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Econtalk recently had an interesting discussion about the Argentinian government, its people, and how inflation affects them in their day to day lives. One of the biggest factors is how Argentinians essentially find ways around their failing currency to maintain wealth; any payment in pesos is immediately converted to other stores of value more readily capable of holding its value ranging from hard goods such as bricks, to US dollars, to Crypto. The day-to-day table talk is almost always about how to maintain what limited wealth they have. The average US citizen, for example, probably has no idea what the current exchange rates are of dollar to other currencies, be it CAD, Yuan, Pounds, Euros, etc. while every Argentinian knows a few different currency exchanges and their rates. The exchange of currencies to goods almost all run through black markets instead of through government approved exchanges to the point where 'breaking the law' isn't just about endangering others, but necessary to survive in the country. The government simply doesn't have enough power (as well as being too politically damaging) to create and enforce basic monetary tightening methods be it taxes or having a central bank so it simply keeps printing more and more money to pay for whatever spending the government needs as they do not receive enough capital through taxes to actually self-fund the government.
With the US midterms around the corner, it made me think about effective governance and what that actually looks like. A lot of the difference between Democrat and Conservative (and yes, I mean the political parties and not the Red/Blue common usage here) ideological divergence predicates on social dilemmas. Abortion, Trans rights, Race issues, etc. are all social issues that we can focus on because most people in the US simply because the general gears of governance in Western Civilization is, despite the 'gross incompetencies' and 'brainless politicians', stable. The taxes generally get collected, the Fed generally will adjust interest rates depending on economic forecasts, and people generally have a decent quality of life. These are things the average American don't think about because these aspects of government are done competently and effectively enough that the real implications of a government who cannot finance itself is not one of regular pressing concern for the average person.
One of the reasons why I want to point this is that it explains why many Latin American voters are seemingly leaning Republican. It is not social issues that change voting allegiances, it's protecting their investments, jobs, and assets. The paradigm and reason for party allegiances is not equality and certainly not about government handouts, considering how every citizen of their home country sidesteps the government to black markets where exchanges are made at better rates. The current Democrat party is actually damaging their bottom line through their fiscal policy.
https://www.econtalk.org/devon-zuegel-on-inflation-argentina-and-crypto/
I don't agree with the idea that South Americans care less about social issues because their economies are crap. A lot of those governments are extremely woke. Argentina for example took the time to reserve a percentage of government jobs exclusively for transexuals in the middle of the pandemic.
Is this because trans rights are extremely popular in Argentina, or is this because they expect performative wokeness to be a condition of borrowing money?
No, the IMF isn't mandating trans quotas, if that's what you're implying.
Officially, at least.
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Wouldn't this also drive inflation? Like.. quite significantly. I wonder what the velocity of money is in Argentina. People basically playing hot potato with cash, and probably willing to overpay for something in order to get money off their hands. Then the goods they buy to store value just sit around.
Argentina should peg their peso to gas. But then there'd be rapid deflation as everyone tries to offload their bricks and such, eager to get their hands on pesos. Maybe peg it to bricks... lol.
And that is without taking into account Cartel activities and Corruption in general.
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Velocity is probably less than you'd expect. It's not been growing very rapidly:
https://www.cato.org/commentary/its-time-dump-argentinas-peso#
However, emerging economies tend to have a high demand for money, as the financial system develops and people invest more in deposits than in commodities, land, children etc.
The tried-and-tested route to monetary stability for countries like Argentina is a currency board. Abolish the central bank and have 1 to 1 convertibility of the peso with the dollar.
Unfortunately, Argentina is unlikely to adopt a currency board, because their previous experience with a superficially similar system was a disaster:
https://en.wikipedia.org/wiki/1998%E2%80%932002_Argentine_great_depression
An alternative is just to dump the peso altogether and start using dollars.
They also have a deeply entrenched and politicised ignorance of economics, e.g. I remember their central bank criticising the idea that inflation is a monetary phenomenon, and attributing it to profiteering and the like. A reliable indicator of inflationary policies!
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Call me skpetical. What makes you confident it has a strong impact on voter habits? You have presented a theory -- a possible factor of influence -- but no reason to believe it has any more predictive power than any other explanation of voter preferences.
You're correct that this is conjecture, I am hypothesizing as to reasons why Republicans like DeSantis would be preferred by Latino voters over Democrats who would generally be considered the favorites of ethnic minorities. The podcast shared an interesting perspective of the functions of government, and I was extrapolating without evidence in a thought experiment.
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It seems to me that there are good reasons for your skepticism.
First, it is unclear to me that there has actually been a meaningful change in Hispanic voter preferences. Gallup's polling on party stated party preference shows little change since 2011, and what change it shows is a slight decline in support for the Republican Party. That graph ends in 2021, but general party preference has shifted toward the Republican Party (which I believe is normal during off-year election season), so I assume Hispanic preferences have shifted as well. Still, unless the Hispanic shift is greater than the overall shift, that really doesn't say anything much about Hispanic preferences per se.
