Obama: America's Perón

I lived and worked in Argentina from 1975 to 1979, and I've been back there about every other year since. I began my economic career in 1980 with a lengthy study of the Argentine economy, and I spent lots of time understanding how and why it suffered hyperinflation for many years and why its economy has done so poorly. While I lived there, the inflation rate averaged about 7% a month, or 125% a year, as I recall. During one three-week visit in the mid-1980s, the price level doubled, and I saw supermarkets post prices on chalkboards and update them as many as two or three times a day. The only way the government could fund its enormous deficits was to order the central bank to print money so it could pay its bills—it's called an inflation tax because those who accept the funny money, which loses its value rapidly, are effectively forced to transfer some of their wealth to the government.

Aside from the ravages of inflation and periodic depressions—I recall calculating that industrial production per capita had declined almost 35% during one decade—the other thing that stands out in my memories of Argentina is seeing newspaper headlines report almost daily that the president had issued a decree: one day ordering some company to lower its prices, another day allowing another company to raise its prices, another day announcing the new price of gasoline, and yet another day declaring that all workers would receive a 10% increase in pay to compensate for the higher prices. The president spent most of his time managing the economy, and he did that by receiving an endless number of people in his office who petitioned for the right to raise prices, or who petitioned for relief from the fallout of one of his previous diktats. It was government by presidential decree, and it was the closest I hope I'll ever come to living in a socialist economy.

Argentines don't realize how bad things are because for most of the past 200 years they have lived in a country governed by caudillos, their term for a president with semi-dictatorial powers who solves everyone's problems. It's akin to Mafia Dons, only worse, and that in turn has a lot to do with Argentina's strong Italian roots. Juan Perón was the most famous example, and his influence is alive and well in the figure of Cristina Kirchner, Argentina's current president and a devout Peronist. She revels in pitting the rich against the poor, and handing out favors to unions, favored industries, and political cronies, all while living in grand style. Among the many curiosities of the Argentine economy, housewives are eligible for social security when they "retire," because after all, being a housewife is a job, isn't it? Trouble is, the government periodically runs out of money to pay for all the goodies, which is why a monthly social security check today won't buy even a month's worth of food. Legions of Argentines are dependent on and trapped by government handouts which effectively force them to live in a manner we would consider way below the poverty level. Spreading the wealth only ends up destroying a country's wealth, and Argentina is the best example of that I know.

So it is with great concern and sadness that I see a creeping Peronism happening in the U.S. economy under President Obama. Consider this latest headline: "Obama to Announce Contraception Rule ‘Accommodation’ for Religious Organizations." What business does our president have telling organizations and insurance companies how they should run their business, what kinds of healthcare policies they can offer, and whether or not they can charge for contraceptive services? This goes way beyond right-to-life issues, religious freedom, and the ObamaCare mandate, as John Cochrane so nicely explained in his WSJ article yesterday. It's all about whether we are going to have our economy and our personal decisions micro-managed in Washington. Are we ready to embrace Peronism? Do we really want bailouts that start with favored companies (e.g., General Motors) and trample the rights of bondholders? Should the government really be forcing banks to offer bailouts to homeowners who paid too much for their homes? It's a slippery slope we're on that knows no end, unless the voters rise up in protest this November. It's my fervent hope that they will.

Argentine President Cristina Kirchner is reported to have bragged that since Obama was copying many of her policies, he lent them great legitimacy. Two years ago I was on a plane in Argentina and was conversing with the fellow next to me about what was going on in the U.S. economy. I lamented that "Obama is the United States' Perón," and he replied "and what's wrong with that?" I immediately realized he was a Peronist, and he turned out to be the minister of education for the province that the Kirchners used to govern. Peronism has been the bane of Argentina's economy and its people, but it continues to thrive because it corrupts its politicians with unimaginable power and money.

I'm reminded once again of this memorable quote from Chip Mellor:

There continues to be the false premise that the problem in politics is too much money, when in fact the problem is too much government for sale ... these campaign finance laws are really treating only a symptom, not the disease. Until you get to the root cause, which is too much government, you are really not doing anything productive and in many cases you are doing harm.

Giving too much power to politicians (regardless of party affiliation) only ends up corrupting the entire process, because politicians end up selling favors, which in the end is an irresistible temptation. A tax hike here, a tax break there; higher prices here, lower prices there; a mandate here, an exemption from the mandate there. And so on, as we gradually lose our freedoms and our markets stop functioning efficiently. It's a very sad commentary on the state of the American economy and its politics. We really need to change; we really need less government, not more.

UPDATE: This is almost too good to be true. Apparently, Occupiers were paid to protest the CPAC (the Conservative Political Action Conference). This is exactly the strategy that the Kirchners have used in Argentina. If you travel to Argentina you are quite likely to run into a street protest that disrupts traffic, and the protest is almost certainly going to be some variation on the theme of how "the rich" are taking advantage of the poor. Three years ago I documented one such protest in Argentina. The parallels between Obama and the Peronists are too numerous to ignore. Protesters paid by unions and Peronist crony friends of the Kirchners have become so prevalent that the government has even come up with an official job designation for what they do: piqueteros. There are people in Argentina who actually make a living protesting against the supposed evils of capitalism. Believe it or not.

