Why Argentina’s Economic Collapse is a Warning to the World

文章要点：

• In the 1980s, Argentina faced extreme inflation and economic crises that affected millions.
• Argentina's past prosperity was fueled by its agricultural exports and foreign investment.
• Political instability and poor economic policies led to a consistent decline in living standards.
• Current struggles reflect a cycle of crisis that has persisted for over a century.
• Lessons from Argentina's economic history highlight the importance of stable institutions, fiscal discipline, and policy consistency.

Welcome to another episode of Cold Fusion.

Imagine walking into a grocery store to do your shopping. You grab a loaf of bread off the shelf, it's got a clear price label, and you take it to the checkout. But in the time you took to walk to the checkout, the price of the bread has doubled.

He complained to the cashier because this can't be right. But in the time it takes you to complain, the price of the bread doubles again. If you lived in Argentina in the 1980s, this was a real possibility.

Out of control inflation and skyrocketing daily prices made life unlivable for millions. And to a lesser degree, Argentina still has these problems today. But if you take a look at this graph, it shows something very interesting. Something you might not expect.

Argentina was about as wealthy as Canada, Australia, and the US all developed, industrialised and wealthy nations during this period here, the golden years of Argentina. It was one of the wealthiest countries on the planet. But that seems far away now.

It's pretty hard to imagine for a country that's now remembered for having inflation over 5,000% and a new president running around on stage with a chainsaw.

So what happened to Argentina in this period? What caused this massive wealth gap? How did the economy go from one of the most rapidly growing in the world to a perpetual economic disaster? And what can we learn from the hard lessons of Argentina?

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From 1880 to 1930, Argentina was in its golden era. Its capital, Buenos Aires, was once known as the Paris of South America. By 1913, Argentina ranked among the world's 10 richest nations. That's nice and all, but how did they achieve such status?

Well, mostly through geography and a lot of luck. This was the engine of Argentina's economic growth at the time. The vast fertile plains known as the Pampas. While Europe was busy industrialising, Argentina was becoming the world's breadbasket. They exported primarily beef and grain to hungry markets abroad for good prices.

British capital funded an extensive railway network connecting the productive interior to busy ports. Argentina attracted millions of immigrants similar to the United States. These immigrants also saw Argentina as a land of opportunity. Between 1870 and 1930, nearly 6 million Europeans migrated to Argentina. Something that's rather hard to imagine today.

By 1914, almost 30% of Argentina's population was foreign born. The government recruited from these millions of European migrants. They became skilled workers to help modernize the economy. Between those 60 years, from 1870 to 1930, these 6 million Europeans transformed Argentina into a cosmopolitan society with a growing middle class.

Argentina's GDP per capita was higher than that of France and Germany and almost twice that of Italy. In 1906, the capital, Buenos Aires, was known internationally as a beacon of culture, architecture and luxury. In fact, in 1906, the New York Times stated that it had the beauty of Washington, the wealth of New York, and the hustle of Chicago. And they crowned it that famous name, the Paris of South America.

European elites frequently visited Buenos Aires. The grand European style boulevards, cafes, theatres and sophisticated social clubs were too much to resist. For a nation blessed with beautiful resources, foreign investment and global demand for its products, the future seemed assured.

What could possibly go wrong? Well, what happens when the world stops buying your bread and beef? They would soon find out. Everything was about to change.

The 1929 stock market crash and resulting Great Depression sent shockwaves through the world. Global trade collapsed during this period and countries turned inwards. They used tariffs to protect their local market industries, and they participated less in global markets. For Argentina, who had spent the last 50 years relying on exporting beef and wheat to grow its economy, the impact was devastating.

Argentina's economy grumbled and screeched to a halt. The relentless growth that they had enjoyed suddenly came to a stop. New governments were looking at the decline in their exports, and they quickly realized that this was a dire situation. They decided on a new strategy.

Like Canada, Australia, and the U.S., it was time for Argentina to industrialize. They would need to produce more goods at home and stop importing so many essential products from abroad. This strategy is known as import substitution. But there was a problem.

Argentina didn't industrialize by building competitive industries at home that people wanted to buy from. They did it by using high tariffs and closing off the rest of the world. This strategy only served to drive up the price of goods that many businesses needed, but that Argentinian businesses couldn't produce. And it meant that fewer people were investing in agriculture overall.

The thing was, other countries like Canada also used tariffs during this period, but at a much lower rate, keeping themselves open to global markets. In the midst of all the turmoil from the Great Depression, a pattern started to emerge that would plague Argentina for decades.

In the 1930s, at the start of the chaos, the military overthrew President Hippolito Yrigoyen, and this ended 70 years of constitutional government. From here on out, it would be chaos. The Depression was severe and it convinced many Argentines that the export-oriented model had failed for their economy.

