Do as I say, not as I do

Joao Valente Aguiar, once again, felt the need to remind his readers of his modus operandi. While he seems unable to write a blog post without insulting whoever doesn't fit his very narrow concept of left (latest example here), which is probably fitting for a former Stalinist fanatic, he continues to be unable to withstand any scrutiny without losing his mind.

In the umpteenth discussion about the Euro, Argentina was brought to the fore by Aguiar himself, in the 4th comment to this blog post, which lead to an exchange between Joao Bernardo and Miguel Madeira, where Bernardo stated that "Argentina was an important commodity exporter", leading to my entry in such a debate, as well as a longer post here, too. As a result, Aguiar decided to do the following two things:
1) Write something that he presumably thought was an intelligent reply (20th comment on the above-mentioned post) - perhaps fortunately for him, ignorance does indeed seem to be bliss (more on that later).
2) Censor my reply countering his claims, stating that it was off-topic and only noise-generating, while conveniently ignoring the fact that it was himself who first brought the topic to discussion and other participants had been engaged in exchanges on that very topic.

Rewinding for a bit, my participation in the debate was merely to state in a very concise way, as I had already done at greater length here, that only 12% of the Argentinean growth during the 2002-2008 period was due to exports and, within those, commodity exports were a minority. None of Aguiar's arguments seems to hold up:

a) Rather oddly, he responds by quoting export data from 2014, which is obviously irrelevant to Argentina's performance during the 2002-08 period.

b) He triumphantly quotes the following passage from Weisbrot et al.'s report, in page 6: "However, this measure of real (inflation-adjusted) contributions to growth does not measure the full impact of exports when there are significant price increases for exports. In this case, if the price increase is large enough and the affected exports are a big enough share of the economy, the increased income can contribute to growth and to living standards (through the consumption of imports that do not add directly to GDP) in other ways, that do not show up in the real contributions to GDP growth measured above". He follows that up by declaring that the authors were far more careful and less adamant in their statements than I had been, and hints that I dishonestly cherry-picked the report's statements that were most convenient for my argument.
This last statement is patently false and an extremely dishonest one for Aguiar to make: on one hand, I had addressed that myself in my longer blog post, which he presumably had seen, given the off-hand remark he makes about the Argentinean statistical services; on the other hand, he incomprehensibly fails to quote the following two paragraphs from that very study:

"To consider these other effects of the rising value of exports, Figures 2 and 3 show Argentina’s annual exports by value, and by category; this is shown both in current dollars and below, in percent of GDP. 

As can be seen in the graphs, exports as a percent of GDP, as measured by dollar value, actually decreased during the recovery. And agricultural exports, as a percent of GDP, fell slightly from 5.0 percent of GDP to 4.7 percent, dipping as low as 3.4 percent in 2006 – again, this is measured by dollar value, so it reflects the large increases in commodity prices from 2005 to 2008. So agricultural exports are clearly not driving growth; and in fact they are too small a share of GDP to have anywhere near the kind of impact that is often attributed to them."

It is therefore clear that the authors did look into the additional contributions that exports might have had to improvements in living standards, and I had noted as much in the previously-mentioned post. This would suffice to put to rest Aguiar's claim that the authors had been far more careful in their statements than me. But, rather hilariously, Mark Weisbrot, the study's lead author, also wrote an article for The Guardian, shortly after the publication of that report. In his own words:

"It turns out that only 12% of Argentina's real GDP growth during this period was due to any kind of exports at all. And just a fraction of this 12% was due to commodity exports, including soybeans. So Argentina's economic growth from 2002-2010 was not an export-led growth experience, by any stretch of the imagination, still less, a "commodities boom".

The other possibility is based on prices: the price of soybeans and other commodity exports also rose during part of this period. This can boost the economy in various ways, even if the physical amount of exports does not increase as rapidly as the economy. If this were driving Argentina's growth, we would expect the dollar value of these exports to have grown faster than the rest of the economy. But this did not happen either. The value of agricultural exports, including of course soybeans, as a percent of Argentina's GDP didn't rise during the expansion. It was about 5% of GDP when the economy started growing in 2002, and 3.7% of GDP in 2010.  

In other words, there is no plausible story that anyone can tell from the data to support the idea that Argentina's growth over the past nine years was driven by a "commodities boom." Why does this matter? Well, as economist Paul Krugman noted yesterday, "articles about Argentina are almost always very negative in tone ― they are irresponsible, they are renationalizing some industries, they talk populist, so they must be going very badly." Which, he points out, "doesn't speak well for the state of economics reporting." It sure doesn't.  

The myth of the "commodities export boom" is one way that Argentina's detractors dismiss Argentina's economic growth as just dumb luck. But the reality is that the economic expansion has been led by domestic consumption and investment. And it happened because the Argentine government changed its most important macroeconomic choices: on fiscal, monetary, and exchange rate policies. That is what took Argentina out of its 1998-2002 depression and turned it into the fastest-growing economy in the Americas."

