Wednesday, December 24, 2014

The Decline and Decline of Argentina

Another one from the massive tome I'm editing entitled: Economists Discover The Obvious 

What lessons do we draw? One may be tempted to portray the Argentine experience as the clearest case of post-1820 stagnation over a century – that is, of secular stagnation stricto sensu. One indeed may be tempted to derive as a main lesson that Argentina 'proves' that secular stagnation is a real possible outcome of any forthcoming 'lost decade(s)' in Europe (Crafts 2014.) Yet I do not believe that this is the main lesson. Instead it is one that economic historians already knew for a while (cf. Haber et al. 2007) but that has been, to a large extent, ignored by the rest of the profession – institutions do matter but among them, political institutions and financial institutions seem fulcral. We should try to do more to understand not only how these two sets of institutions individually affect growth but also how the manner in which they interact may ultimately shape economic development.
The post does have a nice graphic comparing the GDP per capita of Argentina to that of Western Europe and its (now former) colonies for the past 120 years.  Which and by the way, anyone with a rudimentary knowledge of economic history and some common sense can see that the "economic break" he's discussing happens in the mid-twenties.  The depression hit Argentina almost as hard as the US (it has always been a commodity exporter) but since they didn't enter WWII till about 5 minutes before the finale, they didn't get that wonderful Keynesian stimulus otherwise known as a war.  This explains the downward bump relative to the US from 36-45.  And then the upward bump relative to Europe that starts in about 1945 and lasts almost a decade is pretty obvious as well -- the Europeans blew themselves up (admittedly, they had some help from abroad).  Remove those data points, and the relative decline is basically a a straight line that starts in the mid-twenties.  QED.

No comments: