The election of Austrian economist Javier Milei as President of Argentina is one of the most intriguing events that I can remember. Polling suggested in the weeks leading up to the election that Milei would not win as he was running against a well-funded incumbent but win he did. It was by a landslide as far as politics go 56% to 44%. We wrote a four-part series looking back at the history of Argentina and its fall from grace from one of the world’s leading economies through its brutal hyperinflation around the turn of the century. Those problems are back again today, and the memories of those problems might be the tailwind that Milei needed. When economies are bad, we wrote, the people can be desperate and will follow what is new and exciting whether it be Adolf Hitler in the years after the German hyperinflation or Franklin Roosevelt during the American Depression. New ideas, new spending, new populism, or just something different. The current government executed a peaceful transition of power which was good to see and now the new government will get a chance to lead Argentina a different way.
Javier Milei has been described as a tantric sex coach, a former lead singer in a band, and a well-known professor of Economics. He is the rare economics anything that has managed to get attention, and it is because he doesn’t look or act like most economists. No tweed jackets with elbow patches and a pipe for Javier, he has unkempt hair and a wild persona. He has used a chainsaw to show how we would destroy the government bureaucracies once he got into office, and he has vowed to close the Argentina National Bank. He is a fierce libertarian that believes in personal freedom and individualism. He is a kindred spirit to old C Thomas Printer. He has done the easiest thing a politician must do which is get elected. He has garnered attention, enflamed the country into action, and earned their trust at the voting booths. All of this can be done with talk and talking is all he has done so far. The real work of governing begins now.
Milei will not be spending as Hitler and Roosevelt did, but more likely trying not to spend. He has inherited a terrible mess. Spending makes you popular, but throwing a country further into recession does not. Milei might be forced to do this very thing. I think the short term could be very painful for Argentina. He has vowed not to raise taxes, which is good, for the people, tough to make changes. Milei has a mandate from his people, and he will need to strike while the iron is hot.
Inflation is currently officially 146% in Argentina and 40% of the country is in poverty. Business Insider’s George Glover had a great article about the 7 largest obstacles facing Argentina and it listed inflation, price controls on thousands of items like food, drinks etc. The former government has a devaluing currency which it devalued 18% in one day alone in August. They have a dollar shadow currency because the people don’t want their currency which was trading at the popular blue rate of 600 pesos to a dollar when they wrote the article just weeks ago, but now it is at 1,000 pesos.
The debt burden is massive as Argentina is the largest creditor to the IMF owing them $44 billion. The country has defaulted on its debt and has a reputation problem which means foreign investment is nil and they don’t export enough to get dollars to service the debt. They have had 6 recessions in 10 years and their central bank is ineffective and has printed so much money in the last 5 years it is shameful. The Central bank has a dirty legacy as well. Daniel Raisbeck and Gabriela Calderon de Burgos write for Cato.org that during the hyperinflation of the 90s, a dollar convertibility system was introduced and slowed inflation from 2600% to 1% by 1998 but the central bank acquiesced and gave up its system to repeat the sins of the past.
Argentinians are carrying painful history with them, inflation expectations, and are suffering through a drought. This might not be rock bottom as 30 years ago during their great depression, but it is getting close and starting to remind people of that time. This is against a backdrop of growth in most of the Latin American countries. So where does Milei begin?
There is an old adage that says, “when you are in a hole stop digging.” Some clever person amended that first adage “when you have stopped digging a hole you will still find yourself in a hole.” I used the word a hole effectively there, did I not? This should be the framework that Milei uses to extricate his country from the mess it finds itself in. When we wrote about Argentina, we said it has chosen poorly. Others have noticed and western currency speculators have fleeced Argentina, and the IMF has also taken advantage of poor leadership. A fool and their money are soon parted and that is what has happened. The fools are gone, and Milei might be the man for the job.
Not everyone in Argentina is suffering as the government cronies and the union leaders have so corrupted the government that it will require a blowtorch to burn down the system. Milei promises to do so. The Department of Education, the central bank, other regulatory bodies will be dissolved. Now, this is where it might require finesse and not just blunt force. How does that happen in Argentina? Remember when Trump was going to drain the swamp in America? America still has swamp ass, because promises are easy, but governing is difficult. That is why he must act quickly before his surprised adversaries can strengthen their resolve to block his agendas. Can he shut down the Central Bank? Will the IMF allow him or can they hold him accountable to the status quo? This is where academic theory meets gridlock, but I hope he can use popular support to achieve some of these initiatives.