If this is not adamant and categorical, I don't know what is. Unfortunately, Aguiar passed on the chance to further elaborate on his argument, instead choosing to censor my reply.

c) In a subsequent comment, Aguiar claims that he used official data (though he declines to say it was from 2014, and hence irrelevant for the topic under discussion) from the Argentinean State, while I did not. It is again, an odd claim. The parts of the report I quoted used data from INDEC, just as Aguiar did, and also from CEPAL (which, as a regional United Nations Commission, is also an official source).

In short, none of Aguiar's claims hold up to scrutiny, and some are woefully dishonest. One might wonder why he decided to censor my reply to his claims...

Time to end several zombie ideas about Argentina's economy after the 2001 default

Following Paul Krugman's amusing analogy (which he in turn took from an old paper from other authors), zombie ideas are those that just don't die, no matter how many times you kill them with the existing evidence. It is also fairly clear that there is no shortage of zombies whenever Argentina's 2001 default comes to the fore - lately, due to the situation in Greece, that has been happening quite often. Unsurprisingly, it is immensely annoying and frustrating to see person after person, thinking he/she is making very wise and sophisticated arguments, while in reality just displaying a staggering amount of ignorance of basic, well accessible, facts.

Enter Anatole Kaletsky: while making the point about the major problems faced by Greece if the ECB stops supporting its banks - a point that was/is pretty much indisputable - he illustrates it by saying that, in such a scenario, "Greece will become an economic pariah – the Argentina of Europe", with the implicit assertion that Argentina drowned into a disastrous situation after its default. I realize the main point of this article was a different one and is generally not bad (though it is easily arguable that Varoufakis knew that his statements about contagion were far more flimsy that he proclaimed - for his strategy to work, it would have been enough for his counterparts to believe that, or maybe even only to instill that type of doubt). But the fact that this was a relatively unimportant remark does not excuse Kaletsky, who should have known better and done his homework.

Mark Weisbrot, from CEPR, has been trying to dispel this sort of zombie ideas about Argentina for several years now, though seemingly without much success (as a personal note, I had the pleasure of watching him debate the Eurozone crisis, on different occasions - WB/IMF Spring and Annual Meetings of some years ago, if my memory does not betray me - Anders Aslund and Prakash Loungani, with Argentina's experience inevitably entering the debate). On a 2011 report, him and other CEPR colleagues discuss the Argentinean experience at length. Even using only the short summary from the link above (though the full pdf is certainly worth reading), one can easily see how wrong-headed the assertion about Argentina's demise following the bankruptcy are. In their own words:

"The Argentine economy has grown 94 percent for the years 2002-2011, using International Monetary Fund projections for the end of this year. This is the fastest growth in the Western Hemisphere for this period (...) It also compares favorably to neighboring economies that are commonly seen as quite successful, such as Brazil, which has had less than half as much growth over the same period. (...) Poverty has fallen by over two-thirds from its peak, from almost half of the population in 2001 to approximately one-seventh of the population in early 2010. Unemployment has fallen by over half from its peak, to 8.0 percent. And employment, by early 2010, had risen to 55.7 percent, the highest on record, as social spending nearly tripled in real terms. Income inequality has also fallen dramatically. (...) Recovery began after one quarter of contraction and continued until the world economic slowdown and recession of 2008-2009. Now it has rebounded, and the IMF projects growth of 8 percent for 2011."

How someone can infer that a country posting the continent's fastest growth, exhibiting a steep decline in both unemployment, poverty, and inequality, is anything but an unabashed success is anyone's guess. Now, some people look at the deep recession they had been suffering since 1998 and then claim that was the only reason Argentina grew. This argument is also wrong, since the point was precisely that Argentina started growing one quarter - let's repeat that again: one quarter - after its default, but had shown no signs of recovery prior to its change of course away from the contractionary policies (i.e., austerity) imposed while being bound to its currency board. Indeed, as Weisbrot et al. show, Argentina reached its pre-crisis real GDP level in early 2005 and then continued at a strong rate until the global financial crisis. For some reason, this type of performance was not enough to convince the likes of Kaletsky.

There is far worse than Kaletsky, however. On a Portuguese blog, Vias de Facto, João Valente Aguiar, a sociologist with the Universidade do Porto's Instituto de Sociologia, has repeatedly been making the claim that Argentina turned into a basket case after the default - the latest example of such claims showing up in the comment section to one of his blog posts. There have been a number of previous discussions between him and I, with the afore-mentioned report being brought to his attention but, for some reason, he still chooses to double down and ignore the available data. Then again, why should he bother letting the facts gets in the way of a predefined story?

