Argentina is running on the welfare system - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 16 October 2013
Argentina is running on the welfare system A  A  A

Buenos Aires, Argentina

Stocks seem to have gotten over their joy at Janet Yellen's appointment. Now they are focusing on their chagrin at Washington. Without a settlement, the feds will have to stop borrowing tomorrow.

Yesterday, the Dow fell 133. Gold did nothing worth mentioning.

As usual, investors are looking in the wrong direction.

Where does real wealth come from? We will answer the question ourselves. Not from the Fed, is the answer. Not from the government. Not from QE or stimulus program. Not from the Democrats. Or the Republicans. Or the Tea Party. Not from Obama. Not from a bi-partisan agreement to extend spending and pretend that the feds can pay their bills.

Nope. No gimmicks. No magic. No claptrap formulas. Wealth comes from work, savings, and innovation. Typically, somebody saves money, works long hours and starts a business that produces something people want.

But now, in the mountains of on the fruited plain of the United States of America...the wealth machine has begun to sputter and choke.

We promised to tell you how our investment in Argentina has become a welfare program. Coming right up. But first, here's the story in the US as told by the Economist:

    Established firms are usually in the business of preserving the old world; start-ups are under more pressure to come up with new ideas, and if they do so they usually create lots of new jobs. But these growth machines have broken down. America is not producing as many start-ups as it did a decade ago and those that have been created are providing fewer jobs-less than five each, compared with an historical average of about seven. Start-ups created 2.7m new jobs in the 2012 financial year compared with 4.7m in 1999.
What went wrong? Zombies. 2009-11 the Obama administration issued 106 new regulations each expected to have an economic impact of at least $100m a year. ..The Vanguard Group, an asset- management firm, calculates that since 2011 Washington's bickering politicians have imposed, in effect, a $261 billion uncertainty tax that has cost up to 1m new jobs.

    The Sarbanes-Oxley act imposes additional costs of $1m a year on public companies. Investors no longer bother with "growth stocks" because there is more money to be made in making lots of big trades in established firms. The dramatic decline in the number of firms going public since 2001 is worrying because, over the past four decades, more than 90% of jobs created by start-ups came into being after they went public.
Similarly, up in the Andes, the Argentine zombies are squeezing out initiative wherever they find it.

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On the ranch that we bought in Argentina were 25 in various nooks and crannies in the hills. We didn't even know they were there. Nobody mentioned it.

We were told there were some people who rented some of our land. They paid us in sheep, goats and cattle. We thought they were hoplites, independent yeomen farmers...and a source of revenue for the farm.

Some of them came to visit before we left on Sunday.

"Senior Bonner," began a fat woman in a colorful sombrero. She wore a dress, but over a pair of pants. Her face was very brown and chubby, with a horizontal mouth, lacking several teeth. She has had 8 children, we learned later in the conversation.

"The roof of our house fell in. Can you help us repair it?"

Just a few minutes earlier, another woman, similar in build, but with all her teeth and a nice smile had made her case.

"I have 5 children. We all sleep in the kitchen of my parents' house. Can you help us build a new house? My parents are tired of having so many children around."

We didn't ask about the children's father. Most of the children in the valley have "unknown fathers." The older generation - people like our farm manager, Jorge - are scandalized and disgusted.

"It's the government's fault," he explained. "They give money to these girls for each child that they have. And if they have 7 children, they get a pension.

"When I was growing up, we all worked. We didn't have jobs. We just worked. We thought it was good to work. We planted crops. We took care of animals. We knew that we had to work to survive. We didn't have any money, but at least we didn't depend on government handouts.

"But now the government comes along and tells them that all they need to do is to have children...and not get married. So, the young men leave and we are left with women having babies. I don't know what is going to happen to this farm."

We don't know either. But we see what is happening now. Without men in the households, the women turn to the landlord. One asks for a house for her aging mother. Another wants her roof fixed. Another wants a new house for herself and her children. And all these supplications happened within a few minutes. If we had stayed longer, we might have had more.

"What are we going to do," we asked the farm manager.

"Well, we want to help. But this is a dead end. There is no future in this isolated valley for children. And without fathers. They need to get out into the bigger world...go to school...learn how to do things. We can help all these women to live a little better. But we're not doing them any favors. Because they would be better off moving down to the city."

Welfare makes the giver feel good. But it generally harms the receiver. It makes them dependent. Selfishly, we volunteered to help.

"Maybe we should offer to help get them houses down in Molinos or Angastaco," we suggested.

"Yes, it would be better for them. They'll be ruined by the welfare system in either place. But at least there we won't have to watch."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "Argentina is running on the welfare system"


Oct 18, 2013

The current mantra with every politician is welfare measures and freebies. In return they want votes to come back to power and ruin the country further. Greed has taken the driving seat and everyone want to make a quick buck. In the end a set of law abiding citizens will become extinct. Cos to follow the rule or law means he/she is an idiot. Either our education system is going bad or the general value system is getting dismantled. God save this earth.


H K Prakash

Oct 16, 2013

One more brick in the wall. Peron, Eva, Nestor, Cristina et al have played a hand in Argentina plunging from a place in the Top 10 wealthy nations in the world (1900) to 100th? (2013)
The only doubt I have is whether Argentina goes to pieces first or Venezuela!!!



Oct 16, 2013

Very well said. Indian govt is following the same policy by implementing food for work, guaranteed employment where wages are paid for fixed hours be there is work or no work. It's net result is that people in the village do not come forward for work and have become lazy and spend time in drinking. So the wages must be linked to the working hours and labour intensive works must be encouraged.

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