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Third, Argentina is a country in which the government constantly promises the people more than it can deliver. It promises rich oligarchs that it will not collect too much in taxes. It promises workers and consumers a generous social insurance state. It promises rapid economic development, large expenditures on infrastructure, jobs for politically well-connected boys, and so forth. An unequal distribution of income and wealth, a lack of social comity between the working and the middle classes, a viciousness in politics going back to General Galtieri, the Dirty War, Juan Peron and his enemies, and even before means that claims on national product and demands that the government enforce those claims are inevitably going to mount up to more than 100% of what is available. The basic political fight over how national product is to be distributed among social classes is unresolved, and any political movement that makes only promises it can keep is doomed to rapid defeat.points one and two always and everywhere empower oligarchs to seek a greater share of the national product than is politically and economically sustainable.
Hence, fourth, in Argentina government deficits--large government deficits--are a law of nature, a fact of life. Moreover, everyone knows that large government deficits are a fact of life and a law of nature. Hence interest rates on Argentine debt will be low and reasonable only rarely and for short periods.when, in the absence of a specie peg, the central bank does its job and dictates low and reasonable interest rates.
Fifth, points one through four mean that the neoliberal reform program in Argentina in the 1990s hadhas exactly the same chance of avoiding disaster as one would expect if one gave a modern gene-splicing biochemistry lab to Doctor Frankenstein. The fundamental unresolved conflicts of Argentine politics mean that debt is going to mount. The fact that everyone knows that Argentine politics generates chronic deficits means that the interest payments due on that debt are likely to explode. Exploding interest payments mean that the dynamics of Argentine debt are unstable, and thus that the hard-currency exchange-rate peg cannot last. And free access to international capital markets, to dollar-denominated bank accounts, and so on, and so forth, means that when the crisis caused by the contradiction between the hard currency peg and the fundamentals of Argentine politicselementary national accounting comes, it will be five times as bad: at least with tight controls on foreign exchange and a primitive, underdeveloped banking system, the amount of damage a government default can do to normal economic life is limited.
Austerity can only be implemented in the shadow of a concentration camp.
Things that I think I have gotten really, really wrong so far in my career:
My belief that central banks had the tools, the skill, and the political will to stabilize economies at high levels of employment and low levels of inflation, and thus that fiscal policy and financial institutions policy no longer had any compelling stabilization policy role to play.
My belief that large, leveraged financial institutions had sufficient caution and sufficient control over their derivatives books that their derivative positions did not pose major systemic risk.
My belief that the principal threat to the world economy would come from the fact that in a crisis the shaky long-term finances of the U.S. social insurance state might provoke a collapse of confidence in the long-term value of the dollar.
My belief that closer economic integration between Mexico and the U.S. would be, while a rough ride for Mexico, a clear net plus for Mexico.
My belief that economists as a group understood as much about the causes of recessions and depressions as John Stuart Mill understood in 1829: that a downturn is a shortfall of planned spending at full employment below income caused by an excess demand for financial assets, and it is cured by either (a) having the government do the spending-in-excess-of-income that the private sector will not, or (b) having the government flood the zone with financial assets so that there is no longer an economy-wide excess demand for them.
My belief that pushing neoliberal, market-opening reforms on countries like Argentina in the 1990s was not a policy as wise as giving a supply of gasoline to a bunch of pyromaniacs.
My belief that the rapid growth of the Japanese economy in the 1970s and 1980s would continue into the 1990s and 2000s.
My belief that the 6% unemployment NAIRU of the U.S. in the 1970s and 1980s would continue into the 1990s and 2000s.
My belief around 1990 that the rapid privatization of Russian industry was the best chance to set up a favorable political dynamic that would lead to rapid economic recovery and political development in Russia.
My belief that, automatic stabilizers aside, fiscal policy no longer had a legitimate countercyclical role to play because the Federal Reserve and other central banks were mighty and powerful and could and would act appropriately inside fiscal authorities' decision loops.
My belief that no advanced country government with as frayed a safety net as America would tolerate even near-double digit unemployment for years.
Any others to suggest?
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