When libertarian economist Javier Milei was elected as Argentine president to fix the results of decades of mismanagement, he proposed a series of economic reforms dubbed by his critics as “shock therapy" – including slashing government spending, cutting bureaucracy, and devaluing the peso.

Critics warned these measures would be disastrous, and many took it for granted that the remedies would deepen Argentina’s recession. But as Jon Miltimore explains in this guest post, a year on and it's becoming clear that the reverse has happened ...

Did Javier Milei Just Lift Argentina Out of Recession? 

by Jon Miltimore

During his first year as president, Javier Milei has been waging a bitter but largely successful campaign against inflation.

Now, Argentines received more welcome news: their economy is growing again.

“Economic activity rose 1.3 percent from April, above the 0.1 percent median estimate from analysts in a Bloomberg survey and the first month of growth since Milei’s term began in December,” Bloomberg reported on July 18. “From a year ago, the proxy for gross domestic product grew 2.3 percent.”

The positive economic report, based on data from the Argentine government, is a surprise to many.

The 2.3 percent year-over-year increase defied expectations of a decline of similar magnitude, Bloomberg reported. As Semafor notes, the Argentine economy was projected to have the least economic growth of any country in the world in 2024, according to the International Monetary Fund.

A ‘Wrecking Ball’?

Argentine economists I spoke to said that the numbers are encouraging, but the country’s economy is far from being out of the woods.

As most people know, Milei inherited an economic mess decades in the making. When the self-described anarcho-capitalist assumed office in December, Argentina was suffering from the third highest inflation rate in the world—211 percent year over year. The poverty rate was north of 40 percent, and Argentina’s economy was declining.

With his country’s economy in a full tailspin from decades of Peronism, Milei proposed a series of economic reforms dubbed “shock therapy” that consisted primarily of three components: slashing government spending, cutting bureaucracy, and devaluing the peso.

Critics warned that these measures would be disastrous, and many took it for granted that the remedies would deepen Argentina’s recession.

The former head of the International Monetary Fund’s Western Hemisphere Department, Alejandro Werner, said Milei’s strategy could tame inflation, but at great cost.

“A deep recession will also take place,” Werner wrote, “as the fiscal consolidation kicks in and as the decline in household income depresses consumption and uncertainty weighs on investment.”

Felix Salmon, the chief financial correspondent at Axios, concurred, comparing Milei’s policies to “a wrecking ball.”

“Milei’s budget cuts will cause a plunge in household income, as well as a deep recession,” wrote Salmon.

Despite these warnings, Milei delivered his “shock therapy” plan in the first few months of his presidency. Tens of thousands of state workers were cut as were more than half of government ministries, including the Ministry of Culture, as well as the Ministries of Labor, Social Development, Health, and Education (which Milei dubbed “the Ministry of Indoctrination”). Numerous government subsidies were eliminated, and the value of the peso was cut in half.

Even before Milei’s policies were given a chance to succeed, many continued to attack them.

“Shock therapy is pushing more people into poverty,” journalist Lautaro Grinspan wrote in Foreign Policy in early March. “Food prices have risen by roughly 50 percent, according to official government data.”

Yet the official government data Grinspan cited was a report from December 2023, before Milei had even assumed the presidency.

Contrary to the dire predictions, the results of Milei’s policies have been better than even many of his supporters had dared hope.

During the first half of 2024, inflation cooled for five straight months in Argentina, the Associated Press reported in July. Though consumer prices were up 4.6 percent in June from the previous month, that’s down from a 25 percent month-over-month increase in December, when monthly inflation peaked in Argentina. Meanwhile, in February the government saw its first budget surplus in more than a decade. And just days ago, an economic report was published showing a massive decline in poverty in Argentina.

Many doubted that these successes were possible, and the conventional wisdom said that wringing inflation out of the economy and slashing government spending could only be achieved at great cost: a deepening recession.

Escaping Recession?

The data suggest that, contrary to what so many people predicted, Argentina may not be slipping deeper into recession following Milei’s shock therapy. Instead, its economy is healing.

“Argentina is officially out of recession after 7 months of Javier Milei’s economic reforms,” Daniel Di Martino, a University of Columbia student pursuing his PhD, tweeted. “Remember, the economy was in recession since mid-2023, half a year before he got into office.”

Others, however, warn that it’s premature to say that Argentina is out of its recession.

“I will be careful of claiming ‘out of the recession,’” Nicolás Cachanosky, a native of Argentina and Associate Professor of Economics at the University of Texas at El Paso, told me. “Maybe the Argentine economy is getting out of a recession. Maybe not. All I’m saying is that it is too early to confirm, given these numbers.”

