The latest EconTalk, Russ Roberts’ interview with Devon Zuegel, is first rate. It shows how someone who’s not an economist, Zuegel, but who pays careful attention, can suss things out. She makes the point early on that she’s not alone: dinner conversations in Argentina ultimately turn to the issue of how to protect one’s assets in a country with high inflation where you can’t trust the government or even the banks. Interesting story after interesting story.
Some highlights follow.
Argentine’s GDP Per Capita 100 Years Ago
Many economists, including me, have spoken or written about how bad economic policies brought Argentina from being one of the highest per capita income countries a little over a century ago to one that’s basically in the middle today. According to Zuegel, we’re half right. She argues that Argentina during World War I had unusually high income per capita because of its exports of high-priced agricultural output. I haven’t checked, but it seems plausible.
Long-Term High Inflation
“In the last hundred years, Argentina has seen an average of 100% annual inflation.” By the way, that doesn’t come close to hyperinflation, which is typically defined as inflation of 50% per month, but it’s high and destructive nevertheless. See Michael K. Salemi, “Hyperinflation,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.
Bricks as an Inflation Hedge
You read that right.
How Law-Abiding are Argentinians?
And, I think in the United States people tend to be kind of bashful about breaking the law, at least in my friend circles. In Argentina everybody breaks the law. Every single day. Because otherwise you get half the income, and like, you can’t pay your rent. And so people–everyone knows exactly what the black market rate is at all times. Politicians will even quote it. Like, it’s well understood that this is out there.
Long story short: Everyone tries to be in the black market as much as they can. There are certain transactions where that’s really difficult, but for the most part people will try to exchange their money in the black market.
The only thing I know of that comes anywhere close in the United States is sellers of used cars cooperating with buyers to understate the price of the transaction to save the buyer on sales tax. A huge percent of people who have sold their used car have told me that they do so if the buyer asks.
German Wheelbarrows
Russ Roberts says:
When you read about hyperinflation, say, in the Weimar Republic in Germany after World War I, you’d read about people who would take wheelbarrows of cash to the store–literally–because it took so many pieces of paper to buy stuff, suddenly.
He could have added, because it’s true (although I can’t find the reference immediately), that in one case the person left the wheelbarrow with money outside while entering the store and returned to find the money on the ground and the wheelbarrow stolen.
Buying Houses Depends on Trusting Third Party
Read the part about avoiding banks and relying on a third party to hold the money in escrow.
Extended Discussion of Cryptocurrencies and How They Are Vital to Argentinians in a Way That We Americans Have Trouble Imagining
Absolutely worth listening to or reading. I have nothing to add.
Inflation Propagates Unevenly
As Russ points out, this could be simply big changes in relative prices due to big changes in supply conditions. But I do think she’s making a good point. In economics, we call them Cantillon effects.
The Tragedy of Wasted Minds
Zuegel says:
Just to tie that up, at the beginning I joked that every dinner conversation in Argentina ends up on the topic of what to do about your money so it doesn’t lose value. And, it’s kind of funny, but it’s also, if you think about it, it’s really wasting the minds of generations of people. There’s all these really smart people who are spending half of their brain just trying to figure out how to store their money so that they don’t get wiped out tomorrow. It’s just really tragic. I see all these really smart people who I love who could be doing so much more, but they’re stuck in this cycle.
