Philip Pilkington: Democrats vs. Technocrats – Son of Neoliberal Economist who Manufactured Policies that Led to Argentina’s Default is the Source of Contrary Statistics on Inflation

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By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

We know accurately only when we know little, with knowledge doubt increases.
– Goethe

There is a great deal of truth contained in Goethe’s old refrain. The fewer facts we possess the more certainty we are likely to have. But as facts proliferate, so too does doubt.

Economic statistics are notorious in this regard – as anyone who has peeked into the measurements used can attest. Official statistics are daily quoted and thrown about as if they were absolute truth. But in reality they are usually the calculations of fallible groups of individuals working with difficult and often vague measurements.

The recent debacle on the Argentine inflation figures bears the mark of this problem. It all seems to have kicked off with an Economist article published back in February that called into question the figures on inflation that the Argentine government publishes.

The article itself contains heavy bias. This is not at all unusual. Since the Argentine default in 2001 much of the international investment community has shunned the country and subjected it to constant scrutiny. But up until now the attacks have been largely bluster. Now, however, The Economist writers have stumbled upon something that could do real damage to Argentina, even in the eyes of her friends and allies.

The Economist alleges that the Argentine government has been massively understating their inflation figures. INDEC, the official statistical body, puts the figure at 9.7% – the figure widely accepted by official international institutions. However, according to the Economist, independent estimates run from anywhere between 24% and 30%. Elsewhere I have seen estimates all the way up to 35%.

The following graph, using data from State Street, a financial services firm, is typical of the sort of unofficial inflation figures being put forward by critics of the Argentine government:

Sources: In the Name of the Father

According to the Economist State Street gets its figures from an organisation called Price Stats. Price Stats is founded on the research work of two economists; Alberto Cavallo, an Argentinean, and Roberto Rigobon, a Venezuelan – two expatriates from countries under intense scrutiny by the international business community for their respective ‘leftward turns’.

Cavallo and Rigobon set up the Billion Prices Project at MIT . BusinessWeek summarises how the system works :

Each day, software developed by Cavallo scours the websites of roughly 300 online retailers and records the prices of some 5 million goods sold on the Web.

From what I can see the data from this system for the US roughly tracks official CPI figures. However, when it comes to the Argentine data, as can be seen in the graph above, the divergence from the official data is enormous. So enormous that Cavallo has set up a website called Truth in Argentine Statistics.

Cavllo’s own background is interesting in this regard. BusinessWeek reports that:

Cavallo is a second-generation economist. His father, Domingo Cavallo, headed Argentina’s Finance Ministry during the 1990s, and helped engineer the policies that cured the country of hyperinflation.

Actually Domingo Cavallo’s career is a bit more complex than that. As most people are now aware the policies that BusinessWeek claim ‘cured’ Argentina of hyperinflation turned out to be completely disastrous. Basically, they consisted of maintaining an unsustainable fixed peso-dollar exchange rate of 1:1 parity between 1991 and 2001. The pressure put on the economy in these years ultimately led to complete social breakdown, riots in the streets, the fall of the government of President Fernando de la Rúa and, ultimately, default.
The Argentine experiment in these years is largely seen in Latin America as being a poignant example of the failure of dogmatic and inflexible neoliberal policies on that continent during the era of Washington Consensus domination.

In 2002 Domingo Cavallo was arrested on charges of illegal weapons sales that he was alleged to have participated in under the Menem administration in the early 1990s. The charges were dropped due to insufficient evidence, but Cavallo insisted that they were “politically inspired” . That article also notes, pointedly enough, that:

After the collapse of the Argentine economy in early December, Cavallo resigned and was quickly blamed for the crisis. He was especially unpopular for issuing an order, still in effect, that virtually froze bank deposits, which now have lost more than 70 percent of their value because of the devaluation of the Argentine peso.

Motivations: Who Watches the Watchers?

I would be loath to accuse Cavallo the Younger – son of neoliberal inflation hawk Domingo Cavallo – of accumulating contrarian statistics on Argentine inflation simply because he had an axe to grind. Indeed, from what I can see of his academic work it appears to be up to scratch. Generally, journalists would not even point out these connections in public as it would be enough to consider them in private and weigh them up prior to publication.
However Cavallo’s background shows, at the very least, that even so-called ‘independent’ observers of data have their political backgrounds and their ideological heritage. If we are to question the motivations of a government in reporting inflation statistics we have every right to question the motivations of it critics too – not to mention the motivations of those media outlets that give them space to air their views, together with their editorial policies.

Indeed, consider for a moment that the US government is not without its critics in these matters either. The website ShadowStats regularly publishes ‘alternative’ measures of US data – including inflation, which they put far higher than the official CPI estimate. But ShadowStats are largely seen as fringe in the US. The Economist seems to have mentioned ShadowStats in passing in yet another article praising Cavallo’s work.