Cachanosky notes that interannual figures can be misleading, and that the data in question are relative values and not technically growth rates. While it’s still unclear where Argentina’s economy will go from here, it bears exploring why so many people, including many economists, doubted that its economy could be growing again already. There are two primary reasons, one of which is legitimate.

The first reason is a legitimate concern that sharp reductions in government spending will likely result in short term pain, even though it’s a necessary step toward economic healing.

“The government spends a bunch of money and keeps people employed,” one economist I spoke with told me. “When that slows down, you’re going to be able to measure the impact of that.”

This is why some free-market economists I spoke with expressed doubts that Argentina had already escaped recession. Cutting tens of thousands of jobs, even unproductive ones, and slashing hundreds of millions in subsidies is bound to have an impact on economic activity. Long term that impact will be positive because it will result in a more efficient allocation of resources, but it’s not unreasonable to assume it will first result in economic pain.

A second reason is a poor understanding of economics.

In the Keynesian school of economics, it’s taken as gospel that government spending fuels economic growth. This is why you’ll find so many Keynesians who argue that even destructive phenomena like war and hurricanes are actually good for the economy, because they stimulate government spending.

This was the argument economist Paul Krugman made several years ago when he said that an alien invasion, real or fake, would be good for the economy, since it would mobilise a massive amount of military spending, similar to World War II.

The idea is simple: government spending is good even if it’s producing goods that are unnecessary, such as weapons created for an alien invasion that is not even real.

The idea that Argentina would be slashing government spending during a recession runs counter to Keynesian orthodoxy, which teaches that recessions are precisely when “fiscal stimulus” is needed the most, since negative economic conditions often result in a predictable market failure: a decline in spending.

Broken Windows and Economic Growth

In other words, Argentina is flipping the macroeconomic script. In a world in which government spending hikes are deemed “a perfect solution in battling recessions,” Milei is providing the opposite: he’s slashing government outlays.

Yet a Mercatus Center study conducted by Tony Caporale and Marc Poitras, titled “The Trouble with Keynesian Stimulus Spending,” points out the obvious problem with such stimulus schemes:

[The Keynesian] approach fails to account for several significant sources of cost. Besides the cost of waste inherent in government spending, financing the spending requires taxation, which entails an excess burden, the reduction in output resulting from workers’ reduced incentive to work. Furthermore, the employment of even previously idle resources involves lost opportunities to invest in alternative uses of these resources.

Caporale and Poitras are talking about an elementary economic concept: opportunity costs. These costs refer to what one foregoes or gives up to purchase a good or service, an idea the economist Frédéric Bastiat explored in his famous “broken window” parable. Economist Jonathan Newman offers a tidy summary of the story, which appeared in Bastiat’s 1850 essay 'That Which Is Seen, and That Which Is Not Seen.'

It goes like this: a boy throws a brick at a baker’s window and a crowd gathers to discuss the economic consequences. They console the baker by pointing out that glass-repair companies need business, too, so it isn’t all bad news. After further reflection, they conclude that total employment and spending in the community has increased because of the broken window, and that this little spark of spending by the baker to repair the window sets off a chain reaction of spending. Now the glazier has extra cash to spend on various items, and the people who sold him those things now have extra income, and so on.

The crowd draws the conclusion that destruction is beneficial for the economy because it stimulates spending and employment.

Does this sound absurd and too good to be true? Well, it is. Bastiat’s parable revealed the absurdity of Keynesian economics before Keynesian economics existed.

Bastiat was challenging readers to see the unseen. Economists shouldn’t focus solely on the glazier’s profits that resulted from the rock thrown at the baker’s window, any more than they should focus solely on the jobs created by military spending. They must also focus on the costs of these actions, too.

This is the flaw that has long plagued Keynesians, and it helps explain why so many took it as gospel that slashing government spending in Argentina would deepen its recession.

When it came to Milei’s reforms, critics and prognosticators were focusing on the seen: tens of thousands of lost jobs, and billions in reduced spending. On one hand, this is perfectly rational. These cuts will come with easily measurable costs, and are likely to reduce economic activity in the short term. On the other hand, whether they are seen immediately or not, there are countless opportunities created by Milei’s reforms, which are dismantling the least productive parts of Argentina’s economy: its bureaucracy.

Whether Argentina’s burst in economic activity in May was a blip or the beginning of a long-term trend of economic recovery is something only time will tell. (Data indicate there was a sharp increase in agricultural production, which could be explained by favourable seasonal conditions or some other factor.)

