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Rules, Inflation and Culture

October 3, 2011

Doing is hard. Yoda said “Do or do not, there is no try”. After returning from a 3 week work trip in the USA, I felt the culture shock as soon as the airplane pulled up to the gate at Ezeiza airport. In the USA I had been on several flights between domestic cities and the ubiquitous “please stay seated until the captain turns off the fasten seatbelt sign” was repeated over and over, and followed to near 100% accuracy. As soon as that light went off, everyone jumped up.

But when we pulled into Ezeiza airport, not the case at all. As soon as the plan started slowing down people jumped up into the aisles. And the flight attendants had no choice but to go along with it because it was half the plane that was standing when the fasten seatbelt sign was turned off.

Welcome back to Argentina!!

I have to always remind myself that the people who have made the rules in Argentina for the last 60 years have generally been distrustful people, and therefore Argentines are justified in disobeying rules. But this is also a dangerous self-fulfilling prophecy. Once one person disobeys, it justifies a slew of people to disobey.

I feel that this has specific application to inflation in Argentina at the moment. The government claims that it is right around 10% when everybody and their cousin knows that it is at least 25% if not 30%. What happens in practice is that it only takes a few people claiming inflation to make inflation come true. Here is how this works: one shop owner claims inflation, so he raises his prices. Enough customers buy into this story (not a hard sell in Argentina when during the late 80s there was over 1000% (yes one thousand percent) inflation per MONTH) so that they keep buying at an inflated price. Shopkeeper #2 notices this and thinks: if he is raising his prices, I should do… and there go the dominos.

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4 Comments leave one →
  1. October 3, 2011 10:48 pm

    Intriguing hypothesis.

  2. Matt permalink
    October 25, 2011 8:27 pm

    Shop keeper 1 screams inflation while raising his prices, this in turn makes people less willing to shop at his store and leads to more shoppers at store 2, where store keeper 2 didn’t raise his prices.

    If all shop keepers raised their prices together, they’d simply just sell less items. They wouldn’t really increase their profits.

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