But why the divergence? Why isn’t the Economist publishing articles regularly on the supposed misreporting of the CPI and unemployment that ShadowStats insist is taking place in the US – surely this would be a pretty big scoop? Why are they instead so keen to promote the work of Cavallo? Is it because ShadowStats’ work calls into question US statistics, which the Economist prefers would remain free from doubt; while Cavallo’s work attacks a government that has drifted from the Washington Consensus?

These questions certainly need to be raised. The Economist seems to think that ShadowStats is worth mentioning in the introduction to a piece on Cavallo’s work and yet, as far as I can tell, they have never run an article blatantly accusing the US government of fudging their stats – which is precisely what ShadowStats are telling us (wrongly, in my opinion).

Nor are they willing to remove the US CPI data from their databank – as they have with Argentine data – even though they seem willing to cite ShadowStats in one of their articles. Nor do they seem, to the best of my knowledge, inclined to remove official Chinese statistics from their databank – even though these have come under serious scrutiny from investors and economists alike.

But they are more than happy to run what seems to me a somewhat sensational article on the Argentine government – featuring, no less, a charming picture of Argentine President Cristina Kirchner as a witch.

Perhaps the Economist dropped the official Argentine numbers because, unlike in the case of China, they had an alternative in the work of Cavallo. Perhaps they ignore ShadowStats because they simply think that they’re wrong. Fine. That would make sense. But if this were the case did they really need to make such a song and dance about the Argentine numbers? Was it really necessary to go after an economy that has largely recovered from the catastrophic neoliberal plague with which so many economies in the West are now suffering? To put it quite bluntly: might this not be a case of ideology plain and simple – any excuse to go after an economy that has thrown off the pox-infested rug of neoliberalism?

Indeed, I don’t think that this inflation numbers issue should be seen outside of a broader frame. The conflict between the new democrats in Argentina – represented by the Kirchner government – and the old technocrats – represented by the Economist and Cavallo – is what is really at issue here. And it is this that we will see ring out every time Argentina is in the business news in the coming years.

The phrase “who watches the watchers?” should, without question, be applied to media outlets just as much as it is applied to governments.

Speculations on the Argentine Economy

I do not pretend to know if the Argentine government is misreporting their inflation data – a trusted source informs me that they are. Nor do I know for sure if the US government is misreporting theirs – although I strongly suspect that they are not. Again, we’re back to Goethe: as facts increase, so too does doubt.

But while we should not simply accept Argentine statistics uncritically, nor should we make a mountain out of a molehill. As the US economist Dean Baker wrote in a private email exchange:

I think Argentina does have some real issues with its economy and I’m sure it’s output numbers are not entirely kosher, but I don’t believe that more accurate numbers would hugely change the story. You have sharp drops in unemployment that are consistent with the growth picture. Also Kirchner is hugely popular. She could not have made the whole country believe that things were good if they weren’t.

This, I think, is the key point. Although it may well be true that the Argentine government is massaging their data, many in the media appear to be making far too much out of it – and not just over at the Economist. For example Tim Worstall over at Forbes claims that if we take these figures into account the Argentine economy is not growing at all:

If Argentinean real GDP figures have been adjusted using the official inflation figures then they are grossly overstating the economic growth. In fact, it’s entirely possible with the higher private estimations that there is no economic growth at all in Argentina. Even that the economy is shrinking.

This is a completely hysterical reaction – and one, I think, largely generated by the Economist’s coverage of the issue. It is a reaction that seems to be spreading like a virus around the internet and among investors. An Argentine economist gave me a private estimate that, even if The Economist figures were used, the growth rate would likely be about half that officially stated. That would still make Argentina one of the fastest growing economies in the region.

This rings true as the Kirchner government appears to be extremely popular. In October 2011 Cristina Kirchner swept to power with a vote of 54.1% – 37.3% over her second rival. That makes Kirchner significantly more popular than she was four years previously when she received 45.3% of the vote – 22% over her nearest rival.

Now, if Kirchner has simply been hiding a zero-growth economy under cooked inflation statistics are we really to believe that she remains so popular among voters? Personally, I don’t find that story remotely credible. I also think that if the government are indeed massaging the data and still managing to get elected in a landslide they are doing something right.

The critics will call this success ‘populism’; but that term is loaded as, in common parlance, it means ‘left-wingers pandering to the masses’. (I could just as easily refer to the Irish Fianna Fail government’s pre-crisis policies as ‘populist’ – and I would be correct – but you would rarely have heard such a thing from their neoliberal champions; nor would it explain Fianna Fail’s success in those years). No, ‘populism’ cannot explain Kirchner’s popularity because, being a simple pejorative, it does not really amount to an analysis.