Milei wants to start by dollarizing the economy. That is a great way to stop digging a hole. The currency is trash, and the people already use the dollar. We have quoted Steve Hanke before and he is one of the more accomplished economists in this very area and advised Argentina to use a dollar-based currency board and wrote about it in 1999, we will attach a link to the paper if you are as nerdy as I am. He is also saying that the dollar would work today. I personally think that the dollar has its own problems with the out-of-control US spending, but I can promise you that it is miles better than the peso down there. The restaurants have blackboards where they can change the price daily or sometimes twice daily to adjust for inflation. Hanke and Emilio Ocampo wrote a piece for NR Daily that revealed that Milton Friedman advised Argentina to dollarize over 50 years ago just as Hanke did. They wrote that this was like when Margaret Thatcher was facing the terrible recession in the UK in the late 1970’s and she reduced the deficit and expanded her monetary policy and in less than a year Great Britain had put the past of the malaise behind it. The situation is a bit more dire in Argentina, but there is some hope, real hope. We are big fans of the Iron Lady, and her conservative economic approach was grounded in good economics and Milei does understand these concepts, in spades.
Let’s say he reaches out to Steve Hanke, and they implement a dollar currency board and either replace the peso with the dollar or they peg it to the dollar at a fixed rate. The economy would struggle enormously for a brief moment as the brakes hit the economy and the sudden deceleration of new money pouring into the system. However, there are so many black market dollars outside the official system in safe deposit boxes or under mattresses that the money supply could see growth by just normalizing the everyday use of the dollar. Knowing that they could have a currency that wasn’t losing its value by 10-20% a month would be the equivalent of stopping digging. Hanke has an article documenting 96 cases where the local currency has been replaced with the dollar, and he shows that it can be done and he has advised repeatedly on just such a transition. If the people can trust their money, then that is a start. I also think this might be the most feasible of the major policies on Milei’s list. Steve Hanke and Kurt Schuler wrote that this could be accomplished by presidential decree in A Dollarization Blueprint for Argentina, their paper from 1999 which explains how it could be done. I doubt the law has changed. If not the dollar, Argentina was also on the list of countries that were exploring the BRICS currency and backing a currency with gold would also offer rock steady stability. If he can achieve one of these two goals, then a foundation is laid.
Next up would be how to stop the damn spending. This I think he is going to enjoy, and he is going to fire everyone he can. He was elected on just such a promise, and I think the people of Argentina are at a point where they see government for what it truly is- a group of leeches. They suck the blood out of the entrepreneurs and workers and producers. High taxes discourage creativity and idea exploration and business trade among two willing parties. High inflation discourages people to save capital to start a business but to spend before their money loses value, and Argentina is sitting on almost 100 years’ worth of bad decisions and starting over sounds like a good idea and what Milei will probably try to accomplish. This means government waste, corruption, favorable taxes, bloated salaries, and the like- all gone. That will make a lot of enemies for Milei, but he knows that going in and he is embracing them for what they are. He has called them names and has stated that you can’t give them an inch. This open hostility to the government is rare and refreshing.
It is also incredibly dangerous in a it’s a good time to be alive sort of way. If Milei can set an example that the people of Argentina need to shrug as Ayn Rand once wrote. Shrug off the guilt and supposed commitment to a societal good and approach every day with an individual idea of freedom and that what is best for the individual can be best for a nation of individualists and that government is a hindrance to growth, real growth and not a crutch. Something could be awakening, and it is not just in Argentina, but in Italy and in a surprise last week, the Netherlands. This could be a light to the rest of the world that this is possible. This could be a renaissance in freedom that has largely been dead since before World War I which was, we wrote, when Argentina was last among the world elite economies.
Milei is the most vocal of all critics on the evil of government, but in order to be the counter culture revolutionary that he wants to be, he needs to win. He needs to win and be successful, because ideas don’t matter unless they are implemented and are successful. For the people, financially, and for the future government of Argentina, what little might be left. If he can eliminate the central bank next, then he might get that chance to be the leader he wants to be.
Eliminating the central bank is so important because it just monetizes the debt of the spendy government. If he cuts the spending and makes the country live within a budget and stabilize the currency? My god man, that isn’t a first term, that is a career. He will have accomplished what generations couldn’t. Here is the little secret…Argentina is a bucking bull of potential being held back behind a chute. They have oil and beef and wine and a strong demographic base. In fact, their age 15-24 cohort is the largest in their history, their own little baby boomer generation if you will. They need to better their educational system as we discussed in our four-part series, but there is real potential in this country to take a solid foundation and become a real success story.
Sincerely yours,
C Thomas Printer
On this date in history…50 years ago to be exact, Gerald Ford was sworn in as Vice President succeeding Spiro Agnew, who had resigned.
Cherophobia is the irrational fear of fun or happiness. I’m raising awareness for the condition with every podcast I make.
Also born on this date…William S. Hart a pre-talkie western movie star who served as a pall bearer at Wyatt Earp’s funeral.
https://www.cato.org/blog/seven-myths-about-dollarization-latin-america
https://www.indexmundi.com/argentina/demographic_profile.html