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Alecsander Horne
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I would like to expand on the idea of the currency board and the economic situation within the government of Argentina as a result of a failed growth strategy. The article presents the idea of the currency board as a growth strategy to counteract the effects of financial mismanagement that has occurred in the government of Argentina. Argentina is classified as a developing country but stands above the other countries classified in the same group since its GDP per capita is $14,000, $2000 above the developing country benchmark. As the article states, the economy of Argentina began to grow rapidly in the 1990s but short-term growth does not guarantee success in the long run. Argentina ultimately failed to continue its growth since it did not have a credible institution in place to maintain productive economic growth. Government corruption has been the cause of such an issue and is the same reason why Argentina still struggles today from failing to maintain a growth strategy for the long-run. For example, the median inflation for Argentina has been 220% annually since the year 1980. The problem is the country is spending more than it can afford running a fiscal deficit every year since 1950. In order to keep a steady supply of currency, the government borrows US dollars. In one instance, the government airlifted in $6 billion dollars of US currency in order to pay its citizens lining up at bank doors. The citizens of Argentina use the local currency for basic transactions but acquire US dollars which they deposit into savings abroad. There is an estimated $500 billion in assets abroad while $70-$150 billion is stashed under mattresses and safe boxes. As a result, the country is running out of currency while facing extreme rates of inflation and economic contraction. This is similar to what happened when the country faced its last economic crisis and defaulted on $100 billion of foreign currency bonds in the 1990s. The country is currently predicted to default on $115 billion of foreign currency bonds implementing yet another recession to the economy. The implications here are to notice the lingering effects which result from the failure to transition from a short-term growth strategy into a long-term strategy of economic growth. As we know, the article states it is easy to start this growth but much more difficult to maintain from all the moving pieces. Hence, Argentina will need to develop another strategy to spur short-term growth and have the proper institution set in place in order to maintain economic success.
Toggle Commented Oct 1, 2019 on Rodrik article for Thursday at Jolly Green General
I think this article fits well with the paper given to us last week on the issue of the poverty trap with developing countries. Countries which have been left behind have struggled to move from an agricultural-based economy to a manufacturing economy. However, even if they were able to make this transition, I still see developing countries lagging behind. As discussed in class on Tuesday, September 24th, the advancement of robots in the manufacturing industry is changing the game once again. This advancement known as the 4th Industrial Revolution will lead to higher wages and higher economic development in the countries which can employ the practice but will ultimately lead to a greater divide between the upper class and those on the bottom of the totem pole. If developed countries move to this practice, they will obviously be more efficient with producing goods and services in dark factories. That being said, workers will need to develop a new set of skills in order to continue working in factories which implement robots. If agricultural societies were able to move to manufacturing, this would clearly help bolster their economies from their available workforces. Even so, these countries would still lag behind developed nations increased efficiency with robots in the manufacturing industry. This poses the question: if deemed profitable for entrepreneurs, is it possible for agricultural societies to jump from their current state to a manufacturing society with robots? The most important component for developing countries would be education. They would have to be able to learn the skills necessary in order to be a part of the workforce that implemented dark factories in their region. Sadly, I see it as an extremely difficult transition given the failure for many agricultural societies to transition to the manufacturing industry during the first wave of development. Even so, something must be done in order to combat the problem and maybe the implementation of education and automation in developing nations can help solve the issue.
Toggle Commented Sep 24, 2019 on Reading for next Thursday at Jolly Green General
Although there are unique reasons to why a country may be lagging behind, the most prominent reason is due to the failure for a country to transition from the agricultural stages to a diversified market. Clearly, government corruption, recessions, and health issues are major components of why a country might encounter these issues. Even so, I still think given the time period we currently live in, with technological advancements, a country with its main source of income through agriculture will continue to struggle compared to the rest of the world unless it is able to diversify. Without the proper government institutions set in place, fluctuations in prices, revenues, and yields in the world economy make it very difficult for farmers in other countries to produce a steady source of income. Take the United States for example. After the agricultural revolution in the United States, there were approximately 6.4 million farms by the year 1910. With advancements in technology and increasing economic growth in the United States, the United States only had 2.2 million farms in the year 2008. Without government subsidies in America, there would be far fewer farms than we currently have. For example, last year there were over $11 billion dollars in subsidies sent out to farmers in order to keep the farms in production. Without government involvement, even a wealthy country like the United States wouldn’t be able to keep its agricultural services in check but is able to remain profitable from its economic diversity and good institutions. My point is that due to the corruption of governments in many undeveloped nations, there is nothing to keep the agricultural services sectors profitable which is what so many of these countries rely on. In other words, it is one of their only sources of income. In my opinion, I feel countries who continue to only rely on agriculture will continue to stay in the poverty trap unless there is another way to bring them into the economy. This poses the question: How do we get undeveloped countries out of the poverty trap if their biggest source of income is reliant on agricultural services? How do we expand their markets and make them producers of a different degree of products and services?
It’s impossible to imagine living in the United States with only $1 to $2 a day. It’s also difficult to imagine even living off of $30 dollars a day once you factor in rent, electric, water, and food. Living in an urban area makes that even more challenging. This summer I worked in the DC area and found a place to live in a small apartment complex in Bethesda. The experience I had was life-changing and made me realize how serious a problem the issue of poverty is not only around the world, but in our own backyard. I was amazed to learn the family I was living with this summer shared parallels to the ideas presented in the paper. This past June through August, I lived with a family of three (a grandmother, a mother, and a 9-year-old boy) in a two-bedroom apartment. I paid rent for one room and they all shared the other. What stood out to me the most from my reading is when the paper stated how “most extremely poor households have a bed or a cot but only about 10 percent have a chair, or a stool and 5 percent have a table.” The apartment I stayed in had no furniture, no tables, and no chairs. Only beds in each of the rooms. There was no A/C, no washer dryer, and they each only owned 2 sets of clothes. They had been living in the apartment for two years. I believe the article should also mention the issues seen in the lives of the poor isn’t just present in undeveloped countries, I believe it is present in every country. What is interesting to look at is how we have so much as a nation yet that so much of it is carried by such a small percentage of people in our massive inequality gap. Even though the incomes of the individuals I lived with was far greater than those living overseas with only $1 to $2 a day after the family’s expenses are factored out, I wonder; how much income they have left after having to pay all the monthly expenses? My guess is little to none. I am not saying the family I lived with was struggling like others living off of $1 to $2 a day. The family I stayed with has a place to live, clean water, and sanitation. All the basic things needed to survive. What I find interesting is how even in wealthy nations that have attained the basic needs of everyday life, there is still a massive divide between people which possess a much larger question. If the issues of what the United States considers “poverty” in its own borders is not resolved, how can we expect the government to help those overseas who are struggling to an even greater extent with only $1 to $2?
Toggle Commented Sep 11, 2019 on Readings for next week at Jolly Green General
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Sep 11, 2019