In fact, ‘populism’ is even more toxic than simply being a crude trope deployed by neoliberals against the Latin American emergence; it is a word that crystallises the dangerous distrust that many a technocratic neoliberal foster toward democratic republicanism. We are on far safer and more ethically sound ground if we assume that, rather than duping the masses, the Kirchner government is actually doing something right. Certainly if we compare it to the neoliberal technocrats that ruled in the 1990s our doubts will soon evaporate.

In the next piece in this series I will examine the economist Jamie Galbraith’s recent work on wealth inequality and finance to see what really happened in Argentina after the default. It would appear that what really occurred there was a classic ‘euthanization of the rentier class’. And it is likely this that has the international financial community so angry. The financial elite turned on Argentina when they instituted much needed and effective reforms that put a brake on the financial sector, just as happened with the Roosevelt administration during the 1930s when they undertook similar policies. Once again this is the conflict between technocrats and democrats – between an Andrew Mellon and a Franklin Delano Roosevelt.

But this is an argument for another day. For now, I would simply ask the reader to be acutely aware that no statistic in this world is truly neutral – and, be they civil servants or private individuals, state news-channels or privately run magazines, every statistician and media outlet have their motivations and their ideologies.

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  1. PianoRacer

    Central Planning Causes Currency Devaluation, Government Denies Responsibility.

    News At Eleven.

    I’m sure that the central planning of MMT will solve all of Argentina’s (The land of silver – how far they have fallen) problems, eh Phil?

    If they could only remember why they named their country after one of the greatest inventions man has ever devised: real money.

    1. Skippy

      PR, when you use the word – real – to discribe monies / currency, long list of other vacuous terms, you show your flat earth mentality.

      Skippy… MMT yeah… whom will weld it, with the state of most goverments and the state of their completly delusional(self deception via generations of mis-information), not to mention the central banking system and its componets. Free market or central planing[?], its all the same to me, except with one you still have a chance at righting wrongs were with the other its just profit above all other things.

      1. PianoRacer

        “PR, when you use the word – real – to discribe monies / currency, long list of other vacuous terms, you show your flat earth mentality.”

        Real \Re”al\ (r[=e]”al), a. [LL. realis, fr. L. res, rei, a
        thing: cf. F. r[‘e]el. Cf. Rebus.]
        1. Actually being or existing; not fictitious or imaginary; as, a description of real life. [1913 Webster]

        Dollars are fictitious, man-made concepts. They are not real outside our minds. Silver on the other hand is real, or do you deny its existence? If so you may want to consult your local periodic table. Believing things are real that are not, like sky ghosts and countries and dollars, is what truly reveals a “flat-earth mentality”.

        “Free market or central planing[?], its all the same to me”

        Is rape the same as lovemaking to you, Skippy?
        Is theft the same as charity to you, Skippy?

        Would it be the same to you if the state centrally planned your job? What about your spouse?

        You’re either a liar or a psychopath, Skippy, and either way you’re not worth debating.

        1. PianoRacer

          I should clarify that the word “dollar” used to actually refer to something real – now, not so much.

          dollar \dol”lar\, n. [D. daalder, LG. dahler, G. thaler, an abbreviation of Joachimsthaler, i. e., a piece of money first coined, about the year 1518, in the valley (G. thal) of St. Joachim, in Bohemia. See Dale.]

          (a) A silver coin of the United States containing 371.25 grains of silver and 41.25 grains of alloy, that is, having a total weight of 412.5 grains.

          (b) A gold coin of the United States containing 23.22 grains of gold and 2.58 grains of alloy, that is, having a total weight of 25.8 grains, nine-tenths fine. It is no longer coined. [1913 Webster]

          1. skippy

            PR, Value arguments are just a metaphysical armchair merry – go – round.

            The fact that you provide the Wesbsters definition of Real, as supportive evidence, shows how badly you misunderstand.

            Gold, silver, dollar bills, are all physical objects, how you… “feel about them”… is the question you are engaging.

            Skippy…. personally I value Trust / Social Cohesion above all other things. BTW where do you work / live, because last I checked all vertical authoritarian structures ie. corperations, etc, all are centraly controlled… cough… planing. So do you perfer that kind of authority over ????.

            PS. Thanks for the vitriol, LMAO. cheers!

          2. Praedor

            *SIGH* Conch shells are “real” money. So are “tally sticks”. So is “I’ll trade you X for Y”. Silver is a metal. Gold is a metal. Copper is a metal. Iron is a metal. They only have value if people SAY they do as they have no inherent value in and of themselves.

            Tomorrow, if everyone decides that denim is of high value, then swathes of denim will be “money”. Get off your religion of “real” vs “fake” money. ALL money is a 100% social construct that is not inherently correct. There is no physical law of what constitutes “money”. There is no physical constant called “money”.


          3. F. Beard

            There is no physical law of what constitutes “money”. There is no physical constant called “money”. praedor

            Well said!