It’s certainly possible that, after decades of economic pain from Peronism and mass money-printing, Argentina has more work to do before its economic recovery arrives. Yet Adam Smith once noted that the formula for prosperity is surprisingly simple, and it doesn’t contain government “stimulus”: just “peace, easy taxes, and a tolerable administration of justice.”

Milei knows this, fortunately. And he is showing no signs of relenting in his campaign to crush inflation and government spending to return Argentina to prosperity.

“What [is] the alternative?” he told the BBC. “To continue to print money like the previous administration that generates inflation and ends up affecting the most vulnerable?”

* * * * 

Jonathan Miltimore is the Managing Editor of FEE.org and a Senior Writer at AIER. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

His article first appeared at the FEE blog.

Javier Milei’s first 100 days ... [updated]

 

If you think the 100-day plan of the new government here is dramatic, then take a chill pill and look across the hemisphere at Argentina.

There, new president Javier Milei has just begun his term with his minister of economy announcing an "emergency package of measures" including, among other things:

• letting go every government employee who has been employed for less than 1 year
• appointed government positions are cut by 34%
• abolishing all government PR and related spending for projects
•  no more transfers to local government  
• suspension and cancellation of all public infrastructure (all subject to a lot of corruption in the past)
• reduction of energy and transport subsidies
• immediate devaluation of the peso from 350 to 800 pesos per dollar (with a plan towards rapid dollarisation)
• elimination of all export and import quotas and licences
• temporary increase in non-agricultural taxes for exports and imports (for uniformity, to the same level of present agricultural taxes)
• temporary expansion of direct aid through the child benefit and food aid debit card

This, he says, represents cuts to the govt's budget equivalent to over 5% of GDP, that should "completely balance the budget in 2024." The IMF supports the measures.

 Ian Vásquez points out in this guest post below that Milei assumed the presidency of Argentina promising a radical change to the economic and social model that has ruined his country. His challenge is enormous but the new president, he says, has made a politically astute start.

Javier Milei’s Inaugural Promise

by Ian Vásquez

Last Sunday Javier Milei assumed the presidency of Argentina promising a radical change to the economic and social model that has ruined his country. His challenge is enormous, but the new president has made a politically astute start.

Unlike what Argentines have become accustomed to from their political leaders, in his inauguration speech Milei treated them as adults. He presented a clear vision. The collectivism into which Argentina long ago headed, he declared, has failed. “For more than 100 years, politicians have insisted on defending a model that only generates poverty, stagnation and misery,” he explained.

He said that it is necessary to return to what made Argentina one of the richest countries in the world more than a century ago: classical liberalism. He again repeated what he meant by using liberal thinker Alberto Benegas Lynch, Jr.’s definition: “Liberalism is the unrestricted respect for the life project of others based on the principle of non‐​aggression and the defense of the right to life, liberty, and private property.” And he made clear that that is “the essence of the new social contract chosen by the Argentines.”

“This new social contract,” added Milei, “proposes a different country, a country in which the state does not direct our lives, but rather safeguards our rights.” In practice, he proposed nothing less than undoing the corporatist legacy of Peronism that has led the country from crisis to crisis and replacing it with institutions and policies that limit political power.

Milei was brutally honest about the difficulties facing the country. “I prefer to tell you an uncomfortable truth rather than a comfortable lie.” He described the legacy left by the outgoing government and that, as a result, economic activity, poverty, wages, and unemployment will get markedly worse before they get better. The fiscal deficit is around 15 percent of GDP; the monetary emission of the previous government will continue to create inflation for 18 to 24 months with the potential to reach up to 15,000 percent annually if things stay on the same path; the public debt has reached $100 billion; there is a lack of access to foreign markets; poverty afflicts 45 percent of the population and indigence 10 percent. The new president also described the calamitous conditions in which public security, education, and infrastructure find themselves.

For these and other reasons, it was not an exaggeration for the Argentine daily La Nación to declare that the outgoing president has been the worst in Argentine history. That is also why Milei explained there is no alternative to a strong adjustment: quite simply, “there is no money.” The priority will be fiscal adjustment and Argentines do not have the luxury to implement gradual reform.

Citing Argentine history, Milei showed that gradualism does not work. He could have cited the European post‐​communist experience as well, as countries that reformed quickly and in a coherent manner grew at higher rates and achieved lower inflation, greater levels of foreign investment, and the development of stronger institutions.

Also unlike past experience, the coming adjustment, Milei clarified, will fall almost entirely on the state and not on the private sector. Cleaning up public accounts in such a way is consistent with the most successful international practices and with Milei’s liberal vision. As the former professor rightly insisted, “the only way out of poverty is with more freedom.”

