings.
Buildings sit under construction for years. When the owner gets some money, they buy some bricks and add them, when they don't have money, it just sits there.
Same in Russia. Corrupt officials store wealth in major city real estate. They usually don't rent it out because they don't really need the meager income stream nor the headache, so it just sits vacant.
Coincidentally: this is one of the sources of crypto's absurd-at-face-value market cap.
Im not Argentinian, but most likely, no. You have to maintain a property that you are renting, so better to not rent it rather than pay for whatever breaks. Plus if you rent it for a loss, you are most likely locking in that loss for a number of years. Better to wait it out and see if you can get something later.
In the late 1980’s in Berkeley, there were boarded up houses that landlords had taken off the market because renting it out was a net negative. I imagine that, with lower interest rates, those converted to homeowner-occupied housing.
Something similar is happening to landlords in New York City. Many storefronts are sitting vacant because if the landlord accepts a lower rent than they're currently asking for, the value of the building on paper will fall, and the bank that loaned the landlord the money to buy the property will demand cash to compensate for the fall in the (paper) value of the loan's collateral. Which leads to the ironic result that the landlord will lose more money by renting the unit than by leaving it empty. :/
Something, something, and thats why we need a land value tax! Not but seriously, its an abject failure of the free market that people are incentivized *not* to rent property at market rate, all because of land speculators artificially restricting supply to keep values high on paper...
The direct reason that Berkeley landlords were not renting was that Berkeley’s rent and vacancy controls prevented them from turning a profit. Believe me when I say that no one was then speculating on residential housing in Berkeley. The left was fully in control of the city, had been for a long time, and still are. What changed was that interest rates dropped to the point that it made sense to convert all of that rental property (which makes sense in a college town) into resident-owned homes (which does not). At no point was the free market the problem in Berkeley.
There was also a component of speculation (this sounds derisive, but I assure you it is not, I was one of the speculators) involved: With an election coming, there was a good chance of changes being made to the laws, it was better to take your chances for a few months that get stuck on an unfavorable 3 year contract.
Another factor is that with 3 year contracts, it could easily be profitable to leave your property empty for one year, gamble that the rent control law will be repealed, and then implement a more favorable contract.
You see a similar, but smaller, effect with interest rate changes in America affecting housing supply.
I'm in Spain, and here we have been going down a similar path for some time now. When you take on renters, they are in for minimum 5 years. You cannot raise rent above the official inflation rate during that time. You are not allowed to ever enter your own house during that time period (5 years!) unless the renter allows you to (they could be destroying it, whatever, doesn't matter, you have no right to go in). There is a massive problem of "okupas" (squatters) here, these enter other people's houses and can stay there for years without the police/judicial system able to dislodge them. No new AirBnB licenses allowed. Soon a law banning short-term rental will be passed (ie. 6-12 month rental for students, digital nomads etc). And all this has done is caused rental prices to soar (the opposite of what they are trying to achieve) because no house owner in their right mind would want to rent out their house under such leonine conditions. The new idea the socialist/communist government here is kicking around is to start fining anyone who owns a house which they are not renting out...
That's interesting. Do you know if the laws are roughly similar in Portugal?
I ask because I was recently at a conference in Porto discussing, among other things, housing policy. The presenter (a sociologist from Lisbon) pointed out that many prime-estate apartments in both Lisbon and Porto were boarded up (which I saw for myself: Lots of prime real estate decaying in the middle of the city, judging from sunken roofs and empty window frames). The presenter blamed it on "capitalism" and "not enough regulation". I was wondering if the problem was not exactly the opposite. But being a foreigner and with very limited knowledge of Portugese housing policy I did not want to criticise my host. Still wondering, though.
The laws are not as bad here in Portugal as in Spain. We can do rental contracts minimum 1 year and for short-term AirBnB-style renting there is some burocracy, but not too terrible. You can visit your rentals in the last 3 months at least. Things used to be worse but our government went bankrupt a few years ago and the IMF forced some reforms. One law that we have that sucks is that if you rent to someone with disabilities or old age (over 65) the lease becomes perpetual. You are punished if you are nice. One bad thing is that rent taxes are quite high (25%) so most people rent in the black market.
The case you mention of the houses falling a part is different. During our freedom revolution (1974), all rental contracts were frozen. I have a family member that has a tenant that pays 4 euros per month. The mother died but the daughter inherited the rental. Some of these tenants don't live in the house any longer, but the rent is so cheap that they keep renting. This has improved a lot as some of the old renters die and Airbnb made it lucrative enough to buy out these old contracts. But there are still many of them still.
Many thanks for your response Ricardo. I can see how that explains the puzzle.
(Scratching my head as I walked through beautiful Porto I half-though the explanation could be drawn-out legal quarrels among multiple heirs to an estate, about who owned it & who should pay for the upkeep. Since so many houses in central Porto are impressively old! But frozen rents since the 1974 revolution explains it.)
Spanish landord here. I own two flats, both rented out.
The "good" one has had its rent increase capped below inflation for three years in a row, first "because of COVID" and then "because of Ukraine", and yes, it doesn't make sense in any case.
The bad one has had its renters become squatters, haven't paid a single € in two years now. The judicial process started more than a year and a half ago, cannot (by law) finish this year (this is a complex issue, but the current government has been extending a "temporary" COVID measure for 4 years in a row, not allowing you to evict your tenant, even if they don't pay, while you still have to pay your mortgage, taxes, maintenance, etc). All in all, I calculate I'll be out of three years of rent (~25k€), and around 18k out-of-pocket costs, plus judicial costs that I won't recover because renters are "vulnerable" and thus have free justice and can declare to be "insolvent" and just not pay.
According to some statistics I currently cannot find, the current probability of a rental unit becoming delinquent in Spain is about 17%, per rental (not per year). But you incur that risk on every tenant. The corresponding insurance for this is about 10% of a year of rental income (not trivial at all), and only covers up to 12 months of rent, while judicial process is north of two years.
Ask me if I'm going to close or sell flats as soon as I can. After 20 years of renting out several flats without incidents. Bad laws, and even worse, bad judicial procedures (themselves governed by another, different set of bad laws) can, and do, kill markets.
Do you know what "supply of rental housing" exactly means? I suspect that it means the number of flats that are currently available for renting. So I assume that it is NOT counting ongoing rental contracts.
If I am right, then those are very low numbers with lots of fluctuation. In normal housing markets, only 2-5% of the flat are available for rental. In tight markets, it's lower, for example <0.1% in Zurich, or 170 units for a population of 400,000. And this number varies a lot. For example, the main months for moving in Switzerland are April and October, and I would assume that the number of available flats in Zurich triples every year before these months because many people move out.
I am not saying that the number for Argentina has a trivial explanation like that, but tripling may not be as spectacular as it sounds.
EDIT: In a comment further down, darwin found out what was measured: "the offer for rent" (according to google translator). I assume that this indeed means the number of flats that are offered for renting.
SECOND EDIT: Thinking about it, this number will also increase if lots of people can't afford their rent anymore and are forced to move out. This seems like the most plausible explanation, and I find it conceivable that it leads to a tripling of this number.
Because the law stipulated a 3 year minimum contract, controlled how much you can raise prices (with our inflation a big deal), forced you to register the contract with our IRS-equivalent (we are big on tax avoidance) and added other restrictive measures. Everyone knew that the next government would get rid of it, so they'd rather wait until that happened than be locked in at unfavorable rates.
