All Else Equal: Making Better Decisions Ep53 “The Truth About Inflation and Price Caps: Learn From Argentina” with Veronica Rappoport
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Dec 18, 2024 Veronica Rappoport, an associate professor at the London School of Economics and former 2nd Deputy Governor of Argentina's Central Bank, shares insights from her experience during chronic inflation. She discusses why price caps, often proposed as a quick fix, can actually worsen inflation over time. Drawing from Argentina's history, she highlights structural fiscal issues and the pitfalls of government intervention. Amidst challenges, she notes a cautious optimism within Argentina as new political strategies emerge to tackle economic difficulties.
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Two Types of Inflation
- There are two types of inflation: normal inflation and hyperinflation.
- Hyperinflation often results from governments financing spending by printing money, essentially taxing the population through inflation.
Problems with Price Caps
- Price caps either lead to shortages if enforced or create a black market where prices rise regardless.
- Increasing supply is a better approach to control inflation.
Katrina and Price Caps
- After Katrina, price caps on water led to shortages and a black market.
- The most effective solution was increasing the water supply.
