Argentine Truckers go on Strike, Demand a 30% Pay Raise to offset 25% Inflation

Posted by PITHOCRATES - June 23rd, 2012

Week in Review

If you want to understand what’s happening in Argentina listen to Andrew Lloyd Webber’s Evita.  It’ll give you a little bit of the flavor of the current political picture there.  A populist president.  High inflation.  High taxes.  Strong unions.  Class warfare.  And there are some who even compare Cristina Elisabet Fernández de Kirchner, Argentine president, to Eva Perón herself.  A comparison she’s not overly pleased with.  But she doesn’t mind when people compare her to the strong defiant side of Eva Perón. 

But there are reasons for these comparisons.  For her political party, the Justicialist Party, was founded by Juan and Eva Perón.  And her policies are not that far away from their policies.  Which is basically a welfare state that taxes the rich to pay for it.  And prints a lot of money.  Hence the high inflation.  Which causes a bit of a problem.  To survive during high inflation means wages have to rise just as fast.  So they can pay those high taxes.  And afford the high prices that result from inflation.  Which isn’t apparently happening for the truckers (see Argentina deploys military police in fuel strike by Hilary Burke and Jorge Otaola posted 6/20/2012 on Reuters).

Argentina’s government sent military police to take control of fuel plants and get trucks back on the road on Wednesday, the first day of a truckers’ pay strike that could cause widespread shortages in Latin America’s third-biggest economy…

Labor disputes are common in Argentina due to double-digit inflation, but the Labor Ministry normally intervenes to avoid major disruption to the economy. In this case, the truckers flouted the ministry’s order for compulsory conciliation…

Pablo Moyano’s [head of the truckers’ union] father, Hugo, used to be a close ally of the president’s but their strategic alliance has all but collapsed, increasing the threat of labor unrest as inflation seen at roughly 25 percent fuels wage demands while economic growth slows sharply…

The truckers, who have threatened to stage a series of protests, want a 30-percent pay rise as well as lower taxes.

This is the same problem all welfare states have.  High public spending requires high taxes.  High taxes reduce economic activity.  With less economic activity to tax there is less tax revenue.  So states turn to borrowing (often giving themselves excessive debt that leads to debt crises like currently in Europe).  And printing money which unleashes inflation.  Increasing prices.  Making it harder and harder for the people to make ends meet.  Which is why these truckers are on strike.

They’re asking for a 30% pay raise.  Which sounds outrageous.  But when inflation is at 25% they are only asking for a net 5% raise.  Which isn’t all that unreasonable.  But their pay raise won’t fix the economy.  Higher wages will only increase prices further.  Requiring further demands for higher wages.  Which is the viscous cycle of high inflation.  Wages chase prices.  And higher wages increase prices.

Unless they enact a little austerity things aren’t likely to improve.  Perhaps this is the reason President Kirchner is bringing up the issue of sovereignty of the Falkland Islands.  To distract from her poor economy.  Much like the ruling junta did when they invaded the Falkland Islands in 1982 to distract their people away from an even worse economy.  But there’s another thing in play today.  The possibility of oil in the waters around the Falklands.  Which is something else they could nationalize.  And pour that oil revenue into their government coffers.  Give more stuff to the people.  And be even more popular.  As long as the oil lasts.  If there is oil.  And if there isn’t, nothing changes.  Except things will probably be worse on the Falklands once they start living under that Argentine inflation.

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