On Argentina, Krugman, Mosler, and Wenzel
Argentina just announced price controls on rising grocery prices.
Headline: Argentina freezes prices to break inflation spiral.
Here's my favorite part:
Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.
Before we proceed further, let me remind you of this book: Forty Centuries of Wage and Price Controls. Price controls have been around for a long time. They don't work. They never have worked. In 4,000 years, not a single price control has ever been more effective than allowing supply and demand to find the market clearing price.
Progressives are not interested in evidence-based theory, unfortunately, despite their arrogant claim to being scientific.
Shortage of Brains
Price controls create shortages, and you can rest assured that those are coming in Argentina. One intervention (creating paper money like it's going out of style) breaks something else (the pricing system), which leads to another intervention (price controls) that will break the supply system (shortages), that will lead to another intervention (state seizure of grocers and farms), and on and on we go.
This theory of interventionism is also supported by ample amounts of historical evidence. Yet, once again, Progressives are not interested in evidence. They are just sure it'll work this time. The great economist Ludwig Von Mises outlined the process of intervention in his 1929 work, Critique of Interventionism. I am certain not one interventionist has read it.
But why didn't economists see this coming? This inflation spiral that would need to be "checked"?
Appeal to Authority
Well, the government said the inflation was low, and as we have seen on Motley Fool many times, if an authority spits out a statistic our statist friends will continue to believe it no matter what evidence is offered otherwise. I've outlined the many problems with inflation calculations before. To summarize, they are usually worthless. Price inflation (or, what happens after you commit inflation - the process of debasing the currency) measures year over year price changes using objective measurements of utility to determine substitution decisions. Utility is subjective and can never be precisely measured. Year over year measurements imply that last year's prices are a valid starting point, which they are not since it can never be known where prices would be without the intervention. In other words, perhaps prices should have been falling at 3% this year, so a 2% price inflation is actually 5%. The effects of price inflation are felt differently depending on the spending patterns of the consumers. Price inflation hurts poor people more than the rich, since poor people spend a greater percentage of their disposable income on food and energy consumption. And don't forget those nasty redistribution effects of money printing, which lead to distortions in the economy and exacerbate the business cycle.
Other than that, why worry?
So mainstream economists cannot see this type of inflation. They don't understand inflation, cannot admit that printing money will lead to inflation spirals, cannot admit that there is no accurate way to measure inflation, cannot admit that their interventions hurt poor people and make the rich richer, cannot admit to inflation as a cause of business cycles.
If they did, they'd have to re-evaluate their entire view and that's not going to happen. Remember, they think they're smarter than you.
Let's take a look at two well known and popular economists and their views on Argentina last year:
Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.
Hold on there buddy. I know you have a Nobel Prize in Geography, but I'm not certain that the Eurozone should follow this model. (Although they probably will anyway, LOL)
Note in Krugman's blog he does the usual: "here's a graph... my opponents are dumb!" routine. I spoke about this in my last blog. The charlatan tries to hide the caveats to his claims, since they weaken his position. GDP is not a useful measure for gaging an increase in wealth, particularly if it is heavily influenced by government spending, which is generally only possible by printing vast amounts of new money. Seems awful dumb to solely examine GDP and think, "well everything must be fine", without even peeking under the hood to see if the reasons for GDP growth are sustainable.
That Krugman post looks really dumb now. Then again, so do most of his posts in hindsight.
Mosler Hearts the State
I know MMT folks can't stand me. I don't care. If there's one thing the MMT "experts" prove again and again, it's that they trust the State and distrust the market. It is nothing more than repackaged Keynesianism, inlcuding all its made-up unscientific concpets (e.g. aggregated demand).
In this article last year, not only does Mosler cast skepticism on anyone who claims inflation is higher than 10%
It is relatively easy to formulate a policy to bring down inflation (although implementing the policy will be more difficult). Despite what you hear all the time, wage and price controls work.
Got that? Not only is it easy to combat inflation, Mosler advocates wage and price controls. Again, never mind the 4,000 years of evidence to the contrary. Never mind Ludwig Von Mises' warnings about interventions. And of course, never mind the violence inherent in forcing individuals to disregard economic law at the point of a gun. MMT is a very violent economic doctrine. If A doesn't work, point gun at people and do B. Lather, rinse, repeat. Eventually it'll work out.
Oh but wait:
So it is not so much a question of whether they [price controls] work, but of how you will get off them.
So it's easy to combat inflation, but then hard to get out of the price controls that you put in to combat inflation. This guy is something else. No sh*t, sherlock. This is why price controls failed for 4,000 years. You can't unwind them. You've destroyed the market system by implementing them and just delayed the necessary corrections.
Here's the real whopper of the article:
no matter what the level of inflation in Argentina (10% or 25%), the central bank is not a significant contributor.
Yeah, printing a ton of money is not the culprit for spiraling inflation. Nice try, Mosler.
Who Got it Right?
Who do you think? Those who follow my blogs know that I'm a big fan of Austrian School economist Robert Wenzel at Economic Policy Journal:
"This was not hard to see coming. Following up on a detailed WSJ report on Argentina, I wrote in April of last year:
Two women have taken control of Argentina's central bank and are about to use it as if they are on a weekend shopping spree. Cry for Argentina.
In June, I wrote:
The Argentine central bank, under the supervision of Mercedes Marcó del Pont, is pumping out pesos at a rate that may ultimately result in the destruction of the currency. The spending spree is now going to lead to even more bad consequences. The price controls just announced will result in shortages and even more pain for the people of Argentina."
Was that so hard to see?
For state worshipping boot-lickers, definitely. For the rest of us, absolutely not.
Keep what happened in Argentina in the back of your head. Particularly note that the people of Argentina clearly felt that inflation was under-reported by their government, and that all the hack statist economists swore up and down that those people were just rubes and conspiracy theorists. Interesting, isn't it?
And if you think the Motley Fool writing staff saw this coming, warned of Argentina's impending inflation spiral, or doubted their government's ability to handle any prices, just search Fool for "Argentina inflation". You'll have a good laugh.
David in Liberty