In the days and weeks to come, we will have more details about how the new government proposes to get out of the hole in which the country finds itself. Just this week, on Wednesday, the new finance minister announced a series of emergency measures including cuts to energy and transportation subsidies, an end to new infrastructure spending, a devaluation of the official exchange rate of about 50 percent, and a reduction in federal transfers to the provinces -- among other measures that, by and large, point the country in the right direction. The economic pain will be deep. [See above for a partial list of the emergency measures.]

There is no doubt that Milei will face political resistance from the Peronists and their allies, and that the challenge will be even greater given the new leader’s lack of a majority in Congress. But Milei has a popular mandate to bring about a paradigm shift and, as the crisis worsens, he is counting on the people to continue to understand who should be held responsible for Argentina’s mess.

* * * * 

Ian Vásquez is vice president for international studies at the Cato Institute and director of its Center for Global Liberty and Prosperity. He is a weekly columnist at El Comercio(Peru), and his articles have appeared in newspapers throughout the United States and Latin America.
    Vásquez has appeared on CNBC, NBC, C‑SPAN, CNN, Telemundo, Univisión, and Canadian Television, as well as NPR and Voice of America, discussing foreign policy and development issues.
    He received his bachelor’s degree from Northwestern University and his master’s degree from the School of Advanced International Studies at Johns Hopkins University. He is the coauthor of the Human Freedom Index, editor of Global Fortune: The Stumble and Rise of World Capitalism, and coeditor of Perpetuating Poverty: The World Bank, the IMF and the Developing World. He has testified numerous times in the U.S. Congress on economic development issues.
    Vásquez has been a term member of the US Council on Foreign Relations and is a member of the Mont Pèlerin Society.

    This article is based on a version that was originally published in El Comercio (Peru) on December 11, 2023, then at the Cato at Liberty blog.

RELATED:

• Can Argentina’s President Milei Afford to Delay Dollarisation?
• Can Milei Really Shut Down Argentina’s Central Bank?

Have Argentine voters truly voted to overturn their destructive economic past, and to rediscover liberty? As these four guest posts point out (including one from Milei's adviser Jesús Huerta de Soto), President-Elect Javier Milei has the credentials, and has offered as much liberty as (it seems) the Argentinian people are willing to accept. Will it be a revolution of liberty? History will only tell....

Have Argentine Voters FINALLY Chosen Liberty? Time Will Tell

Guest post by Octavio Bermudez

A historical event has taken place, not only for the libertarian movement but for the history of the world. The first libertarian president has been elected in none other country than Argentina.

The Argentinian people faced a dichotomy, either continue with the socialist road to serfdom embodied by the ruling Peronist regime or adopt a radical change towards liberty, the leader of said change being Javier Milei, self-proclaimed Rothbardian and anarcho-capitalist. Finally, with more than 55 percent of the votes, Argentinians elected Milei as their new president.

Argentina’s situation is critical and the people know it. 142,7 percent accumulated inflation this year, 40 percent of the population under poverty levels and at least 80 percent of public debt in terms of GDP, just to mention some of the main economic problems. Crime -which is rampant in many parts of the country- is the other main concern of the public that Milei has had to address in his campaign. He has done so mainly through his vice-president Victoria Villarruel, expert on defense and security matters.

Argentinians chose a free market path, a liberty road towards prosperity and justice.

Now, besides the celebration and enthusiasm that such an occasion merits, we libertarians (especially Argentinian libertarians) must draw upon the wisdom of the British economist Alfred Marshall who said that one must stay on our toes to keep our heart warm. Milei has introduced many libertarians’ ideas to Argentinian political discourse but not all of them have been received favorably by the general public or the media. Milei has had to engage in retreatism due to backlash regarding some free market-oriented ideas such as a voucher system for education, eliminating gun regulations, 100 percent bank reserves and privatising both education and the health system.

Milei has offered as much liberty as the Argentinian people are willing to accept. Socialist and collectivist ideals still prevail in major parts of the population, it would be an error to affirm that even half of the electors that choose Milei are full libertarians. Milei’s upcoming administration will be a test, if it succeeds in pushing for a libertarian program, then more people will rally behind the Gadsden flag and Argentina will serve as a beacon of freedom in Latin America.

Even more important is the cultural shift that has taken place due to Milei’s political activism. Books by the Austrian School of Economics and libertarians can be found in any bookstore (before Milei, those works were harder to access, almost clandestine) and liberty friendly universities and programs are now more frequented. Being a classical liberal or a libertarian is no longer a cultural crime in Argentina.

