The Problem Is Always The Same

[machinehead]

From a 28-year-old Argentine lawyer comes a cri de couer against the endless deficit financing, fiat currency printing, and borrowing.

 

"In effect, by definition, the supreme note of populism is manifested in the factual act of spending more than what is received (a mistake rejected by any housewife in the family finances)," says Nichol?s M?rquez.

 

Errrr ... does this sound at all familiar to Americans? USA Today reported that in the latest proposed budget, the U.S. government will borrow 22 cents of every dollar it spends.

 

Currency printing? Check the Fed's balance sheet. Borrowing? The national debt just exceeded $7 trillion.

 

Maybe it would be worth our while to hear an Argentine writer's vivid description of where these squalid vices lead:

 

 

 

"The Problem Is Always the Same"

by Nichol?s M?rquez

 

The market economy is fundamentally based on three supreme components: the preeminence and inviolability of private property, free enterprise and, obviously, fiscal balance. Under the shelter of this triad, in peaks and valleys from 1853 to the early Forties, Argentina experienced a process of development and splendor never before known in its history.

 

Although already during the Thirties minor flaws began to emerge (the coup of 1930 and the subsequent fraudulent practices that began to blur the Alberdian path) [Juan Bautista Alberdi, 19th century Argentine author and statesman], what's certain is that until 1943 Argentina enjoyed a prosperity that dazzled the world.

 

During this period, in October 1929 the U.S. entered a terrible and prolonged depression without precedent; Europe suffered Hitlerism, Mussolini-ism, Communism, the Spanish civil war, and the second World War that exploded in 1939 with an incalculable tally of misery and death. Latin America for its part wandered between poverty and ignorance administered by caricature-like dictators.

 

By contrast, Argentina in those times had obtained an excellent position, quickly overcoming the Great Depression. In 1939 the real GDP of Argentina was 15% higher than in 1929 (during that same period, the U.S. GDP only grew by 4%).

 

In 1937, the per capita GDP of Italy was not even half of Argentina's, and Japan's was less than a third. Construction, theaters, palaces and imposing buildings flowed in torrents. The culture advanced to the worldwide vanguard. Fifty movies per year were filmed (from 1937, occupying first place in Spanish-speaking production); the arts and good taste shined; the publishing industry of Argentina became first in the Spanish-speaking world.

 

In 1939, Argentina occupied a balanced position within South America, having 14.2% of the population and 15.3% of the land area. There was no unemployment; illiteracy was almost nonexistent; thousands of Europeans who escaped from totalitarianism and misery were received daily. Social inequalities were far lower than in the rest of Latin America.

 

Between 1930 and 1943 inflation was nil. The growth of real wages averaged 5% annually between 1935 and 1943. Today, sixty years later, the poverty index exceeds 50%, indigence 25%, and unemployment 20%.

 

And what happened to this enviable power that today has been reduced to a minimal and impoverished expression? Curiously, the vernacular hegemonic thinking monomaniacally heaps shades of blame for all the present evils on the market economy and the pejoratively labeled "neoliberalism" (the same one that in its time led us to progress). No one knows whether bad faith or ignorance is the leitmotif that impels numerous sectors to carry out such a lamentable analysis of our poverty, when, in strict truth, the first and last impulse of our misfortune has an unequivocal intellectual and material cause: populism.

 

And what it is populism? It is not easy to give a totally precise definition, since there are diverse shades of populism. There are those of a nationalistic style, of a "progressive" color; there are civilian and militarist versions. But if in some way we can detail the central characteristic and common denominator of all these subtypes, it is precisely their irrational adhesion to fiscal disequilibrium. In effect, by definition, the supreme note of populism is manifested in the factual act of spending more than what is received (a mistake rejected by any housewife in the family finances).

 

The vice in question began in the Forties, when the enormous existing reserves ascended to sidereal numbers, and Juan Domingo Per?n himself admitted that in the corridors of the central bank "you couldn't even walk past the quantity of gold we have." But Per?n, opposing the direction of the prosperous nations of the planet, put himself firmly in charge of fulminating against this fabulous wealth, during an irresponsible statist administration of a festive style.

 

In this period (1946-55), public utilities and large enterprises arbitrarily considered as "trustees of national sovereignty" were nationalized. Among them were the railroads, the telephone system, airlines, the marine and river fleets, the ports, petroleum exploration, natural gas, electrical and atomic energy, coal, iron, large banks, shipbuilding and aeronautical industries, the docks, copper refining, insurance, land transport, etc. Controls were instituted on prices, wages, foreign exchange, exports, imports; and demagogic labor regulations as well.

