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.