ARGENTINA IMPOVERISHES ITSELF AGAIN

November 4, 2008

Argentina is a constitutional republic with many historical similarities to the United States.  It has a rich immigrant heritage and an abundance of natural resources.  But the United States is a rich, advanced country and Argentina is poor.

How did the breadbasket of South America fall so far behind?  One explanation goes back some 90 years, when the Argentine Supreme Court began chipping away at property rights as a way of addressing economic inequality. Argentine politicians quickly learned that lawful plunder was their path to power.

This history is still being written, and the latest chapter ought to frighten Americans, says columnist Mary Anastasia O'Grady:

  • After seven straight years of driving up government spending and hammering every capitalist in sight, the Argentine government, which went bust in 2001, is running out of money -- again.
  • No surprise there -- for more than a few years, analysts have warned that inflation, trade protectionism, disregard for contracts and confiscatory tax rates were having a deleterious effect on capital flows.

Suboptimal investment rates, the same analysts warned, would mean economic trouble when global growth began to slow and the commodity boom came to an end.  But former President Nestór Kirchner (2003-2007) and his wife, current President Cristina Kirchner, had promised to bring change to Argentina and didn't want to hear it.  They thought they saw better returns to their own bottom lines by stoking class warfare while increasing government spending, explains O'Grady.

That revenues would, at some point, fail to meet the rising expenses of the welfare state was predictable.  The only mystery was when the wall would be hit and how the further plunder to make up the difference would be carried out.

On Oct. 21, Mrs. Kirchner ended the suspense by announcing that the nation's private pension system -- with a stock of $30 billion and a flow of $5 billion annually -- would become government property.  To put that in words that Americans can more clearly comprehend, it would be as if the assets of all 401(k)s were suddenly swept out of owners' accounts and into a single government account.  Kirchner defended her decision to seize the pension assets by asserting that the market is too risky for retirement savings, and that the returns earned by private-sector fund managers are not adequate.

That's quite a claim considering that the average annual return of Argentina's private-sector pension managers over the past 14 years is 13.9 percent.  But it is even more absurd if one compares the private-sector returns to those of the government's pay-as-you-go social security system over four decades, says O'Grady.

Source: Mary Anastasia O'Grady, "Argentina Impoverishes Itself Again; What happens when government meddles with private wealth," Wall Street Journal, November 3, 2008.

For text:

http://online.wsj.com/article/SB122567336191591913.html

 

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