 

In 1955, Argentina already was without reserves, facing incipient indebtedness, but the spending didn't stop at all because the government resorted to the compulsory plundering of pension accounts to beat the deficit. The "country of cattle and wheat" was compelled to suffer a rationing so severe that it had to eat black bread and import wheat.

 

At the fall of the Per?n regime, the culture of populism soon was entrenched and strengthened. As no reserves remained to finance the statist-deficit policy, populism was obliged to adopt a new device: the emission of currency without backing.

 

Across all governments and factions (except for very fleeting intervals), the dirigiste, fiat-currency system remained intact, and successive governments did not change by one jot the policy established in the Forties, but rather extended and consolidated it. In effect, after the Liberating Revolution in 1955, a period of opaque administration began in which fragile democracies (prescriptive Per?nism) alternated with civic-military coups.

 

With the lifting of the ban on Per?n's "Justicialist" party in 1973, the artificial expansion of paper money reached an unmanageable point. In this democratic period (May 1973 to March 1976), six different ministers marched through the finance portfolio, among them Rodrigo Celestine (author of the hyperinflationary coup called "Rodrigazo"). The annual inflation rate of the final eight months surpassed 538%, the fiscal deficit in its exorbitant dimensions couldn't be calculated by conventional methods (though it had to be moderate in relation to the GDP), and the investment rate decreased to 11%.

 

The hyperinflation, the incapacity, the horror of the AAA [Anticommunist Alliance of Argentina, an extreme right-wing terrorist group that carried out bomb attacks, kidnappings and political assassinations] and the guerrilla; all gave a foothold to the civic-military coup in March 1976.

 

Very curiously, for a long time it has been common (almost a dogma of Faith) for all the staff of the anticapitalist crowd (politicians, unionists, journalists and various opinion-makers) to shout, explaining that the problem of developing economic decay "started on 24th March 1976." Next, they attack saying that since then, "the neoliberal system has been imposed on Argentina."

 

Nevertheless, the unfortunate creed of populism again errs, since contrary to what it maintains in the dominant propaganda, the last civic-military government in economic matters did not initiate or change anything. We got no kick from any "neoliberalism," not only because there was not a single privatization, but also companies such as the airline Austral and Italo (an electrical company) continued to be nationalized.

 

During the administration of President Videla, whose economic portfolio was entrusted to Martinez de Hoz, the country took on twenty billion dollars of debt to finance all types of dirigiste and statist adventures, such as the oil company YPF, subsidizing exports which consumed more foreign exchange than they produced, the Central Market, the binational entity Yaciret?, the Petrochemical Complex of Bahia Blanca, the state enterprise Altos Hornos Zapla, the coal company YCF, and other mega-enterprises.

 

Public works surged, from the construction of pharaonic works like soccer stadia, freeways, the Interama Recreation Park, the transfer of the Zoological Garden, and the World Championship of Soccer, to the financing of a war against the liberal powers in 1982.

 

On the other hand, great portions of the loans were used by the dirigiste technocracy in order to maintain an artificially overvalued exchange rate. There were rigid controls on prices and the highest levels of fiscal deficits. Years later, Martinez de Hoz himself, while being questioned by a commission of deputies during the Alfons?n administration, claimed to have "basically continued the economic program of Celestine Rodrigo, G?mez Morales and Mondelli."

 

 

Without a solution for sustainability, the fiat, statist, deficit-financed system continued all during the Eighties, now under the sponsorship of "Plan Austral" (another dirigiste scheme). In this episode, more public spending and price controls were the order of the day. Fifty percent of the means of production already were in the hands of the state. Argentina was known to be the noncommunist country with the greatest degree of statism in the world (after Mexico).

 

In mid-1989, the collapse of public services and hyperinflation arrived at its culmination. During June and July the cost of living rose by 114% and 196% per month, respectively. In the midst of the turmoil, Dr. Alfons?n had to resign as president six months before his mandate expired.

 

With the advent of Carlos Menem, deficit populism continued not only intact, but harnessed itself to the paroxysm (although describing itself as "modern and globalized"). In effect, under the pretext of ending the grandiloquent squandering, the privatization wave came. But promptly, public spending escalated 143% during his first term, and in his second term it increased 36.5% more. The budget of the Presidency, $703 million in 1995, increased to $3.285 billion in 1999.

