ARGENTINA may seem like one of the last countries on earth to offer lessons for dealing with economic malaise. Once the eighth-largest economy in the world, it steadily slid through the 20th century, thanks to decades of repressive dictatorships and inconsistent market experiments. This ended ignominiously in 2001, when it defaulted on $100 billion in sovereign debt, plunging over half its 35 million people into poverty. snip
Why have Argentines embraced bigger government? In part because the preceding era showed how poorly austerity measures the sort now being pushed by conservatives in the United States promote growth. In the late 1990s, Argentina cut government spending drastically on the order of its lenders at the International Monetary Fund. Predictably, between 1998 and 2002, Argentinas economy shrank by almost 20 percent. It was only after Argentina turned its back on these austerity demands, and defaulted on its debt, that it began to recover.
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But Argentina still offers valuable lessons. For one thing, extreme cost-cutting during a stagnant economic period will only inhibit growth. And government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody. It puts money in the pockets of average citizens, who then spend it and spur the economy. Spending cuts need to be made when times improve an imperative Argentina is struggling with now but not before.
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