A New Dawn for Rent Seeking in the Pampas

I think it was Ronald Reagan who once said something along the lines that when business does well, the government taxes it, when it keeps doing well despite the higher taxes, the government regulates it, and when it finally starts to sputter, the government subsidizes it. Nowhere is this truism more, well … true, than in Argentina in the roaring 2000s.

Take the agriculture and agribusiness sectors, for example. Every time international prices go up, the government raises export taxes or, if this is not enough to keep domestic prices from rising, it flatly bans exports. Since the policy of taxing and banning exports is not based on any particular rule, but plainly on governmental discretion, there is no guarantee that when international prices go down export restrictions will be (symmetrically) reduced or lifted. More likely, the government will do its best to avoid a reduction in fiscal revenues implying that producer revenues will fall. The result is one in which there is no upside for investing in agriculture or agribusiness and plenty of downside: a sure way to kill the proverbial hen that lays the golden eggs.

How does the government react to complaints from farmers and agribusiness producers? Just as Reagan would have anticipated, by offering subsidized credit! Never mind the fact that, as any politician minimally trained in economics knows, subsidized credit, particularly when it involves highly negative real interest rates, cannot be manufactured by presidential decree. Even if it could, since when has fighting a bad policy with another bad policy been a good economic idea?

Last night I couldn’t sleep thinking that I carry a passport from a nation ruled by economic neophytes, so I called my friend Jose Mesa de Entradas, who works at Banco Nacion to ask how this was possible (sorry Tato Bores for the plagiarism). “Make no mistake,” Jose told me, “the government knows exactly what it’s doing. You see, back in the 1960s and 1970s Argentina was a world leader among rent-seeking societies. Regrettably, hyperinflation ended it all. But, now the happy days are back and, with them, rent seeking has made a strong come back, led by the same people who brought us ‘la economia de la produccion’ as opposed to ‘la economia de la especulacion.'”

As he saw my befuddled expression, my friend tried to elaborate. “Imagine what would happen if the government chose to eliminate relative price distortions instead of offering budgetary and credit subsidies to compensate the affected parties. There would be no opportunity for a ‘productive dialogue’ between the authorities and the private producers.” (He made this last statement winking his left eye in an ‘if you know what I mean’ kind of way). “In this manner,” he continued, “the government creates two open doors for ‘dialogue,’ one to negotiate price increases and the other to grant credit subsidies.” Suddenly, everything became crystal clear.

P.S.: I’m still awake. Anybody got some Lunesta?

11 Responses to "A New Dawn for Rent Seeking in the Pampas"

  1. Vitoria Saddi   February 20, 2008 at 12:15 pm

    Joaquin,Do you think that Argentina will experience hyper inflation again?Do you think that the change in economic policy (without a clear view) is due to the weak institutions (like the Treasury)?Thanks for the great piece!Vitoria

  2. Joaquin2   February 20, 2008 at 2:20 pm

    Hyperinflation? Probably not, although one can never be too sure. Persistently high inflation that is increasingly costly to eradicate? Most likely (I believe Argentina is already on that path).Weak institutions? If by weak you mean crookie, yes, definitely.

  3. Vitoria Saddi   February 20, 2008 at 6:23 pm

    Joaquin, I believe Argentina has an outstanding educational system. This makes a difference, especially when you compare to Brazil, a country that elects Senators who cannot read and write more then their names. Argentina has a more equal society than most Latin countries. The political parties are strong. But I fully understand what you meant. Vitoria

  4. jo6pac   February 20, 2008 at 9:53 pm

    Hi If Ronnie Ray Gun is the model he raised taxes in Calif. Yes the model they are following is wrong. Instead of this do you have a plan?jo6pacCalif.

  5. joaquin   February 21, 2008 at 7:48 am

    Vitoria,Argentina’s education system used to be good. Now, it stinks. Similarly, Argentina used to have better income distribution than most other countries in Latam. No longer true. Certainly, there are countries that have it worse, but only because they always had it. The important thing here is the rate of change, and this has been in the decline.jo6pac: There is a difference between rising generalized taxes when you need it for budgetary reasons and administering taxation so that you destroy the only sectors in which Argentina is really competitive.What do I propose? Read my previous blogs in this site (the first two).

  6. mangy   February 21, 2008 at 7:11 pm

    agree with cottaniargentine education is on fast track to the dogs,especially since the ’90s when harvard’s blue-eyed demential mingo -the real mccoy accountant with no political insight, and his ivy league phd medfund henchmen, transferred the schools to the provinces without any fundslikewise health

  7. Guest   February 21, 2008 at 8:40 pm

    not true, mangy. I was there and I know what happened. The economy was growing like crazy, and with it the fiscal revenues, half of them were going to the provinces by virtue of coparticipation. Transferring secondary education to the provinces was the tight thing to do since, otherwise, the money would have been spent in who knows what.