A libertarian hardcore has been formed and continues to grow, they are the vanguard of the movement, convincing lay people to support Milei’s reforms. True enough, many times they may not convince everyone to embrace libertarianism but at least they persuade them not to oppose it. That’s how the libertarian spirit in Argentina can grow.

Milei’s plan is a moderate one if seen through ideal lenses but as I have already pointed out, it is the most libertarian program that could be advanced upon without being ostracised by the public and mainstream media. Compromises were made after the general elections. The Libertarian-Republican alliance was formed to confront the Peronist regime in the ballot boxes, Milei allied himself with his former competitor Patricia Bullrich and former president Mauricio Macri to rally the necessary votes to win in the ballotage against the leftist Peronist candidate Sergio Massa. The alliance succeeded in calling for the votes necessary to win. It was an epic campaign, thousands attended Milei’s rallies crying out “Liberty!” In many parts of the country, shouts of joy and relief were heard when the Peronist candidate recognized his defeat on live TV. I of course joined the people in the cries for victory.

Bearing in mind the compromises made in the alliance to defeat Peronism, the most crucial libertarian proposals such as slashing public spending and taxes, deregulating the economy and labor market, free trade, privatization of public companies (like the oil company “YPF” and the state airline “Aerolineas Argentinas”) and abolition of the central bank are going to be implemented, at least on paper. Milei, although an anarcho-capitalist has had to moderate in order to gain office, once taking the reins of the state we shall see how much of the freedom program he proposes is implemented.

Will it be a revolution of liberty? History will only tell.

The Economics of Javier Milei

Guest post by David Howden

The election of Javier Milei brings the first libertarian/anarchocapitalist world leader in history. Although prolific in the Spanish-speaking world, English speakers know very little of the Argentine´s views. The fact that he heads the Libertarian Party of Argentina certainly hints at what direction his politics run.

Earlier this year, Philipp Bagus and I edited a two-volume book in honour of Jesús Huerta de Soto [see Bagus's and de Soto's post below.]. Milei wrote a chapter entitled “Capitalism, Socialism, and the Neoclassical Trap.” To my knowledge, it is Milei's only writing made directly in English for an English audience.

If anyone doubts Milei´s credentials, the chapter is a scathing critique of neoclassical growth theory. It also offers a full-blown Rothbardian alternative. Mises's work on interventionism and Hayek's knowledge problem form the basis of his analysis.

Milei identifies a crucial rationalistic error in neoclassical economic analysis:

Note that whenever situations arise that do not match the mathematical structure [modelled by the neoclassical analysis], they are considered “market failures,” and that is where the government appears to correct those failures. However, to successfully solve this problem, it is assumed that the government knows the utility function of all individuals (preferences) for the past, the present, the future, the time preference rate and knows the state of the current technology and all future enhancements, along with their respective amortization rates. In short, to solve the problem in question, the government should be able to master a significant amount of information that, by definition, individuals themselves ignore or are not able to handle, which exposes that the idea of the welfare state acting on the market to correct failures is a contradiction.

Furthermore, Milei concludes that:

when it is made clear that the correction of market failures by the government as proposed in the neoclassical paradigm is conceptually invalid, taking into consideration that the only ones who can internalize those effects are individuals, once the artificial separation of decision-making processes is eliminated, there will no longer be any reason for government intervention, which will not only stop the socialist advance but will also allow us to counterattack.

This is not your grandfather´s South American leader who politicises under the influence of neoclassical "Chicago Boy" economists. Milei is a full-blown libertarian. His Libertarian Party won yesterday´s run-off election by carrying nineteen of twenty-two Argentine states and 56% of the popular vote. After decades of socialism, a plurality of Argentine voters must surely be fed up with it.

A Statement on Javier Milei from Spanish Libertarians 

Guest post by Jesús Huerta de Soto and Philipp Bagus

Senior Mises Institute Fellow Jesús Huerta de Soto and Fellow Philipp Bagus write:

In our own name and in the name of the rest of the Spanish libertarians and anarcho-capitalists we want to send Javier Milei our most enthusiastic congratulations. Today is a historic day for liberty only comparable to the fall of the Berlin Wall and communism. For the first time in history an anarcho-capitalist has won the Presidency of a country as important as Argentina. This shows that in the end the ideas of liberty against statism, left or right, end up prevailing. Mises, Hayek, Rothbard and the great thinkers and theoreticians of liberty planted the ideas that Milei have had the enormous merit of making attractive to the broadest layers of the population and, especially, to the most vulnerable who are always the main victims of the manipulations of socialists and interventionists of all stripes. We are now advising him closely especially on the necessity to establish a 100 per cent reserve ratio on his dollarisation process to avoid any new "corralitos." Viva la libertad carajo.