Some people explained the details better than I could in other comments. I just want to add that the old law was truly AWFUL, like some sort of reverse-masterpiece. It somehow managed to screw with both landlords and tenants at the same time. It was a given that it would be modified, and probably sooner rather than latter. That's why many landlords speculated with the law being repealed in the short term (correctly, in hindsight), and, for the time being, decided not to rent it under those unfavorable conditions.
But also, do we know that the 195.23% increase is actually in the total number of units rented out or available for rent, or in something like the number of units offered right now (which is more believable and is partly a measure of turnover as well as how long it takes for a unit to get snatched up)? EDIT: in another subthread, darwin found it was actually units offered: https://www.astralcodexten.com/p/preliminary-milei-report-card/comment/70979479
I found https://www.slowboring.com/p/nayib-bukele-el-salvador (sorry, paywalled) really interesting. Yglesias' take is that yes, many people tried "throw criminals in prison" before, many people even tried "be really really tough and try super hard to throw them in prison for a long time before", and it's not really obvious why Bukele succeeded where everyone else failed (it might be because he lulled the gangs into complacency by making a deal with them, then backstabbed them before they could react?) I've never found any other source that even goes into as much detail as Matt and I wouldn't be able to begin to figure out what he did right.
My sister-in-law is a second-generation Salvadorean immigrant, but I always worry that I'll be opening some horrible wound if I ask about politics back home.
That breakdown is fascinating. One of of the most striking points he makes, something I wasn't aware of, is that the Salvadoran gangs were *really freaking poor*:
> *El Salvador’s MS-13 and B-18 are not in the same league [as cartels]. Their bread-and-butter is extorting poor people in an impoverished country. Their expertise is localized brutality rather than transnational business. The narco gangs would annihilate the Salvadoran gangs in any fair fight.*
A seemingly reasonable point from the Banished Realm:
"El Salvador, by contrast, is basically just a city state centered on San Salvador. The country is the size of New Jersey, and the overwhelming majority of the population is within the capital region. If you get kicked out of San Salvador, there is no alternative power center to hide in the shadows of, and the government doesn't have the sort of federational subdivisions that limit jurisdiction and reach in the same way a larger country does. As a result, anti-gang successes in the capital are far more effective for nation-wide effectiveness than in other countries."
I suspect a lot of such claims are just a panicked reaction by left-leaning people who are extremely scared of El Salvador's policies spreading to other countries. I.e. imagine if Mexico repeats his policies perfectly and imprisons 1% of their male population in horrible conditions without trial... and it works? This will immediately have a cascading effect on US policy discussions and thus the whole world. Before you know it every country is racing to imprison the most violent 1% of their men and the idea of "fair trial" just sorta goes out the window.
My own theory is that rounding up every single "scary" looking dude under between the ages of 16 and 40 in (say) Detroit would instantly bring down the violent crime rate by a factor of 10.
I think it's less panic and more a general sense of "It can't possibly be that simple, right? Otherwise everybody would already have done it?"
I think part of the reason is Bukele's crackdown was way more hardcore, thorough and well-planned than previous mano dura crackdowns. Part of the reason is that El Salvador is super small. Part of the reason is that Salvadoran gangs were both more deeply hated and much weaker than the average cartel.
I suspect it *is* that simple, especially thanks to new technology available to the police these days such as being able to run 24/7 surveillance of every public street in the city with facial recognition and using that to track down criminals. But it requires capable execution and suspension of habeas corpus. Usually countries are either capable executors (Norway, Netherlands), enforce habeas corpus (US, Mexico) or have low violent crime levels (China, Japan)
I wouldn't really classify Bukele as "right wing" (and so I wouldn't assume that "left leaning" people will be critical of him). He seems to represent a phenomenon kind of orthogonal to the left-right spectrum. As the linked article notes, his roots are in the postcommunist FMLN, though he broke with them later.
I honestly wonder if it all came down to the terrible decision of Salvadoran gangs to give themselves lots of gang tattoos. The cases I read about of wrongly detained people in El Salvadore are usually reformed gangsters who still have the damn tattoos.
Yes, why do gangs think it is a good idea to have gang tatoos?
I remember when I read "The Hardy Boys among Pirates" in my early youth, where Frank and Joe were able to identify pirate members left, right and center in US cities because they all had the same pirate tattoos. Even then (I was about 12) I though that was a lame plot device in a book: Surely no real gang of gangsters would be so stupid as to make their members identifiable to outsiders by merely looking at them.
But here we are, in the 2020s, observing that life is imitating not even art, but run-of-the-mill young-adult mass-produced fiction.
As far as I know no one else has done the thing of locking people up for having gang tattoos (or other gang identifiers). E.g. bikie gangs in developed countries can ride around proudly wearing their colours and they don't get arrested for it. Yes, it shows the cops who the criminals are but that's no great mystery.
If it was routine for gang tattoos to get you arrested people would stop getting them. The fact that El Salvador went from not arresting tatted up blokes to suddenly arresting them all caught the gangs out.
> Yes, why do gangs think it is a good idea to have gang tatoos?
It locks members in. Having one signals to your peers that you're committed to the gang. The harder to hide (eg on your face), the stronger the signal.
Good point. It is stronger than "ordinary" signalling; it is bordering on self-binding. That is, a particularly strong/costly way to signal credible committment (here: to a gang).
Presumably this also keeps outsiders out. An undercover cop, or a member of a rival gang, isn't going to get head to toe tattoos for your gang. And as Olivier says above, it means you can't switch gangs or abandon gang life easily.
I suppose the gang was gambling that infiltration and defection was more dangerous than systemic persecution. Turned out to be a bad bet.
I don't subscribe to Yglesias, but I'm going to go out on a limb and say this is a lot easier when the criminals are covered, head-to-toe, in tattoos which identify them as members of murderous gangs? Doesn't seem like rocket science.
Salvadorean-American here. I regret to inform the world that one of the main reasons why Bukele succeeded is because most of the gang leaders in the country tattooed their faces. And the rank and file gang members heavily tattooed all over their bodies.
Since removing tattoos is expensive, the gangs are screwed for the time being. But I have no doubt that every year, gangs are inducting new members who have been instructed to ease off on the tattoos. Over time, it will become harder and harder to identify gang members.
I don't want to pour cold water on Bukele's success at reducing crime. One can only wonder why previous presidents didn't start rounding up these gang members who were making little effort to hide their identity.
Basically it worked because, unlike in a lot of other places, the people of El Salvador really, really hated the gangs and wanted them to go away. This kind of thing doesn't work if you don't have massive popular support.
Duterte too please! I know he's out of office now but everyone made a big deal about how horrible his war on drugs was and then they shut up about it, which makes me suspect he might have succeeded.
I've always been fond of saying that the war on drugs has not been tried and found wanting, it's been found difficult and left untried. The Philippines tried a real war on drugs, and I'm interested in knowing how it turned out.
> I know he's out of office now but everyone made a big deal about how horrible his war on drugs was and then they shut up about it, which makes me suspect he might have succeeded.
Could just as easily be that it went average-badly and the media/their audience just didn't care enough to follow up. Would be interesting to see hard facts either way.
