by Mike Kimel
Sumner is Now More Wrong
So there’s a a response from Sumner to my critique of his earlier post. And he clearly doesn’t get it. Again, I’ll focus on the low hanging fruit, but this time I’ll try to simplify a bit more.
First comment here:
Um, no you don’t want to adjust for inflation when comparing two countries at the same point in time, you want to adjust for PPP. Time for Angry Bear to go back to the Ivory Tower.
This by itself has a bunch of errors.
1. I agree that adjusting for inflation is un-necessary. That doesn’t mean you don’t want to do it. I picked the first measure I came upon that looked reasonable. Inflation adjusting in a single currency and PPP generally produce the same results. Apparently they aren’t doing it for Sweden to US comparisons for the years he picked. Very odd.
2. I am not Angry Bear. That’s the name of the blog. Several people post regularly at Angry Bear. Rdan, the site owner, is kind enough to put up my posts when I write one. But calling me Angry Bear is like me calling The MoneyIllusion.
3. To which Ivory Tower would he suggest I return? Last I checked, Sumner is the one whose bio says something about spending the last 27 years teaching at Bentley. Nothing wrong with that, of course. And for what its worth, I did the adjunct for five years too, which is the closest I’ve come to being an Ivory Tower guy. But I’ve been in the private sector – working for a Big 4 firm, two Fortune 500 companies, and as a consultant under my own shingle – since leaving grad school. So please, spare me.
Next he tells us how he picked his sample:
I didn’t have time to take all 200 countries, so I did what I thought would be interesting examples.
OK then. There’s a fine line between that and cherry picking unless we’re told more, and we aren’t being told more. Now, that doesn’t mean he isn’t cherry picking the data, but this is one heck of a “trust me” given what he’s trying to sell.
Argentina ran statist policies in the 1980s and 2000s. There were reforms in the early 1990s, but free market policies don’t produce success when combined with contractionary monetary policy. Indeed that’s essentially the whole point of my blog. Argentina did very well for a while after it did some privatization, but of course their ultra-tight monetary policy put them into a depression at the end of the 1990s. Then they switched back to statism. I have no idea why a country with statist policies in the 1980s and 2000s and a deflationary monetary policy in the late 1990s, would be expected to do well.
As he said, that was the post of his earlier post. So its a good place to focus. But before I get started, let me warm up with a quibble…
Argentina was not doing well in the early to mid-90s. That was a, well, a Money Illusion. See, they sold off all the state owned enterprises (and the strangely enjoyable to look at water building ) and then lived high on the hog off the money. But living off a one-time chunk of revenue as if its a long term revenue stream may make you look impressive to folks who think that reading a newsmagazine qualifies as knowing how the world works, and it even fooled a lot of folks in Argentina, but it didn’t fool everyone even if most people in Argentina were hoping for the best. And it didn’t fool reality, and the money soon ran out. It always amazes me that most people who call themselves economists and mention Argentina haven’t figured out that detail.
And now to the meat (sadly, not Argentine) and potatoes… which can be summed up with this sentence: “I have no idea why a country with statist policies in the 1980s and 2000s and a deflationary monetary policy in the late 1990s, would be expected to do well.”
And yet, he bats not an eye in his first post when he points out that Japan and the US grew about the same. But Japan is probably more statist (think the Ministries) now than privatized Argentina, and the trend away from statism was certainly greater in Argentina during the 1980 to 2008 period than in Japan. As to deflationary monetary policy – exactly how long has Japan’s interest been about zero? So shouldn’t Japan count as a loss in Sumner’s book?
But that’s trivial. A bigger problem is that Argentina’s deflationary monetary policy could be summed up in one word: dollarization. The currency was pegged to the dollar, and the rest was a collection of details (some of which made life miserable for the average person in Argentina).
Now, regardless of the reasons given, the effect of a peg is the same. And it turns out that among the success stories on Sumner’s list was Hong Kong, which has been operating with a similar currency peg for a lot longer than Argentina ever did. (BTW, the Hong Kong government had a cool little study looking at their peg and Argentina’s here.)
I’m not all that familiar with Singapore, but I do know the Singaporean central bank is kind of an odd duck in that they use monetary policy to regulate the exchange rate (which is a fancy way of saying they peg the currency, but move the peg). Which is another way of saying that on the big issue, they follow the same monetary policy that Sumner thinks is a no-no with Argentina. And of course, if you had to pick which of two countries, Argentina which sold off its state owned assets, and Singapore which didn’t, liberalized more in the last three decades its a no-brainer. Singapore, complete with its canings, has a more functional rule-of-law, but in his post, Sumner talked about how ” neoliberal reforms after 1980 helped growth.” Argentina had ’em. I don’t know about Singapore. But he has Singapore as a success story, and Argentina not.
Moving on (this is getting to be a pain in the neck) we have Chile, the other Latin American country on his list… and like Hong Kong and Singapore, also a success story. Now, both Argentina and Chile chucked their military overlords between 1980 and 2008, but the Chicago Boys like to point out they were doing their thing during the Pinochet years too. Put another way, whatever liberalization happened in Chile post 1980 (off the top of my head, I’m thinking mostly a big change to mining law in the 90s… but note that CODELCO, the state owned copper firm, still runs the big show) pales in comparison with Argentina selling off its state owned assets during the same period.
Which leaves us with three of Sumner’s four success stories (Hong Kong, Singapore, and Chile) at odds with his point. And that’s out of 13 observations picked entirely not at random. What can I say – it seems more than a bit odd.