Second, there is little evidence that Democratic policy actually harms their bottom line; historically, the economy has been somewhat stronger under Democratic administrations. Moreover, the current unemployment rate among Hispanics seems to be the lowest on record.
Of course, inflation is up, and more importantly, perceptions of economic well-being do not always accord with reality, but the OP certainly needs to bring more evidence to the table.
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As an aside, I'm guessing you are from Latin America and not American...? Thought I'd point out that Americans tend not to contrast "Democrat" with "Conservative". Standard pairings are Democratic and Republican, Dems and the GOP, or liberal and conservative etc. "Democrat Party", sans the "ic" at the end of the first word, is actually considered a pejorative: https://en.wikipedia.org/wiki/Democrat_Party_(epithet)
No I'm American, I just don't bother proofreading and prefer to get an idea written down overusing proper terminology. As long as my general idea is understood I don't worry too much about proper nouns.
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I know this is a tangent to what you're really talking about, but I have to say something about crypto. In short, there is a very short list of people less trustworthy than the Argentine government: the people who advocate for cryptocurrency are amongst them. The sort of people who hold a morbid fascination with the misery and suffering of others to further the adoption of their internet funcoins in the off chance they can offload their bags onto desperate people is profoundly evil.
Crypto is not a good store of value, or a currency. And anyone who says that it is you should be very wary of.
How someone can look at the abuses possible with a central authority and immediately dump on the decentralized alternatives is incredible. No argumentation, just blind ignorant assertions.
Scams can be prevented using the same techniques used to prevent fiat scams. You can still let entities like banks take custody of your coins and get all the benefits around that if you want to. You can have wallets smart enough to deny transfers to shady addresses or in shady amounts without being signed by another person.
The crypto hype cycle is not fundamental to crypto itself but the speculative nature of the space. Stable coins can and do exist to remove exposure to volatility. This is like saying web can't be the future because the dotcom bubble proves it's too volatile of a place to do business.
Stable coins are like money in a bank. Stable until the whole thing collapses, but without the benefit of FDIC insurance.
There is nothing at all that prevents an FDIC like insurance to be applied to crypto.
Isn't the whole point of crypto that it is decentralized? You could apply FDIC like insurance to any asset. The government can spend it's money however it wants.
My point is there isn't an FDIC like system now and proponents of crypto over normal banking and fiat currency are big on the fact they aren't beholden to governments.
FDIC like insurance doesn't make you beholden to the government(it's less about a government in particular and more about Central entities with the government being the largest such entity)
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Or you could just have people robbing crypto through more traditional means. Some Russian writer - Galeev? - wrote how it's amazing that Western crypto enthusiasts openly announce online that they're holding crypto - in less secure countries that's just an invitation for criminals to kidnap you and hold/brutalize you until you give the password to your wallet.
Kamil Galeev is proud Tatar, not a Russian bone in him ;-) and the thread is here
https://twitter.com/kamilkazani/status/1579138947447279616
All who want their daily dose of horror stories from Russia, follow him, you will not be disappointed.
"Some writer in the Russian context" would have been more exact, yes. Of course I know Galeev is a Tatar, I just genuinely wasn't fully sure it was him instead of someone else, who might have been an actual ethnic Russian.
As for the business practices Galeev describes, this thing can happen in the West too
https://twitter.com/Blerk52/status/1583186926894747648
Example #44781 why boasting about your wealth gives you nothing and can cost you everything.
OPSEC, OPSEC and OPSEC is the rule. If even the closest people in your life suspect you know what is "crypto" and "bitcoin", you have failed.
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Just because the Argentinian state is a known bad actor does not make any proposed alternative inherently better. I can point to any amount of rugpulls, from the original MT.Gox to the very recent Polaris to demonstrate that crypto is not safe.
I would ask you to assume good faith, that I am informed and I have good reason to believe in what I do. Then make an argument, if you believe I am wrong. For the same reason, I assume you have no position in cryptocurrency and are arguing purely on its technical and utilitarian merits.
To do otherwise would be a great conflict of interest.
Well sure, but can you blame argentines for preferring possibly-a-scam to definitely-a-scam?
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Sure, easy. Although you've already insinuated in the outset that I must be a shill and you must be warry of me so I question your own ability to do this.
This is very much a look from the outside. Mt.Gox says absolutely nothing about crypto's fundamental safety, and cannot be called a "rugpull" by anyone with any understanding of the term and event. I don't even know what you mean by the polaris incident, it's not a project I have had a particular focus on. I'm well aware that there are scams in the crypto space, it kind of comes with the territory of places where lots of money is moved around with minimal regulation. None of that really relates to the fundamental promise of decentralization in general. I'm not sure what angle to take defending it because you don't really even seem to have attacked it directly at all, instead opting to mention low effort sneers against negative related events. Like me citing the 2008 housing crisis to discredit centralized currencies because it's a bad thing that happened in which a centralized currency was involved.
Is your critique really just that scams are possible if you're careless in crypto? Because I can point to the traces of cocaine on most US currency or any other scam using greenbacks. If it's more sophisticated then please make that critique instead.
