The most important fact about inflation is that it’s hard to cure. But that doesn’t mean it can’t be done! Let’s look at an example:
Suppose Argentina has been through a serious economic downturn, with a collapse in production of the main export commodity, as has been the case in many countries. The government increases supply in the economy, primarily by boosting exports of its main export commodity, the Argentine Peso.
This increases the value of the Argentine Peso and allows the country to export again. Inflation in Argentina decreases because the currency is allowed to increase in value again. This is a case study solution because there is no real solution, but it does illustrate that when we adopt a similar policy in our own country, we could actually bring down inflation as well.
For a successful solution, we need to look at the reasons behind economic problems and design solutions that actually reduce the amount of money available for purchase. An interesting example of this is found in the paper “Spreading innovation across the US to drive productivity and business dynamism” by D. Ward, M. McClish, and R. Schmitt-Matzen. In the conclusion of their paper, they say that:
They argue that by opening the foreign exchange market to a range of riskier instruments, they will make the FX environment more stable and predictable. We would like to extend their proposal to also include ‘mission impossible’. It is important to note that without market discipline in the FX exchange market, the nation can never control inflation. So the next time you hear the argument that “that’s not how it works in Argentina” ask yourself this: What’s the problem if you can’t fix it?
This example brings up another reason why reducing inflation in Argentina is impossible: You cannot tell the government to change its policy in the middle of a prolonged recession! It’s hard to promise people things they can’t afford! There is also the fact that your initial attempts may well fail, and the country can never afford to take such a step!
When I was in college, my roommate, who happened to be an economist, used to argue that he didn’t want to believe in a GDP limit, because the economic crisis and the financial crisis had shown that it wasn’t possible. He called the argument of a global GDP cap “a holy argument” for economists. “Why? Well, since we know that it won’t work anyway, why not just spend money on yourself.”
What he meant by that is that you shouldn’t worry about things that can’t be fixed for the long-term growth prospects. What he did understand is that changing the country’s currency policy (which is what reducing inflation in Argentina is) could potentially be risky and, worst of all, impossible.
Yes, Venezuela is facing inflation in their economy and Argentina is facing its current predicament, but the country’s GDP has been stable for the last 30 years. That is, Argentina can stay steady, as it has for decades. So, reducing inflation in Argentina may be impossible.
You might consider looking at different solutions. However, don’t forget that our economic problems are a global phenomenon, and if you think you can solve a problem here locally, you’re probably wrong. If Argentina wants to grow their economy, they will have to be a leader in other countries as well, if not already.