To dollarize the government would choose a date to convert all legal contracts, bank accounts and assets and liabilities of firms and the government into dollars. The transition requires peso-price discovery, which in turn requires letting the currency float freely and lifting capital controls for a period before the conversion. Pesos in circulation can be gradually redeemed for dollars over time and the monetary base is frozen. Dollarization would boost confidence, the theory goes, and thereby solve a severe dollar shortage. That said, the uncertainty isn’t negligible.
The central bank has negative net reserves, can’t provide importers the dollars they need to pay suppliers and is running a high-yield Ponzi scheme with banks. The government is bankrupt. Would a sudden burst of trust in the Argentine state materialize if it made the dollar the national currency while committing to a future fiscal adjustment and deregulation of labor markets? It’s possible that the former might force the latter. Mr. Milei’s strong showing with 56% of the vote allows him to claim a mandate, Congress will be under pressure to let him pursue his agenda and some moderate Peronists and other opponents may see it in their interest to advance reform.
But let’s not ignore the magnitude of the crisis Mr. Milei inherits. The current official exchange rate is 350 pesos to the dollar and in the black market it’s around 1,000 pesos to $1. Because of exchange and capital controls, no one knows the peso’s true value. If, as is likely, hyperinflation already exists, then the fuse is lit. The bomb is about to be placed in Mr. Milei’s lap.
Argentina is in for a painful adjustment. The best Mr. Milei can do is minimize the damage from the explosion while trying to protect his political capital. A controlled devaluation over time—leading to the end of the pegged exchange rate and free capital flows—if accompanied by structural reforms could soften the blow. But that’s a lot of “ifs.” The larger imperative of terminating the abusive power of the state to print money won’t go away. Argentina needs a hard currency.
Pat Lynch offers clarification of Milei. A slice:
The press and policy elites cannot address who Milei is or what he’s proposing on the merits because it does not fit their world view. Hyperinflation is not caused by climate change, racism, or opposition to gender displacement. It is not a social construct or a random event, particularly when it happens continuously for almost 80 years and destroys a largely upper-middle-class society. It is the political and economic failure that results from political exploitation and central planning. The Argentine bureaucracy and the chattering classes have failed citizens for decades. We know the cause, and so does Milei. His opponents wanted to make things a little less bad, possibly for a few years until they once again made things much worse. Peronism is the abusive relationship, the addiction, the concept that no responsibility is necessary after years of irresponsibility. Milei is the medicine, and he will not be an easy pill to swallow.
People in wealthy countries can order a new outfit for less than a day’s wages. We enjoy new styles and trends that were once reserved for the ultra‐rich. Even our poorest are rarely lacking sufficient clothes and shoes.
Much of this abundance is owed to globalization. Clothing is so plentiful that unwanted new garments are piling up on the beaches of Ghana. African consumers can no longer absorb the quantities shipped to them by rich ones, so they choose the styles they love and discard the rest.
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The implication that child labor is the result of mechanized manufacturing is backward. Children today have been largely freed from production jobs because of the wealth created by machines and globalization. It is not primarily legislation that creates safer jobs but rather economic growth.
Preindustrial women spent much of their lives spinning thread. In the United States today, it would be illegal to pay as little as these women earned for their labor. The reality was that these women were not very productive because they were working with poor technology, and yet they did the work because it was their best option. Machines and synthetics allow us to produce more textiles with less labor.
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In The Fabric of Civilization, Virginia Postrel reports on one of the few plants in the United States today that manufactures thread. With the latest technology and only 120 employees, the plant can produce 9 million pounds of yarn per year. Postrel estimates that each worker at this plant in Georgia produces an amount of yarn that would have taken a woman in the Middle Ages three centuries to spin.
GMU Econ PhD candiate Hairuo Tan explores the connections between Adam Smith and Confucius. A slice:
Imagine a conversation between Smith and Confucius on moral philosophy. Smith initiates the discussion with his theory of sympathy. He introduces the spectator-agent relation. Moral judgment requires a spectator to inhabit the agent’s situation. He must become “in some measure the same person” as the agent to perceive how the agent is affected and to form a proper judgment (TMS 9.2) [DBx: Theory of Moral Sentiments].
Confucius might respond with his theory of shu, a concept analogous to sympathy in function and importance. Shu “can serve as a guide for one’s entire life”; it is a sense of likeness between human beings (Analects, 15.24). Confucius would elucidate the moral implications of shu: “Do not impose upon others what you yourself do not desire” (Analects 12.2 and 15.24), which implicitly suggests the practice of transposition. One should expect what he himself does not favor is unlikely to be favored by another. As commented by E. G. Slingerland, a translator of The Analects, “The fact that you yourself hate hunger and cold allows you to understand that everyone in the world desires food and clothing” (p. 183). The corollary is that an individual ought to help others secure what she herself desires. Confucius taught his disciples that: “Desiring to take his stand, one … helps others to take their stands. Wanting to realize himself, he helps others to realize themselves” (Analects, 6.30). One guided by the doctrine of shu would initiate an action impacting others, only when he could appreciate the impact of this proposed action if he himself were made the bearer of this action.
Smith might point out that Confucius’s account of moral judgment thus far presented crucially lacks an intermediary figure comparable to his impartial spectator, a concept introduced in his own work in the discussion of “noble and generous resentment” (TMS 24.4). Resentment becomes noble and generous only when an impartial spectator approves of the indignation. One’s endeavor in moderating her passion to a pitch that the impartial spectator would approve of will gain her the sympathy of any ordinary spectator who consults the impartial spectator. Proper moral judgment requires a third person perspective.
Confucius would rejoin by noting that a sense of impartiality is inherent, albeit implicit, in shu, which implies “listening to the hearts of the other” (Wu 2013, 433).
As the conversation moved forward, both men would find themselves discussing individuals’ sociability and the common good. Human beings are not isolated islands; they naturally are embedded and active in social life, Smith would say. When conflicts of interests arise during a social interaction, one’s private interest should be advanced only on the supposition that if another were to do likewise, the interests of the community, country, and even universe would advance (TMS 235.3).
Barry Brownstein reveals the marvels of human cooperation that are hidden within plain sight.
The senator has made a career of crusading against such “monopolies,” regardless of how monopolististic they actually are or beneficial to consumers they might be. (Witness her war on Amazon-branded chargers.)
Her attack on America’s alleged “sandwich shop monopoly” scores new points for pettiness. It also shows just how broad (and therefore meaningless) the word “monopoly” has become in modern political discourse—and at Lina Kahn’s FTC.
The FTC and the Senator will no doubt face a great deal of skepticism around the idea that Subway’s new owner can prevent competitor Jersey Mike’s from continuing to serve consumers. But Mr. [Tom] Joyce has raised a critical point: how can any company exert monopoly control over a product that consumers easily make on their own?
Jacob Bruggeman pens this ode to infrastructure.
