Ar­gentina: great econ­o­mists, aw­ful econ­omy

The Pak Banker - - OPINION - Noah Smith

Our ca­reer choices are of­ten shaped by our per­sonal tragedies. Some­one who loses a par­ent to can­cer may de­cide to be­come an on­col­o­gist. Some­one who grows up around crime may go into crim­i­nal psy­chol­ogy. I think about this prin­ci­ple when I see Ar­gen­tinian macroe­conomists.

If you go to macroe­co­nomics con­fer­ences and read macroe­co­nomics pa­pers, you quickly see that Ar­gen­tini­ans are hugely over­rep­re­sented in the field. For ex­am­ple, take Ivan Wern­ing, one of the ris­ing su­per­stars in the macro field. Narayana Kocher­lakota, pres­i­dent of the Min­neapo­lis Fed, cred­its a pa­per by Wern­ing as the thing that changed his mind about keep­ing in­ter­est rates low. Kocher­lakota him­self is no aca­demic slouch, so it speaks vol­umes that he would al­ter his en­tire out­look based on Wern­ing's in­sights.

Another Ar­gen­tinian su­per­star is Columbia Univer­sity's Guillermo Calvo. Calvo is re­spon­si­ble for one of the key math­e­mat­i­cal tech­niques that pow­ers New Key­ne­sian eco­nomic mod­els, which are now the dom­i­nant type used in busi­ness-cy­cle the­ory. A cou­ple of other prom­i­nent ex­am­ples are Mas­sachusetts In­sti­tute of Tech­nol­ogy's Al­berto Cavallo and the Univer­sity of Chicago's Fer­nando Alvarez. The list goes on and on; I could fill two full-length Bloomberg View ar­ti­cles singing the praises of star macroe­conomists from Ar­gentina, and still leave some off the list.

But if Ar­gen­tini­ans are stars in the halls of Amer­i­can academia, they are ver­i­ta­ble celebri­ties in their home coun­tries. Back in 2014, the Economist ran a story about macroe­conomists in Ar­gentina dat­ing star ac­tresses and boast­ing hun­dreds of thou­sands of Twit­ter fol­low­ers. It's enough to make me think I picked the wrong pro­fes­sion!

So here's the ques­tion: Why has there been such a flood of Ar­gen­tinian tal­ent into macroe­co­nomics? Here's where the idea of per­sonal tragedy comes in. Ar­gentina is a clas­sic ex­am­ple of a macroe­co­nomic bas­ket case. It's quite pos­si­bly the only coun­try where bad macroe­co­nomic pol­icy sent a coun­try into long-term de­cline.

The past cen­tury has been an un­mit­i­gated fail­ure for Ar­gentina's econ­omy. A cen­tury ago, the coun­try was firmly in the ranks of the de­vel­oped na­tions, boast­ing a per capita gross do­mes­tic prod­uct about three-quar­ters that of the U.S. (about where Ja­pan and the U.K. stand to­day). Since then, the fig­ure has de­clined re­lent­lessly, as Ar­gentina stag­nated and the rest of the world pulled ahead. As of to­day, Ar­gentina is down to about a third of U.S. in­come lev­els, putting it solidly in the ranks of mid­dle-in­come coun­tries. As you can see, Ar­gentina had hy­per­in­fla­tions three times in the late 20th cen­tury. As for GDP growth, where most coun­tries have smooth up­ward trends punc­tu­ated by mi­nor stum­bles.

Note how in the early 2000s, GDP -- not GDP growth, but ac­tual in­come per per­son -- plunged by about two-thirds. That is a dis­as­ter on a level usu­ally seen only by the likes of Rus­sia or Zim­babwe.

That GDP plunge came from a sov­er­eign debt de­fault -- a hal­lowed Ar­gen­tinian tra­di­tion. The coun­try ex­pe­ri­enced its first sov­er­eign de­fault just 11 years af­ter achiev­ing in­de­pen­dence in 1816, and it didn't stop there. Ar­gentina de­faulted in 1890, and some of its prov­inces de­faulted in both 1915 and 1930. It nar­rowly avoided de­fault in 1956, then de­faulted on its ex­ter­nal debt in 1982 and its in­ter­nal debt in 1989. Then came the big one, in 2001. Ar­gentina's epic de­fault was the worst in history at the time.

As you might ex­pect, this macroe­co­nomic tur­moil has been ac­com­pa­nied by po­lit­i­cal tur­moil. Some­times po­lit­i­cal in­sta­bil­ity is the cause of macroe­co­nomic in­sta­bil­ity, and some­times the re­verse is true. Ar­gentina's history is a sorry litany of coups, dic­ta­tor­ships, un­sta­ble democ­ra­cies, mas­sive eco­nomic in­ter­ven­tions, ri­ots and un­rest.

No won­der Ar­gentina's best and bright­est go into macroe­co­nomics. What else are they go­ing to do with their smarts? If they go into en­gi­neer­ing, the chances are high that bad macroe­co­nomic pol­icy-mak­ing will sim­ply force their com­pa­nies into bank­ruptcy. In macro, at least they might have a shot at find­ing a fix for their coun­try's ap­par­ent curse.

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