December 5, 2013
Good, bad or ugly?
The MerVal share index set yet another record yesterday but how many people would take this fact to argue that the Argentine economy never had it so good? Uncertain growth stymied by import and currency curbs, inflation hovering at the entrance into a spiral, low levels of investment and job creation with a mediocre quality of employment, a heavy tax burden, a soaring fuel import bill, zero access to international capital markets which could actually worsen with technical default looming and have people quoting Liverpool’s Bill Shankly on being “lucky to get nil” — none of this points to the brilliant economic record which would surely have earned the government a better electoral reward than 26 percent in last month’s primaries.
But the point of this column is not to be sarcastic about share index records but to raise as a general question how surprisingly difficult it can be to define good times and bad times in economics. It is all too easy to enjoy the benefits of a good cycle and miss its opportunities — on the other hand, political pundits and economists never weary of telling us that crisis and opportunity are the same word in Chinese (a fact disputed by linguists). So in the end which is the good cycle and which the bad?
It might be argued that the volume of Bolsa transactions is so puny that it makes MerVal quite meaningless as an indicator. But Wall Street is gigantic and yesterday soared past the record levels of early August with stimulus vindicated for now. Yet who in the United States would claim that an economy carrying 7.3 percent unemployment is the best in all history? To which could be added jitters about interest rates, budget gridlock and concerns about turbulence overseas (which does not only mean Syria but a possible new outbreak of Asian flu). Perhaps the only real basis for greater optimism in the US than here is that more people there seem to feel that the worst lies behind them while more people here fear that the worst is yet to come.
The US has been the world’s biggest economy in everybody’s living memory (and could remain so a while longer than many people were thinking a couple of years ago, given the shale boom and recent Chinese slowdown) but how many know when that supremacy began? Economic historians will tell you that the US overtook Britain around the year 1895 (not that many people in Britain seem to have appreciated the fact until about 50 years later) and that is a very interesting date from the standpoint of today’s theme about good and bad being highly relative because it falls within what is called the Great World Depression of 1873-96 — indeed that glorious moment of attaining global economic supremacy fell smack in the middle of a rare period of double-digit unemployment (1893-8) with the most violent strikes in US history.
It seems odd that this quarter-century of rapid economic take-off beginning with the Second Industrial Revolution as from 1870 and culminating in world leadership should be termed the Great Depression (the second half of this period also saw Argentina being transformed into a modern, European-style country). But so massive was the productive surge that demand was wholly unable to keep up with the advances in supply so that prices fell steadily throughout this period — one definition of depression. So, inevitably, did real wages, which meant that economic success was not reflected in social perception.
The rapidly saturated markets of this depression era were in turn a massive boost for world trade and investment. A transport revolution just as impressive as the industrial (railways, steamers, etc.) was greatly accelerated by the constant need to find new markets whose development and access required major investments (thus hundreds of millions of pounds were arriving as far afield as Argentina from London, still the world’s financial capital after 1895 and indeed to this day). So again we see a dramatic expansion, a globalization entering new dimensions, in an interplay with economic contraction.
What this study of 1895 really teaches us is that while most people might accept that it is hard to discern between good and bad cycles while they are still in progress, this example shows that it is almost impossible even some 120 years after the event. That period is officially termed the Great Depression (and with considerable justice) and yet it also contains some of the most remarkable economic expansion in all human history. If Charles Dickens begins “A Tale of Two Cities” by describing the French Revolutionary era as “the best of times and the worst of times,” he could have said much the same about almost any period.
Let us now turn the debate to Argentina today and here the obvious question this year is the “won decade.” This column would rather not enter this debate because quite apart from there being equally strong grounds for positive and negative arguments, the discussion has been unduly personalized — you are expected to judge the decade according to whether you like or dislike the people in charge, thus hopelessly confusing the issue.
But even where it is possible to distinguish between good and bad cycles (something questioned by this column), the merits of the governments in charge seem almost an incidental factor. President Cristina Fernández de Kirchner likes to trumpet the “Chinese” growth rates of this past decade (representing nominal as much as real growth, thanks to INDEC statistics bureau understating inflation) but these were replicated and often topped in much of the world during the commodity boom and quantitative easing. You do not even need to dig deep or look far to find examples — quite apart from growth rates like Angola’s 18 percent in 2005, Paraguayan growth reached 15 percent last year under a blackballed caretaker government.
If an “Egyptian architect” can make a success of government when the conditions are right, the most gifted of administrations generally founder against adverse trends, being forced to mutter like Hamlet: “The time is out of joint, O cursed spite/That ever I was born to set it right.” Thus without claiming that the 1999-2001 Alliance administration was a Ministry of Talents, what chance did it have in the face of Brazil’s maxi-devaluation in 1999 in a world where Russia was a black hole after 1997?
So how do you define the good and bad in economics? It’s complicated.