Argentina’s Keynesian Policies have given them the Weakest Economy in the Hemisphere

Posted by PITHOCRATES - July 22nd, 2012

Week in Review

The Argentines are strong advocates of Keynesian economics.  And they’ll embrace it till the bitter end.  Even as their economy goes into the crapper (see WRAPUP 3-Argentina economy shrinks in May for first time since 2009 by Hilary Burke posted 7/21/2012 on Reuters).

Latin America’s No. 3 economy is decelerating sharply after posting China-like growth rates for much of the past nine years. High inflation, a sluggish global economy, waning demand from neighboring Brazil, falling grains production as well as new trade and currency controls have prompted the slowdown.

“Stagflation arrived with a vengeance. Argentina now has the weakest economy and the highest inflation in the hemisphere,” wrote Alberto Ramos, a senior economist at Goldman Sachs, adding that private estimates put inflation at closer to 24 percent a year…

Argentina’s unorthodox economic approach centers on heavy state participation in the economy to foment high growth, job creation and domestic demand. The government does not publicly acknowledge the cost of this, which is double-digit inflation.

“We are taking active policies, using our own resources, to generate the virtuous cycle of spending, consumption, investment. You have more demand, more production and that feeds back into more spending, more production, more consumption.”

This is pure Keynesian economics.  Like in the Carter years.  But even Jimmy Carter didn’t have an inflation rate as high as 24%.  So the Argentine stagflation may outdo the Carter stagflation.  No doubt beating Carter on the misery index, too (the sum of the unemployment rate and the inflation rate).  Proving once again that Keynesian economics doesn’t work.

Still this is exactly what President Obama wants to do with the U.S. economy.  And it’s what the leading Keynesian economists are advising him to do.  Invest.  Spend.  To stimulate the economy the only way the federal government can.  By deficit spending.  Financed with more borrowing.  Taking the federal debt to new heights.  Or simply by printing money.  As in another round of quantitative easing.  Even though none of this has worked in the last three and half years under President Obama.  Or in the Seventies during the Carter years.  Or even in Argentina today.

So when will they learn?  When will they abandon Keynesian economics?  Never.  Because governments love to spend money.  And Keynesian economics is all about spending money.  Why, some even call this spending virtuous.  But there is a price in being virtuous.  Asset bubbles (as in Japan resulting in their Lost Decade or in America during their subprime mortgage crisis resulting in their Great Recession).  A sluggish economy.  And double digit-inflation.  Things that never end well.  Just ask the Japanese.  The Americans.  Or the Argentines.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,

Comments are closed.

Blog Home