Shadow Government

Argentina: The boom before the bust

Many of the news reports on Argentinean President Cristina Kirchner's landslide reelection victory this past weekend contained a healthy dose of skepticism on the sustainability of her populist economic model. The skepticism is well-founded. We've all seen this movie before, and know exactly how it ends.

Heavy state intervention in the economy, massive subsidies, and the redistribution of income -- the hallmarks of economic populism -- have a way of playing themselves out, proving time and time again that lasting prosperity can never be built on acquiring unlimited debt or just printing more money.

As UCLA economist Sebastian Edwards, a Chilean, writes in his brilliant takedown of Latin American populism, Left Behind: Latin America and the False Promise of Populism, all populist experiments begin with great euphoria and surges in economic growth, but invariably lead to rapid inflation, higher unemployment, and lower wages -- and soon thereafter, stagnation and crisis.

There is no question that right now times are good in Argentina. Since the country hit rock bottom in 2002, when it defaulted on $100 billion in debt, the largest sovereign debt default in history, the country has undergone a seemingly remarkable turnaround under the stewardship of the late Nestor Kirchner and now his widow, Cristina. The economy is expected to grow by 8 percent this year and unemployment is at a 20-year low.

But the problem is that Argentina's economic success has been built not on strong fundamentals, but on a tenuous foundation of heavy government spending, high commodity prices, and strong demand from China and Brazil for soy and other agricultural products. And what goes up in economics can always come down.

Other troubling signs are double-digit inflation, which private economists put at 25 to 30 percent; capital flight ($9.8 billion was pulled out of the economy in the first half of this year, compared with $11.4 billion in all of 2010); and plummeting foreign investment (down 30 percent in the first half of 2011).

The other elephant in the living room is the fact that Argentina has been shut out of credit markets since it left bondholders holding the bag in billions of dollars of unpaid debt from its 2002 default. Not only has there been no reconciliation, but the Kirchner government has gone out of its way to reject lawsuits and other claims from creditors. As a result, the Obama administration and multilateral lenders have refused further loans until Argentina begins to repay what it owes investors and settle with holders of defaulted debt, as well as adhere to its obligations with institutions such as the International Monetary Fund.

Yet despite warnings by economists that the government's profligate spending, coupled with a global economic slump, could spell disaster, the Kirchner administration soldiers on. Indeed, why wouldn't it see her overwhelming reelection victory as anything but a mandate to continue its unorthodox ways? "After a lifetime of pushing those ideas," she said after her victory, "We now see that they were not a mistake and that we are on the right path."

On the other side, former President Eduardo Duhalde, who unsuccessfully challenged Kirchner, said, "We're happily dancing on the Titanic."

Given the prevailing capital flight and declining investment in Argentina, the smart money is obviously on Duhalde. Fortunately, those players are in a position to avoid the risk; what's unfortunate are the millions of poor and middle-class Argentineans who will once again pay the price for Argentina's populist folly when the inevitable day of reckoning returns.

Shadow Government

How can President Obama lead if he can't persuade?

Ramesh Ponnuru makes an interesting argument that President Obama is not as good at politics as he believes in part because "Obama never had to fight for and win the votes of people who don't agree with him."

Ponnuru goes on to observe that most of Obama's base believes that the president has sincerely compromised, or at least sincerely offered to compromise -- and in response Republicans have cynically pocketed every compromise and demanded more. Thoughtful Obama supporters have said essentially that to me numerous times over the last year. When I reply that thoughtful Republicans believe the opposite -- that Obama has cynically exploited them at every turn - the Obamaites shake their head in disbelief. By their words and body language, they are telling me that they simply cannot understand how Republicans could believe that Obama has failed to take Republican concerns adequately to heart.

As one might imagine, when I talk to my Republican friends, they express a similar disbelief: How can people not see that Obama has cynically politicked for partisan gain on issue after issue?

So what's going on here? I think there are two related things. First, contrary to the views of purists in either wing (Tea Partiers on the right and Wall Street Occupiers on the left), our system suffers from a paucity of cross-party friendships. There is too little coziness among intellectual combatants, not too much.

I work in one of the most monolithically partisan professions in America (the academy) yet I had the opportunity to serve in both Democrat (the Clinton) and Republican (the Bush) White Houses. As a result, I have close friends and colleagues on both sides of the aisle. I've had to cooperate regularly with partisans from almost every spot on the American political spectrum, from those far to the left of the Democratic Party to those to the right of the Republican Party. I can also think of people I respect at every spot on the spectrum. That's not true of everyone I've met, of course, but I have learned important things about politics and policy from many them. I even regularly break bread with people whose life work seeks to undo things that I have tried to build -- which helps increase both mutual understanding and my heartburn.

The result of this is sometimes to moderate my own views, which is what purists fear. But it's just as often to sharpen the content while softening the edges. That is, having friends on the opposite sides of issues does not mean I have to change my mind about certain policy convictions. But it does make it harder to demonize them.

That, I believe, is essential for fruitful democratic politics -- and that is what's largely missing today. It's often said, but it happens to be true: When I talk to long-time Members of Congress, they sometimes wax nostalgic about a time when the Members did not rush back home to raise money in their district but hung around Washington to socialize with their fellow political leaders, including those from across the aisle. There were plenty of partisan fights and deep ideological divides in those days, but they were laid on top of an underlying foundation of personal connections and personal trust that was more substantial than it is today.

Second, a consequence of living in such a bipartisan world is that many (in my case most) policy discussions happen with people who fundamentally disagree with you. If you are going to make any intellectual headway in those discussions, you have to be able to understand their position before you can hope to change their mind. This is what is supposed to be (but rarely is) the hallmark of scholarly persuasion: describing the other side's position fairly enough that an objective observer cannot detect what your position is. None of us, myself included, live up to that ideal -- but it is possible to get a good deal closer to it than what we see today.

For professional politicians, one worthwhile goal may be to describe the policy arguments of your opponents in a manner that they would recognize the arguments as (more or less) their own. This is a rare thing to witness; the best example in the Bush administration can be found in President Bush's 2001 speech on stem cell research. It is, I would argue, the closest thing we've seen in recent times to a model of responsible and civil debate, whatever you think of the merits of his decision.

So I would ask: When was the last time President Obama described the views of his opponents in such a fashion? You'll be hard pressed to think of a single example. And until he can do this more consistently, his capacity to persuade the undecided, let alone those who disagree with him, will be quite limited. And if he cannot effectively persuade people who aren't already Obama cheerleaders, it's hard to see how he can lead effectively.

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