Saturday, April 30, 2011

On the Criminalization of Inflation Reporting in Argentina

According to the Economist, INDEC, the statistics agency of the Argentinian government, "began doctoring its consumer-price index in 2007" costing "holders of the country's inflation-linked bonds at least $2.3 billion last year." Naturally, private statisticians and economists have offered their own estimates of price inflation. According to the Economist, "They reckon that inflation is now running at about 25%. That is far above the 10% reported by INDEC...but less than the 30% wage increases public employees have received in recent years."

Unsurprisingly, the Economist reports that "Guillermo Moreno, the thuggish commerce secretary, is moving to stamp out the unofficial, but widely trusted, price indices. To do so he has dusted off a decree, penalising misleading advertising, approved by a military dictatorship in 1983. In February he sent letters to 12 economists and consultants ordering them to reveal their methodology, on the grounds that erroneous figures could mislead consumers."

Ah yes, the repression of information distribution, a cynical, time honored tactic of governments far and wide. To begin with, we have every reason to believe that the figures produced by INDEC are erroneous, deliberately so. Given its loose monetary policy and the inevitable price inflation it yields, the Argentinian government has an incentive to disinform the public. At the very least, a government must command a modicum of respect from its citizens as this is a necessary condition for its continued existence. As price inflation rises as monetary authorities expand the supply of loanble funds, this respect decreases, and rightly so. Hence, the technocrats in Buenos Aires think they can maintain this necessary condition for their prolonged employment by fooling the public into thinking that price inflation isn't nearly as bad as they ought to think it is and harassing those who offer accurate estimations. It's a rather crude form of malfesance but certainly not beyond even the esteemed monetary authorities of the U.S. government who discontinued publishing M3, a monetary aggregate considered by many to have been the best measure of the money supply and, therefore, of inflationary activity.

By contrast, private institutions have an incentive to offer accurate information on the price level, as the financial integrity of their clients and their reputation as reliable distributors of data are contingent upon their performance. This is yet another example of a function assigned to the government that is better performed by the private sector.


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