I am of the opinion that stupid people, trusting people, and old people should be allowed to keep their money. It is not reasonable to transfer the burden of 'educating oneself' onto the general public when it comes to investments and finance. When a state turns the deposits in their national banks into worthless nothing, it is of course a wrong thing. It is also a wrong thing when sleazy cryptoscammers run off with all the investor's money.
It's not a young man's game anymore. A careless idiot degenerate gambler who loses his inheritance by blowing it on a shitcoin is highly unsympathetic. But you read the bankruptcy documents of these shams of companies, and you see the pure despair of the investors. They are men and women in their fifties and sixties, who were sold hopes and dreams of financial independence. They are ruined now, and it is unlikely they will find good employment: they will be working now until the day they die. You read about marriages falling apart, people losing their houses. These desperate, foolish letters begging the judge to be pushed to the front of the creditor line, when the truth is that there is no money at all. All they have are the worthless tokens on a server they can't even withdraw from. So much for the promise of a decentralized currency!
There is no protection against this, in the technology, in the services that have sprung up around it. It is as safe as a screaming buzz saw for the unwary. It is not their fault: they were deceived, by advocates who were full of themselves, who gladly pumped them up - but dumped them, and called them witless fools and rubes when they lost it all.
So I find it hard to argue on the 'merits' and 'technicalities' of cryptocurrency when it has created so much human suffering. You may be able to ignore it, but I can't.
The problem with your argument (besides that you assume bad faith in anyone who doesn't share your skepticism for crypto) is that you are conflating all the bad things you mention with crypto in and of itself. I certainly agree people being defrauded is bad, and I even understand why you say we should endeavor to protect people from making stupid financial decisions (though I don't particularly agree). But it's simply not accurate to say "[crypto] has created so much human suffering". Crypto hasn't caused that suffering, people have.
By your logic, the US dollar should be regarded with extreme skepticism simply because people have defrauded others of their money (and will in the future). People do bad things, and people make foolish mistakes with their money. This is well known and not the fault of crypto in and of itself.
But that's not true, not in the least. If you are scammed in real life, you have several avenues of recourse, through the financial and legal systems. The very virtues crypto advocates praise (untrackability, anonymity, trustless systems) are exactly the qualities that make it possible for scams to be pulled off with incredible ease.
There are certainly those Don Quixotes who tilt at the windmill of the USD being a hegemonic currency, but that doesn't make alternatives to it better. If you create abusable tools, advocate for them, and don't tell naive newcomers of the dangers and only the benefits - you're more awful than you think. You don't get to walk away from the moral implications of your actions. You can't hide in the theoretical wonderlands and ignore how the implications of the technology come about in real life.
The devil isn't the inchoate maw that devours sinners at the bottom: he's the man who pushes a wavering soul at the edge.
Also, to belatedly address this point: the things you mention which provide you recourse are not somehow part and parcel of the US dollar. If you do all your financial transactions through the financial system then great, you have lots of protections which are legally required to be provided to you. But that is because of the financial system and the records they keep. If you hold all your fiat currency in cold hard cash, and you spend it on something stupid (or get scammed) then you're probably SOL. Or if it all goes up in a fire, you're definitely SOL.
So your argument here against crypto really has precious little to do with crypto versus traditional currencies. It's more to do with the realities of dealing in cash versus opting into a financial system where everything is tracked and you have resources to help you if something goes wrong. It's perfectly legitimate to want to opt into that security! But it's not really true that the risks of not doing so are a crypto problem in particular.
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Yeah, actually you can. If you don't do it, you aren't responsible for it. I don't even care for crypto myself (not enough practical uses and I'm not into naked speculating), but I refuse to give people moral culpability for things they didn't actually do. That's not how moral culpability works, you aren't responsible for second order effects of your actions.
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All of this and more could be said about the advent of fire. Mature wallets that prevent these kind sof scams are possible and getting better. Scammers should be caught and punished like they are in every other sphere of life.
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It is however, an extremely effective form of value transfer. And it will contribute to capital flight, remittances, and quite a few other forms of cross border transfers at alarming rates for a while.
Is cryptocurrency a significant contributor to capital flight? It's hard to believe, when it can be legislated out of existence by the whim of the legislature. Is Russia using the technology to bypass western sanctions? Surely, if there is any use case for crypto, we would have seen it boom if it was an effective way to bypass Western capital controls.
In my view, it's a solution in search of a problem: nearly everything its advocates say it can do is already done and on a far more economical scale.
Its scary that you don't know the full extent to which its being used. ransomware, large overseas exchanges that process every individual who is trying to circumvent rules in traditional financial institutions, and quite a bit more. Do you understand why the darknet marketplace Hydra was sanctioned?
With countries like Argentina, you're seeing cryptocurrency kiosks proliferate throughout neighborhoods because that is the best store of value compared to a person's worthless fiat that is constantly being devalued. That is not only capital flight - it even expedites the process of inflation (not like the country doesn't deserve it).
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I believe Argentina’s black market banking sector makes heavy use of crypto to bypass capital controls, yes.
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