          4. tiebie66

            Money is a request, period. But allow me to be more nuanced. Money, more specifically, is the token used to embody a request. When the request is accompanied by something the requestee values, the requestor is more likely to have the request granted. When the valued item is nearly universally valued (cowry shells, cattle, gold), its utility is enhanced by providing instant reciprocation for a request. This mutation of bartering allows the requestee to gain immediate payback and reduce the risk of freeloading. When the valued item can also be standardized, its utility is further expanded to that of a unit of account. We have, since antiquity, conceptually conflated the request with those standardized and widely-valued items used to effect immediate reciprocation by calling the latter, when used as a token of demand, “money”. If one separates the two, and transfers standardization and acceptability from the reciprocatory item to the token, one gets a ‘fiat’ currency, a more recent development (~ 900 AD). A government is not inherently necessary, but can assist and facilitate, or decree, the process. (MMT, IMO, describes therefore a special case of money conception, but it is not a fundamental view of the process.) It stands to reason that the separation of token and reciprocation leaves the situation open to greater extremes and varieties of abuse, as well as to greater convenience and efficiency. Although the token is now physically separated from the erstwhile reciprocatory item, the standardization and (decreed or consensus) acceptability of the token nevertheless enable and reasonably ensure time-shifted reciprocation (at first : ‘…will pay the bearer on demand in gold…’, or after 1971, only more generalized and dispersed). In other words, the token itself has now attained a general reciprocative utility provided that the economy is productive/contains items of value. Former reciprocatory items, in contrast, have lost some of their utility and become ‘simply’ part of the general array of goods and services in the economy.

            And why has gold value? Simply put, because sex has value. Gold has luster that attracts attention of possible mates to the bearer. This should be clear from its uses today, especially in India. Tinsel and all the shades of fake gold try to mimic this, but nothing keeps as well as gold. One cannot, IMO, simply dismiss gold as a barbarous relic, it is more closely tied to our psychology hence its very nearly universal appeal. It is not an issue of consensus, but of psychology/physiology and no amount of denial will be effective. (You are free to disagree, I just mean that dismissing gold will not make it ‘non-valuable’ outside of specialized technical uses.)

          5. F. Beard

            (You are free to disagree, I just mean that dismissing gold will not make it ‘non-valuable’ outside of specialized technical uses.) tiebie66

            Of course gold has decorative appeal but as a money form it is indeed primitive and silly.

            I advocate that we be allowed to use anything for private debts only including of course gold but also more sophisticated and potentially usury-free money forms such as common stock. People would then quickly learn by experience the great utility of “sharing” wealth and power as opposed to concentrating it.

        2. They didn't leave me a choice

          Why exactly is it necessary for money to be “real” again? Gold or silver are worthless on their own (ok, gold does have some marginal uses in electronics and silver is actually pretty useful in many applications, but those are not what makes goldbugs think they’re valuable), only our collective hallucination over their “value” gives them meaning. Same thing with fiat money.

          Just because the money quantity is constrained by being based on a limited amount of a physical good hardly fixes anything, sure you there might be better price stability, but why exactly is inflation a bad thing?

          I know you’re going to go off on a tangent over savers and shit so just save both of us the time: Why is saving a good thing? All it does is halt the flow of money, and money that does not flow is not money at all, it’s just (in your utopia) gold in some jackasses vault. Completely socially useless.

          1. Lambert Strether

            To my simple mind, what makes money real is that the government takes all your stuff and even puts you in jail if you don’t pay it taxes in the money that it creates. What’s not real about jail? How come metal is real in a way social relations are not?

          2. F. Beard

            What’s not real about jail? LS


            The desire for a gold standard is to back the value of gold with the taxation power and authority of government.

            From a libertarian perspective, government is force and its fiat should have NO OTHER backing because it is already fully backed.

            Gold and everything else should be allowed for private debts only but then the question is “Why should I accept that money? I can’t pay my taxes with it. So what else does this private money offer me that I should accept it?”

          3. F. Beard

            Why is saving a good thing? All it does is halt the flow of money, and money that does not flow is not money at all, it’s just (in your utopia) gold in some jackasses vault. Completely socially useless. They didn’t leave me a choice

            Cf: “The Parable of the Talents” ( Matthew 25:14-30 )

            That said, if traditional banking is a guide, then 8-12% of ones assets should be liquid.

        3. Lil'D

          Money, be it silver coins or paper dollars, or tally sticks, or whatever
          is “unreal” – it is always a social construct. It is “money” because a group of people accept it as money.

        4. Fiver

          You call someone “a liar or a psychopath” based on that comment?

          Any possible claim you had to be taken seriously now hangs by a thread.

        5. Crazy Horse

          I’m not sure you are worth debating either Piano Man, but here goes.

          In my tribe one time long ago a giant bird making a horrible noise flew over. It dropped some rectangular green things that looked like the inner bark of a tree, and some little gold and silver rocks. We found that the green pieces of bark were great for starting fires. When we tried to make arrowheads out of the rocks we discovered they were so soft that they were totally worthless. You see in my tribe we value things that help us live in the world. When we want dreams and illusions we eat peyote.

