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.
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