HT: Glenn Reynolds

The danger of American Peronism

Here is a short editorial from the Washington Examiner titled "United States of Argentina." I reprint it because it does a good job of comparing the worst of what is going on in the US with what those same policies did to Argentina. The parallels between Obamanomics and Peronism are chilling.

I know a lot about Argentina, having lived there for four years in the late 1970s. I've been following the economy closely ever since, and have traveled there extensively. This article does not exaggerate in the least how much Argentina has suffered from Big Government.

I believe strongly that the US electorate does not want to follow in Argentina's footsteps, even though our current ruling class apparently does. This is going to be the central issue in the upcoming November elections. If we say "NO" to American Peronism, as I think we will, our future will brighten considerably.

When White House Chief of Staff Rahm Emanuel last year advised "never waste a good crisis," he likely was thinking ahead to President Obama's economic stimulus program and health care plan. After swelling the federal deficit by passing the stimulus at a cost of nearly $1 trillion, Democrats in Congress signed off on Obamacare, with a price tag, according to Rep. Paul Ryan, R-Wis., of $2.3 trillion in its first decade alone. With federal spending exploding at such a rate, it's no wonder that Moody's Investor Service recently warned that it would downgrade the U.S. government's credit rating if it concludes "the government was unable and/or unwilling to quickly reverse the deterioration it has incurred."

What the United States government will do in the future may be in question, but we need not look far to find past examples of countries unwilling to get their finances in order. Consider Argentina. In 1914, it was one of the wealthiest countries in the world, and its living standard exceeded that of Western Europe until the late 1950s. Then President Juan Peron squandered his nation's prosperity by introducing a host of redistributionist economic and regulatory policies, nationalizing utilities and foreign investments, and pumping up the national debt. What followed was three decades of political instability, growing dependency, and economic stagnation.

There was a brief period of privatization and booming foreign investment in what the American Enterprise Institute's Mark Falcoff called Argentina's "go go" 1990s. But that was negated by the return of political leaders espousing Peronist principles who created a downward economic spiral by breaking contracts with foreign utility companies that had invested heavily in Argentina. Today, the country has lost its international credit standing and an estimated 10 percent of the population has moved abroad to escape the stifling taxes, regulation and inefficiency. To make matters worse, President Cristina Kirchner recently attracted attention for firing the president of the country's central bank. His sin was refusing to go along with her inflationary spending policies (Argentina's inflation is 17 percent) and challenging her demand that he hand over $6.6 billion in bank reserves.

Besides sending federal spending skyrocketing, Obama has, like so many of the politicians who ruined Argentina, dramatically increased government regulation of business, nationalized major sectors of the economy, and imposed a lengthy list of tax increases. America today is no more exempt from economic reality than Argentina was in years past. Make no mistake, these actions will eventually drain the life from this nation's economic vitality, just as they did in Argentina.

 HT: Glenn Reynolds

Steady and slow improvement is boring, but things could be worse

Argentina has kept us busier than I anticipated this past week, so it's good that the news from the states has been unremarkable. As far as I can tell, the U.S. economy continues to grow at a disappointingly slow pace of about 2-3% per year, but it's still growing and things are still getting gradually better, and that means that it's best to avoid cash.

Argentina, on the other hand, is slowly going from bad to worse, as the government pursues economic policies that could charitably be termed inappropriate, and realistically termed crazy. Import restrictions are creating shortages of all sorts of things, and the gap between the official exchange rate and the parallel (black market) rate is huge—over 40%. (Good news: food and wine are incredibly cheap in dollar terms.)  On top of the disincentive this creates to export (exports must be cleared at the official rate), the government has severely limited exports of wheat in the absurd belief that this will keep the price of wheat and bread low and that in turn will keep the proletariat content (a certain North American country has banned petroleum exports for similar purposes). To make matters worse, agricultural exports—Argentina's main source of foreign currency—are taxed at a punitive 35%. A good friend hosted us for a long weekend on his estancia the other day, where he grows corn, soybeans, sorghum, and wheat, and he related how all of these policies simply cause him to plant less.

There's relief here that the Argentine government is making an effort to avoid a default on its debt, but it's comical to see how the government is trying to make the "vulture funds" look like the bad guys. How dare someone insist that the government meet its debt obligations? Meanwhile, the Argentine central bank has been expanding the money supply (mainly by giving "advances" to the government so that it can pay its bills) by 25-40% per year, so inflation is raging and the poor and middle class are taking it on the chin. The other night I got into a huge argument with some friends here who insisted that inflation was partly a cultural phenomenon and mostly the result of rapacious capitalists. It's fair to say that there is a grave shortage of economic wisdom in this country, especially among the ruling Peronists. As these posts point out, Obama—whom I've called the first Peronist president of the U.S.—is similarly lacking in economic wisdom and similarly fond of populist policies.

A few thoughts on today's economic releases:

New home sales in May handily beat expectations, thus throwing lots of cold water on the prevailing view among economic bears that the housing market was on the skids. As the chart above shows, new home sales have been moving steadily (though irregularly) higher for over three years. They are still very low, and have plenty of room to increase further.

Consumer confidence has been moving steadily and irregularly higher for the past five years. It's still relatively low from an historical perspective, which means that there is still a healthy amount of pessimism out there. We are years away from a situation that might be termed "irrationally exuberant."

Slow and steady as she goes; things could be a lot worse.

P.S. It's almost 10 pm here and we are leaving shortly to have dinner at a friend's house.