Cut off from Europe, Argentina's manufacturing sector was forced to expand rapidly. People would flood into cities. They formed a new industrial working class. But unfortunately, these people turned out unhappy.

The reason was high unemployment and an unstable economy. In 1943, the political chaos continued. Another coup removed the government from power and Juan Domingo Perón became the new president. But Perón had a new strategy. Economic nationalism.

He wanted to nationalise railways, utilities, and the banks. He established state monopolies, giving the government control over exports while expanding worker benefits and wages. This might sound excellent in the wake of the Great Depression, but Perón's policies established patterns that would haunt Argentina for generations.

The result was unsustainable spending, massive state intervention, a turning away from global trade, and perhaps most damaging, printing money to cover government shortfalls. By 1952, inflation was rising and the government was once again becoming unstable.

And you can probably see where this is going. In 1955, another military coup removed Perón from power. In just 25 years, Argentina had gone from one of the world's wealthiest democracies to a nation facing chronic inflation, perpetual political instability, and a never-ending parade of military coups.

Just think how it would have felt for the average Argentine living in that era. If you were young, you grew up into chaos. Your childhood and adulthood would have looked completely different. If you are older, your children's future would be uncertain.

But unfortunately, Argentina's troubles were just getting started. For nearly 30 years, Argentina suffered political whiplash. Swinging between military coups and weak governments, each new administration reversed the policies of their predecessors. The country was literally going around in circles. They were going nowhere.

It wasn't a surprise that everyone felt uncertain. If the politicians couldn't figure out what to do, what hope was there for the average Argentine? And the uncertainty went beyond the borders of the country. Now no one was making long-term investments in such an unpredictable environment.

This era introduced the notorious Stop-Go economic cycle. And here's what happened. Governments would first stimulate growth through spending, creating inflation and trade deficits. Then the next government would devalue the currency, cut government services, and create a recession.

This rolling car crash continued until something happened in a big way. In 1976, the military seized power again. And yes, that's nothing new. But what was new is that this time they established the most brutal dictatorship in Argentina's history.

The sledgehammer dictatorship saw the disappearances of human rights. The faces of the victims lined the streets of Buenos Aires. This banner is a reminder of the sheer scale of the repression. The military dictatorship in Argentina lasted seven years between 1976 and 1983.

But it left its mark on several generations. There are still families searching for the children who were stolen from their missing parents. And the brutalness was only rivaled by the destructiveness of its economic policies. The new government opened up the economy again. Imports were now back on the menu.

Now, you might think that this sounds good. Argentina was re-entering the global economy. What's not to like? But there were two problems. The local currency, the peso, was highly valued at the time, most likely due to sky-high attractive interest rates.

So this meant that local producers in their highly priced goods couldn't compete with foreign imports. Subsequently, manufacturing collapsed and unemployment skyrocketed. Foreign investment into Argentinian manufacturing could have helped. But what foreign investor would want to risk their capital in such an unstable country?

Decades of pendulum swings back and forth had taken their toll. Argentina looked like a risky basket case. External shocks made matters worse. The US Federal Reserve sharply raised interest rates in 1979. Argentina's debt, much of which was owned by international banks, became a massive burden.

They had to make larger and larger payments, paying more and more interest. The debt skyrocketed from $8 billion in 1975 to over $45 billion by 1983. Meanwhile, wealthy Argentines saw the writing on the wall. So they jumped ship, looking to invest their money in places like the United States and away from an unstable Argentine economy.

Facing economic collapse and growing resistance, the government, of course, resorted to printing money. The money was supposed to pay for debts, but all it did was drive up inflation. Workers, now seeing their purchasing power go down, demanded higher wages.

And this also raised prices, which meant that more money needed to be printed. This is what's known as a wage-price spiral—a disastrous situation for any economy. The once mighty nation was now so far away from where it started.

The century. The country that was once so highly regarded in the world, especially in the eyes of Europeans, now felt like its prosperity was all but a distant dream. Ordinary Argentines resorted to buying US dollars and hiding them in mattresses and behind picture frames. They knew that if they kept their life savings in the local currency, its value could evaporate by morning.

Markets became scenes of daily chaos as shoppers sprinted to buy essentials before prices jumped. By the 1980s, things broke once again and the military dictatorship crumbled. It was the end of the military rule. By 1983, Argentina did return to democracy, but they were bruised and battered.

A shattered economy, enormous debt, and inflation running at 400% annually. What was going to happen next? The new democratically elected government faced an unprecedented crisis. Despite multiple stabilization plans, inflation continued to accelerate.

