Rafael Di Tella is professor of institutions, macroeconomics and global economics at Harvard University. He graduated as an economist from UBA and received a doctorate from Oxford. He is the son of Guido Di Tella, former deputy minister of the economy and chancellor of two Peronist governments.
Di Tella lives and works in Boston. She’s now she’s crossing the country. Twice Olympian (he represented Argentina in fencing at the Seoul 88 and Barcelona 92 Olympics), now his son Pascual (musician and author of ‘The Sublime Economist’), will represent the country in Paris. In a few days the other daughter, Isabel (an economist from MIT), could participate in the Olympic event. Here is a summary of the speech:
-Surprisingly good. He abandoned monetary promises ofdollarization, blowing up the Central Bank and removing stocks from day one, and focused on breaking fiscal dominance. Without this it is impossible to stabilize and grow. Of course, every adaptation involves suffering, and this is what has always stopped us. But there is consensus that it is worse to continue as before. Milei seems convinced, which is why I think it doesn’t affect him when the pain of the adjustment is revealed.
-Contrary to what the IMF says, the quality of the adjustment does not seem that important to me. Exaggerating a little, and focusing only on credibility, it even seems that a “low quality” adjustment would be good for the Government. The adjustment of “good quality” is done by anyone, even a politician without convictions. What breaks fiscal dominance is a president who plays the unpopular role and doesn’t think about backing down. Milei appears to be a politician of “beliefs, not consensus”, as his admired Thatcher would say. What scares me a little is that without consensus the adjustment will not be sustainable over time. One of the greatest paradoxes is that to achieve progressivism it is necessary to correct the scams of Kirchnerism.
-Clear. But I recognize that this first step taken by Milei was absolutely necessary.
-We are in the midst of a rather brutal way of reducing inflation. Those of us who think we are sophisticated criticize the form because it reminds us of “heterodox” plans that have fewer costs in terms of unemployment. But it is right to clarify that today the country cannot face less expensive or unorthodox plans, because Kirchnerism has left us without reservations and also because it has bastardized price and wage agreements by using them for political purposes.
-I do not know.
-Because Macri’s inflation targeting plan assumed that monetary policy was independent of fiscal policy. That is, they did not believe that fiscal dominance existed. And also that the dollar movements had no overall impact because they were only relative changes in prices. In a certain sense, Macri’s vision was more fundamentalist than Milei’s. There isn’t much to say about Alberto Fernández. He wasn’t even wrong.
-Milei inherited a catastrophic economic situation, with imbalances hidden in every corner. All possible routes were very risky. I don’t think this is particularly objectionable, although I would like to see more exploitation of the phenomenal consensus that exists today on the need for fiscal balance.
-The best summary I can think of is that Milei wants to be a kind of Thatcher of the pampas. There are many similarities, starting with the idea that the failure of the previous Conservative government was due to a lack of conviction and the fact that they “didn’t go through with it”. In Thatcher’s case, the trauma was due to the U-turn from the previous Conservative government to one led by Ted Heath and followed by support from non-Conservatives. The country had an economic structure that expelled young people and everyone knew it needed to be changed, but no one knew it. The problem became so serious that both New Zealand and Australia had to place legal limits on the entry of English immigrants in the 1970s. There are obviously some differences. We need to know what Milei’s strategy is to bring about a landlord revolution here like the one Thatcher did in England.
-Thatcher understood that fundamental change required those who previously lived on the welfare state to own property. There were 5 million English people who lived in houses in the municipality and could buy them. Privatizations have also encouraged the participation of small investors.
-I don’t know why Milei had already proposed blowing up the Central Bank. I guess it was because people realized that this was a good way to protect themselves from the Kirchners’ money scheme. As regardsdollarization, I understand that the current proposal is to resort to currency competition. It seems fine to me. Indeed, I have never understood why fiscally responsible provinces, such as Córdoba or CABA, never dared to launch a convertible federal currency in response to the K’s “Cubanization” of the Central.
-An interesting aspect of the Menem era is how structural reforms contribute to macroeconomic stabilization. It is one of the best examples of how competitiveness does not depend only on the exchange rate. In fact, a company that has access to credit, quality inputs and competitive prices and that has stability (legal, price, etc.) can “bear” a more appreciated exchange rate. But perhaps the most positive aspect of the Menem government is that it has brought about very profound changes to democracy. Even what seemed most conflictual, such as privatizations, could be achieved with the support of those who previously opposed them, such as trade union groups, and maintained over time. Milei could save from that episode as much as can be achieved without conflict.
-Let’s hope so.
-When I see the elections between Biden and Donald Trump I think it’s time to return to Argentina… (laughs).
-It is normal for there to be errors. The most obvious is in sports where the plan is not understood. It seems that he is mixing the changes that may be necessary in football with changes in social and sporting societies which are a real treasure and if anything should be protected and expanded. Or do we want to be like the United States even in all the bad things? The important thing is the general direction. If the Kirchnerist deficit continued, the clubs would close anyway because there would be no one left.
Source: Clarin
