About Krugman’s view on Argentina

Para leer en español, ver posts Krugman se equivoca con Argentina 

y El deterioro de la economía K.

I agree with Paul Krugman in that (1) the Argentine case is relevant for the analysis of the Euro crisis and (2) conventional wisdom is frequently wrong. That’s why I signed the Manifesto for Economic Sense supported by Krugman and Layard. But I disagree with Krugman about his analysis of the Argentine economy after the big crisis of 2002. Indeed, on May 3, Krugman showed the following picture (see his post Down Argentina Way): 

Looking at that picture we should agree that policies that have been implemented by Argentina since 2002 are a success story, with results even better than those of Brazil. But that picture has two mistakes: (1) since 2007, official data has overestimated economic growth (everybody knows that official statistics have had some problems here since that year) and (2) starting the analysis in 2000 overestimates growth in the following years, since in that year the Argentine economy was in the third year of a downturn in the middle of the 1998-2002 recession.

After correcting these two mistakes, we have the following picture, quite different from Krugman’s:

This analysis shows that it is not clear if the Argentine economy performed better than the Brazilian economy. But there is another very important issue not considered by Krugman. Look at the following picture:

In the last five years, the Argentine inflation rate has been 4 or 5 times higher than in Brazil. I think that a comparison between Argentine and Brazilian economies is too simplistic if it doesn’t consider the inflation rate.

Finally, I want to introduce another issue that I showed in a recent op-ed: it is useful to distinguish between Néstor Kirchner (2003-2007) and Cristina Fernández de Kirchner (since 2007) administrations. Economic growth under NK doubled that of Brazil (40.2% vs 20.3%), but was almost three points below that of Brazil under CFK (13.4% vs 15.8%)

To sum up, I think the Argentine case is neither the success story Krugman wants to tell, nor the disaster conventional wisdom believes. Indeed, the Argentine case is a complex mixture of policies that worked in 2002 to initiate the recovery, policies that worked well from 2003 to 2007 to end the recovery and initiate a process of economic growth, and policies that need some fine-tuning since 2007 (and are completely wrong since 2011). In the same way, the Argentine case has some lessons for Europe, but not every Argentine medicine is appropriate for the European disease. But that is the topic for another post.