That's my naive impression. If it went really well I would expect someone to report that, and the left-aligned media to fight that impression. If it went poorly I would just expect the media to report that as well, given how much they reported on his actions previously.
The most likely result is therefore mixed and muddied to the point that there's nothing interesting to say and no clear narrative to push.
I'm in PI right now, and my read on it is that Duterte's war on drugs was used more for executing people that various politicians or police didn't like (because they had free reign to execute anyone, and throw a baggie of drugs on the corpse to justify it), rather than an actually effective tactic for reducing drug use.
12-30k people were estimated to be killed, the overwhelming majority of which were extremely poor, small-scale users, with not a single major prosecution or death of a major drug lord. The Philippines DEA says that drug use and sales weren't really affected.
Still, it was moderately popular in the middle classes, because it didn't really affect them and being "tough on crime" is usually popular, especially in relatively high crime places like Manila.
>First, the 25% number was just one really bad month. Inflation had been at a baseline of about 4% for most of the last five years
That doesn't seem like the most accurate description. The current MoM inflation rate of 4.2% isn't typical of recent years - it's lower than any month since January 2022.
And inflation wasn't holding steady at around 4 before inexplicably jumping to 25. It was generally rising over the last several years, before suddenly reversing its trend.
Looking at annual inflation makes the upwards trend a little clearer:
2020: 42.0%
2021: 48.4%
2022: 94.8%
2023: 211.4%
[Looking further back, inflation has generally been on the rise in Argentina since about 2009, (with some exceptions, like a moderate spike in 2019), making the current drop in inflation that much more notable.]
You also somewhat contradict yourself, by presenting the drop in inflation as a trivial return to norm, while also writing: "I think he gets credit for ... decreasing inflation."
A legitimate complaint about the Millei government is that it did not let its currency float freely. The effect of that is to stretch out a long devaluation. Devaluations have inflationary effects, but it was already built in due to prior money printing. The problem is that devaluation makes debt service harder, so they worked in a slow devaluation.Maybe this is the best that could have happened, but it makes some of the inflation effectively Millei’s fault.
AFAIUI that's a compromise he had to make with other parties. However, devaluation doesn't really make debt service harder when it's really about bringing the official rate closer to the black market rate: for debt denominated in Argentine pesos it makes it easier; while for debt denominated in hard currency it makes it formally makes a given amount of hard currency cost more pesos, but at the same time the government implicitly loses money whenever it converts pesos to hard currency at a "better" rate than the black market (i.e. market-clearing) rate, which gets gradually eliminated.
he brought in Luis Caputo as Minister of Economy, the man who took all the debt during Macri's government and crashed the economy in 2019. He's doing the same he did back in 2015: spending all resources subsidizing US Dollars to keep the peso artificially strong while paying 4% A MONTH in peso denominated rate, an obviously criminal carry trade scheme designed to fleece the country once again.
Let me repeat that, he brought the same people that already failed in 2015 to do the same scheme, again.
This post lacks the most critical issue in Argentina: the current account deficit. As long as our brothers in Argentina can't fix their current account deficit, they'll be forever plagued with deficit and having to resort to the IMF.
A quick Google by me shows that president Milei has turned a current account balanced in both Q1 and Q2. I don't know how long he can do that, or what are the caveats. But I'd spend like 80% of the discussion about Argentina discussing the current account deficit.
No, part 1 was about the national budget. The current account represents the imports, exports and other international transactions. Argentina's problem IS NOT having a national budget deficit (every country does), the problem is the lack of USDs because the current account is highly negative.
The destruction of the industry, education and science that Milei is doing is sentencing the country to continue exporting only primary agricultural products and having a negative balance for decades to come. It's the same that happened from 1976 to the big crisis of 2001, with 25 years of neoliberalism, and the same that Macri did between 2015 and 2019.
What would you consider to be the long term differences between his plan and the former trajectory?
Full disclosure, I see that rate of inflation to be unsustainable and that the previous track was not going to lead to a good result. Whether his plan will result in a good result is a separate question. Do you think the previous trajectory would have resulted in a good result, absent Milei?
What do you mean by previous trajectory? I consider that Argentina is on the trajectory that Macri started in 2015. He did exactly the same as Milei, with a huge devaluation and large austerity measures. They are pretty much the same, right-wing neoliberal clowns with the mission of redistributing wealth as much as possible to the wealthy. He started a process of deindustrialization, also did big cuts in education, science, and health (which were very harmful, just before the pandemic). He took the largest debt ever granted by the FMI, US$56.3 billion, conditioning the country's economic policies to this organization once again. And all of this while making inflation go from 31.4% per year in 2016 to 53.8% when he left office in 2019, and poverty from 31,4% to 35,5% (probably increased more, due to methodological issues).
After him, Alberto Fernandez could not do much, with the pandemic, the pressures of the IMF (and interest payments on the debt), the internal fights within Peronism, the international situation (war in Ukraine, etc.), and one of the biggest droughts that affected foreign currency earnings from exports.
So, you have to see the trajectory before Macri. Argentina had a big crisis in 2001 after 25 years of neoliberalism (with economic policies really similar to Macri's and Milei's ones. In fact, Menem was the president during all the 90s and Milei unveiled a bust of him this year in the Casa Rosada calling him "the best President of the last 40 years at least" lol). It ended up causing 62% of poverty and 20% of unemployment. It was really bad. Argentina still suffers from the inequality and social chaos that resulted from this. In 2003 Néstor Kirchner a center-left peronist took office and the country had a decade of growth, industrialization, repatriation of scientists, redistribution to the lower sectors. Obviously there were some problems, inflation was starting to be worrisome by 2015 and the extreme right won elections.
Milei's false discourse is that Argentina's problem is the fiscal deficit. It is a very convincing discourse, because it's very easy to convince ignorant people that overspending is bad. But Argentina has already had dozens of stabilization and economic shock plans, you can guess that they never worked. Again, you only need to look at what happened with Macri recently. Obviously, having orderly and reasonable public accounts and keeping money printing under control is necessary. But completely cutting public works, destroying domestic consumption, totally slowing down the economy and causing social chaos is not the way to go. I believe that a trajectory more similar to that of Nestor Kirchner would undoubtedly be much better. Argentina needs to improve its international trade balance, generate exports with higher added value and stop selling only soybeans. You cannot do that by destroying industry and education.
What’s your take on Argentina’s political and economic situation? I would love a neutral, non-biased opinion. It would be great if you could back it up with historical knowledge. I’m willing to change my mind.
Ah. At least with a free-floating currency, I'd consider the current account (incoming money minus outflowing money) of the country as just the combination of the current accounts of private individuals and companies/organizations, and the government, as measured in hard currency. The government's "current account" is equivalent to its surplus/deficit, while private entities' "current accounts" are their own business.
Currency control shenanigans complicate this, but AFAIUI Milei is moving the official rate closer to the black market rate (i.e. what the free-floating rate would be).
Milei is moving the official rate closer to the black market rate (i.e. what the free-floating rate would be) <--- He is intervening in the foreign exchange market delapidating the dollars from the international reserves to keep the black market rate low. He knows that the moment the price of the black market dollar goes up, inflation is going to skyrocket again, and is doing everything possible to prevent this. Preferably until next year's legislative elections.