Another zombie mistake that often crops up originates from those admitting that Argentina did, indeed, enjoy a strong recovery, but that it was simply due to being lucky with surging prices in commodities where Argentina was a major producer, i.e., Argentina thus became a typical case of a  lucky export-led recovery. To stay with Vias de Facto, this is basically what is hinted at by João Bernardo, in the already mentioned comment section, when stating that "Argentina é uma importante exportadora de commodities". How do such statements withstand an empirical test? Quite badly, according to Weisbrot et al, who actually bothered calculating the contributions of different factors to Argentina's growth, reaching the conclusion that only 12% of the 2002-08 expansion came from exports (page 5) - and that share becomes negative if we turn into net exports. It could still be the case that, if there were large enough price increases, that could bring benefits by allowing for an increase in the consumption of imports. But Weistbrot et al. also account for by analyzing the share of such exports in total GDP, finding that agricultural exports decreased in their relative size (5.0% of GDP in 2002, 4.7% in 2008), with some of the food manufacturing where products such as soybean would be included remaining flat through the 2002-08 period at 6.5-6.6% of GDP (page 6-7). The obvious conclusion, as they clearly state, is that such products/sectors are too small to have the kind of impact often ascribed to them. Actually, their performance is no different form that of industrial manufacturing goods, who actually account for most of Argentina's exports.

So, what was behind Argentina's growth? Weisbrot et al. also answer that, showing clearly that the growth was led by consumption and investment, which accounted for 45% and 26% of total growth, respectively (pages 5-6).

Now, does defending the facts regarding the post-default years in Argentina mean cautioning every policy choice they have made, especially in recent years? Well, obviously not. Having made the right decision in 2001 does not mean that any given decision made in, say, 2014, makes perfect sense. Surely, one would have an extremely hard time to link Argentina's recent mistakes, including fudging inflation statistics, to the decision to default and abandon the peg at the beginning of the previous decade.

It should also be stressed that the work from Weisbrot et al, is not a report done by some crazy people who likes conspiracy theories - the fact that economists such as Krugman echo its findings, besides giving it some prominence, should also help dispel such notions. Moreover, Krugman had previously mentioned, on more than one occasion, that it was extremely odd to use Argentina as a cautionary tale for any thought of Greece leaving the Euro - if anything, despite some important differences (monetary union vs. currency board) and the inherent uncertainty and dangers in chaotic situations, Argentina would be an argument in favor of leaving the currency union.

Alas, Weisbrot's and Krugman's insistence may have been to no avail. To paraphrase Friedrich Schiller, against willful ignorance, the gods themselves contend in vain.

On careful selection of information

Oh well, why not use my first 'real' post to try to score an easy hit on one of most highly ranked economists around? 

So, it all started when Greg Mankiw again decided to defend the 1% in a NYT article. Unsurprisingly, Paul Krugman took him to task, both on the implicit assertion that the earnings of movies, sports, and arts are an important part of the increasing inequality story (they are not - it's mostly about corporate executives), and on the explicit statement on the importance of the financial sector as a reason for the very high pay observed there.

Mankiw then counters Krugman on a blog post, and offers 3 main comments: 

- The first one point to the importance of financial intermediation for growth, and looks like a deflection or a the use of a straw man; indeed, nowhere does Krugman (or pretty much any other economist) deny that financial intermediation is necessary - the point, rather, seems to be how much regulation it is subjected to, and whether lower salaries would lead to worse performance in the sector.

- The second, where he points to the non-existence of a single cuplrit for the financial crisis (he links to a chapter on which book, but for whatever reason the file is not opening). Maybe his book goes further than the blog post, but it still looks like a fair bit of hand-waving - sure, it's always hard to circumscribe responsibility for a major economic crisis to a single factor, but that hardly exonerates the financial sector from having played a major role.

- The third one is the main motivator for this post. There, Mankiw refers to Saez-Piketty data (for whatever reason, he does not provide a link) to mention that "during the downturn from 2007 to 2009, average income fell 17 percent, but the incomes of the top 1 percent fell 36 percent". I don't know what his source was, so it's impossible to know for sure if he was cherry-picking data. But i do know that Saez has made available an update of his "The Evolution of Top Incomes in the United States", using preliminary 2012 estimates. And the exact same table where it is indicated that income for the top 1% did decline 36% from 2007-09 also shows that a very fast recovery (31%) for them, during the 2009-12 period, while at the same time average income increased by 6%, and the income of those in the bottom 99% increased by only 0.4% (see table below, from the Saez article). But pointing this out would sort of ruin that poignant story about the heavy losses incurred by the top 1%...

2 and a half years later...

... I'm finally starting my own blog - still very tentatively, so we'll see how this goes and where it ends.

For now, the plan is to spend most of the time on my main topics of (professional/academic) interest, which basically means that most of my posts are likely going to be on inequality. Occasionally, I may also rant about some random things that got on my nerve (most of the time, it will probably mean that someone said something I consider to be quite stupid and/or false - hopefully, most of my own posts won't fall into either category). Every now and then, i will probably veer off into more unusual/trivial/personal topics (think movies, books, etc.).

Also, the plan is to write most (and probably all) the posts in English - partly a consequence of most of what i'm reading these days being in that language, but mainly because it's not especially easy to write in Portuguese with a US keyboard. Consequences of living in a foreign country...