Tuesday, February 5, 2013

Paul Krugman's Great Forecasting Failure: Argentina

AP reports:
Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation.

The price freeze applies to every product in all of the nation's largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies' trade group, representing 70 percent of the Argentine market, reached the accord with Commerce Secretary Guillermo Moreno, the government's news agency Telam reported.

The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.

Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it's trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.
This was not hard to see coming. Following up on a detailed WSJ report on Argentina, I wrote  in April of last year:
 Two women have taken control of Argentina's central bank and are about to use it as if they are on a weekend shopping spree. Cry for Argentina.

In June, I wrote:
The Argentine central bank, under the supervision of  Mercedes Marc√≥ del Pont, is pumping out pesos at a rate that may ultimately result in the destruction of the currency.
The spending spree is now going to lead to even more bad consequences. The price controls just announced will result in shortages and even more pain for the people of Argentina.

This is what Krugman wrote in May sandwiched in between my April and June warnings:
 Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.
Some success story: out of control inflation. It will happen in the United States next, if the Federal Reserve continues to follow the mad dog printing advice of Krugman.

14 comments:

  1. I just spent a week in Buenos Aires. The "official" exchange rate for the peso:dollar is around 4.9:1.

    A black Mather has developed to exchange money, you can get between 6.2-6.5:1 depending on how good your Spanish is and how lucky you get.

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  2. He's right about this part: "one that arguably holds lessons ".

    If anyone is interested in reading a bit about how life has been down there, check out Ferfal's blog. Scary stuff.

    From what I've seen so far in the unitedstate, the progressives intend to link hands with the neo-cons and take us on their so-called 'never-ending journey' to meet up with ruin and misery, and go Beyond where Argentina is. How fun.

    - IndividualAudienceMember

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  3. Of course, his sycophantic followers will manage to overlook this colossal failure of a prediction, not to mention Krugman himself.

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  4. How many times must someone be wrong before he loses all credibility? Is there no one at the New York Times capable of showing this clown the door?

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    1. This is where I'm at as well. Is the entirety of the economics profession filled with nothing but cowards? Krugman, many times over, has claimed some of the most outrageous things: for the government to stage a fake space alien invasion, to calls for a housing bubble, to the miracle of Argentina. Yet somehow no one who has similar credentials will call him out on any of this it seems. No wonder Americans hate economists. They are constantly wrong, can't tell you what's going to happen next, and their policy recommendations are atrociously bad for the general public.

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    2. Steve, we're living in opposite-world, where incorrect prediction is the avenue to wealth and fame. Remember back in 2007, when the Bernanke said that the banking system was well-capitalised and any losses in subprime would be contained? That's how you keep a govt job- by being the opposite of correct.

      To this day, many Argentines blame their currency problems on "too many dollars in the country."
      - RJD

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    3. You're talking about the same paper which continues to employ Tom Friedman. 'Nuff Said.

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  5. Another hilarious prediction of Krugman. About as wrong as he could possibly get!

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  6. I remember some of Krugman's followers arguing with me on this blog in the comment section about how Argentina proved Krugman right and they had an economic success following keynesian ideas. LOL

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    1. Im from Argentina, and i can tell you that Krugman made a huge mistake. He took the measurments of pbi growth which were made by the Indec, a corrupt statistics organization that was recently sanction by the Imf for bullshiting. Indec's inflation is 10,2 %, but private organizations and universities say its over 25%.

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  7. L. Randall Wray also completely fubared this one.

    http://www.economonitor.com/lrwray/2012/10/09/mmt-argentina-and-views-on-inflation/

    Ha!

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  8. Matt Yglesias should be called out on this one, too. He has been quite arrogant in attacking austrians, and he was just as wrong as Krugman. They really got it about as wrong as they could. Hilarious!

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  10. Well, I know I'm the website of the followers of a cult. But you should at least know that Krugman has praised Argentina for its response to the crisis, and has criticized Argentina for its policies once they recovered:

    "The little we know is that the old school rules still apply: if you print money to cover your debts when the economy is not in a recession, you will provoke high inflation, if you apply irresponsible populist policies that will slowdown growth (...) Argentina had a notable recovery after its crisis in the first years of the last decade, but it has obviously keep applying populist policies for too long. If they had change gears into more moderate policies back in 2007, Argentina's history would've been completely positive. Instead, they kept their foot in the gas."

    So, go, go, you keep ignoring the empirical data. That's the strength of the Austrian School of "Economics".

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