You're exactly right about the current account being the most important thing for Argentina's economy by far. It's crazy that there is no mention at all of this in the post. 2024 is expected to have a record surplus, but sadly that's not for good reasons: it's because there was an unusual drop in imports. The recession and the extreme Milei's devaluation reduced demand for imported goods and impacted foreign trade results by making imports more expensive (and also there were postponements of import payments). The only positive thing is that exports grew by 9.8% compared to the very bad previous year (there was a very big drought which severely decreased exports of agricultural products).
You can't just leave out that there's capital controls that don't allow companies to just pay for imports, they have to be approved and the government just isn't approving anything. In practice, Milei's government is exactly the opposite of what he preaches.
Yeah, that's what I refered to with the "postponements of import payments". Of course he is the opposite of what he preaches. It's surprising seeing comments in this post saying that he is doing what he promised! His more important promises were:
1) Fiscal surplus paid by "la casta" (politicians and people of power). First of all, even if you think that the national budget needed to be reordered (which it probably did!) he really overextended with his cuts and is causing incredible harm to the economy and specially to the most vulnerable sectors. But even then, pretty much all the cut are being made to pensions (it represents like 65% of the cut). Retirees are below the poverty line for the first time. Milei vetoed a law to increase their retirement and in peaceful demonstrations old people were brutally repressed by the police.
So... no, it's not being paid by "la casta" at all. In fact, he had the opportunity to remove special tax benefits to judges (who don't pay the "Ganancias" tax) and to keep the Bienes Personales tax (the only important tax he cut, and is the most progressive one, paid by only the 3% richest), but he obviously didn't. On the contrary, he imposed the Ganancias tax back (it's a pretty harsh income tax) when it was removed by the previous administration! In other words, there isn't a budget cut paid by the rich and powerful, it's just redistribution of wealth from the least to the most wealthy as usual.
2) Dollarize the economy.
He will not do this.
3) Close the Central Bank.
He will not do this.
4) Deregulate the economy, including the exchange rate controls.
He is now literally saying that "economic growth is possible with the exchange rate controls" and that "it's not urgent to remove them".
5) Not negotiate under any circumstances with communist governments.
You can't make this up... he recently literally said on prime television that “China is a very interesting trading partner". He needs their dollars and will do whatever China asks him to.
>Remember, the United States very briefly had 8% yearly inflation after COVID and people were livid
Actually, the USA had yearly inflation of (just over) 9% in June 2022. I also wouldn't call it "very brief;" rounding to the nearest percent, US inflation was at least 8% from Jan 2022 to October 2022.
Bottom graph uses a different time axis. When you rescale, you can see its data closely matches the YoY economic activity of the top graph (it seems to say the opposite because you focused on MoM analysis).
So it's basically the same error/statistical lie you mentioned at the end of part 2.
It concerns me hat after 10 minutes of google, I can neither find the original report that gives the 195% housing supply number, nor any evidence of the actual institute it reportedly comes from.
As far as I can tell, everyone is just repeating one viral Newsweek article that said this:
>the supply of rental housing in Buenos Aires has jumped by 195.23%, according to the Statistical Observatory of the Real Estate Market of the Real Estate College (CI).
But I can't find an institution that is called The Real Estate College (CI), I can't find the original source saying that, and I can't find any description of how they are measuring 'the supply of rental housing'.
Of course I don't speak the language and have no context so I might be missing something that's very obvious and apparent to people who do. But ussually when I see a stat repeated endlessly like this, I'm able to eventually track down the original source and evaluate it.
As it stands, I'm pretty skeptical of this until I know who is reporting this, and what operational definition and methods they are using. The naive interpretation is that developers tripled the number of residential buildings in the country in a matter of months, in the middle of a recession, which seems obviously absurd. I'm sure it instead is measuring some other thing that makes more sense, but I have no idea what that thing is!
(I'm a little worried it's also an artifact of that one month of hyper-inflation, like landlords briefly stopped advertising vacancies when there was sudden 25% monthly inflation and everyone was panicking, then put them back when that stopped, and the supply now is the same as it was 6 months ago but 3x what it was during that one month)
Can anyone find the original source on this number?
Here's the website of the Observatorio Estadístico del Colegio Unico de Corredores Inmobiliarios de la Ciudad Autónoma de Buenos Aires (that's a mouthful):
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..
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.
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. :-)
I assume that it just looks so extreme because of the color coding. Note that ALL countries with 0% to 3% get light green, and ALL countries with -3% to 0% get light red. In data from [1], Estonia is at -0.5%, but Germany at +0.1%, Sweden at +0.2%, Austria at 0.3% could easily have ended in the red zone as well. Estonia is assumed to be bad in 2024, but not "totally outlier bad". They had a very tough year 2023 (second worst in EU after Ireland). I guess the general reasons Estonia was hit hard is the close connections with Russia: it had imported lots of Russian energy, had an economy entangled closely to Russia, has a large Russian minority, and so on. But
https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2024-economic-forecast-gradual-expansion-amid-high-geopolitical-risks_en
Estonia is a great success story. If you look at results at greater time scale, you can clearly see it and also notice that the line is not smooth, it has up and downs all the time. Judging the success or failure at the particular time point is pointless. It could be many reasons why at this time it experiences recession (Russian sanctions, slowdown in Scandinavia) but ultimately it doesn't matter.
Probably the same story is about Argentina. It is meaningless to judge it from such a short time period. If you don't know deeper aspects then these indicators can be misinterpreted. Scott is clueless about these economic aspects. I would trust Noah Smith or someone who knows this stuff much deeper.
For example, nitpicking if Argentina had or didn't have rent controls. Obviously they had. They were different than the rent control in the US. So what? Some may think that it means that Argentina rent controls are not relevant. They are, just in a different way. The fact that availability of rental property has increased, means that abolishing rent controls have a strong effect. It also means greater financial incentives to build more or turn existing space into rental property. It just takes time for owners to react. And of course, the confidence that Milei politics are going to stay is also very important.
Left-leaning commentators will mostly see that poverty has increased. It has but unfortunately it had to happen temporarily. I went through post-Soviet crisis and it was much much worse than Argentina had ever experienced. I am sure that many policies were wrong at that time. Maybe even today we have more poor people than during Soviet times. And yet, the Soviet times were terrible. All people equally poor and miserable, every day waiting in long lines to buy essential items. Today we have all the opportunities that we could never had during Soviet times. We can take care of poor people if needed but don't make that an excuse to stop important economic reforms.
Estonia, if you zoom out, is mostly a straight "line goes up" in post-soviet times. Argentina is much messier and less straightforward (mostly but not entirely in bad ways).
Argentina doesn't have 30 years experience under Milei-type of reforms. Look at the start of those 30 years of post-Soviet Estonia. You could conclude that it was unmitigable disaster.
In fact, even today many powerful people argue that we need to restore the Soviet Union because it was more prosperous.
It sounds like you're Estonian (or at least know more about Estonian economic history than I do), do you have recommendations for anything good to read on post Soviet Estonian economic history?
I am a Latvian but it will be almost the same as Estonian story.
I think Noah Smith has the best review about these economies. In general don't trust natives who are specialist in this field. Most of them will have their own subjective ideas, for example, that their economy is terrible with very little data to back their beliefs.
https://www.noahpinion.blog/p/how-are-the-post-soviet-economies
thanks
Hi, Argentine here!
>He laid off 24,000 government workers (other sources say 70,000).
