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Comment by JavaBatman | Hacker News Reader

There's an old adage but I'm not sure of the source: "There are four types of economies: developed, undeveloped, Argentina, and Japan."

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Observed macroeconomic properties are subject to historical path dependence and inextricable from a country's relative technological attainment. As an economic periphery of the Dutch Republic in the 17th century, Japan experienced problems similar to Argentina's. But now, as a "core" economy---no doubt through its special relationship to the US--Japan's role in the global economy is wholly different.

The quip above comes from Simons Kuznets and I wrote a book attempting to find an explanation:

https://www.google.com/books/edition/The_Tyranny_of_Nations/...

What's the deal with Argentina?

The polar opposite of Japan. Japan cannot increase inflation no matter what they do; Argentina cannot decrease it no matter what they do.

https://www.economist.com/finance-and-economics/2019/03/28/h...

I think you meant "Japan cannot increase"

Thanks. Fixed.

"Japan cannot increase" is a surprisingly broadly true statement, even...

It's on a fault line. Japan increases all the time...

Just tell japan we could send some politicians over there to fix their issue.

Argentina's issue isn't a case study though. On one of the last auctions to print bills there were no bids because they were asking for an insane delivery date. We literally cannot print them fast enough.

They can, they just don’t want to.

Japan has too many subsidies and intra-corporations-labour protection. That shielded them at the expense of stagflation.

"stagflation" doesn't describe Japan at all, they're the polar opposite.

Stagflation means high inflation, high unemployment. Japan does not have high inflation.

Or high unemployment for that matter, although reality is less rosy than the headline stats.

The quote originally is about Japan and Argentina being outliers in development trajectory, Japan extremely rapidly developing after WW2 to one of the world's richest countries vs Argentina's decline from being one of the world's richest countries after WW1. Argentina stands apart in having been initially on similar track as the "developed" rich countries and then significantly deteriorated.

Do economists and/or historians agree on what the cause for the decline of argentina's economy was?

There's a very interesting comment in this very thread [1] that explain why Japan is different.

As an Argentinean, I can tell you that _nobody_ in this country (And, very likely, in the whole world) can explain our inflation.

[1] https://news.ycombinator.com/item?id=29313277

I can: you expect it, so you create it.

Inflation can be psychological: the workers want to resist inflation, the unions block the factories, the factory leaders pressure the politicians, the central bank say now currency divided by 2, salaries expand, prices expand, everything expand, factories restart for another year.

Look at how Brazil introduced their last currency, they understood this and had the balls to fix it. They created a virtual currency based on a fixed usd rate, they pretended was just for reference and printed prices in it for salaries, products etc with a floating rate against the normal currency refreshed everyday. People start to wrap their brain around having the shit currency with exploding inflation AND everything priced in a stable, trusted reference point. Then, they rug pulled the old currency and said "now this virtual currency is the real one, here are the banknotes, good luck", and it held because people did not expect that one to inflate all the time.

It's simplified but do not imagine nobody understand Argentina's situation: the only ones not understanding are the people there, unwilling to bear the cost of stabilizing and instead forever running away demanding their salaries expand to "resist inflation" when it is the very inflation they try to fight.

Each time I hear a little guy in a country saying he expect his x% raise because of inflation (and not, say, results), I know it's a red flag. People should not try to all virtually raise their salary, or what do they expect will happen ? Their salary will change not at all, but the currency will magically be worth less: after all, they did nothing special to deserve more.

> I can: you expect it, so you create it.

Wow! If only you hadn't beaten them to it, countless PhD economists around the world could've gained a Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for this. Now you will get it instead.

Dunning Kruger in full effect here!

Yeah! Exactly! Just him, Alan Blinder, Paul Volker, and countless PhD economists like Aurélien Goutsmedt.

Perceived inflation and consumer expectations of inflation is actually a real and well studied phenomenon.

> Inflation can be psychological

One's previous life experiences also flavour perceptions of inflation. The Odd Lots podcast had an interesting episode a little while ago:

> Inflation is running hot these days. But, even when the official measures were considerably cooler, there were many people who were skeptical and insisted that inflation was running hot and rampant. It turns out, nobody really experiences inflation similarly, and one's own consumption and behavioral patterns will have a big impact on their outlook. On this episode, we speak with Berkeley professor Ulrike Malmendier, whose work has shown how one's behavior (where you shop) and history (what conditions were like earlier in your life) can inform views and perceptions of inflation for years.