Milei's Long-Term Victory Depends on Him Winning in the Battle of Ideas

Guest post by Ryan McMaken

Last Sunday, Javier Milei was elected president of Argentina by a comfortable margin, with 56 percent of the vote. He will be sworn in as president on December 10.

Over the past year, however, Milei has made a name for himself as an extremely vocal critic of socialism, central banks, and many types of government intervention in general. He has become memorable for fiery commentary condemning the Left's ideology and tactics while expressing an interest in immediate (i.e., not gradualist) change. He has said he seeks to abolish Argentina's central bank and introduce the US dollar as the country's dominant currency.

His fiscal policy is far more in the free-market direction than any other head of state in a country as large as Argentina (with 46 million residents). Milei has expressed admiration for the work of Murray Rothbard, F.A. Hayek, and a variety of economists who are more centrist than Rothbard and Hayek, but which we might reasonably describe as more-or-less free market. Moreover, Milei self-identifies as a supporter of the Austrian School of economics.

If Milei remains committed to reining in (or abolishing) the central bank, lowering taxes, and cutting government spending, Milei has the opportunity to push through real economic reforms that could provide relief to the beleaguered Argentine middle class. These people have suffered greatly under decades of easy-money-induced price inflation, and an ever-growing burden of taxation and regulation.

Many libertarian supporters of Milei (both inside and outside the country) have responded to Milei's candidacy with celebratory enthusiasm. Some have declared him the next Ron Paul, and many others seem to assume that his election will translate into actual implementation of his stated policies. That could happen, but unfortunately, the hard part has only begun.

It is entirely possible that Milei is sincere in his stated goals and in his apparent commitment to radical opposition against the disastrous status quo in Argentina. If so, that is excellent news. After Milei's election comes the real test, however. Assuming that Milei is sincere right now, that doesn't mean he won't later be unwilling to carry out such policies if they prove to be unpopular as his administration unfolds. Given his short history of serving in political office, we have little to suggest a likely outcome one way or another.

Another possibility is that we may find that he lacks the political skill necessary to harness and exploit what free-market sentiment in the country presently exists. He will have to do this to actually push through any of these reforms. What political skills are necessary? Milei must be able to convince a sizeable portion of the voting public that his policies will work or are working. This doesn't necessarily mean a majority have to be enthusiastically with him at all times. But he at least has to be able to use public opinion to pressure the legislature and powerful interest groups. Since Milei will not be a dictator as president, he will be forced to somehow squeeze concessions out of countless socialists and interventionists in government who quite literally hate him and his policies.

This is not just a problem in countries with democratic institutions. Not even dictators can simply enact radical policies at will. As absolutist monarchs and countless military dictators have found in their days, chief executives meet fierce opposition from entrenched interests within the state in all types of regimes—except, perhaps, in fully totalitarian ones. The sorts of reforms Milei wants will hurt many interest groups who have benefited from inflation and high government spending. The productive class may suffer greatly under these policies, but there are also millions of politically active voters who believe they benefit from Peronist-style economic policy. Those who think they stand to lose from reform will resist.

No Victory Is Possible without Progress in the Battle of Ideas

For the sake of argument, however, let's say that Milei is both sincere in his views and is also among the most skilled politician we've seen in decades. Let's say he is skilled at the tricks successful politicians employ to confound adversaries and build coalitions.

Ultimately, not even these skills can bring about the successful implementation of true radical free-market reforms if Milei and his supporters lose the battle of ideas in the meantime. Milei can only succeed if the public agrees that Milei's policies are "worth it." After all, as Milei tries to push through reforms such as tax cuts or limits on monetary inflation, his political opponents will flood the media with explanations of how Milei is hurting ordinary people, destroying the economy, or is somehow "a threat to democracy." Milei's intellectual opponents will trot out economists to explain how high taxes and inflation are actually good. The public will hear from various "experts" about how Milei is wrong, and that the usual socialists and interventionists have it right.

These tactics are especially dangerous in the short term because efforts by Milei to cut spending and rein in price inflation will be sure to cause plenty of short-term pain in the economy. Cuts in government spending and an end to easy monetary policy tend to pop financial bubbles and drive government-dependent industries into decline. Surging unemployment results in the short term as bankruptcies spike. That, of course, is bad news for any elected politician.

