Thread by @Noahpinion

Today's @bopinion post is about Bolivia, the world's most successful (self-identified) socialist nation, and the dangers it faces:
bloomberg.com/opinion/articl…

Bolivia has not failed under socialism; in fact, it's doing much better than ever before!

And with inequality falling, the biggest benefits of growth are going to the country's lower-income citizens.

But Bolivia's success is at risk from a pitiless monster that devours capitalist and socialist economies alike:

Commodity-exporter macroeconomics.

nber.org/papers/w25523

Bolivia pegs its currency to the dollar.

And when there's downward pressure on your currency, maintaining a dollar peg requires you to sell off your foreign exchange reserves.

The danger of running out of forex reserves is magnified by external borrowing, which Bolivia has done a lot of recently.

What happens if you're forced to drop a currency peg and you have a lot of external debt that it's suddenly much harder to pay?

A classic emerging-market crisis.

If it falls victim to the classic commodity-exporter emerging-market crisis, Bolivia will be following in the well-trodden footsteps of many capitalist economies before it.

The lesson here is: Beware the laws of macroeconomics. They don't care whether you're socialist, capitalist, or whatever. If you do things like peg your currency too high and run up external debt, macroeconomics will still crush you like bug.

(end)

bloomberg.com/opinion/articl…