          1. Mansoor H. Khan

            Money more than anything is a “social Arrangement”.

            Sometimes it can use real physical things like gold, silver and paper dollars but modern money (bank deposits) is ledger entries in the banks.

            Mansoor h. khan

  2. reason

    I suspect that the data is in general bad. i.e. That not only are prices being underreported, so is nominal GDP. Does Argentina have a large shadow economy? Frozen bank accounts, suggests to me that it probably does. Right wingers suggesting that high inflation => slower growth, must ask who exactly is paying such prices and how.

    1. Dichromate

      I’ve seen people claiming that the Argentinian economy is shrinking by 5%, 8%, 10% per year. It’s utterly impossible to believe that such a thing is occurring (and has supposedly been occurring for several years) while unemployment declines (hell, even without a rise in unemployment). The economy is probably overheating of course and it’s quite likely the numbers are somewhat dodgy, but something else is going on there, eg: both prices and nominal GDP being under-reported as you suggest.

      If it’s shrinking, what is the reason for the decline in output? destruction of the capital stock? massive hitherto unobserved falls in productivity? there’s certainly not any fall in employment and metrics for capacity use and industrial output seem okay.

      So basically there’s no evidence for declining GDP – all we have are rightwing bloggers posting garbage along the lines of:
      “reported nominal GDP growth minus my special, REAL inflation rate = NEGATIVE, OLOLOLOLOL ARGENTINAS ECONOMY IS SHRINKING!!! STOOPID SOCIALISTS!” (not that it’s even mathematically correct to do that, but I’ve seen them doing it nonetheless)

      1. digi_owl

        Never mind that as we have seen in the recent past GDP can be disconnected fully from the industrial production of a nation with enough financial activity.

  3. BruceNY

    I am not sure which “recent debacle” you are referring to, but It’s been widely reported for years that Argentina has much higher inflation than reported. The NYT ran an article several years ago on this, and Bloomberg has articles all the time on the topic.

    My understanding was that their were numerous private economists reporting this. Basically – all of them.

    It’s also why the “blue chip” f/ x rate is almost 6:1 as opposed to 4.4:1 official.

    But hey, you could just visit there and maybe provide a first-hand opinion.

    1. Philip Pilkington

      The financial press turned their daggers on Argentina once again after the Repsol incident (“Thou Shalt Not Expropriate!”). This has resulted in articles for Argentina — by Krugman and Wesibrot, for example — and against — by the FT and Worstall over at Forbes. Most of the debate seems to be centered around Argentina’s inflation figures, as its the only real critique people have of the otherwise succesful country these days.

      Gone is the time when the financial press could simply bully the country by saying that they’d get no investment after the default. Indeed, given certain events in the neoliberal Eurozone this avenue of attack would be nothing short of embarrassing. So, its the inflation figures that the bean counters and the technonerds pick up.

      1. Mike S

        Hi Phil,

        I’ve seen many different sources for the inflation numbers. I suspect they aren’t as high as the alternative measures claim.

        Still, recall if inflation is higher, growth is lower. It’s something to keep in mind at all times as governments report numbers.

        I not saying the Argentina numbers are flawed.

        1. Philip Pilkington

          I suspect in the 20-25% range. Which is big. That means half the official GDP growth is false. However, as I said in the piece, that still leaves Argentina with a high growth rate.

          But my main point is that people shouldn’t get too bogged down in these figures. People spend far too much time debating stats when there are far bigger fish to fry. Like, say, social cohesion; sovereign default; and the role of finance in society.

          Technonerds arguing inflation figures in blog posts not only comes across as narrow-minded — it also appears to me completely irrelevant. A bunch of bean counters fiddling as History passes them by.

          1. Mike S

            Check out my other comment on why even if the growth is lower, this means it’s still positive for Argentina.

            Argentina is doing well.

          2. Fiver

            That is just so disingenuous.

            You can’t take one of the key metrics used by the entire economics profession and put it in a bin labeled “Right wing cranks” when it suits you.

          3. Philip Pilkington

            By all means enlighten us as to what the Argentines should do then. Should they target inflation again like they did in the 90s? Seriously, give me a program better than the present one. I’ll pass it on.

            Otherwise, you fell for it.

          4. Philip Pilkington

            Yes, you seem to imply that Argetina should have good inflation stats AND pursue their present redistributionist policies. Might as well have wine lakes too.

            If you want to change a system in a developing country sacrifices must be made. A right turn is generally coupled with wage deflation and unemployment. A left turn is generally coupled with inflation. You can’t have your cake and eat it. Attacking the inflation stats is an attack on a certain type of economic policy. And ‘center-leftists’ — including Krugman, who is otherwise very good on Argentina — fall for it every time.

