Happy Holidays, frens.
This pretty upbeat Financial Times report from Argentina that I promised to cover before the holidays (#813188) started as a link, but the commentary exploded into a MONEY CLASS. And since @Undisciplined is scolding me for slacking off (#827566)... how about a double issue!
- Milei is popular among his voters
- Given the "extreme" austerity, he's surprisingly popular
- some of the results—on inflation and deficit—are very impressive
Milei: “I have a 50 per cent approval rating after carrying out the biggest austerity programme in our history. It’s a miracle, isn’t it?”
Having taken over an economy on the brink of hyperinflation, Milei slashed the monthly inflation rate from 26 per cent last December to 2.7 per cent in October. The chronically depreciating peso — which Milei compared to “excrement” last year—has strengthened significantly against the black market dollar over the past six months. Since his election, Argentina’s long-distressed sovereign bond prices have roughly tripled.
There are some nominal-real/money-illusion type things (#737272, #809392) in there that really annoy me about economic reporting: one lady says she's been burning savings, a businessman says he has lower revenue than last year.
The problem with an unstable currency and an intransparent money (supply) is that you can't know these things. The monetary unit in which you count revenues or savings become next to useless. To invoke Mises, the profit-and-loss assessment that the price system otherwise allows goes totally haywire when there is kerfuffle with the monetary unit. (yes, "kerfuffle" is the technical term! :P)
It's the same reason it gets very difficult to say whether Americans, individually or in aggregate, are earning higher wages now than 2, 10, 20, 50 years ago. OK, the numbers in our paycheck and savings accounts are bigger... and the Fed says tentatively yes, but the "real" assessment of that depends on whether the inflation-adjustment (in this case CPI), is credible and/or accurate... And so to just make sense of whether we're making progress or falling behind, we have to dabble in the technical commentary about which price index are true and if they capture what it means to live etc.
Anyway, back to Argentina, where relative comparisons like this at least can tell us something about the direction:
Inflation has battered Argentines’ take-home pay. In the first four months of Milei’s presidency, the average wage in the formal private sector fell 11 per cent in real terms from November 2023, to its lowest level in 20 years. It has since rebounded to just 2 per cent below last November. But salaries in the public sector, which employs a fifth of workers, remain 17.5 per cent down.
Public sector employees (well, "employees"... parasites more like it) have been shed and their salaries are comparatively lower. Good.
There is some inkling in the piece about shale gas, mining and agriculture exploding thanks, in part, to lucky weather circumstances (harvests good, major investment in extraction sites etc)
This is a little worrying, I guess, with the old guard making a return, and the most aggressively positive money promise out of Argentina (ditch the peso, bind monetary policy hands for the future) shelved:
On key issues, however, the president has proved pragmatic. He shelved his election pledge to dollarise the economy and “burn down” the central bank. He formed an early alliance with former conservative president Mauricio Macri, appointing figures from Macri’s 2015-19 government to lead three of his eight ministries.
Perhaps in a year or two when things get better, eh??
Also, this objection to economic development I've never understood
America's early wealth began with vast agricultural exports; Argentina's own país rico era in the late-19th century and early 20th century (where it was among the richest countries on the planet, #752441) was build with vast land and cattle (and plenty of European immigrants...). In today's times, Australia—a former colony—is a typical such exploitation/raw materials country, its economy running on minerals and agriculture ("digging dirt" as my Aussie pals call it). Norway owes much of its (excess) prosperity from oil and natural gas.
In a global world that uses a ton of materials (minerals, foodstuffs, fossil fuel) someone's gotta make them or extract them from the earth. With good institutions (of which the money certainly is one portion #793537) and well-developed systems, that can fuel a country's economic development
This, as the FT piece concludes, is a must (i.e., this #747181)
For that stability to give way to sustainable growth, however, Milei must overcome several huge challenges, chief among them the lifting of Argentina’s strict capital and currency controls, which set the official exchange rate and prevent companies and individuals from moving money freely out of Argentina. Yet Milei argues that he cannot risk floating the peso without a large supply of hard currency in the central bank to calm markets and prevent a run, which would trigger inflation. He inherited virtually empty central bank reserves and has struggled to rebuild them as he spends dollars keeping the peso stable.
Exciting times ahead for Argentina, the monetary basket case of the world.
Today's little money lesson.
Peace,
J
non-paywalled here: https://archive.md/5w8oI