He announced that he wants to lay off 70,000 workers, but hasn't reached that number yet. Today a lot of government contracts end, so if they don't get renewed (and it has been announced many won't) we could get closer to that.
>(the 195.23% number seems implausibly high to me, but I can’t find any contradictory claims, so I’m nervously letting it stand)
The former rent law was awful and indeed, landlords prefered not renting their properties rather than renting them under that law. So that number does sound believable to me.
Thank you, I've changed the 70,000 number.
Why did so many landlords avoid renting out their property? Isn't the $0 they get from not renting worse than whatever unfair price the rent law forced them to charge?
An occupied unit has higher (and more variable) maintenance costs than one sitting vacant, and a restrictive law might involve nonmonetary costs. If rental revenue divided by hours of compliance paperwork and other managerial hassles is less than the hourly rate you could earn doing some other job, might as well not bother.
Right, but then why not sell it?
I guess one possibility is because inflation is huge and volatile and everything else seems riskier -- at least an empty apartment in Buenos Aires is a reasonable store of value in a country where value tends to go up in smoke.
that's exactly why. investment apartments are used bc of capital controls and wide distrust of banks. they aren't really meant to be rented. my family in SA collectively owns over a dozen empty apartments, bc they can't put their cash anywhere else.
Okay that is wild. Reminds me of some family stories my elder relatives used to tell about the early 1930s when US banks were failing all over the place.
Just wait until you hear about the common practice in some parts of Africa of building houses brick by brick for savings.
Buildings sit under construction for years. When the owner gets some money, they buy some bricks and add them, when they don't have money, it just sits there.
Same in Russia. Corrupt officials store wealth in major city real estate. They usually don't rent it out because they don't really need the meager income stream nor the headache, so it just sits vacant.
Coincidentally: this is one of the sources of crypto's absurd-at-face-value market cap.
Im not Argentinian, but most likely, no. You have to maintain a property that you are renting, so better to not rent it rather than pay for whatever breaks. Plus if you rent it for a loss, you are most likely locking in that loss for a number of years. Better to wait it out and see if you can get something later.
In the late 1980’s in Berkeley, there were boarded up houses that landlords had taken off the market because renting it out was a net negative. I imagine that, with lower interest rates, those converted to homeowner-occupied housing.
Something similar is happening to landlords in New York City. Many storefronts are sitting vacant because if the landlord accepts a lower rent than they're currently asking for, the value of the building on paper will fall, and the bank that loaned the landlord the money to buy the property will demand cash to compensate for the fall in the (paper) value of the loan's collateral. Which leads to the ironic result that the landlord will lose more money by renting the unit than by leaving it empty. :/
Something, something, and thats why we need a land value tax! Not but seriously, its an abject failure of the free market that people are incentivized *not* to rent property at market rate, all because of land speculators artificially restricting supply to keep values high on paper...
The direct reason that Berkeley landlords were not renting was that Berkeley’s rent and vacancy controls prevented them from turning a profit. Believe me when I say that no one was then speculating on residential housing in Berkeley. The left was fully in control of the city, had been for a long time, and still are. What changed was that interest rates dropped to the point that it made sense to convert all of that rental property (which makes sense in a college town) into resident-owned homes (which does not). At no point was the free market the problem in Berkeley.
There was also a component of speculation (this sounds derisive, but I assure you it is not, I was one of the speculators) involved: With an election coming, there was a good chance of changes being made to the laws, it was better to take your chances for a few months that get stuck on an unfavorable 3 year contract.
Another factor is that with 3 year contracts, it could easily be profitable to leave your property empty for one year, gamble that the rent control law will be repealed, and then implement a more favorable contract.
You see a similar, but smaller, effect with interest rate changes in America affecting housing supply.
I'm in Spain, and here we have been going down a similar path for some time now. When you take on renters, they are in for minimum 5 years. You cannot raise rent above the official inflation rate during that time. You are not allowed to ever enter your own house during that time period (5 years!) unless the renter allows you to (they could be destroying it, whatever, doesn't matter, you have no right to go in). There is a massive problem of "okupas" (squatters) here, these enter other people's houses and can stay there for years without the police/judicial system able to dislodge them. No new AirBnB licenses allowed. Soon a law banning short-term rental will be passed (ie. 6-12 month rental for students, digital nomads etc). And all this has done is caused rental prices to soar (the opposite of what they are trying to achieve) because no house owner in their right mind would want to rent out their house under such leonine conditions. The new idea the socialist/communist government here is kicking around is to start fining anyone who owns a house which they are not renting out...
So yes, sometimes not renting is the better alternative...
That's interesting. Do you know if the laws are roughly similar in Portugal?
I ask because I was recently at a conference in Porto discussing, among other things, housing policy. The presenter (a sociologist from Lisbon) pointed out that many prime-estate apartments in both Lisbon and Porto were boarded up (which I saw for myself: Lots of prime real estate decaying in the middle of the city, judging from sunken roofs and empty window frames). The presenter blamed it on "capitalism" and "not enough regulation". I was wondering if the problem was not exactly the opposite. But being a foreigner and with very limited knowledge of Portugese housing policy I did not want to criticise my host. Still wondering, though.
The laws are not as bad here in Portugal as in Spain. We can do rental contracts minimum 1 year and for short-term AirBnB-style renting there is some burocracy, but not too terrible. You can visit your rentals in the last 3 months at least. Things used to be worse but our government went bankrupt a few years ago and the IMF forced some reforms. One law that we have that sucks is that if you rent to someone with disabilities or old age (over 65) the lease becomes perpetual. You are punished if you are nice. One bad thing is that rent taxes are quite high (25%) so most people rent in the black market.
The case you mention of the houses falling a part is different. During our freedom revolution (1974), all rental contracts were frozen. I have a family member that has a tenant that pays 4 euros per month. The mother died but the daughter inherited the rental. Some of these tenants don't live in the house any longer, but the rent is so cheap that they keep renting. This has improved a lot as some of the old renters die and Airbnb made it lucrative enough to buy out these old contracts. But there are still many of them still.
Many thanks for your response Ricardo. I can see how that explains the puzzle.
(Scratching my head as I walked through beautiful Porto I half-though the explanation could be drawn-out legal quarrels among multiple heirs to an estate, about who owned it & who should pay for the upkeep. Since so many houses in central Porto are impressively old! But frozen rents since the 1974 revolution explains it.)
Spanish landord here. I own two flats, both rented out.
The "good" one has had its rent increase capped below inflation for three years in a row, first "because of COVID" and then "because of Ukraine", and yes, it doesn't make sense in any case.
The bad one has had its renters become squatters, haven't paid a single € in two years now. The judicial process started more than a year and a half ago, cannot (by law) finish this year (this is a complex issue, but the current government has been extending a "temporary" COVID measure for 4 years in a row, not allowing you to evict your tenant, even if they don't pay, while you still have to pay your mortgage, taxes, maintenance, etc). All in all, I calculate I'll be out of three years of rent (~25k€), and around 18k out-of-pocket costs, plus judicial costs that I won't recover because renters are "vulnerable" and thus have free justice and can declare to be "insolvent" and just not pay.
According to some statistics I currently cannot find, the current probability of a rental unit becoming delinquent in Spain is about 17%, per rental (not per year). But you incur that risk on every tenant. The corresponding insurance for this is about 10% of a year of rental income (not trivial at all), and only covers up to 12 months of rent, while judicial process is north of two years.