          5. Mike S


            You should really look at the links I provided about alternative inflation claims.

            If you think inflation is higher than officially stated, then real bond yields are lower than widely accepted. This is a 1:1 relationship and is basic math.

            You can’t have it both ways. You either get high bond yields or high inflation, but you can’t have both.

  4. DF Sayers

    What in particular do you disagree with of ShadowStat’s claims? I have found them to be a good resource at least for their analyses of data-collecting mechanisms and their distortion, though I haven’t ever tried to trace the numbers they come up with.

    1. Lambert Strether

      As a layperson, I link to ShadowStats because their unemployment numbers are a lot more in accord with the experience of my milieu than the official stats, which strike me as at the best happy talk and at the worst manipulated (like every other number can be in a rentier-controlled political economy). However, if somebody can point to a takedown, I’ll be happy to strike them from my list. (Hugh regularly analyzes the disemployment statistics, and I look to him as well.)

      1. Philip Pilkington

        US measures are not really my concern. Henwood did a run through in this issue of his newsletter:

        Also see this:

        The main point is that, while more people are out of work than the official estimate claims, the number is not really used by economists in the same manner. This is one of the points of the above piece: stats are not neutral. The US may have more people out of work than the unemployment figures show, but these figures are copiled for different reasons than simply giving the general public an idea of how many of their friends and family cannot find jobs. Frankly, they should be able to figure out that themselves and be angry accordingly.

        1. Mike S

          My take down of Shadowstats is way, way better than Hamiltons. Hamilton went the nerd way to do it.

          If Shadowstats is right, then by far the best way for the U.S. government to reduce the debt is to borrow more money and make 9% per year on it’s borrowing.

        2. Walter Wit Man

          Well, I don’t see the Henwood newsletter and that leaves . . .

          Brad deLong (!) citing James Hamilton citing . . . . the people we find out are the putative original “debunke[rs]” of Shadow Stats, Greenless and McClelland.

          The main piece of evidence against Shadow Stats appears to relate to Shadow Stat’s apparent misconception of how the government calculated the substitution of goods relating to consumer choice of hamburger meat or steak, or something.

          But looking at the Greenless and McClelland paper, their main mention of Shadow Stats is done via a footnote 57 (their too good to mention it by name in the article, or something), on page 14. There you will see that the main bone of contention appears to involve the “growth rate of the geometric mean” and “hedonic adjustment models.” Here is the original papers only specific reference to Shadow Stats:

          “One widely cited alternative index is based on an estimate that changes to the CPI since 1983 have lowered its growth rate by at least 7 percentage points per year. The use of the geometric mean alone is stated to have lowered the CPI growth rate by 3 percentage points, and other BLS changes, such as the use of hedonic models and OER, supposedly have lowered the growth rate by an additional 4 percentage points.57

          Each of these estimates of the impact of BLS changes is inconsistent with the empirical evidence. As noted earlier, the BLS has computed indexes showing that the use of the geometric mean formula has reduced the growth rate of the geometric mean of the CPI by only -0.28 percentage point per year, not 3 percentage points.”

          The paper does mention the “myth” of the hamburger/steak thing, but it doesn’t rest its case on this fact as Hamilton and DeLong seem to imply.

          1. Walter Wit Man

            I wrote the above before I saw MikeS’s debunking below.

            He makes a more compelling case of debunking but I don’t know if I’m sold entirely on that either.

            But I do know DeLong doesn’t argue in good faith . . . .

    2. Mike S

      Shadowstats is bogus for their inflation numbers. I mean wildly off base.

      If shadow stats is correct, the U.S. government is earning roughly 7%-9% per year on it’s debt in real terms. Lenders to the United States are therefore losing 7%-9% per year on Treasuries.

      This isn’t even remotely possible.

      Note this applies to Argentina too! This is hugely important!

      If inflation rates are higher than reported in Argentina – and Philip points out this seems to be questionable – this means investors are getting less and the government is paying less to borrow.

      So if inflation in Argentina is actually higher than the government reports, this means the international community is far more trusting of Argentina than widely reported!!

      It’s yet another case of Bond Vigilantes trying to have it both ways. Don’t let them slide on this, Philip.

      This stuff doesn’t exist in a vacuum. You have ways to check claims about inflation to see if they make sense. If the inflation is higher than the government says, the real yields are lower, by definition. According to the Bond Vigilante view of the world, this means Argentina is less risky, not more risky.

      1. Philip Pilkington

        VERY good point. Bondholders must be getting murdered on their yields. I’m going to run this by our mutual Argentine acquantance who shall not be named.

          1. nikhil

            Hi Mike

            Thanks for explaining that. I checked the link and found it really informative.

            One question though. In the last comment someone mentions that if we tae into account the nationality of the investor and the deprciation of the dolar vs. their national currency then we get the

            “These real yields are roughly in line with the Shadow Stats numbers of -5.6%.”

