Paul Krugman: In Argentina, the Rules Still Apply

In an article published on Slate earlier this month titled "Argentina Did the Right Thing in 2002, the Wrong Thing Last Year," the commentator Matthew Yglesias said what needed to be said about Argentina's economic troubles: there's no contradiction at all between arguing that Argentina was right to follow heterodox policies in 2002, but that it is wrong to reject advice to curb deficits and control inflation now.

I know some people find this hard to grasp, but the effects of economic policies, and the appropriate policies to follow, depend on circumstances. I would add that we know what those circumstances are! Policies like running deficits and printing a lot of money are inflationary and bad in economies that are constrained by limited supply; they are useful and good when the problem is persistently inadequate demand. Similarly, unemployment benefits probably lead to lower employment in a supply-constrained economy; they increase employment in a demandconstrained economy; and so on.