Unless the public can be convinced that this pain will lead to better days ahead, the public is likely to abandon Milei and his policies in short order. Then, four years form now, the Peronists will return to power and the status quo will proceed as if nothing ever happened.

The only antidote to this is to relentlessly fight the battle of ideas in academia, in the media, and with the public. Free-market intellectuals, activists, columnists, and speakers must never tire of endlessly recapitulating the truth about freedom, free markets, and peace. So long as a sizeable portion of the public thinks the Peronists "get it right," no free-market reformer can win.

After all, the only reason any people—including Milei—quote Austrian School economists or appreciate the wisdom of free-market classical liberals is because those people learned those ideas from some teacher, publication, or organisation. Without scholars like Rothbard, Hayek, and the others that Milei says he admires, there would be no Milei campaign as we know it. Without organizations like the Mises Institute, it is a safe bet we would not be hearing Milei call for the abolition of a central bank. Without hardcore classical liberals like Mises, Rothbard, Hayek, Molinari, and Bastiat, there would be virtually no one, anywhere, calling for radical cuts to taxes, spending, and state power overall.

Those who wage these battles of ideas provide the foundation for the political movements that build upon the ideas. Yet, these movements can only succeed if the public learns—to at least some extent—why fiat money is bad, why state power is a problem, and why high taxes are disastrous. The public doesn't need to know the technical details behind these arguments, of course, and is probably not interested. But the public must believe on some level that freedom and free markets are good things.

It remains to be seen if the voting public is willing to give Milei a chance to try beyond the very short term. Much of that will depend on whether or not Argentine libertarians have managed to sufficiently preserve or advance some lingering measure of pro-liberty sentiment. If they have not, Milei will fail politically, regardless of his political skills. If that happens, free-market activists and intellectuals will have to simply keep up the fight until the political situation again favours a viable free-market candidate.

The situation is no different for those of us in the rest of the world.

* * * * 

CONTRIBUTORS:

Octavio Bermudez is an Argentinian student and Austro-libertarian interested in Austrian economics, political philosophy, and history.

David Howden is Chair of the Department of Business and Economics, and professor of economics, at Saint Louis University at its Madrid campus.

Jesús Huerta de Soto is a Spanish economist of the Austrian School. He is a professor in the Department of Applied Economics at King Juan Carlos University of Madrid, Spain and a Senior Fellow at the Mises Institute. His website is here.

Philipp Bagus is professor at Universidad Rey Juan Carlos. He is a Fellow of the Mises Institute, an IREF scholar, and the author of numerous books.

Ryan McMaken is an economist and writer living in Colorado where he has taught political science since 2004. He has degrees in economics and political science from the University of Colorado and is an Associated Scholar of the Ludwig von Mises Institute in Auburn, Alabama.

These posts first appeared at the Power & Market blog.

Javier Milei: Argentina's First-Ever Libertarian President

In Argentina—one of the most statist countries in the world—a libertarian economist is now the president-elect. Javier Perez-Saavedra previews expectations ...

Javier Milei: Argentina's First-Ever Libertarian President

Guest post by Javier Perez-Savedra

Voters in Argentina have elected a libertarian as president for the first time in their history. On Sunday, Argentina had its second round of voting, and Javier Milei received 55.69% of the vote against the Peronist Sergio Massa’s 44.31%. In a country that suffers 143% annual inflation and a poverty rate hovering around 43%, Milei has a long and difficult road ahead.

Milei's win marks the first time in 40 years that someone outside Argentina's two largest parties was elected. La Libertad Avanza, Milei's 3-year-old political party, finally broke through the entrenched and archaic political apparatus. In a tweet back in June, Milei stated that Argentina was choosing between the old politics and the new ideas. During his presidential campaign, Milei pledged to tackle Argentina’s inflationary unhealthy economy by dollarising the peso and minimising government spending.

TRANSLATION:
WHAT IS THIS ELECTION ABOUT?
We Argentines have a historic opportunity. 
After decades of failures in 
which the same old people shared power, 
today we have the opportunity to do something different. 
Turn this sad page in our history.

In a country where only 6 million people work in the private sector and pay taxes to maintain 20 million public workers and pensioners, Milei has a long way to go. How can he steer the ship that is barely staying afloat? His plan is to minimise state regulations and trade barriers to let economic growth flourish. He has also raised closing the central bank, ending currency controls in the economy, and reversing the irresponsible fiscal policy and government spending of the past few years.

