Free Markets, Free People

Daily Archives: March 24, 2010

Argentina: A cautionary tale?

Given what has happened over the last few months culminating in yesterday’s bill signing ceremony, and considering all that has happened prior to that (government ownership of car companies, TARP, etc) I sure hope I don’t hear anyone trying to claim “it couldn’t happen here”:

Argentine President Cristina Kirchner announced this week that her government intends to nationalize the country’s private pension system. If Congress approves this property grab, $30 billion in individually held retirement accounts — think 401(k)s — managed by private pension funds will become government property.

Since Congress is made up of a majority of fellow leftist Peronists, passage is almost assured. Kirchner has crafted a rather unique justification for the grab:

Mrs. Kirchner justified the proposed seizure of $30 billion in pension assets by accusing the funds of having instrumented “policies of plunder.”

Of course, since she, her husband and the Peronists have been in power, the results have been far from good, but just like now, it’s the fault of something other than the government:

When the Argentine government ran out of money in 2001, it blamed the market and increased its own role in the economy. Since then it has imposed price controls, defaulted on its debt, seized dollar bank accounts, devalued the currency, nationalized businesses and tried to set confiscatory tax rates with the aim of making society more “fair.” Mrs. Kirchner and her predecessor (and husband) Nestór Kirchner have also preserved the Peronist tradition of big spending.

Some of that seems vaguely familiar. Read both articles – there’s a pattern at work there that should be recognizable elsewhere. Making everything a “crisis”. Picking fights with certain industries. Interesting reading.

Meanwhile, as you might imagine, the threat of taking over the 401(k)s has had an immediate and negative impact:

The 10 pension funds, and many depositors, are threatening lawsuits. The Argentine stock market fell 10% Wednesday, on top of Tuesday’s 10% decline. Because the private pensions are big investors in local capital markets, the proposed nationalization has raised worries the government intends to tap new pension contributions for its own needs rather than invest the money in local stocks and bonds. For fragile local markets, the move compounded the impact of the global financial crisis.

The damage was even worse in Argentina’s local debt markets. Trading volume for a key local bond market, Argentina’s Open Electronic Market, was practically zero on Wednesday compared with a normal day’s turnover of about $1 billion.

Spanish companies with assets in Argentina saw their stocks hit hard amid concerns there might be further nationalizations. Shares of oil company Repsol YPF SA fell 16%, while Spanish banks Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA slid more than 9% each.


On Wednesday, the Toronto credit rating agency DBRS downgraded Argentina’s long-term local currency securities ratings, saying the pension nationalization amounted to “confiscation of personal assets and an infringement of property rights.” The agency said the seizure might allow Argentina to meet “its near-term financing needs more easily,” but criticized “the use of pension-fund assets for financing purposes as damaging to government credibility.”

The why? Well the reason for the grab is Argentina is “facing a $10 billion shortfall in what is due on government debt by the end of 2009.”

$10 billion due on debt? And no money available. Obviously they’re not able, like some countries, to borrow it since they’ve already defaulted once fairly recently. So, as is often the case, the citizen’s assets and priorities take second place to the government – if the government is willing to use its guns (under the very thin veneer of “law”) to take those assets and make those priorities secondary. And, apparently, in Argentina, the government is.

But with our minimal debt, projected 10 year government budget and bond rating problems, that could never happen here, could it?



When Nanny becomes Bully

We’ve talked at length here at QandO about the dangers of the Nanny State to individual autonomy – liberty/freedom.  If there is a zero sum game out there, it is the trade off between the power of the Nanny state and the degree of individual autonomy you are able to exercise.

I think why this health care bill bothers, no, outright scares libertarians is the degree of encroachment it represents in terms of individual autonomy.  The premise I’m talking about is well stated here:

[I]individual autonomy is the core value of a democratic society; there is an inherent trade-off between individual autonomy and public health under health paternalism; and the abandonment of individual autonomy in health policy poses a threat to our other freedoms.

I’d change one word – individual autonomy is the core value of a free society. I’m not sure how it can be considered any other way. There is a trade-off between the state assumption of responsibilities and the amount of individual autonomy you retain. Call it a liberty index if you wish, but every time the state takes over more responsibility for the lives of the citizens, by whatever means, the liberty and freedom of that citizenry is commensurately reduced.

And, as the state takes more responsibility and attempts to enforce it, there is a less than subtle transition from a Nanny state to a Bully state.

