10 October 2006

Edmund Phelps on Argentina

Economics Nobel Prize Edmund Phelps happens to be married to a porteña, so Magdalena Ruiz Guiñazú from Radio Mitre called to congratulate him and talk a bit about economics in her (Magdalena's) (horrible) English. We always like it when an Argentinian has a part on anything international, be it a marriage with a Nobel winner or a plane accident.

Phelps, unsurprisingly, said that Argentina's crisis seems to be over, but some reforms are still pending to make the economy "more dynamic". He spoke of corporativism and the power of unions, but we know what he's really talking about (for example, "dynamic employment market" means "everybody gets 3 rotating McJobs per year").

Phelps, who has studied the relationship between unemployment and inflation, has created the NAIRU hypothesis, which (for our purposes) says that government policies should not attempt to reduce unemployment beyond a certain minimum level, lest they induce inflation.

I remember some economist a few years ago (maybe it was Phelps himself?) say that Argentina's desirable level of unemployment was about 17%. You see, if unemployment is high and you know that 10 people are desperately waiting for you to be fired, then you'll behave nicely an accept your near-slavery working conditions, which will make your employer happy and your company competitive, and your country a preferred place for badly paid outsourced jobs from the U.S. and Europe. And what's good for business is good for the people, isn't it?

I don't know enough about Phelps to say anything further; I don't want to misrepresent his theory. I need to say, though, that U.S. economic theorists have historically been the source of most of the enlightened economic plans that brought Argentina to its knees and led entire generations of hard-working people to unemployment and desperation. Forgive me for my prejudice against such great minds...

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