Ask me if I'm going to close or sell flats as soon as I can. After 20 years of renting out several flats without incidents. Bad laws, and even worse, bad judicial procedures (themselves governed by another, different set of bad laws) can, and do, kill markets.
Do you know what "supply of rental housing" exactly means? I suspect that it means the number of flats that are currently available for renting. So I assume that it is NOT counting ongoing rental contracts.
If I am right, then those are very low numbers with lots of fluctuation. In normal housing markets, only 2-5% of the flat are available for rental. In tight markets, it's lower, for example <0.1% in Zurich, or 170 units for a population of 400,000. And this number varies a lot. For example, the main months for moving in Switzerland are April and October, and I would assume that the number of available flats in Zurich triples every year before these months because many people move out.
I am not saying that the number for Argentina has a trivial explanation like that, but tripling may not be as spectacular as it sounds.
EDIT: In a comment further down, darwin found out what was measured: "the offer for rent" (according to google translator). I assume that this indeed means the number of flats that are offered for renting.
SECOND EDIT: Thinking about it, this number will also increase if lots of people can't afford their rent anymore and are forced to move out. This seems like the most plausible explanation, and I find it conceivable that it leads to a tripling of this number.
Because the law stipulated a 3 year minimum contract, controlled how much you can raise prices (with our inflation a big deal), forced you to register the contract with our IRS-equivalent (we are big on tax avoidance) and added other restrictive measures. Everyone knew that the next government would get rid of it, so they'd rather wait until that happened than be locked in at unfavorable rates.
Some people explained the details better than I could in other comments. I just want to add that the old law was truly AWFUL, like some sort of reverse-masterpiece. It somehow managed to screw with both landlords and tenants at the same time. It was a given that it would be modified, and probably sooner rather than latter. That's why many landlords speculated with the law being repealed in the short term (correctly, in hindsight), and, for the time being, decided not to rent it under those unfavorable conditions.
But also, do we know that the 195.23% increase is actually in the total number of units rented out or available for rent, or in something like the number of units offered right now (which is more believable and is partly a measure of turnover as well as how long it takes for a unit to get snatched up)? EDIT: in another subthread, darwin found it was actually units offered: https://www.astralcodexten.com/p/preliminary-milei-report-card/comment/70979479
Thanks.
Do Bukele next.
I found https://www.slowboring.com/p/nayib-bukele-el-salvador (sorry, paywalled) really interesting. Yglesias' take is that yes, many people tried "throw criminals in prison" before, many people even tried "be really really tough and try super hard to throw them in prison for a long time before", and it's not really obvious why Bukele succeeded where everyone else failed (it might be because he lulled the gangs into complacency by making a deal with them, then backstabbed them before they could react?) I've never found any other source that even goes into as much detail as Matt and I wouldn't be able to begin to figure out what he did right.
My sister-in-law is a second-generation Salvadorean immigrant, but I always worry that I'll be opening some horrible wound if I ask about politics back home.
There's a second, more recent Slow Boring article on the topic here (also paywalled): https://www.slowboring.com/p/latin-america-has-bukele-fever
Matt Lakeman did an incredibly detailed breakdown on Bukele's reign here: https://mattlakeman.org/2024/03/30/notes-on-el-salvador/
That breakdown is fascinating. One of of the most striking points he makes, something I wasn't aware of, is that the Salvadoran gangs were *really freaking poor*:
> *El Salvador’s MS-13 and B-18 are not in the same league [as cartels]. Their bread-and-butter is extorting poor people in an impoverished country. Their expertise is localized brutality rather than transnational business. The narco gangs would annihilate the Salvadoran gangs in any fair fight.*
A seemingly reasonable point from the Banished Realm:
"El Salvador, by contrast, is basically just a city state centered on San Salvador. The country is the size of New Jersey, and the overwhelming majority of the population is within the capital region. If you get kicked out of San Salvador, there is no alternative power center to hide in the shadows of, and the government doesn't have the sort of federational subdivisions that limit jurisdiction and reach in the same way a larger country does. As a result, anti-gang successes in the capital are far more effective for nation-wide effectiveness than in other countries."
https://www.themotte.org/comment/235611?context=3#context
Oh wow.
To give another comparison point for non-americans, the country is the size of North Ireland. Yeah, I can see why Bukele's success might not scale.
I suspect a lot of such claims are just a panicked reaction by left-leaning people who are extremely scared of El Salvador's policies spreading to other countries. I.e. imagine if Mexico repeats his policies perfectly and imprisons 1% of their male population in horrible conditions without trial... and it works? This will immediately have a cascading effect on US policy discussions and thus the whole world. Before you know it every country is racing to imprison the most violent 1% of their men and the idea of "fair trial" just sorta goes out the window.
My own theory is that rounding up every single "scary" looking dude under between the ages of 16 and 40 in (say) Detroit would instantly bring down the violent crime rate by a factor of 10.
I think it's less panic and more a general sense of "It can't possibly be that simple, right? Otherwise everybody would already have done it?"
I think part of the reason is Bukele's crackdown was way more hardcore, thorough and well-planned than previous mano dura crackdowns. Part of the reason is that El Salvador is super small. Part of the reason is that Salvadoran gangs were both more deeply hated and much weaker than the average cartel.
I suspect it *is* that simple, especially thanks to new technology available to the police these days such as being able to run 24/7 surveillance of every public street in the city with facial recognition and using that to track down criminals. But it requires capable execution and suspension of habeas corpus. Usually countries are either capable executors (Norway, Netherlands), enforce habeas corpus (US, Mexico) or have low violent crime levels (China, Japan)
I wouldn't really classify Bukele as "right wing" (and so I wouldn't assume that "left leaning" people will be critical of him). He seems to represent a phenomenon kind of orthogonal to the left-right spectrum. As the linked article notes, his roots are in the postcommunist FMLN, though he broke with them later.
I grew up with guys like that and it's probably more like 5% than 1%. But maybe the 1% would scare the remainder enough to do the job.
I honestly wonder if it all came down to the terrible decision of Salvadoran gangs to give themselves lots of gang tattoos. The cases I read about of wrongly detained people in El Salvadore are usually reformed gangsters who still have the damn tattoos.
Yes, why do gangs think it is a good idea to have gang tatoos?
I remember when I read "The Hardy Boys among Pirates" in my early youth, where Frank and Joe were able to identify pirate members left, right and center in US cities because they all had the same pirate tattoos. Even then (I was about 12) I though that was a lame plot device in a book: Surely no real gang of gangsters would be so stupid as to make their members identifiable to outsiders by merely looking at them.
But here we are, in the 2020s, observing that life is imitating not even art, but run-of-the-mill young-adult mass-produced fiction.
As far as I know no one else has done the thing of locking people up for having gang tattoos (or other gang identifiers). E.g. bikie gangs in developed countries can ride around proudly wearing their colours and they don't get arrested for it. Yes, it shows the cops who the criminals are but that's no great mystery.
If it was routine for gang tattoos to get you arrested people would stop getting them. The fact that El Salvador went from not arresting tatted up blokes to suddenly arresting them all caught the gangs out.
> Yes, why do gangs think it is a good idea to have gang tatoos?
It locks members in. Having one signals to your peers that you're committed to the gang. The harder to hide (eg on your face), the stronger the signal.
