Roberts and Zwegel on Inflation and Crypto in Argentina

The latest EconTalk, Russ Roberts interview with Devon Zweigel, first rate. It shows how an economist, not Zügel, but one who pays careful attention, can work things out. He makes the point early on that he’s not alone: ​​the dinner conversation in Argentina eventually turns to the issue of how to protect one’s wealth in a country with high inflation where you can’t trust the government or even the bank. Funny story after funny story.

Some highlights follow.

GDP per capita in Argentina 100 years ago

Many economists, including myself, have talked or written about how bad economic policies have brought Argentina from a country with the highest per capita income a century ago to a middle country today. According to Zweigel, we’re half right. He argues that during World War I Argentina had an unusually high per capita income due to exports of high-value agricultural products. I haven’t checked, but it seems reasonable.

Long term high inflation

“Over the past hundred years, Argentina has seen an average of 100% annual inflation.” However, this does not come close to hyperinflation, which is usually defined as inflation of 50% per month, but is nevertheless high and destructive. David R. Henderson, ed. Michael K. See Salemi, “Hyperinflation”. Concise Encyclopedia of Economics.

Bricks as an inflation hedge

You read that right.

Argentinians obey the law to what extent?

And, I think people in the US tend to be kind of shy about breaking the law, at least in my friend circles. Everyone breaks the law in Argentina. Every single day. Because otherwise you get half the income, and you can’t pay your rent. And so people—everyone knows what the black market rates are all the time. Politicians will also quote it. Like, it’s well understood that this is out there.

Long story short: everyone tries to stay on the black market as much as possible. There are some transactions where this is really difficult, but for the most part people will try to exchange their money on the black market.

All I know anywhere near the US is that used car dealers collude with buyers to lower the transaction price to save the buyer from sales tax. A huge percentage of people who have sold their used car have told me that they do it if the buyer wants it.

German Wheelbarrow

Russ Roberts says:

When you read about hyperinflation in, say, the Weimar Republic of Germany after World War I, you read about people taking wheelbarrows of cash to the store – literally – because it took so many pieces of paper to buy things, suddenly .

He could have added, because it is true (though I can’t immediately find the reference), that in one case the man left the wheelbarrow outside while entering the shop and returned to find the money on the ground and the wheelbarrow stolen.

Buying a house depends on trusting a third party

Read the section on avoiding banks and relying on third parties to hold money in escrow.

An extended discussion of cryptocurrencies and how they are important to Argentines in a way that we Americans have trouble imagining.

Absolutely worth listening or reading. I have nothing to add.

Inflation propagates unevenly

As Russ points out, it can only lead to large changes in relative prices due to large changes in supply conditions. But I think he’s making a good point. In economics, we call them the Cantillon effect.

The Tragedy of a Broken Mind

Jugel says:

Just to tie it in, at the beginning I joked that every dinner conversation in Argentina ends with what to do with your money so it doesn’t lose value. And, it’s kind of funny, but also, if you think about it, it’s really destroying the minds of generations of people. There are all these really smart people who are spending half their brains trying to figure out how to save their money so they don’t get wiped out tomorrow. It’s just really sad. I see all these really smart people that I love who could do so much more, but they’re stuck in this cycle.

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