  8. mangy   February 22, 2008 at 6:13 am

    “like crazy”: fitting description of mingo at the helmabout half the shared revenues to the provinces, which is only the share it had beenthen transfer spending (education, health, etc.) in the name of decentralization, but unfundedcut revenue sharing percentage in the name of social security, and in fact to pay off the brady debtbring the provinces to their knees to force them to swallow further cuts in their slice of tax collectionpledge political alleigance for a discretionary treasury handout (atn)sell off their own public sector assets, so that the national government could obtain more debt for complying with an imf memorandum of understandingnow the (poison) ivy league jokers are on a comebacke.g. stuffedegger jr -who fled like a rat in the middle of the input-output matrix press conference- the basurdollar apointee at banco ciudadn.b. this is not an endorsement of provincial public spending, which basically proceeded as normal rather than focussing on their new (or reacquired) responsibilities that were foisted on them

  9. Joaquin   February 22, 2008 at 11:10 am

    Mangy,I guess we all have our own definitions of ‘crazy’. Yours is Mingo, mine is Guillermo Moreno.On the transfer of education to the provinces in the 1990s, I beg to differ. It was sooo totally funded, as my daughter would say. This is because, unlike now, when a big chunk of federal revenues come from export taxes, which are not shared with the provinces, in the 1990s there were no export taxes. Mingo had eliminated them, remember? (call him crazy, but that’s what he did). So, most taxes whose collection was exploding since hyperinflation had been eliminated, were shared with the provinces, meaning that not only the absolute value was rising, but also the provincial share. Actually, Kirchner would have not been such a popular governor of Santa Cruz had it not been for the fact that he got so much money from the national government (that, BTW, includes the $500 million in oil royalties that were sent to Switzerland and are still unaccounted for).As for the privatizations, if it weren’t for them Argentina would be living today in the Dark Ages, as there would be no electricity. Under such circumstances there would be little use for Cristina’s energy-saving lightbulbs (her only achievement as president so far).You want a joke, Mangy? Here’s one. How many government officials are needed in Argentina to change a lightbulb to save energy in a public office? Two, one to change the bulb and the other to collect the bribe from the company that produces it.

  10. mangy   February 22, 2008 at 7:33 pm

    joaquincannot recall applauding moreno (neither, in my main field, jaimito’s bad jokes: trying to make us swallow the bullettrain, etc) – refer to my comments on the argie economic blogs, the adjective is the same and a dog by any other name is just a doglet us agree that the dsm iv and the icd 11 have enough boxes for both of them (and another one for john nash)let us also agree that his tantrum on live tv when (spineless) ibarra trounced him in the ba city elections is enough for mingo to qualify as the genuine accountant lacking in political insightam not adamantly opposed to price controls as a stopgap.no, don’t come back on me saying that the original K was a covert fellow-traveller when he carried out a compensated devaluation (K would be Krieger vasena)admittedly when it was on my shift to discuss technicalities with the bonvecchi/todesca team it was very likely more rational than todaynor am i closed to export duties -particularly with today’s commodity prices for a food exporter-on revenue sharing, can recall when primary distribution was 48.5% each, and 3% for token cfi-sponsored federal infrastructure projectsyes, provinces suffered the olivera/tanzi effect from megainflation most (if only because they cannot print banknotes, until at the crunch they reinvented quasi money -as far as i recall in n.w. provinces and homepatch cordoba it was under mingo in mid ’90s, years before patacones and then lecops)but mingo cannot wash his hands on argentine inflationhis first jaunt out of the boondocks was as a junior henchman to the very ultra brief dictatorship of liendo pater, at a time the money center banks -manmy hanny included- were stuffing unwanted/unneeded loans on to the public sector companies, a debt burden which led to postponing investments and ultimately technically bankrupting themsix months later he made his comeback as central bank governor under big none another dictator, with the mission of providing debt relief for delicacies like the late tg fredi zorraquin and shouldering it on the quasifiscal deficiton mingo’s timely actions and remarks in early ’89, maybe you have the inside story

  11. mangy   February 22, 2008 at 8:07 pm

    actually, i don’t find your “joke” funny at allnot because there is not more than enough bribery in argentinabut rather because experience suggests one should be wary of self appointed mr cleans (having also smelt the stench of animal fat used to make soap, long before dock sud became a container terminal)allow me to ramblemy first formal job after discharge from military service was in the airfreight department of a now defunct major us airline, and less than a month after joining the manager took all the team out to lunch.why? a couple of years earlier a shipment of nikon cameras was very heavily pilfered somewhere along the tyo-jfk-eze routethe two larger stations claimed innocence and pointed southwardsit was only when the serial numbers appeared on 42nd street that ba could reverse the chargesince then, time served in multinational proved that in any doubtful circumstances the string snaps at its thinnest pointand in any dealing with an oecd passport holder, it is the sudaca’s burden to prove his innocence, contradicting all due processlike the caesar’s wifeenron and worldcom (a few crooked yanks) coincided with argentine default (all argentine’s are corrupt, even if it was only a few bankers who upped and ran) at present am also harrassed by a one time a kill me scot free banker, who after a golden exile in toronto, a key trader is unaware of the phrase “my word is my bond” and who was obviously not taught latin at cema, for him “pact sunt servanda” means “ignorance is bliss” why the rambling, because although ivy league mingo managed to sell himself as mr neat and tidy compared to hick attorney menemmost of the big corruption scandals at that time were also on mingo’s beat (by ommission, if not commission). a short list you may wish to add to:a $10K monthly kickback from the medfundibm-banco nacionbanelco-afipgold contrabandgun-running to croatia and ecuador (which ultimately led to the murder of several of his fellow cordobeses)