Good point. It is stronger than "ordinary" signalling; it is bordering on self-binding. That is, a particularly strong/costly way to signal credible committment (here: to a gang).
Presumably this also keeps outsiders out. An undercover cop, or a member of a rival gang, isn't going to get head to toe tattoos for your gang. And as Olivier says above, it means you can't switch gangs or abandon gang life easily.
I suppose the gang was gambling that infiltration and defection was more dangerous than systemic persecution. Turned out to be a bad bet.
because people aren't always rational actors?
I don't subscribe to Yglesias, but I'm going to go out on a limb and say this is a lot easier when the criminals are covered, head-to-toe, in tattoos which identify them as members of murderous gangs? Doesn't seem like rocket science.
Salvadorean-American here. I regret to inform the world that one of the main reasons why Bukele succeeded is because most of the gang leaders in the country tattooed their faces. And the rank and file gang members heavily tattooed all over their bodies.
Since removing tattoos is expensive, the gangs are screwed for the time being. But I have no doubt that every year, gangs are inducting new members who have been instructed to ease off on the tattoos. Over time, it will become harder and harder to identify gang members.
I don't want to pour cold water on Bukele's success at reducing crime. One can only wonder why previous presidents didn't start rounding up these gang members who were making little effort to hide their identity.
Basically it worked because, unlike in a lot of other places, the people of El Salvador really, really hated the gangs and wanted them to go away. This kind of thing doesn't work if you don't have massive popular support.
Duterte too please! I know he's out of office now but everyone made a big deal about how horrible his war on drugs was and then they shut up about it, which makes me suspect he might have succeeded.
I've always been fond of saying that the war on drugs has not been tried and found wanting, it's been found difficult and left untried. The Philippines tried a real war on drugs, and I'm interested in knowing how it turned out.
> I know he's out of office now but everyone made a big deal about how horrible his war on drugs was and then they shut up about it, which makes me suspect he might have succeeded.
Could just as easily be that it went average-badly and the media/their audience just didn't care enough to follow up. Would be interesting to see hard facts either way.
That's my naive impression. If it went really well I would expect someone to report that, and the left-aligned media to fight that impression. If it went poorly I would just expect the media to report that as well, given how much they reported on his actions previously.
The most likely result is therefore mixed and muddied to the point that there's nothing interesting to say and no clear narrative to push.
I'm in PI right now, and my read on it is that Duterte's war on drugs was used more for executing people that various politicians or police didn't like (because they had free reign to execute anyone, and throw a baggie of drugs on the corpse to justify it), rather than an actually effective tactic for reducing drug use.
12-30k people were estimated to be killed, the overwhelming majority of which were extremely poor, small-scale users, with not a single major prosecution or death of a major drug lord. The Philippines DEA says that drug use and sales weren't really affected.
Still, it was moderately popular in the middle classes, because it didn't really affect them and being "tough on crime" is usually popular, especially in relatively high crime places like Manila.
I heard Mao's war on opium worked...
>First, the 25% number was just one really bad month. Inflation had been at a baseline of about 4% for most of the last five years
That doesn't seem like the most accurate description. The current MoM inflation rate of 4.2% isn't typical of recent years - it's lower than any month since January 2022.
And inflation wasn't holding steady at around 4 before inexplicably jumping to 25. It was generally rising over the last several years, before suddenly reversing its trend.
Looking at annual inflation makes the upwards trend a little clearer:
2020: 42.0%
2021: 48.4%
2022: 94.8%
2023: 211.4%
[Looking further back, inflation has generally been on the rise in Argentina since about 2009, (with some exceptions, like a moderate spike in 2019), making the current drop in inflation that much more notable.]
(Sources for figures: https://tradingeconomics.com/argentina/inflation-rate-mom, https://www.worlddata.info/america/argentina/inflation-rates.php, https://efe.com/en/economy/2024-01-11/argentina-closes-2023-with-skyrocketing-inflation-unseen-in-34-years/).
You also somewhat contradict yourself, by presenting the drop in inflation as a trivial return to norm, while also writing: "I think he gets credit for ... decreasing inflation."
A legitimate complaint about the Millei government is that it did not let its currency float freely. The effect of that is to stretch out a long devaluation. Devaluations have inflationary effects, but it was already built in due to prior money printing. The problem is that devaluation makes debt service harder, so they worked in a slow devaluation.Maybe this is the best that could have happened, but it makes some of the inflation effectively Millei’s fault.
AFAIUI that's a compromise he had to make with other parties. However, devaluation doesn't really make debt service harder when it's really about bringing the official rate closer to the black market rate: for debt denominated in Argentine pesos it makes it easier; while for debt denominated in hard currency it makes it formally makes a given amount of hard currency cost more pesos, but at the same time the government implicitly loses money whenever it converts pesos to hard currency at a "better" rate than the black market (i.e. market-clearing) rate, which gets gradually eliminated.
he brought in Luis Caputo as Minister of Economy, the man who took all the debt during Macri's government and crashed the economy in 2019. He's doing the same he did back in 2015: spending all resources subsidizing US Dollars to keep the peso artificially strong while paying 4% A MONTH in peso denominated rate, an obviously criminal carry trade scheme designed to fleece the country once again.
Let me repeat that, he brought the same people that already failed in 2015 to do the same scheme, again.
This post lacks the most critical issue in Argentina: the current account deficit. As long as our brothers in Argentina can't fix their current account deficit, they'll be forever plagued with deficit and having to resort to the IMF.
A quick Google by me shows that president Milei has turned a current account balanced in both Q1 and Q2. I don't know how long he can do that, or what are the caveats. But I'd spend like 80% of the discussion about Argentina discussing the current account deficit.
Wasn't that part 1 of the post?
No, part 1 was about the national budget. The current account represents the imports, exports and other international transactions. Argentina's problem IS NOT having a national budget deficit (every country does), the problem is the lack of USDs because the current account is highly negative.
The destruction of the industry, education and science that Milei is doing is sentencing the country to continue exporting only primary agricultural products and having a negative balance for decades to come. It's the same that happened from 1976 to the big crisis of 2001, with 25 years of neoliberalism, and the same that Macri did between 2015 and 2019.
What would you consider to be the long term differences between his plan and the former trajectory?
Full disclosure, I see that rate of inflation to be unsustainable and that the previous track was not going to lead to a good result. Whether his plan will result in a good result is a separate question. Do you think the previous trajectory would have resulted in a good result, absent Milei?
What do you mean by previous trajectory? I consider that Argentina is on the trajectory that Macri started in 2015. He did exactly the same as Milei, with a huge devaluation and large austerity measures. They are pretty much the same, right-wing neoliberal clowns with the mission of redistributing wealth as much as possible to the wealthy. He started a process of deindustrialization, also did big cuts in education, science, and health (which were very harmful, just before the pandemic). He took the largest debt ever granted by the FMI, US$56.3 billion, conditioning the country's economic policies to this organization once again. And all of this while making inflation go from 31.4% per year in 2016 to 53.8% when he left office in 2019, and poverty from 31,4% to 35,5% (probably increased more, due to methodological issues).
After him, Alberto Fernandez could not do much, with the pandemic, the pressures of the IMF (and interest payments on the debt), the internal fights within Peronism, the international situation (war in Ukraine, etc.), and one of the biggest droughts that affected foreign currency earnings from exports.
