Tuesday, November 30, 2021

OPINION AND ANALYSIS | 19-05-2018 19:04

Waiting for the end

For much of the last fortnight, it seemed that the day of reckoning was already upon us, but then the government, backed at least verbally by the IMF’s Christine Lagarde, Donald Trump and other dignitaries, was given a breathing space.

The late North American economist Herbert Stein earned his place in the dictionaries of quotations by stating the obvious: “If something cannot go on for ever, it will stop”. You don’t need to be an economist or mathematician to understand that Argentina cannot keep on piling up huge budget deficits, trade deficits and foreign debts for the rest of time. Hateful as the prospect must seem to the many who think the country has already suffered more than enough and deserves a break, unless the people ruling it get their hands on a huge amount of money it will eventually crash into a brick wall. The situation may seem nowhere near as alarming as it was back in 2001, but it would be foolish to pretend there is nothing to worry about.

For much of the last fortnight, it seemed that the day of reckoning was already upon us, but then the government, backed at least verbally by the IMF’s Christine Lagarde, Donald Trump and other dignitaries, was given a breathing space. This does not mean that the problems facing it have gone away. Sooner rather than later, it will have to bring down those damn deficits. Just what will happen when it finally gets to work on them is anybody’s guess, but unless the IMF or, better still, the UN, decide that the rest of the world owes Argentina a living and should stump up enough money to allow the country to leave things much as they are, it will not be pretty.

Since taking office, Mauricio Macri’s government has tried to steer a middle course between economic priorities and political reality in the hope that the electorate would reward Cambiemos for its reluctance to do anything nasty. In political terms, the strategy worked fairy well, but, as was to be expected, after a couple of years of steady but deliberately slow progress, businessmen, investors and speculators have started to get impatient. They want the government to move closer to the markets. From a mainstream economist’s viewpoint, that would make sense. It political terms, it could prove suicidal.

Argentine politicians, trade union bosses and intellectual luminaries find it wonderfully easy to make a case against austerity, belt-tightening, cost-cutting or whatever word you use to describe what most governments feel they have to do when the money begins to run out. As yet none of them has come up with a workable alternative For that matter, neither have their counterparts in Europe who are just as eloquent in decrying the evil consequences of penny-pinching. Most of the schemes proposed by rebels against “neoliberal” stinginess are variants of what Milton Friedman called “helicopter money”, with packets of dollar bills getting dropped into the outstretched hands of a grateful populace which then goes on a spending spree and, by so doing, boosts consumption and, with it, the economy as a whole. In Italy, the oddball coalition formed by the playful anarchists of the Five Star Movement and the grim nationalists of La Liga say they are about to give it a try. Good luck with that.

Their threat to flout the Eurozone rules so Italy can spend her way out of austerity has been met with howls of anguish from Brussels and Berlin, but if present trends continue something much like “helicopter money” may soon be needed in other parts of the developed part of the world where more and more people are becoming superfluous to requirements as smart machines perform a fast growing number of tasks that until now have been reserved for humans. In democratic societies, such people simply cannot be left to the tender mercies of a shrinking job market. For some pessimists, that could mean that democracy as we know it could soon get replaced by market-friendly authoritarianism as practised by the Chinese.

As for squeezing the well-off until the pips squeak, that option may appeal to the social justice warrior that lurks within most of the many who dislike being obliged to make do with a modest income, but experience suggests it usually proves counterproductive; those who can, simply decamp to places where they can enjoy their wealth in peace; those who can’t swell the numbers of the resentful poor and are prone to provoke social unrest. That gives not only Macri and his CEOs but also many Peronists a respectable reason for showing far more interest in reducing taxes than in increasing them.

Like the Kirchnerites, up to now Macri and his gaggle of economy ministers have pinned their hopes on “helicopter money”, the large sums that a benevolent State hands out to the many who would otherwise find it desperately hard to survive. A couple of weeks ago, the influential Peronist senator Miguel Ángel Pichetto made waves by questioning the sustainability of an economic model in which more people – ten or eleven million, he said -, depend on the “universal allowance per child” than are properly employed. He clearly assumed that, like a similar scheme Finland had decided to scrap, it would have to be done away with.

Argentina is not the only country in which welfare costs are outstripping the work force’s willingness to pay for them. Much the same is happening in Europe and other relatively rich places where populations are aging, but here the main problem has less to do with demography than with the widening gap between what the economy needs and what a large proportion of the country’s inhabitants are able to do. The solution, if there is one, can only come from education, but in the rest of the world the notion that with a spot of training the barely literate could be turned into the tech-savvy employees private companies will be seeking in the years to come has proved to be woefully unrealistic. Some have made it, most have not.

Quite understandably, those who find that whatever they managed to learn did not guarantee them the sort of jobs they had been led to expect feel that the system has let them down. In Europe and the US, the resulting disgruntlement is contributing greatly to the political upheavals that indignant progressives are struggling to comprehend, among them the triumph of Brexit, the rise of Trump, the wilting of once flourishing social democratic parties and the emergence of new ones that, like the pair that are preparing to rule Italy, reject the old order.

James Neilson

James Neilson

Former editor of the Buenos Aires Herald (1979-1986).


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