Wednesday, December 16, 2009

History Repeating...

Don't Cry For Me, America

In the early 20th century, Argentina was one of the richest countries in the world. While Great Britain's maritime power and its far-flung empire had propelled it to a dominant position among the world's industrialized nations, only the United States challenged Argentina for the position of the world's second-most powerful economy.

It was blessed with abundant agriculture, vast swaths of rich farmland laced with navigable rivers and an accessible port system. Its level of industrialization was higher than many European countries: railroads, automobiles and telephones were commonplace.

In 1916, a new president was elected. Hipólito Irigoyen had formed a party called The Radicals under the banner of "fundamental change" with an appeal to the middle class.

Among Irigoyen's changes: mandatory pension insurance, mandatory health insurance, and support for low-income housing construction to stimulate the economy. Put simply, the state assumed economic control of a vast swath of the country's operations and began assessing new payroll taxes to fund its efforts.

With an increasing flow of funds into these entitlement programs, the government's payouts soon became overly generous. Before long its outlays surpassed the value of the taxpayers' contributions. Put simply, it quickly became under-funded, much like the United States' Social Security and Medicare programs.

The death knell for the Argentine economy, however, came with the election of Juan Perón. Perón had a fascist and corporatist upbringing; he and his charismatic wife aimed their populist rhetoric at the nation's rich.

This targeted group "swiftly expanded to cover most of the propertied middle classes, who became an enemy to be defeated and humiliated."

Under Perón, the size of government bureaucracies exploded through massive programs of social spending and by encouraging the growth of labor unions.

High taxes and economic mismanagement took their inevitable toll even after Perón had been driven from office. But his populist rhetoric and "contempt for economic realities" lived on. Argentina's federal government continued to spend far beyond its means.

Hyperinflation exploded in 1989, the final stage of a process characterized by "industrial protectionism, redistribution of income based on increased wages, and growing state intervention in the economy."

The Argentinean government's practice of printing money to pay off its public debts had crushed the economy. Inflation hit 3000%, reminiscent of the Weimar Republic. Food riots were rampant; stores were looted; the country descended into chaos.

And by 1994, Argentina's public pensions - the equivalent of Social Security - had imploded. The payroll tax had increased from 5% to 26%, but it wasn't enough. In addition, Argentina had implemented a value-added tax (VAT), new income taxes, a personal tax on wealth, and additional revenues based upon the sale of public enterprises. These crushed the private sector, further damaging the economy.

A government-controlled "privatization" effort to rescue seniors' pensions was attempted. But, by 2001, those funds had also been raided by the government, the monies replaced by Argentina's defaulted government bonds.

By 2002, ".government fiscal irresponsibility. induced a national economic crisis as severe as America's Great Depression."

In 1902 Argentina was one of the world's richest countries. Little more than a hundred years later, it is poverty-stricken, struggling to meet its debt obligations amidst a drought.

We've seen this movie before. The Democrats' populist plans can't possibly work, because government bankrupts everything it touches. History teaches us that ObamaCare and unfunded entitlement programs will be utter, complete disasters.

Today's Democrats are guilty of more than stupidity; they are enslaving future generations to poverty and misery. And they will be long gone when it all implodes. They will be as cold and dead as Juan Perón when the piper must ultimately be paid.


  1. Good times. I had an ex girlfriend who's family was basically old money in Argentina. When the financial system there collapsed the govt. confiscated his money basically.

  2. While the overall "story" is a rough version of Argentine economic history, there are several serious errors in this account:

    1. Argentina in the first decade of the 20th century had the 7th largest economy and the USA the third (behind the UK and France?). One can quibble, but they were not both vying for no. 1. The UK was no. 1, unquestionably.

    2. Yrigoyen was a mild populist and blame is unfairly placed on him. Argentina was very prosperous through at least the mid- to late-1940s.

    3. Peron, who on the record admired Mussolini's capacity for leadership, which he witnessed as a young officer, was no more than a charismatic "Peronist."

    4. Peron did carry out corporatist policies and expand the public sector enormously, which under one-party political hegemony led, of course, to corruption.

    5. Peron and his henchmen have been accused -- rightly it appears -- of stealing billions directly from the Argentine treasury. THAT's the main cause of fiscal decline.

    6. Most of the expropriations under Peron -- there weren't that many -- came as a result of challenges to the Peronist government export regime (similar to the recent dustup of ranchers with Cristina).

    7. Hyperinflation in the late 1980s was shortlived, if high. The hyperinflation in the 1970s lasted several years and was also in the thousands percent, to my mind more damaging.

    8. The vast public holdings were privatized in the 1990s under Menem, not in 2002, by which time the family jewels were all gone. The insanity was attempting to sustain parity with the dollar on the basis of one-time windfalls.

    9. The issue of taxation is misplaced since tax delinquency in Argentina is very high, especially in the higher income, non-wage brackets.

    10. The comparison to any policy of any Democratic administration is a far stretch. No vast swings or systemic changes or far-reaching crises, no military coups (Yrigoyen and Peron were both overthrown), as befell Argentina ever occurred in the USA. True, the USA had a Great Depression in the 1930s and Argentine was very prosperous at that time, but who's counting?

    Sorry to run on so long.

  3. And COAST is right, after 200 years of using slave labor and "other cheap brown labor" the USA was able to boost production and become the premier leader of wealth. And with this success, our health care is ranked 34th worldwide and 25% of our children live below the poverty line. Yes, thank you COAST, for showing us the misguided path of Argentina and how corrupt socialism is way worse than corrupt capitalism. Absolute power corrupts absolutely.


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