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Argentina’s Milei seems to have cracked the code
Americans of all persuasions have reached a rough consensus in favor of cutting government spending. We all, with the possible exception of hard-left Democrats, know that our present course is unsustainable and will lead to fiscal ruin.
Yet so far, no politician in a position to do so has been able to accomplish the feat. Ronald Reagan’s heart was in the right place but he wasn’t able to get a reluctant Congress to go along without giving up his dream of ending the Cold War.
Most presidents and congresses since have been MIA in fiscal discipline. Donald Trump, although successful in many policy initiatives, failed utterly in this most critical area of all.
But now there is suddenly hope arising from an unexpected quarter: Argentina. Javier Milei, their new president, has shown after one year that it is, in fact, possible to reduce the size and scope of the state. It takes a clear vision and resolve, not just bluster and campaign slogans that melt under populist pressure to spend.
Milei’s political persona is brash and flamboyant. He sported a chainsaw during his presidential campaign to dramatize his zeal for cutting spending. But he is a serious economist, a former university professor who has published over 50 academic papers. He fully understands the relationship between free-market principles and economic growth.
He doesn’t pander. During his campaign, he was candid about the effect of the large cuts in spending he contemplated, including the termination of tens of thousands of jobs, the elimination of government agencies, and the loss of regulatory protection many would experience.
Here’s the key. Unlike most politicians who make extravagant promises, he did what he said he would. The International Monetary Fund confirms that in his first year, he cut government spending by an astonishing 30%, eliminated or downsized 12 government ministries, canceled 80% of public infrastructure projects, and reduced the public payroll by 20%.
The results already speak for themselves. Argentina has a balanced budget for the first time in 10 years. The first quarterly surplus appeared in April. Significantly, inflation has been reduced from an intolerable 25% monthly in 2023 to about 2% per month currently. Argentina’s credit ratings are starting to improve. Output is beginning to expand.
Once Argentina’s banks ceased printing money to cover chronic deficits, economic pain was bound to ensue. Massive debt is still out there. As Milei warned, unemployment is up and the poverty rate has jumped to nearly 50%.
Yet Argentines seem willing to stick with the program. The amazing drop in inflation (they have their money back) and the belief that the pain will be worth the gain seems to be keeping up morale. Milei’s approval rating is 55%—and rising—with few signs of widespread discontent.
It helps that deregulation has already produced benefits. The Milei government has improved everyday life by slashing red tape around things like air travel, divorce and satellite Internet. A housing boom has developed with rent deregulation. Rents have stabilized and mortgages are once again available. The poverty rate is already falling.
The left is not impressed, of course. Al-Jazeera calls Milei’s presidency a “disaster.” The BBC worries that he is “influencing” America’s new policymakers, asserting that “taking inspiration from Milei to reduce the size of government doesn’t make any sense.” The New York Times frets about the hardships being forced on Argentines
The tantrum on the left is understandable. Once a wealthy nation, Argentina has been brought low by decades of autocratic, collectivist economic governance. Milei convinced voters that Argentina should not follow Cuba, Venezuela and other failed economies down the “soak the rich” path.
He preached not more government but less, not more trade barriers but fewer, not higher taxes but lower. If Argentina succeeds, leftists have some serious explaining to do.
The incoming American administration seems interested in learning from Argentina’s experience. “The deficit was the root of all evils – without it, there’s no debt…no inflation,” Milei counsels.
There is no secret sauce, just the basic sound economic principles that are the known roots of prosperity. We don’t need more study at this point, just the steely determination to do the right thing.
Published in General
The first surplus in 120 years.
lIbERtaRiAns dOn’t lIVe iN tHe rEAl woRld
I don’t pay any attention to the DOGE stuff. It’s too late. We have tried this before. If I was going to pay attention to it, they would talk about:
How poorly measured inflation is. Magic money is stupid and that’s what it is.
Why do we need inflation at all?
Why do we need anything except actual public goods? It has a definition, look it up.
The time to do it was the second the Soviet Union fell. Instead, we started spending the prosperity dividend, and we started trading with the Chinese mafia. Now the interest expense is more than the pentagon.
I don’t think that this is true. I think it’s rather delusional to think this.
The recent continuing resolution battle shows us that if we are going to turn things around that we will have a real battle on our hands. I hope that we can see some real progress being made in restoring fiscal responsibility in the next four years. Reagan had his cold war and Trump has his immigration problem. And China is threatening on numerous fronts (Cold war II, anyone?). I hope that Milei succeeds and inspires our own leaders.
Which part? That the present course is unsustainable and will lead to ruin?
The US had a balanced budget from 1998- 2001.
Things to consider:
So you are saying that Americans are delusional as they believe we can spend ourselves into oblivion without consequence? Which implies that you are convinced that American will indeed spend themselves in to oblivion?
It’s amazing what it took to get Argentinian voters to finally elect someone who overthrew the Peronist way of governing. Basically the Argenitinian legislature has given the president emergency powers to cut, cut, cut.
But they have triple digit inflation, and have for years.
Until voters allow politician to stop treating entitlements such as social security, and medicare as untouchable, we aren’t going to be able to get those politicians to do what needs to be done.
And Donald Trump has said that he isn’t going to touch those entitlements. Americans have not reached any such consensus. They’re only going after the margins.
We have an economy that is no way near the disaster that Argentina’s has become, and what it would take to get our voters to tell our politicians to do whatever needs to be done. We have a way to go before we hit rock bottom.
Pretty sure he meant this part: Americans of all persuasions have reached a rough consensus in favor of cutting government spending.
One hundred years ago Argentina and Canada were very similar. Large countries with lots of farmland and natural resources, temperate climate, settled by Europeans. GDP per capita were similar.
Today Canada’s GDP per capita is four times that of Argentina. The difference? Government.
The same is true for Singapore vs Malaysia except, the timeframe is 50 years and the the biggest difference is the acceptance of corruption (Malaysia) vs not (Singapore)
I listened to an podcast he was on with Lex. He was in full economist mode on monetary policy. Lex had very sofball questions and mostly just let him talk. And as someone who has listened to quite a few economist talk monitary polciy on economic podcast and somewho who remembers the basics of monitary policy from micro economics. Even then I did not fully understand everything he was talking about on what they were doing with monetary policy. He got that geeky and into the weeds. I cant think of another politician getting so much into to weeds on technical terms with very advanced concepts. This is someone in is in their 50s that completly did a 180 on economics and went full Austian econimics just over 10 years ago as a economics professors. Its so refreshing to heat an elected leader who does not try to dumb down stuff but instead geeks out on it. I love this guy he has issues but it more of practicality and just making sure policy is going in the right direction verses being a purest and the direction does not change.
DeSantis. I’m not sure he actually sits down for geeky interviews, but during Covid, epidemiologists were impressed on how knowledgeable he was, having read their research papers. He really got into the weeds with them.
Remember, his academic discipline was law, not science.