The Institute for Public Affairs lays out that case quite well and uses health care to do it. the IPA focuses on a shift in thinking among our ruling elite who support the welfare state that is driving this transition from Nanny to Bully. The transition is based on the failure of their first assumptions. Their assumption was that if the state (Nanny) provided relevant and important health information to the public, the public would heed it and change its behavior to take advantage of that information to live healthier lives.

The provision of that information hasn’t yielded those results. Instead, people still smoke, drink and are fat. Obviously, at least in the opinion of some, that model isn’t working and something better is necessary – for their own good, of course. Nanny can’t get the results she wants simply by providing the information she thinks should motivate others into living the lifestyle she finds most healthy, so she must look elsewhere and at different methods.

To get the results desired, given the “failure” of the previous assumptions, different assumptions are necessary. See if you recognize any of these or can see them coming:

Most of the health care burden is driven by disease that results from lifestyle decisions.

Most of the health care burden is therefore, in theory, preventable.

The cost of most lifestyle-related disease is not recovered from the individuals with such diseases or from the industries whose products contribute to these diseases.

Individual autonomy cannot be the paramount value in health care.

Individual choice as a basis for health is ‘too simplistic’.

Individual freedoms may have to give way to the coercive power of the State.

Interventions, including coercive actions, to change behaviour may proceed in the absence of evidence of their effectiveness.

Individuals have a clear responsibility to refrain from lifestyle decisions that lead to disease and, consequently, treatment can be denied to those who refuse to change their behaviour.

For those of you who can manage to look at the health care bill objectively and have listened to descriptions of what it requires should have absolutely no problem understanding that the list of new assumptions are clearly evident in that bill. One only has to think “individual mandate” to know that the assumption “individual autonomy cannot be the paramount value in health care” is being acted upon. The hiring of 16,000 new IRS agents to enforce that mandate speaks to the assumption “individual freedoms may have to give way to the coercive power of the State”.

So it certainly isn’t at all a leap to also understand that at some point, to keep this from being another in a long line of centrally planned failures, the attempt to intervene and change behavior and to coercively enforce the “responsibility” to refrain from lifestyle decision which lead to disease and the consequent health care costs, will be acted upon. The Nanny state becomes the Bully state.

And for those of you who would wave this away with a “this can’t happen here”, I’ll simply remind you of what was signed into law yesterday and the fact that some of the assumptioins listed above, as I’ve pointed out, have already been acted upon.



If borrowing and deficit spending are “the answer”, why don’t the bond markets agree?

All the unprecedented borrowing, spending and massive addition to the debt are building to a most unfortunate end:

In a fascinating dispatch Monday, Reuters reported that an interesting mix of corporate bonds have “yields” — rates of return — that have gone below that of Treasuries. (A bond’s yield corresponds to its risk: High-yield bonds are also known as “junk bonds,” while very safe bonds have very low yields.) The fact that Warren Buffett’s bonds are considered a safer bet than Tim Geithner’s should have been sobering news, especially on the morning after Democrats in Congress sent President Obama a mastodon of a new spending program with a $2 trillion price tag. As hangover headaches go, this is going to be brutal, and investors apparently have more faith in Johnson & Johnson’s ability to sell Tylenol than in Washington’s ability to pay for it. Mitchell Stapley, an analyst with Fifth Third Asset Management, told Reuters that the numbers coming out of the bond market are a “slap upside the head of the government.” The fearful question is: How much harder does Washington need to get slapped before government comes to its senses?

You have to wonder. After Tuesday’s signing of the budget busting Obamacare, it seems pretty clear “never” is the case. But it is obvious that the bond market isn’t fooled. Soon the only “junk bonds” out there are going to be government bonds if the borrowing and spending spree continues. Also at risk is the country’s bond rating. Moody, who is usually slow to move on these sorts of ratings, couldn’t be more clear in the warning it has issued to the US – yeah, that’s right, not Cuba, not Venezuela, but to the United States of America:

“Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

As you might imagine they’re not talking about “fiscal adjustments” which will add to the debt such as Obamacare (the statement was issued prior to its passage). The language is pretty clear, cut spending (and borrowing) drastically, dramatically, to the point that it will “test social cohesion”, and you have a chance of keeping your bond rating and surviving fiscally.

Given the 10 year Obama budget deficit forecasts averaging about a trillion dollars a year, we ought to be in AA bond rating territory fairly soon. You can figure out the fiscal stability part from there.