Commentary
In November 2023, the warning came, as clear as an omen.
A political upstart was seeking office and, if elected, his policies were likely to cause “devastation” in his own country and “severely reduce policy space in the long run.”
The threat was a
chainsaw-wielding disciple of
Austrian economics from Argentina who embraced laissez-faire economics. The predictions of doom came not from Old Testament prophets, but 108 economists who
signed a public letter saying his anachronistic ideas had long ago been discredited.
“As economists from around the world who are supportive of broad-based economic development in Argentina, we are especially concerned by the economic program of one of the candidates, which has become a major issue of discussion in the national election,” the letter stated.
Yet the warning was clear.
“Javier Milei’s economic proposals are presented as a radical departure from the traditional economic thinking,” the economists wrote.
“We believe that these proposals, rooted in laissez-faire economics and involving contentious ideas like
dollarization and significant reductions in government spending, are fraught with risks.”
Milei’s ‘Shock’ Therapy
The people of Argentina either failed to hear or declined to heed the warning.
On Nov. 19,
voters elected as their next president the wild-haired Milei, who defeated his Peronist opponent by a
10-point margin. Milei was inaugurated on Dec. 10 and
wasted little time implementing his laissez-faire agenda, which included an immediate 5 percent (
chainsaw) slash in government spending.
More reforms followed.
Public work programs were put on hold, welfare programs were slashed, and subsidies were eliminated. State-owned companies
were privatized and hundreds of regulations were cut. Tax codes were simplified and levies on exports were lifted or reduced. Labor laws
were relaxed. The number of government ministries was
reduced from 18 to nine (¡afuera!), and a job freeze was implemented on federal positions. Tens of thousands of public employees
were given pink slips.
On the monetary side, the currency was sharply devalued and the central bank was ordered to
halt its money printing.
These actions were not painless. Indeed, Milei himself had
described them as a kind of “shock” therapy that was necessary for economic healing. Argentina was battling triple-digit inflation, economic sclerosis, and
mass poverty.
“I will make a shock adjustment and I will put the economy in a fiscal balance,” Milei said following his win. “As I pledged not to raise taxes, this means I will do so by cutting spending.”
The Results, One Year Later
Milei recently completed his first year as president, and the results are not what Piketty and company predicted. Duke University economist Michael Munger, a contributor to these pages,
recently pointed out that Argentina’s economy outperformed any reasonable expectation under Milei. He’s right.
Inflation, which
had peaked at an annualized rate of 300 percent in April 2024, nosedived, reaching a four-year low in November 2024. In his first month in office, the Associated Foreign Press
reported, Milei oversaw a record 25.5 percent inflation rate. By November 2024, inflation had fallen to 2.4 percent.
“In just 12 months we pulverized inflation,” the Economy Ministry
wrote on X.
GDP grew by nearly 4 percent in the July-to-September quarter of 2024 after a sluggish first half, and the International Monetary Fund
forecasts growth of 5 percent in 2025 and 2026. Meanwhile, Munger noted, there is a strong likelihood of foreign investment, as evidenced by the JP Morgan “country risk index.”
There’s more work to be done in Argentina, a country that for decades has struggled economically under the yoke of Peronism. Yet the results are nothing short of miraculous—and precisely the opposite of what the 108 economists predicted (not to mention prestigious media outlets such as The New York Times, which
reported on the “concern in Argentina and beyond about the damage [a Milei] government could inflict on Latin America’s third-largest economy”).
A ‘Superficial’ Understanding
It bears asking, how did Piketty and company get things so wrong?
Economics, after all, is a science—a
dismal one perhaps, but a science nevertheless. And although there was never a clear consensus on Milei among professional economists, many of the most vocal and prominent ones were predicting that Milei and his laissez-faire policies would be disastrous.
I reached out to several professional economists to get their hypotheses on why their peers missed so badly in their predictions on what Milei’s policies would achieve. I didn’t sense an eagerness to discuss the issue, perhaps because these economists are more humble than the 108 who signed the letter in 2023, and fully understand that predicting economic outcomes is challenging.
One economist who has written about the failed prediction is David Henderson, a research fellow at the Hoover Institution.
In a post, Henderson attributes the failure of Piketty and company to a lack of understanding of free markets and government intervention.
Henderson pointed out several flawed assertions that the authors make and demolished at least one straw man—“the laissez-faire model assumes that markets work perfectly”—before offering a blunt assessment of the economists.
“Their understanding of how markets work and of how governments work is superficial,” Henderson wrote. “I wonder if any of them, seeing the apparent success of Milei’s policies, are questioning their prior views. We can always hope.”
Indeed, we can. But for now, it’s not unfair to assume from their silence that they’ve learned little from Argentina’s economic progress.
As U.S. President Donald Trump begins his own second term as president, there’s
much he can learn from Milei’s first year in office.
This includes ignoring economists who claim that cutting government spending, regulations, and bureaucracy will result in economic devastation. And perhaps most importantly, the danger of using government printing presses to avoid making difficult budget decisions.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
