The financial page; the Argentine machine.(The Talk of the Town)

In the spring of 1940, a middle-aged Argentine Army officer named Juan Domingo Peron took a Cook's tour of Europe. Although the Second World War had just broken out, Argentina was officially neutral, so Peron travelled freely across the continent. What impressed him most was the spectacle of German organization. For Peron, Nazi Germany was a model of true popular democracy, where the people worked for the nation's good with lockstep efficiency. When Peron orchestrated a coup and became the President of Argentina, in 1946, he believed that his country, like Germany, could become "an enormous machine that functioned with marvellous perfection, where nothing -- not even a tiny screw -- was missing."

Half a century later, nothing in Argentina seems to function at all. After four years of recession, its economy is on the brink of collapse. It has defaulted on its foreign debt and endured deadly riots. Not surprisingly, in the absence of a clear or simple fix, the turmoil has inspired a longing for the good old days. Argentina's newest President -- its fifth in two weeks -- is a leader of the Peronist Party, and his supporters chanted "Viva Peron!" as he was elected by the Argentine Congress. Perhaps it makes sense that in a time of chaos people should cling to Peron's dream of "a perfectly organized community and a perfectly organized people." But it's this very dream that helped cripple Argentina.

In a successful modern economy, most of what happens -- for good and for bad -- is beyond the government's control. Alan Greenspan can cut interest rates, but he can't actually make anyone invest. For Peron, with his rage for order, such uncertainty was intolerable. A machine must operate according to fixed principles. So Peron made the government the Argentine economy's chief operator. He nationalized grain elevators, public utilities, and railroads, and decreed that no bank could make a loan without first getting government approval. Under Peron, the government not only controlled prices and wages but interfered in daily life in bizarre ways; at one point, for example, to encourage beef exports Peron declared that for two days each week Argentines must go without meat.

Peron's policies failed. Growth slowed and inflation skyrocketed, because the government kept printing money to pay for its schemes. In 1955, Peron was toppled in another coup. An economy, it turned out, is not a steam press. But Peron's successors failed to recognize this; although they disagreed with many of his dictates, they felt that in general it was necessary to dictate. And so Argentina spent the next thirty-five years embracing just about every faddish theory of economic development. Each time a new leader came to power -- the country had eighteen different Presidents between 1955 and ...