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?