My latest column makes the case that the situation in Spain is basically identitical to the case of the Argentine currency peg and they might do well to imitate the Argentine combination of default and devaluation. In the piece I try hard to be realistic about the price Argentina paid for this action. There’s been a tendency to create an overpolarized debate about Argentina, where people either want to damn them to hell for defying Washington Consensus orthodoxy or wave the country as a complete and total refutation of neoliberalism. The truth is that Argentina has a lot of problems, and a dose of neoliberal orthodoxy would do them some good. But default and devaluation also did them a lot of good, and it’s very difficult for me to see how they’d be in a better position if they’d had the straightjacket of a dollar peg on for the past decade.
Most of all, Argentina is a valuable reminder that you really don’t need to solve all your country’s problems in order to avoid being in a steep depression. We recently had a mini-debate here in D.C. about our local arbitrary rule that you can’t operate a liquor store on Sunday. Meanwhile in Virginia you can’t operate a bar that doesn’t sell food and in Maryland you can’t sell wine in a supermarket. These are all bad rules and it all goes to show that the world—Spain and Argentina very much included—is full of moderately misguided arbitrary rules. But the specific labor market outcomes are still very much influenced by macroeconomic stabilization policy. Argentina claimed monetary sovereignty and has used it to get full employment. America has monetary sovereignty and is using it to achieve a high unemployment equilibrium. Spain is hostage to Germany’s monetary policy priorities and the result is a deep intractable depression.