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Budget lessons can be learned from Argentina

by: SUBMITTED PHOTO DAVE BERG

'If we fail to carry out the peaceful revolution, the people will accomplish the violent revolution ... And the way to do this is carry forward social justice for the masses.'

- Juan Peron, 1944

Thirty-five years before this statement was made, Argentina was one of the 10 wealthiest nations in the world. During my graduate research, I visited Buenos Aires, the Paris of Latin America. Its European influence was unmistakable in its architecture, fashion, language, and its politics.

It was only 16 years after the last Peron administration but as I walked through the streets I began to notice many buildings and areas in disrepair. It seemed a tragedy to me. Only 80 years after being in the top 10 wealthiest countries of the world, Argentina had dramatically changed. Residents were trying to imitate the wealthy lifestyle of previous generations while not maintaining the investments of their predecessors.

Why? The short answer is the politics of budgets and popularism.

Citizens were living a former glory, while not resolving the causes of their nation's economic decline. It seemed to be an excellent case study as I dined on gourmet beef and red wine at $8 to $10 a meal, which many Argentines couldn't afford. Their currency had been devalued not only by their overwhelming debt but also the absence of real economic development. The contrast stunned me despite my education in economics.

How did this once wealthy country gradually become relatively impoverished? The answer is popularism through Juan Peron and his budgets. Despite the lavish embellishment of Evita, Juan promoted an ever expanding system of social justice that produced large entitlement programs. Budgets at all levels reflected this popularism and its politics. As programs expanded and became a core part of everyday society, the wealth of the country began to dissipate. Investment capital fled the country, while massive debt was required to support broader entitlements. The infrastructure and the legitimate economy declined while popularism flourished.

Jobs became political favors, while budgets and spending promoted an unsustainable lifestyle. For a while everything was fine, as long as social justice could be financed by others. Argentine debt increased relative to GDP and it seemed to me that everyone had at least two jobs, one of which was a public sector job. Peron's social justice philosophy transitioned to corruption when an 'entitlement mentality' became a core part of Argentine society. There is a reason why popularism starts with the word 'popular.' If it looks too good to be true … you know the rest.

Argentina eventually defaulted on its debt and austerity measures were put in place. Years later I returned on a business trip to a country with a cost of living incredibly higher and real wages much lower. The entitlement society was bankrupt because it had budgeted social justice priorities rather than support the investments of previous generations. Citizens were paying heavily for that decision and my meal was proof. It had tripled in price.

Budgets mean choices and the easiest choice is 'do everything' and fund every program in an attempt to solve all social ills. That's what Peron tried to do in a way which became socially acceptable. I don't think most of us want to see that in our community, but it's a good lesson to learn from history.

Dave Berg is a 20-year resident of Lake Oswego and a board member of COLA LO.