Article: The price of cooking the books

(The Economist February 25^th March 2^nd 2012)

Article Summary

Having twice suffered destructive bouts of hyperinflation in late 1980s, Argentines are sensitive to rising prices. When they spot even trivial rise in price level, their instinct is to dump the peso and buy dollars. Yet, after economic collapse in 2001-02, horror of hyper-unemployment has eclipsed the fear of inflation. This has been successful political calculation of the president Cristina Fernandez. Furthermore, according to the statistics institution INDEC, inflation rate of Argentina “Officially” is stable, yet, unofficial rate is actually twice as high as the official inflation rate. Argentina indeed has 24.4% of annual inflation rate which gives 137% of cumulative inflation rate since the beginning of 2007. The president Cristina Fernandez, hints at underhand, possibly criminal, dealings between former INDEC staff. The evidence would be the agreements between Mr Moreno and retailers to cap prices of basic products were not reflected in INDEC’s calculation before 2007. Under-covered by the Argentines’ government, to what extent would the world trust its economy?

Economic Terminologies

The basic key terms of above article are clearly “Hyperinflation” and “inflation”. According to Oxford Dictionaries, definition of inflation is “Economics a general increase in prices and fall in the purchasing value of money:policies aimed at controlling inflation” Since inflation is closely related to the value of currency, inflation rate is one of the index that provides standard for economic judgment towards certain country and is also one of the main targets of economic policies of one country. Inflation rate is a flow value which means it has a time set in measurement. Among many different kinds of inflations, Hyperinflation refers to hundreds of percentage increase in inflation rate mainly due to uncontrolled currency pressing or excessive consumption and under production. The most famous instance for hyperinflation would be the situation in Zimbabwe where 1trillion Zimbabwe dollar equals to $300 US.

Opinion

Getting out from basic introduction of terminology, what we could think about this problem would be rather Human-beings are truly “Homo-economicus” as the economics postulates. Meaning of Homo-economicus is that human-beings are rational in making decision especially in a way that they make a economic decision so that the model of economics could easily be set: Rational Choice Theory. Yet, this idea has continuously been challenged: Marshall Sahlins, Karl Polanyi, Marcel Mauss or Maurice Godelier have demonstrated that in traditional societies, choices people make regarding production and exchange of goods follow patterns of reciprocity which differ sharply from what the homo economicus model postulates. Such systems have been termed gift economy rather than market economy. Criticisms of the homo economicus model put forward from the standpoint of ethics usually refer to thís traditional ethic of kinship-based reciprocity that held together traditional societies. Furthermore, Empirical studies by Amos Tversky questioned the assumption that investors are rational. In 1995, Tversky demonstrated the tendency of investors to make risk-averse choices in gains, and risk-seeking choices in losses. The investors appeared as very risk-averse for small losses but indifferent for a small chance of a very large loss. This violates economic rationality as usually understood. Further research on this subject, showing other deviations from conventionally-defined economic rationality, is being done in the growing field of experimental or behavioral economics. Some of the broader issues involved in this criticism are studied in Decision Theory of which Rational Choice Theory is only a subset. Further critics, like Bruno Frey, in aspect of humanity, says that the term excessively highlights the extrinsic motivation( Reward and Punishment from outer-environment) as opposed to intrinsic motivation. For instance, the terminology Homo-economicus cannot explain the pleasure from craftsmanship or heroes during the war.

Reflecting the idea of Homo-economicus, this phenomenon within Argentina, again clearly shows the holes in economics and especially challenges rather human-beings are truly a “Homo-economicus”.