            Is this -5.6% something reported on shadow stats as the “true” bond yields? Are they really making the claim that as a whole bond investors are OK taking a 5.6% loss on their money or am I missing something in that comment?

            thanks for any help.

          2. Mike S

            Well he is correct. you need to take into account the currency appreciation/depreciation.

            I’d be skeptical of any numbers using the current value of the USDCHF (USD vs. Swiss franc) considering it’s most likely hugely overvalued.

            I’d need to see the numbers on the yen.

            And why do I suspect you need to do a covered interest arb calculation here? It seems like you need to account for relative interest rates in the countries, right? Once you go long USD, you are “paying” overnight CHF or JPY. Granted for JPY it’s been roughly zero for a long time, but you need to count the beans when you’re a bean counter.

      2. F. Beard

        Great way to look at things! Surely those blood suckers, sovereign debt buyers, know their business?

        BTW, that indicates a cheap way to measure price inflation; just look at the government’s bond yields. I DO NOT believe in sovereign debt yet the sale of just a few bonds (auctioned off) might be a great way to measure price inflation cheaply.

      3. Walter Wit Man

        Can’t the government control the rate of treasuries?

        Have treasury rates predicted or tracked inflation in the past? How closely?

  5. sissy

    The financial press is bought and sold all the way down the line. I was watching Chris Matthews and he was interviewing some smuck, a Republican talking head. It was disgusting to watch that Republican give the usual talking points. You know, Romney is the guy and all that. It goes on and on with these talking heads. They should be barred from television. Matt Taibbi always nails it and I wish Chris would have him on. Such is life. Bill Black would be another person Chris should have on, but I doubt if Chris will ever have the guts to do that.

  6. F. Beard

    Coexisting government and private money supplies renders price inflation debates mute. Without the “stealth inflation tax”, the government itself and its payees would have the highest incentive to spend wisely. Also, it is likely that government would not tolerate banks diluting the value of its currency with bad credit and would quickly punish non-productive lending. Or heck, government might not even allow credit creation at all in its money in order to have complete control of it.

    1. Susan the other

      I’m not following you through the wilderness here, Beard. More please. In days to come.

      1. F. Beard

        Just look at people fleeing into primitive gold for fear of future price inflation. Shouldn’t they have better choices than that? And the stock market is not such a hot choice either since it based on the same money system that people might be seeking to flee.

  7. Matt

    There may be some difference in the performance of the BPP for different countries. I would expect it to be more accurate for a place like the US or even more so for Europe, where internet access is pretty ubiquitous. The real question would be how well the BPP tracks official data for other countries like Argentina, e.g. for neoliberal poster-child Chile or for Brazil or Columbia. I’d say if BPP is close to those, you’ve probably got pretty damning evidence. I’d have looked this up myself but Price Stats doesn’t give the info away.

    On a more basic level, we should be able to figure this out just by looking at a few things in Argentina – have prices doubled since 2008? Then Cavallo is right.

    1. Philip Pilkington

      “The real question would be how well the BPP tracks official data for other countries like Argentina, e.g. for neoliberal poster-child Chile or for Brazil or Columbia. I’d say if BPP is close to those, you’ve probably got pretty damning evidence.”

      Not really. Might just mean that those countries are not misreporting their stats. I actually have some sympathy for Cavallo’s argument. I think the Argentine government are hiding their inflation — but I don’t think its that big a deal and I think both Cavallo and The Economist are pursuing the point (very narrowly) for ideological reasons.

  8. Dan Kervick

    Excellent post Philip. Thanks for doing so much homework and tracking down so much useful information.

  9. Dan Kervick

    The critics will call this success ‘populism’; but that term is loaded as, in common parlance, it means ‘left-wingers pandering to the masses’.

    It would appear that what really occurred there was a classic ‘euthanization of the rentier class’. And it is likely this that has the international financial community so angry.

    Yes. If both price inflation and wage inflation roughly equivalent, and are higher than reported, then wage-earners are doing fine and are paying down their debts rapidly, as creditors lose money. No wonder the Economist would hate it.

    Do you have the official numbers and the Price Stats numbers on wages?

    1. F. Beard

      What’s the term for ‘right-wingers pandering to the few’?

      Mine is “fascists” and in the case of bankers, “banker fascists”.

    2. Philip Pilkington

      Price Stats don’t do wages. They track online prices using some sort of software package. The system appears to roughl work, but my feeling is that it misses more than it captures. (What type of inflation is this? Etc.).

      1. Dan Kervick

        Offhand, it seems to me that one problem with that methodology would be how to distinguish quoted prices from sale prices. A lot of quoted prices on the internet are bid down, just like the sticker price on a car is bid down before the purchase is made. You need to know the actual transaction price of the purchase, and not just the quoted prices, to know what is happening with prices.

