"Don't Cry for Argentina...Just Yet"
Milei's remarkable progress at the end of the world...
by Bill Bonner
“The case of Argentina is an empirical demonstration that no matter how rich you may be... if measures are adopted that hinder the free functioning of markets, competition, price systems, trade and ownership of private property, the only possible fate is poverty.”
~ Javier Milei
Dublin, Ireland - "Argentina…down at the bottom of the world…upside down in almost every respect. But it is also the home of the world’s most interesting and most promising political/economic experiment. Governments follow the ‘institutional imperative,’ along with everything else. They grow…they expand…they take more and more of the nation’s resources…and their elites become more parasitic. But eventually…they ‘hit bottom.’
If you’ll recall, over the 75 years or so since the socialists (Peronists) won power, Argentina had seen pointless wars…2,000% inflation…mass murder…insurrection…and social and political chaos. It had also dropped from around 6th or 7th place among the world’s richest nations down to, currently, 65th place, behind Kazakhstan and Bulgaria. Argentinians, in the 1960s, had about 40% of Americans’ wealth per capita. Now, they have barely half that much.
‘La Motosierra’: We have a hypothesis. As the weight of government debt and resource misallocation becomes heavier…its elites become more corrupt and incompetent…and real output goes down. Sooner or later, there’s little juice left in the orange. In the case of the Soviet Union, the elite saw that they could get more wealth and power by taking up new careers as oligarchs rather than continuing as government functionaries.
In Argentina, too, many of the ruling elites must have thought it was time to let capitalism rebuild the country’s wealth; that way, there will be something to steal later on. Besides, the Argentine people themselves were ready for a change.
Javier Milei campaigned for president with a chainsaw in his hands…vowing to cut out all unnecessary expenses and state-granted privileges. It looked like a stunt. And many people thought his campaign pledge would end up in the huge Library Of Unfilled Promises, along with so many others.
But Milei is not a typical politician. He sees government through the unsympathetic eyes of Hayek, Rothbard…or Ron Paul. As he told the movers and shakers at Davos, the ‘values of the West’ are in danger. And the path – towards more and more government control of the economy and the society – ‘inevitably leads to socialism…and therefore to poverty.’
Remarkable Progress: Milei promised to free the economy from the fetters that keep it from operating properyl, and, crucially, to reduce the cost of government. His main aim is to get rid of deficits, which force the government to print additional money and cause prices to rise.
Last year the ‘fiscal deficit’ was about 5%. For reference, in the US it was over 6%. The difference is that investors will still lend to the US at reasonable rates. And the US can ‘print’ any money it needs to pay off creditors. Argentina can’t. Nobody wanted to lend to the gauchos and get paid back in pesos. So Argentina borrowed in dollars and became the IMF’s largest debtor. It can’t print dollars. So now, it needs to raise more dollars on the open market to stay current with its debt.
It’s not going to be easy. But so far, Milei has made remarkable progress. He has proposed a balanced budget – reducing the 5% deficit down to zero. Unfortunately, he does not control the legislature; it will be a challenge to get the politicians on board with his program.
The End of the World: Even so, after just 100 days in office, the inflation rate has apparently been cut in half. Chris Wood reports: "CPI inflation has already slowed from a peak of 25.5% MoM in December to 13.2% MoM in February." Joel sees it in the shops: "Now, stores and restaurants – which literally couldn’t ticket items on menus and upon shelves a few months ago, with prices changing by the day – are suddenly awash with discount signs and 2x1 specials."
Our daughter, meanwhile, offers a sobering personal insight. Inflation is moderating, but many prices are still just now catching up: "I got my hair done in Salta last month for 5,000 pesos. This month, it cost me 10,000. (About $9 US)."
It will not be smooth sailing for Milei. The ship is still headed for the bridge. So far, he’s slowed it down. And pointed the way to a safe passage. But it will not turn easily or immediately. Stay tuned."
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