* https://player.fm/series/series-1504378/why-everyones-experi...

Paper referenced:

> How do individuals form expectations about future inflation? We propose that personal experiences play an important role. Individuals adapt their forecasts to new data but overweight inflation realized during their life-times. Young individuals update their expectations more strongly in the direction of recent surprises than older individuals since recent experiences make up a larger part of their lives so far. We find support for these pre- dictions using 57 years of microdata on inflation expectations from the Reuters/Michigan Survey of Consumers. Differences in life-time experiences strongly predict differences in subjective inflation expectations. […]

* https://eml.berkeley.edu/~ulrike/Papers/InflExp_44.pdf

* https://eml.berkeley.edu/~ulrike/research.html

> Look at how Brazil introduced their last currency, they understood this and had the balls to fix it.

This was the topic of a recent HN posting, IIRC, but I can't remember the discussion article. In any event, for those watching at home a relevant Wikipedia link to begin your spelunking: https://en.wikipedia.org/wiki/Unidade_real_de_valor

EDIT: HN thread from 6 months ago: https://news.ycombinator.com/item?id=27126258

Ha! I remembered commenting in that old thread (it was a good one) and was going to go digging too when I read your "but I can't remember", but you found it. :)

You're mostly right, except for the part where you seem to blame "the little guy" for wanting a raise.

If the little guy is pushing for a raise, it's because they need it to afford food and housing.

It's not just "the little guy" in Argentina - it's everyone and everything. Everyone always demands increases to their flow of money in Argentina. It's no surprise that they get inflation.

but that's the problem. there isn't enough food and housing to go around. you can't fix it with fake raises. you have to add competition back into the market at the corporate level. but investors don't like competition.

> Look at how Brazil introduced their last currency, they understood this and had the balls to fix

And now we're throwing it all down the crapper...

I'm not sure, I was fairly young, but I'm pretty sure that when the "virtual currency" URV (Unidade Real de Valor) was introduced, it was no secret it was a step towards a new currency (the Real). We've had a few changes in currency before, it was nothing new. The difference with Plano Real is that we finally gave up on short-term solutions and realized that any change would take many years of consistent economic policies. And it worked.

Argentina did the same thing with their local currency tied to the dollar, it initially lowered inflation and a flow of capital came into their country and bringing higher growth. But then the capital kept flowing in because it was felt that they would never or could never break the link with the dollar. So the foreign debt piled up, and went inevitably into assets like property. When the Mexican default happened in the 90's all the money flowed out, the currency peg was broken and after the short deflation, inflation took over again. And thats the way its been.

> _nobody_ in this country (And, very likely, in the whole world) can explain our inflation.

What? The explanation is simple, Argentina spends more money than what they make, and the only measures they do to "fix" the economy are raising taxes, getting foreign debt to pay common expenses and printing more money.

Nowadays, foreign debt interest is super high for Argentina, and it's on the brink of default (yet again), so the only thing the government is doing is printing money and raising taxes (yet again, for the nth time).

The reason why Argentina has inflation is just very inconvenient to central bankers. If the pool of money increases in size, prices go up, end of story. Central bankers like to think that they can use sophisticated measures to control the economy, but it looks like they can't beyond a few simple things. Print money and you raise prices, end of story.

Central banks can't print money nor can they influence the quantity of money in the economy. The best they can do is raise the interest rate which denies people the ability to borrow.

This is not true. Central banks can print money (not literally print). Interest is one of their tools but not the only one.

I think this is entirely dependent on the country in question because rules around central bank operations are very different in different parts of the world. Some can directly create money and some can even seize assets.

Note that if Central bank digital currencies are allowed then Central banks will most certainly be able to influence the currency in circulation with much more power than they currently do.

You can compare the M2 growth rates here and understand why one has crazy inflation and not the other.

https://tradingeconomics.com/argentina/money-supply-m2 https://tradingeconomics.com/japan/money-supply-m2

Use the compare m2 function and observe the first derivative.

You can't cry for her.

I like it!

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