By 1989, hyperinflation had reached a staggering 5,000%. Prices changed hourly; shopkeepers stopped marking items, increasing the prices of basic goods by 1% every few hours. Workers' salaries became worthless before they could spend them.

Furious Argentines were sacking stores and taking what they needed. During all of this chaos, Carlos Menem took office as president and again promised radical change. He shocked his supporters by embracing free market reforms, once again privatising state companies, opening trade, and deregulating the economy.

Most dramatically, in 1991, he introduced a new plan pegging the local currency, the peso, to the dollar by law and also prohibiting money creation without dollar backing. This partially worked for some time because the dollar was stable and inflation in the US was low.

This meant that little new currency could be printed in Argentina. Inflation plummeted from thousands to single digits, and the economy started growing again. Suddenly, Argentines could afford imported goods and even foreign travel. But this solution created new problems.

The peso was now as strong as the dollar, which once again made it hard to export Argentinian goods. They were almost back to where they started and now with their hands tied. Instead of printing new money to solve their spending problems, the government just took on more debt.

By contrast, countries like Chile, which were facing similar debt problems in the 1980s, implemented reforms, opening up foreign investment, stabilised inflation, and grew their economy. Argentina, meanwhile, fell back on its old habits of short-term fixes.

By the mid-90s, the weaknesses of this policy were clear. Argentina could not compete in the global economy. Unemployment rose to 18% and public debt continued growing. The year was 2001, and Argentina was facing the perfect storm—a recession, unsurmountable debt, and investors fleeing the country.

After desperate measures failed, the government froze bank accounts, defaulted on 100 billion dollars in debt, and abandoned the peso-dollar peg. Crowds gathered outside banks, banging pots and pans and protesting before riots erupted.

In December 2001, Argentina declared the largest debt default in history: $100 billion. The move ushered in an era of utter chaos. Five presidents in two weeks, deadly riots, and dire poverty. Eventually, with an approval rating of just 7%, in one of the most chaotic economic scenes in world history, the president resigned and fled the capital in a helicopter.

The results were catastrophic. The economy shrunk by 15% and 1/4 of all Argentinians were unemployed. Poverty engulfed more than half the population, and middle-class Argentines became the new poor. In just 100 years, Argentina had truly fallen from grace—a once wealthy country with a bright future, now an undeveloped disaster.

After the 2001 collapse, Argentina went back to printing more money, devaluing the peso, and helping Argentinian exports become competitive again. Paired with a boom in the global economy for soy, beef, and grain, Argentina had a few good years that helped them recover from the crisis. Governments used this influx of cash to expand social services, again helping to alleviate the poverty caused by the 2001 collapse.

Things looked good for a time, but the same problems remained beneath the surface. They were a tired nation, but they were about to face more. By the mid-2010s, inflation crept back, public debt swelled, and investor confidence once again eroded. Argentina defaulted on its debt again and once more in 2020, its eighth and ninth default in its history.

By 2023, inflation had soared past 200% annually. The country was once again caught in the familiar cycle of crises. This set the stage for the election of an unlikely figure. Javier Milei, a libertarian economist, would build his campaign around radical ideas.

His signature symbol was literally a chainsaw—a symbolic promise to slash the bloated state, reduce public spending, and dismantle Argentina's entrenched political class, which he called "the caste." Milei's policy proposals are drastic. He even wants to eliminate the central bank, dollarise the economy, and privatise public services.

Supporters see him as the last hope to break Argentina's curse cycle. Critics, however, fear that his radical shock therapy could worsen poverty and also cause social unrest before any long-term gains emerge. For everyday Argentines, the crisis isn't historical; it's still ongoing.

Argentina's GDP per capita today is roughly the same as it was in 1913. A century of economic stagnation. While the rest of the world moved forward, each generation faces its own version of the same problems, clinging to hope that this time things might finally change.

So what lessons can we learn from Argentina's fate? First, institutions matter. Independent courts, stable property rights, and monetary authorities shielded from political interference are critical for economic health. Second, fiscal discipline is essential. The temptation to cover deficits by printing money inevitably leads to inflation and this erodes savings, wages, and public trust.

Third, policy consistency builds confidence. Argentina's constant swinging between policy extremes—from state-controlled nationalism to free-market neoliberalism—discouraged long-term investment and stability. Argentina's story isn't just history, it's a reminder. Economic prosperity is fragile and the cycle of crises can start with a single unchecked decision.

The question now is whether Argentina can finally break the cycle or will the economic disaster continue into another generation.

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Anyway, that's about it from me. If you did like this episode, feel free to watch anything else on Cold Fusion. There's plenty of other interesting stuff here on science, technology, and business.

Okay, so my name is Dagogo, and you've been watching Cold Fusion. I'll catch you again soon for the next episode. Cheers, guys. Have a good one.