Back to the Future, Courtesy of Argentina

President Nestor Kirchner of Argentina is often portrayed as an anti-capitalist radical for proposing a "haircut" of over 90% on the value of Argentina's defaulted external debt. But, whatever his motives, the anxiety that led up to Argentina's last minute deal with the IMF to repay $3.1 billion owed the global lender may serve to help to rescue what capitalism is really about: the appropriate judgment of risk.

Economic development involves financial flows and the buildup of debt. In a domestic setting, bankruptcy and default are common. Indeed, one characteristic sign of economic vitality is the frequency of bankruptcy, for business failures indicate a willingness to gamble and take risks on innovation.

Today, there is a higher level of bankruptcy in the United States than in the European Union, and it is easier for bankrupt Americans to embark on new ventures. As a result, Americans are more prepared to be innovative.

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