        Similarly, the prices people actually pay at supermarkets and retail outlets are often less than the posted prices due to courtesy cards and the like.

        1. Philip Pilkington

          At a glance their work appears to me kosher. But, like all neoliberal inflation-hawkishness, it appears to focus the attention on a rather narrow area. The bigger picture is lost. But then when is the last time The Economist distinguished themselves as the place to go for the bigger picture.

          Sure their stats and technonerd stuff is great most of the time. But as far as their ‘vision’ goes. Hmmm… the less said the better, I should think. Let’s just say that it’s packaged and spun for mid-level businessmen sitting in waiting rooms. To invoke the name ‘Tom Friedman’ would be needlessly cruel… but not without some merit…

  10. kabosht

    For once, I agree entirely with Philip Pilkington. The financial press calls Irish austerity a success and Argentina a failure? Only in Bizarro world.

  11. jiminy

    As to the Shadowstats reporting on US economic data;

    it seems clear that excluding food and fuel (and housing prices?) from core inflation is misleading at best, fraud at worst.

    Also the UI data has been jerry-rigged since the 1980’s to present a false picture of real employment/unemployment. We know the 8.2% or whatever is ridiculous. Look at the actual work force participation numbers–down again, while the gov reports reduced unemployment by non-participation.

    And if the Argentines have accomplished economic growth by giving bondholders a haircut and reducing debt burden on wage earners by inflation, I only care if wages have kept pace. Otherwise, F__k ’em.

    Would like to get a better grasp of what real inflation and wages for actual working people looks like.

  12. Susan the other

    I want everything to be relative to and calibrated by its perceived worth relative to its possible worth relative to One Earth. Go for it – it will be no easy task to evaluate this stuff. And Inflation? The Earth actually grows and repairs itself every minute of every day. On the other hand, human economies are sometimes interminably stagnant but for the hype of the stock market.

    Too Granola? Maybe. But maybe not. The big question we face, due to our ignorance, is what is One Earth worth. Please, anyone and everyone, tell me the answer.

  13. Fiver

    No doubt the Economist and FT and NYT and WSJ are out to discredit Argentina – they’re out to discredit (or call for war against, be it the financial or the violent variety) anyone anywhere who doesn’t follow Anglosphere globalist finance orders. But it actually does matter what the real situation is. It is NOT appropriate for any government to play games with the numbers – even if they are on “our side” (I’m a leftist, but have no patience for BS no matter what its origin). It is also dangerous, as in, what else might they be lying about when it comes to the nation’s health?

    With respect to Argentina’s “miracle”, it is extremely difficult to assess various policy impacts during the course of a resource-driven boom. What happens, for instance, if China slows much more markedly, resource prices take a serious hit, so Argentina suffers a double shock – on the prices for their own resource industries and from the effect it has on Brazil, the driver for the Continent? Has the government prepared at all for that contingency? Has anyone?

    Quick word on inflation: I don’t know anyone who believes the official inflation rate, and haven’t for years. Just ask someone making minimum wage what the real story is. They’ll be happy someone finally took interest.

    Then ask yourself just where you’d be if Chinese and other off-shore labour was paid a decent wage. That’s where your “no inflation” is hiding.

  14. jiminy

    Actually, it’s not at all clear Argentina’s economic expansion has anything to do with export-driven growth.

    That’s basically claptrap being peddled by the Economist, Washington Post and NY Times to discredit the Argentine policy as a failure, or accident of history that will collapse with unfavorable trade conditions. The only problem is, it’s bullshit.

    The World Bank reports exports as a percentage of GDP has declined, not increased, since the 2001 meltdown, when the economy was in the crapper due to the geniuses at the University of Chicago.

    2002 2003 2004 2005 2006 2007 2008 2009 2010
    28 25 25 25 25 25 24 21 22

    Can’t have anyone thinking that breaking ranks with the finance overlords might work, can we?

    1. Fiver

      When the economy was virtually dead in the crisis of 1998-2002, exports were a larger % of GDP even though commodity prices had cratered. It is entirely reasonable that they would shrink as a % of GDP as Argentina, and as importantly, the global economy took off again on the back of much bigger bubbles (China being the biggest of all). Context for the beginning of your series is everything, as even this Wiki entry makes abundantly clear:

      Don’t get me wrong. As a socialist I fully support any and all efforts by Argentina to run its own affairs for the benefit of its people and the pursuit of solid relationships with its neighbours. It would be sheer folly, though, to pretend the resources boom was not critical to Argentina’s recovery – or that trade with key partners including Brazil and Venezuela, doesn’t depend on THEIR resource exports and high global prices. Or in turn that these were not critically dependent on China in particular and global growth in general – both dicier by the day.

  15. jiminy

    OK, the table above compressed the % of GDP numbers in comparison to the year. The numbers are there, and exports as a percentage of GDP shrunk from 28% to 22%. Sorry about that.

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