Argentina is the gift that keeps on giving to teachers of economics.
Here are two views of hyperinflation, those periodic bouts of very high inflation we see from time to time all over the world (Brazil, Argentina, Israel, Zimbabwe). The traditional view is the collected wisdom of several centuries of experience. Tom Sargent, at his press conference with Chris Sims (starts about 23:40, edited for continuity), put it this way:
I wrote a paper a long time ago about how to start and how to stop a hyperinflation. The way to start it is you get fiscal policy to run sustained deficits and then you have a monetary authority that monetizes government debt. That will always work. How do you stop hyperinflations? You stop doing it. This isn’t high economic theory. If you look at Latin America in the 1970s and 80s, they stopped [hyperinflations] using this old-time religion. And if you ask who stopped hyperinflation in Brazil, it was the poor people, because inflation is a tax mainly on poor people.
That’s the whole story. Inputs: (large) deficit-financed increases in the supply of money. Output: hyperinflation.
[Argentina’s] Central Bank president, Mercedes Marco del Pont, said it “is totally false to say that the issue [of money] generates inflation.” She continued: “only in Argentina does the idea remain that the expansion of the money [supply] generates inflation.”
Her comments came as the government passed legislation to allow the central bank to use its foreign exchange reserves to pay off government creditors. With, presumably, the money they get from selling their foreign assets. The same law changes the bank’s mandate from stable prices to a combination of stable prices, economic growth, and financial stability.
If this leads to inflation, don’t panic. The government has in place a novel measurement system that keeps inflation low no matter what. So low The Economist decided to stop reporting official numbers.
As a teacher, I say: Thank you!
UPDATE: Andy Neumeyer has a new post with a wonderful graph of inflation rates against money growth in Argentina — go here and use Google translate as needed.