Argentina’s Use and Abuse of Keynes

BUENOS AIRES – “We are all Keynesians now,” Republican US President Richard Nixon famously said in 1971. Today, Axel Kicillof, Argentina’s Peronist economy minister, is echoing this sentiment. Is he right?

Kicillof has gained international recognition as the public face of Argentina’s fight against the so-called vulture funds that want to extort full payment on Argentine bonds that they purchased for a few pennies on the dollar. But, before joining President Cristina Fernández de Kirchner’s cabinet, Kicillof was known in Argentine intellectual circles as the author of the book Volver a Keynes (Return to Keynes).

Last week, addressing a gilded ballroom packed with the elite of Argentina’s business community, Kicillof explained the government’s policies as a real-world application of Keynesian theories. In an hour-long speech, he made two key points.

First, Kicillof attributed Argentina’s rapid economic growth in the years between its 2001 debt default and the 2008 global financial crisis to a Keynesian reflation of domestic aggregate demand. Keynes made a tremendous intellectual contribution in showing that supply in a market economy does not necessarily create its own demand, and that demand shortfalls can cause avoidable recessions. Is this logic at work in Argentina?