Sign In
SHARE
How the Optics of Wealth Fuelled the Argentine Debt Boom
Megan McArdle and Tyler Cowen are talking today about the optics of wealth, concentrating on Cuba. Why would people think that Cuba is doing better than northern Mexico, when the opposite is true? And more broadly, why do rich countries like Iceland and Korea feel much poorer than they are, while the opposite is true in countries like the Czech Republic?
Bob, in Cowen's comments, makes an excellent point:
The general rule is that countries that are historically poor, but become richer in a short span still don't have much accumulated wealth, and thus look poor to our eyes.
In contrast, previously rich places that are struggling still have the lingering wealth accumulation. Cuba fits this pattern. As does much of Europe.
I'd add that this effect has very real repercussions, well beyond touristic attitudes. My favorite example is Argentina during the 1990s, which went on a debt-fuelled spending spree. Every week one investment banker or other would fly down to Buenos Aires, put his team up at the Alvear Palace hotel, eat great food, drink great wine, enjoy a lively and vibrant culture, and pitch the finance ministry on a new bond issue. BA felt so prosperous and European (and, it must be said, white) that people ended up believing the evidence of their own eyes rather than the numbers in front of them.
In fact, large swathes of Argentina - and even of Buenos Aires, outside the parts visited by foreigners - were desperately poor all along. And eventually Argentina ended up defaulting on a hundred billion dollars or so of foreign debt. If Buenos Aires had looked more like Sao Paulo or Manila, I doubt that Wall Street would have been willing or able to finance the unsustainable boom for as long as it did.
In other words, becaues Argentina used to be incredibly wealthy, back at the turn of the century, it still felt wealthy at the end of the century. Which sowed the seeds of the disastrous crash of 2001-2.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