 

What distinguished this neopopulism with respect to its predecessors, is that it was not financed with the "maquinita" [little machine] of printing colored paper, but with money raised by monopolistic privatizations, tax increases (the Value Added Tax rose from 6% to 21%) and, of course, with immense external indebtedness.

 

During the period 1991-1995, the hyperdeficit was fed by selling the assets of privatized monopolies, and in succeeding years, through borrowing. The debt that in 1989 was $63 billion, ascended to $147 billion ten years later.

 

During this decade of "adjustment" (such is the amazing nickname that the anticapitalist propaganda gave it), the increase in public expenditure represented twice the growth of the GDP, and the fiscal deficit was allowed to reach ten billion dollars.

 

And all this gigantic wastefulness was carried out to continue sustaining the same deficit habit, now incarnated in another dirigiste plan, known as "convertibility," in which the personal property par excellence, that is to say money, had a value not fixed by the natural law of supply and demand, but by an arbitrary legal edict that imposed an artificial nominal value (deceptively called "one to one").

 

Promptly, in a veritable celebration of "odds and ends" and dissipation, whole provinces used the state apparatus to sustain clientelistic "caudillismo" through the indiscriminate creation of superfluous public employment. (Provinces such as La Rioja, Santa Cruz or Tierra del Feugo have one state employee for each three families, whereas the city of Buenos Aires has nine public employees in an apples-to-apples comparison).

 

And who pays for this irresponsible roundhousing? It's obvious that the main weight falls on the backs of the private sector (or what remains of it) with confiscatory taxes. (Tax collections grew by $30 billion between 1991 and 1999.) During the Menemist "adjustment," the state apparatus spent $20 billion annually, and most of this dissipation went into 9,242 elected positions with their endless derivatives (advisers, subsidies, stipends, benefits, nepotism and clientelism).

 

In November 2000, no politician was perturbed when Carlota Jackisch denounced in an impeccable report chilling facts, such as that the province of Bavaria (Germany) with 12,500,000 inhabitants and 204 legislators, had a legislative budget of $54 million, $3 million less than Argentina's Formosa province, with only 30 legislators, 500,000 inhabitants and a GDP 156 times lower than Bavaria's. Equally, Catalonia (Spain), with 6 million inhabitants, spent less than Argentina's El Chaco province (with 950,000 inhabitants and a GDP 36 times lower). In consequential logic, the more the state advances, the farther the private sector falls.

 

Throughout our 60 years of populism and decay, the deficit has been financed by the depredation of reserves, the emission of spurious currency, confiscatory taxes and external credit. These modalities of financing were exhausted one by one. The last to go was the credit, whose immediate consequence, in the midst of a collapse in confidence and capital flight, was the sequestration of bank deposits at the end of the 2001 by the (still in effect) "corralito" ["little corral"], massacreing property rights (the cornerstone of liberalism). Next, the anticapitalist claque jubilantly applauded the default that they had created.

 

At the moment, seven million Argentineans have become dependent on the state. For each one of them, there are 1.31 individuals generating income soon to be redistributed by the omnivorous public administration.

 

Finally, how can the fault lie with liberalism? Have we not been ruined by the everlasting populist, interventionist, deficit-spending dogma? And, how it can be that the thick-headed leadership and "social commentators" blame the market for the evils caused by populism, and as a countermeasure, offer more populism? Was not perhaps the neglect of Alberdian rationality the cause of our ostracism?

 

At a certain time, a leader not at all given to making sugar-coated speeches, said on TV that it is necessary to lower public spending, reduce the deficit, and balance our accounts. The embarrassed interviewer said to him, "But Doctor, you always propose the same recipe." "But the problem is always the same," he responded with imperturbable patience.

 

---------------------------------------------------

 

Nichol?s M?rquez is a 28-year-old young lawyer residing in Mar del Plata, Argentina.

 

 

The original Spanish version is on a Stoolville-like Argentine web forum called thebaranda.com. The post is titled "La economia argentina. Galbraith te lo recomiendo," dated 10/2/04 16:59, posted by esmeralda.

 

http://www.thebaranda.com

 

Translated by machinehead -- cuidado!

[Guest sigmoidoscope]

Excellent essay, MH, and we thank you for posting this, and for the excellent translation! I am very impressed.

[Soros]

http://www.zuam.ch/pdf/Article/barrons04.pdf

 

I have a book written by an Argentine professor in 1950 called Argentina: World Power.

[mjkst27]

my spanish was weak when I took it in high school, let alone now, but I swear they are talking about the financial "matrix" on that site - just like we do!