November 18, 2024

What Happens After Major Cuts In Government Spending? The Latest From Argentina

November 18, 2024/ Francis Menton

If you believe the messaging of the Trump transition, big cuts in U.S. government spending are coming. Announced cabinet appointments include several who are opponents of the mission of the agencies they will soon be heading. A new Department of Government Efficiency is to be created, headed by Elon Musk and Vivek Ramaswamy, with instructions to take an ax to wasteful programs.
But, assuming that some big cuts actually get implemented, you know what inevitably comes next: Because all government spending is (foolishly) counted as a 100% addition to GDP, the cuts first get recorded as a decline in GDP. Economists on the left (e.g., Krugman) then immediately scream that the cuts have failed, the country has gone into recession, and the people are suffering.
In recent U.S. experience, the Republicans have never had the political fortitude to stay the course.
But let’s look at the latest news from Argentina.

September 18, 2024

The Economic Record Of Socialism -- China

September 18, 2024/ Francis Menton

China has proudly proclaimed itself to be a Communist country ever since Mao Zedong came to power in the late 1940s. I understand the term “Communism” in the context of a country like China to mean a socialist (state-directed and controlled) economic system with the additional element of political repression allowing no dissent from official orthodoxy.
China’s economic history is a bit more complex than just 75 years of tightly-controlled socialism. Its economy languished (including the usual mass deaths and starvation) for the first 40 or so years of Communist rule.
Next, under party leader Deng Xiaoping and successors from the mid-1980s for about 30+ years, China allowed a substantial private economy to emerge and flourish. During those years it experienced rapid economic growth, and in that very short period of time its economy became the second largest in the world after the U.S. (however, more like 70th place if ranked by per capita GDP).
Then in 2013, current strongman Xi Jinping came to power. In the most recent decade under Xi’s rule, the political repression has been greatly ramped up, the central planners have reasserted their pre-eminence, and the private economy has been gradually strangled.
So how is China faring under its most recent regimen of tightly-controlled socialism, central planning, and state-directed investment?

August 23, 2024

August 23, 2024/ Francis Menton

Here in the U.S., we are accustomed to economic growth almost every year. Look at a chart of U.S. GDP over the course of the last century, and the impression is of near-continuous and extremely robust growth. Here is such a chart from USA Facts, based on data from the Bureau of Economic Analysis (Commerce Department).
This pattern of continual growth is unfortunately not true for all countries. For an extreme case of the opposite situation, consider Venezuela.

March 15, 2024

March 15, 2024/ Francis Menton

For those interested in why some countries become wealthy while others remain in extreme poverty, Haiti is one of the most important case studies.
Despite being only a few hundred miles from the U.S. mainland, and even closer to Puerto Rico, with investment capital readily available and unlimited opportunities for trade, Haiti has essentially no economic development and is one of the poorest countries in the world.
And instead of improving, conditions in Haiti only get worse. The past few weeks have seen yet a new extreme low point, with the Prime Minister locked out of the territory and the country taken over by armed gangs.
At this blog I have returned repeatedly to the subject of Haiti over the years, in the attempt to understand how things could have gone, and continue to go, so terribly wrong.

January 18, 2024

January 18, 2024/ Francis Menton

In a world of now close to 200 countries, every day provides an updated report card as to what works and what doesn’t in economic policy. As reported by the IMF, World Bank, and UN, some countries have per capita GDP as much as 300 times more than the per capita GDP of other countries. What are the poor ones doing wrong?
Most countries largely stick with the same collection of economic policies for long periods of time, with only small changes. Unsurprisingly, the rich get richer, because what they are doing is working. The poor may or may not get poorer, but at best they stagnate, unless they are ready to try the things that have made the rich rich.
But every once in a while you get a country that makes a relatively significant change. Two that are doing that now are China and Argentina.
Which one is more likely to be successful going forward?

September 22, 2023

September 22, 2023/ Francis Menton

It’s now more than sixty years since the independence movement in the late 1950s and early 1960s transformed nearly all of sub-Saharan Africa into independent countries.
Hopes soared for a new era of progress and prosperity. But six plus decades on, with essentially no exceptions (maybe Botswana?), the 49 countries of sub-Saharan Africa are about as poor as ever.

The New York Times treats the subject in a big piece by Patricia Cohen a few days ago on September 18. Sorry if this is behind their paywall, but I subscribe to this stuff so that you don’t have to.
In the treatment at the Times, this is just a case of the sad cruelty of nature, an extreme instance of “bad luck.” But we can learn a good deal about the true source of the bad luck by looking at clues that Ms. Cohen and the Times inadvertently drop in the course of their reporting, without even noticing that they are doing it.