Thursday, June 12, 2014

Dollarization in Latin America

A professor of economics at Johns Hopkins makes the case that dollarization in Latin America leads to less misery. Unfortunately, correlation and causation whirl around each other.

The lesson to be learned is clear: The tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Well, no. Or at best, maybe. The question of dollarization is fascinating and deserves more attention, even in the mainstream media, which for example too often just bashes Rafael Correa without latching on to how Ecuador's economy is fundamentally different from non-dollarized countries.

But you cannot just flip it and say "socialist" (a term left undefined) governments are worse. In fact, you could make a good argument that countries with capitalism and dollar pegs (like Argentina at the time of their crash) create more misery. Further, of the seven most "miserable" countries, four of them are already part of FTAs with the United States, obviously a sign of a) capitalism and b) close economic ties to the U.S.


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