Turning to Argentina for Insight into America’s Future

Week 24 of the Quarantine

SAN MARTIN, ARGENTINA – Another day… more jackassery to reckon with.

Did anyone, at either the moronic Republican or imbecilic Democratic blabfests, even mention the biggest threat facing us all? Of course not.

What’s the biggest danger?

We’ll give you a hint. It’s not the coronavirus. And it’s not “racism.” It’s not China. It’s not Russia. It’s not inequality. It’s not greed.

It’s not even the bad taste, foolish ideas, and half-wit speeches that dominate the national conventions.

Do Nothing

No, that which will do most damage cannot be discussed. Thou shalt not pronounce its name. Not if you’re running for president! Because it would lead to the obvious and irresistible question: What are you gonna do about it?

And doing something about it would mean cutting back on the power of the elite of both parties… It would mean actually draining The Swamp… It would mean a foreign/military policy that didn’t cost us in the region of $1 trillion a year… It would mean no more bailouts for Wall Street…

It would mean we couldn’t afford the silly Universal Lockdown… or respond to it by giving the people we put out of work more money than they earned on the job…

Crossed the Line

None of those things are going to stop – no matter who wins in November. Because there’s one thing both parties agree on. And it’s the one thing that will destroy them both. And most of the rest of us, too. Here’s the latest from The New York Times:

We Have Crossed the Line Debt Hawks Warned Us About for Decades

Economists and deficit hawks have warned for decades that the United States was borrowing too much money. The federal debt was ballooning so fast, they said, that economic ruin was inevitable: Interest rates would skyrocket, taxes would rise and inflation would probably run wild.

The death spiral could be triggered once the debt surpassed the size of the U.S. economy – a turning point that was probably still years in the future.

America’s federal debt has increased by $7 trillion since 2016, bringing it to almost $27 trillion. During that same period, U.S. GDP grew by only about $3.5 trillion, or only half as much – the slowest increase since World War II.

This was also a period with a supposedly “conservative” president, who promised to pay off the national debt and now – either delusional or simply dishonest – says he created the “greatest economy ever.”

His administration already approved a $2.2 trillion “stimulus” package in April… and plans to add at least another $1 trillion in September.

And it supports a Federal Reserve that has added $3 trillion to the nation’s monetary base in as many months… and now promises (according to a Bloomberg report this morning) to hold its key short-term lending rate near zero for the next five years.

Disaster on the Pampas

But we’re going to turn our eyes away from the looming disaster in the USA… and focus on one that has already happened.

We’re looking at a country where the inflation rate has already hit as high as 5,000%… where the military has taken over twice… and where the government has already defaulted on its debt 12 times…

We are blessed by having to wait out the coronavirus here in Argentina. We didn’t plan it. But that’s the way it has worked out.

And it gives us a chance to look more closely at how you can destroy an economy with government policy.

How the Federal Reserve must envy the Argentine central bank – these guys know how to create inflation!

As Rich as an Argentine

One hundred years ago, the saying, “As rich as an Argentine” was no joke. The source of the country’s wealth is its vast “pampa” – flat land, well watered, with as much as 12 feet of rich topsoil.

At the end of the 19th century, Argentine farmers were among the world’s most productive. Huge herds of sheep and cattle could be fed on grass alone.

Then, with the arrival of refrigerated transport, they were able to sell their meat to foreign markets – principally, England – and get rich.

In 1900, Buenos Aires was a spectacular city, much more impressive in many ways than New York or San Francisco. It had broader avenues. A grand opera house. More trees and parks.

Stretching out for miles along the banks of the Rio de la Plata, with houses, factories, and a convenient harbor – it was one of the world’s most dynamic and fastest-growing cities.

In its elegant neighborhoods, people rode in exquisite carriages and lived in sumptuous mansions. Often, they kept apartments in Paris, too… for they appreciated European luxury and could afford it.

Immigrant Influx

In its poor neighborhoods, too, people arrived by the boatload… joining their Italian, Spanish, Basque, Syrian, and Palestinian cousins. Buenos Aires had the second-largest Jewish population in the world – exceeded only by New York.

And outside of the main city, there was a Welsh-speaking community in Chubut province… German speakers in Entre Ríos… and even a colony of South African Boers, who had fled the English occupation of their homeland.

There was no law stopping them from coming… not even a tax or registration. It was a free country!

This big influx of immigrants – combined with the natural wealth of the country… its smallish government… and its rule of law and respect for property rights helped the country become the sixth-richest in the world, with an average income about even with that in England.

Argentine Paradox

Now, it is down to number 80 on the list of richest nations, with a GDP of less than $20,000 per person. (For reference, in the U.S., the per-person GDP is $65,000… in Kazakhstan, it is $9,700.)

What happened? What caused Argentina to drop so violently?

The question is popular among economists; it’s known as the “Argentine Paradox.” Even as recently as the 1960s, Argentina had about the same GDP per capita as Japan.

And the country has no social or cultural reasons that might explain its collapse. It is more European than the U.S., never having had a substantial (forced) immigration from Africa or a (voluntary) immigration from Latin America.

Why, then, would it fall so far behind the rest of the European world?

Pernicious Ideas

The first problem was democracy itself. In 1905, the Sáenz Peña law gave all males the vote. Then, to make a long story short, the proletariat concentrated in Buenos Aires was able to out-vote the richer, fewer, land-owning, old elite.

And along with the immigrants pouring into the capital in the early 20th century – in 1914, approximately a third of the city was foreign-born – were a lot of very pernicious ideas.

In the 1930s and 1940s, “reform” movements were popular all through the “European” world (including the U.S., Canada, Australia, New Zealand, etc.).

In England, the 1942 Beveridge Report elaborated on the principles of welfare state foundation laid by David Lloyd George beginning in 1911.

In France, the government of Léon Blum instituted the same kind of “reforms” as those of Lloyd George in Britain and Roosevelt in the USA. As a result, wages rose 48% in the two years from 1938 to 1940.

Alas, as French economist Jacques Rueff pointed out years later… it was a fraud. Prices rose 46% during the same period.

Different Direction

Argentina was not spared the social reform movement. But its champion, Juan Perón, followed a different reformer… not Blum or Beveridge. Instead, he took Benito Mussolini for his model.

Like Hitler, Mussolini was a socialist. His reforms were much the same as those of Blum and Beveridge, but with a twist.

While Roosevelt, Blum, and Beveridge zigged to the left… Mussolini, Hitler, and Perón zagged to the right. That is, they added a “nationalist” angle, with snazzy uniforms and a strong military to back their socialist agenda.

Fortunately for the Germans and the Italians, their “reformers” were defeated in World War II.

The Peronists were not.

To be continued…

Regards,

Bill