Is serious left criticism of government’s share of GDP possible? (The Argentine Solution)

Continued from here.

Jared Bernstein, whose article sparked this series, is an economist and Director of the Living Standards program at the Economic Policy Institute. According to his brief bio posted on its website, Jared’s, “research include income inequality and mobility, trends in employment and earnings, low-wage labor markets and poverty, international comparisons, and the analysis of federal and state economic policies.”

Let there be no mistake, this guy is well qualified for his job, and the fact that he is considered by Barack Obama of such weight as to be drawn into Barack’s network of economic advisors, demonstrates he knows how to dot his i’s and cross his t’s in the area of economics.

So, whatever we may say of his prescriptions, we definitely do not want to leave the impression this guy is light-weight – in fact our opinion is just the opposite: to us he represents the lost opportunity of a dedicated and sincere researcher.

*****

Also with the Economic Policy Institute is Tony Avirgan, Global Policy Network Organizer, who, according to his bio, “was a communications coordinator of The Development GAP, a non-governmental organization striving to give Southern marginalized groups a voice in economic policy making.”

As a filmmaker, writer, and journalist, his rather straight image belies an obviously involved, dedicated, and committed soul, genuinely interested in the struggles of the disadvantaged the world over.

People like you.

People who are poised, unsteadily, on the icy edge of an economic precipice, above the jagged rocks of a global economy, absent-mindedly trying to get service on their Iphone2.

Can you hear me now?

During the week of June 7, 2006, Tony published an economic snapshot for the EPI website, and, fortunately enough, touched on the subject of this series, indirectly, by focusing on the prolonged economic crisis in Argentina, which ran from about 1999 to 2005.

In it, he stated his belief that Argentina’s experience in its economic crisis had something of significance to offer you, as you search for solutions to the Damocles Sword of economic catastrophe hanging over your head.

Wrote Tony:

Four years ago, in an effort to recover from an economic crisis, Argentina lowered the value for its currency, the peso. At the time, it was difficult to find anything “made in Argentina” in its stores. Most goods were imported from low-wage countries such as China.

Does that description sound familiar?

Does it ring a bell?

Excuse me?

Oh, you did not know there was an economic crisis in Argentina in during that period.

Well, neither did we.

Which is why we were so surprised to be dropped in the middle of it, while visiting family in 2002.

Actually, family was working with the Peace Corps in Paraguay at the time, but we met in Buenos Aires, and had the unexpected chance to experience the crisis first-hand.

We captured the images and sounds to video during our trip, but since home movies videos are so boring, we won’t share them with you.

According to the Wiki, the crisis actually reached back to the mid-70s, and the domestic “dirty war,” as well as the war for the Falklands against Britain.

To stem the economic crisis created by this, and the heavy debt owed to international banks and American-backed agencies, the government introduced one new currency after another, each of which almost immediately began to collapse; again and again punishing the Argentines economically; slashing their income and wiping out their savings.

The economy began to decline as industry and businesses closed up shop and business owners sent their capital overseas.

Beset by massive government corruption, heavy debt to international banks and lending institutions, unemployment, and, recession due to the dollar peg, talk began to circulate that the government intended to devalue the official currency yet again.

Argentines, naturally, began converting their pesos into dollars and sending the money overseas to avoid this obvious strategy by the government to cure its economic problems by impoverishing them – triggering a run on banks.

About this time, we decided to visit family in Paraguay, beginning with a trip to Argentina.

The Wiki continues:

The government then enacted a set of measures (informally known as the corralito) that effectively froze all bank accounts for twelve months, allowing for only minor sums of cash to be withdrawn.

Because of this allowance limit and the serious problems it caused in certain cases, many Argentines became enraged and took to the streets of important cities, especially Buenos Aires. They engaged in a form of popular protest that became known as cacerolazo (banging pots and pans). These protests occurred especially during the period of 2001 to 2002. At first the cacerolazos were simply noisy demonstrations, but soon they included property destruction, often directed at banks, foreign privatized companies, and especially big American companies. Many businesses installed metal barriers because windows and glass facades were being broken, and even fires being ignited at their doors. Billboards of such companies as Coca Cola and others were brought down by the masses of demonstrators.

The political crisis was prolonged and intense, ultimately resulting in Argentina defaulting on its international debt; the government converted all dollar accounts in banks to pesos, and ended the peg to the dollar – effectively wiping out a large portion of domestic savings in one fell swoop, and reducing income and wages accordingly as inflation skyrocketed.

By the time we arrived, the exchange rate between the peso and the dollar collapsed from 1-to-1, down to 4-to-1; which is to say, Argentines receiving their income and holding their savings in pesos lost three quarters of their living standards.

The Wiki states:

The peso suffered a huge depreciation, which in turn prompted inflation (since Argentina depended heavily on imports, and had no means to replace them locally at the time).

The economic situation became steadily worse with regards to inflation and unemployment during 2002. By that time the original 1-to-1 rate had skyrocketed to nearly 4 pesos per dollar, while the accumulated inflation since the devaluation was about 80%. (It should be noted that these figures were considerably lower than those foretold by most orthodox economists at the time.) The quality of life of the average Argentinian was lowered proportionally; many businesses closed or went bankrupt, many imported products became virtually inaccessible, and salaries were left as they were before the crisis.

It continues:

Most barter networks, viable as devices to ameliorate the shortage of cash during the recession, collapsed as large numbers of people turned to them, desperate to save as many pesos as they could for exchange for hard currency as a palliative for uncertainty.

Several thousand newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. The 2003 estimation of 30,000 to 40,000 people scavenged the streets for cardboard to eke out a living by selling it to recycling plants. This method accounts for only one of many ways of coping in a country that at the time suffered from an unemployment rate soaring at nearly 25%.

Agriculture was also affected: Argentine products were rejected in some international markets, in fear that they might come damaged because of the poor conditions in which they grew, and the USDA put restrictions on Argentine food and drugs arriving at the United States.

The scene was rather otherworldly when we arrived: children picking through the rubbish looking for materials to recycle; housewives standing at the entrance to banks banging on pots and pans for hours a day, trying to access their accounts; employees occupying businesses abandoned their owners, as police looked on or marched threateningly toward them; sudden eruptions of demonstrations, seemingly out of nowhere, late into the night; retirees waving banners and signs outside the national government demanding payments of their pensions.

By 2002, nearly 60 percent of the population lived in poverty – SIXTY Percent!

Extreme poverty, defined as not having enough money to eat properly, reached 30 percent of country.

This ugly and chilling assault on the living standards of an entire country at once worked: By 2005, industry and exports were growing, the international debt to the American-backed International Monetary Fund, and American- and European-owned global investment banks was being paid off, economic expansion restarted.

In that economic snapshot, Tony Avirgan speaks glowingly of the success devaluation brought to the economy.

Completely ignoring all of the crude facts of systematic economic violence – economic warfare – perpetrated by Washington and the global banks against the Argentine people for several decades, which we mentioned above.

The devaluation not only brought an export boom, it also triggered an increase in domestic investment and production that displaced imports. Because domestic businesses benefited so much from the currency devaluation, the Argentinean government was able to enact a 30% tax on exports and used the revenue for infrastructure construction and improvements, such as roads and public works projects.

All of these factors combined to stimulate total gross domestic product growth to 38.26 % over a four-year period (2002-05) and caused unemployment to plummet.

In medicine, this might be called killing the patient in order to save the disease.

But, instead, Tony titled his snapshot, Argentina Devaluation Holds Lessons for U.S.

As we have observed earlier: What Left?

We do hope you were listening.

To be continued