Argentina offers an interesting lesson in the relative importance of monetary policy and structural reforms. During the period from 1991-97 it grew very rapidly with neoliberal reforms. Then in 1998-2001 the economy experienced deflation. After 2002 a new left wing government came in and adopted a very inflationary monetary policy. It also moved away from neoliberalism, adopting all sorts of statist economic policies.
So was real growth higher in the 1998-2001 period or the period since 2002?
It’s not even close. The period from 1998-2001 was a disaster, one of the worst depressions of modern times. And since 2002 the economy has seen fast growth, which led to the current government recently winning a landslide election victory.
Conservatives in America have recently adopted the position that monetary stimulus doesn’t help, even when NGDP has fallen dramatically below trend. They also believe in pro-market policies and oppose statism (unless they are actually in government of course.) So it seems to me that Argentina discredits conservatism. You have a country that got much higher growth from shifting from a deflationary monetary policy to an inflationary monetary policy. And all this despite the adoption of horrible statist policies.
So are conservatives wrong about markets, or money?
The answer is simple. They are right about markets and wrong about money. Argentina shows just how important it is to get monetary policy right. If you don’t, even the most misguided statist policies can look far better than anything the more pro-market party has to offer.
Even today Argentina is a “failed” economy by any reasonable standard. It’s no longer one of the richest countries on Earth, as it was 100 years ago. But it’s also much less “failed” than 10 years ago, an inconvenient truth for all the RBC-types who deny the importance of nominal shocks.
PS. Nothing in this post should be construed as praising recent Argentine policies. The monetary policy has been too expansionary, leading to high inflation. The government has covered up the inflation. I get all that. But the depression of 1998-2001 was far worse. Something the Argentine voters clearly understand.