So, you have to see the trajectory before Macri. Argentina had a big crisis in 2001 after 25 years of neoliberalism (with economic policies really similar to Macri's and Milei's ones. In fact, Menem was the president during all the 90s and Milei unveiled a bust of him this year in the Casa Rosada calling him "the best President of the last 40 years at least" lol). It ended up causing 62% of poverty and 20% of unemployment. It was really bad. Argentina still suffers from the inequality and social chaos that resulted from this. In 2003 Néstor Kirchner a center-left peronist took office and the country had a decade of growth, industrialization, repatriation of scientists, redistribution to the lower sectors. Obviously there were some problems, inflation was starting to be worrisome by 2015 and the extreme right won elections.
Milei's false discourse is that Argentina's problem is the fiscal deficit. It is a very convincing discourse, because it's very easy to convince ignorant people that overspending is bad. But Argentina has already had dozens of stabilization and economic shock plans, you can guess that they never worked. Again, you only need to look at what happened with Macri recently. Obviously, having orderly and reasonable public accounts and keeping money printing under control is necessary. But completely cutting public works, destroying domestic consumption, totally slowing down the economy and causing social chaos is not the way to go. I believe that a trajectory more similar to that of Nestor Kirchner would undoubtedly be much better. Argentina needs to improve its international trade balance, generate exports with higher added value and stop selling only soybeans. You cannot do that by destroying industry and education.
You clearly demonstrate leftist socialist bias.
What’s your take on Argentina’s political and economic situation? I would love a neutral, non-biased opinion. It would be great if you could back it up with historical knowledge. I’m willing to change my mind.
Ah. At least with a free-floating currency, I'd consider the current account (incoming money minus outflowing money) of the country as just the combination of the current accounts of private individuals and companies/organizations, and the government, as measured in hard currency. The government's "current account" is equivalent to its surplus/deficit, while private entities' "current accounts" are their own business.
Currency control shenanigans complicate this, but AFAIUI Milei is moving the official rate closer to the black market rate (i.e. what the free-floating rate would be).
Milei is moving the official rate closer to the black market rate (i.e. what the free-floating rate would be) <--- He is intervening in the foreign exchange market delapidating the dollars from the international reserves to keep the black market rate low. He knows that the moment the price of the black market dollar goes up, inflation is going to skyrocket again, and is doing everything possible to prevent this. Preferably until next year's legislative elections.
You're exactly right about the current account being the most important thing for Argentina's economy by far. It's crazy that there is no mention at all of this in the post. 2024 is expected to have a record surplus, but sadly that's not for good reasons: it's because there was an unusual drop in imports. The recession and the extreme Milei's devaluation reduced demand for imported goods and impacted foreign trade results by making imports more expensive (and also there were postponements of import payments). The only positive thing is that exports grew by 9.8% compared to the very bad previous year (there was a very big drought which severely decreased exports of agricultural products).
You can't just leave out that there's capital controls that don't allow companies to just pay for imports, they have to be approved and the government just isn't approving anything. In practice, Milei's government is exactly the opposite of what he preaches.
Yeah, that's what I refered to with the "postponements of import payments". Of course he is the opposite of what he preaches. It's surprising seeing comments in this post saying that he is doing what he promised! His more important promises were:
1) Fiscal surplus paid by "la casta" (politicians and people of power). First of all, even if you think that the national budget needed to be reordered (which it probably did!) he really overextended with his cuts and is causing incredible harm to the economy and specially to the most vulnerable sectors. But even then, pretty much all the cut are being made to pensions (it represents like 65% of the cut). Retirees are below the poverty line for the first time. Milei vetoed a law to increase their retirement and in peaceful demonstrations old people were brutally repressed by the police.
So... no, it's not being paid by "la casta" at all. In fact, he had the opportunity to remove special tax benefits to judges (who don't pay the "Ganancias" tax) and to keep the Bienes Personales tax (the only important tax he cut, and is the most progressive one, paid by only the 3% richest), but he obviously didn't. On the contrary, he imposed the Ganancias tax back (it's a pretty harsh income tax) when it was removed by the previous administration! In other words, there isn't a budget cut paid by the rich and powerful, it's just redistribution of wealth from the least to the most wealthy as usual.
2) Dollarize the economy.
He will not do this.
3) Close the Central Bank.
He will not do this.
4) Deregulate the economy, including the exchange rate controls.
He is now literally saying that "economic growth is possible with the exchange rate controls" and that "it's not urgent to remove them".
5) Not negotiate under any circumstances with communist governments.
You can't make this up... he recently literally said on prime television that “China is a very interesting trading partner". He needs their dollars and will do whatever China asks him to.
well put
Finally a concise and useful summary on Milei's record ... thanks.
>Remember, the United States very briefly had 8% yearly inflation after COVID and people were livid
Actually, the USA had yearly inflation of (just over) 9% in June 2022. I also wouldn't call it "very brief;" rounding to the nearest percent, US inflation was at least 8% from Jan 2022 to October 2022.
brief compared to Argentinian inflation, certainly :)
That's less than a year. I think "brief" is an appropriate adjective.
That's quite brief in the history of a nation of adults. Sadly the US has been a society of dueling tantrums for a couple decades now.
Part 3, why the sources contradict:
Bottom graph uses a different time axis. When you rescale, you can see its data closely matches the YoY economic activity of the top graph (it seems to say the opposite because you focused on MoM analysis).
So it's basically the same error/statistical lie you mentioned at the end of part 2.
It concerns me hat after 10 minutes of google, I can neither find the original report that gives the 195% housing supply number, nor any evidence of the actual institute it reportedly comes from.
As far as I can tell, everyone is just repeating one viral Newsweek article that said this:
>the supply of rental housing in Buenos Aires has jumped by 195.23%, according to the Statistical Observatory of the Real Estate Market of the Real Estate College (CI).
But I can't find an institution that is called The Real Estate College (CI), I can't find the original source saying that, and I can't find any description of how they are measuring 'the supply of rental housing'.
Of course I don't speak the language and have no context so I might be missing something that's very obvious and apparent to people who do. But ussually when I see a stat repeated endlessly like this, I'm able to eventually track down the original source and evaluate it.
As it stands, I'm pretty skeptical of this until I know who is reporting this, and what operational definition and methods they are using. The naive interpretation is that developers tripled the number of residential buildings in the country in a matter of months, in the middle of a recession, which seems obviously absurd. I'm sure it instead is measuring some other thing that makes more sense, but I have no idea what that thing is!
(I'm a little worried it's also an artifact of that one month of hyper-inflation, like landlords briefly stopped advertising vacancies when there was sudden 25% monthly inflation and everyone was panicking, then put them back when that stopped, and the supply now is the same as it was 6 months ago but 3x what it was during that one month)
Can anyone find the original source on this number?
Here's the website of the Observatorio Estadístico del Colegio Unico de Corredores Inmobiliarios de la Ciudad Autónoma de Buenos Aires (that's a mouthful):
http://colegioinmobiliario.org.ar/noticia/1537/observatorio-y-estadisticas-del-sector-inmobiliario.asp
The report that mentions the 195.23% figure is the one for July:
https://mcusercontent.com/ad066e6e67209065d14118f1f/files/cf8ec2ce-a82b-0076-5689-477411474be5/Informe_Julio_2024.pdf