This morning, Argentina now has new incoming leadership and will hopefully see Javier Milei's classical liberal economic ideas play out and bear fruit. Argentina must shift from collectivist to individualist ideals. They must appreciate and celebrate the entrepreneurial spirit and create a society that unleashes and harnesses innovation. If the people of Argentina embrace these ideals and commit to changing the status quo, they will have a bright future. As Leonard Read wrote in his classic essay I, Pencil:

Leave all creative energies uninhibited. Merely organise society to act inharmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand.

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Javier Perez-Saavedra, originally from Guatemala, is a passionate entrepreneur with a bachelor's degree focused in Business Administration and Management from Kennesaw State University - Michael J. Coles College of Business. He serves at the Foundation for Economic Education (FEE) as Product Development Director- Educational Strategic Projects and leads FEE in the Classroom, HEROES, and FEE en Español products. His post first appeared at the FEE blog.                     

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You would think that when serious problems exist in the world, the world would be desperate to understand the causes. Yet causality, as a field of inquiry, is in decline. The great tragedy, as Finn Andreen explains in this guest post, is that discovering the real and underlying causes for social and economic problems is too often deemed unnecessary (and far too often wilfully ignored), and the public’s support instead is too often for easy, simple, and wrong-headed statist solutions ...

Libertarianism and the Importance of Understanding Causality

by Finn Andreen

Even though support for the free market has become stronger in the last decades, and a self-proclaimed libertarian just elected to President in Argentina, libertarianism itself can still only be considered a fringe movement. Most people still believe that many social problems are due to “market failure” and therefore require state intervention to be “solved.” Despite the obvious flaws of modern socialism—with its unlikely combination of a redistributive welfare state and globalist crony capitalism—and despite libertarianism’s robust philosophical and empirical foundations, the liberalism of Ludwig von Mises is still far from enjoying the majority support that it so amply deserves.

There are many reasons for this. Of course, media bias and public education prevent the dissemination of the ideas of freedom in society and limit the understanding of the free market. However, an often overlooked, yet equally important, reason is a general disregard for causality. When the real and underlying causes for social and economic problems are unknown or misunderstood, the public’s support for wrong-headed statist solutions to these problems is not surprising.

The Importance of Causes

The importance of causes to human inquiry has been grasped since early antiquity, crystalising with Aristotle and his still seminal theory of causality. Following in this tradition, Herbert Spencer considered the discovery of causal laws the essence of science; those who disregard the importance of the identification of causes, he argued -- whatever the subject matter -- are liable to draw erroneous conclusions.

In the Twilight of the Idols, Friedrich Nietzsche chastised modern society for still making errors of causality, namely, “the error of false causality,” “the error of imaginary causes,” and “the error of the confusion of cause and effect.” Unfortunately, these errors are made all too frequently in economic and political life.

In the realm of international relations, for instance, a disregard for contemporary history has led to an ignorance of the real causes of serious political events. Today’s conflicts could arguably have been avoided if their many and deep causes had been soberly and objectively considered by decision-makers. When George Santayana said that “those who cannot remember the past are condemned to repeat it” and when George Orwell wrote in his masterpiece 1984 that mastering the past is the key to mastering the present, both had in mind the crucial importance of knowing the actual causes of political events.

Nietzsche considered the error of the confusion of cause and effect to be the most dangerous one; he called it the “intrinsic perversion of reason.” This was not an exaggeration, considering the impact of this all-too-common reversal of causality. For example, this error happens when the state is absolved of the nefarious consequences of its previous actions, thereby empowering the state to legitimise policies that “solve” problems for which the state was itself originally responsible.

Examples: Recessions, Inflation, and Unemployment

As an example, it is possible to mention the boom-and-bust cycles of the typical state capitalist economy. The original cause for this cycle is the state, through its monopolistic monetary policy. As Murray Rothbard wrote, “The business cycle is generated by government: specifically, by bank credit expansion promoted and fueled by governmental expansion of bank reserves.”

Yet, during hard times—because this original cause of recessions is not generally recognised—the state itself is looked to by society to “save” the economy through measures such as bailouts or interest rate reductions (which mostly benefit big banks and strategic industries). This in turn sets the stage for the next artificial boom, and the cycle continues.

The problem of high inflation and high unemployment may be seen in the same way. Price inflation is caused by the state when its central bank increases the money supply to pay for its chronic budget deficits, with the added benefit of reducing the relative size of its enormous debt. Yet, when prices increase in the economy because of such actions, then the central bank itself is expected to come to the rescue—for instance, by artificially imposing price controls or hiking interest rates, thus slowing economic activity—to the further detriment of society.

High unemployment is also a phenomenon caused by the state, of course, when it imposes rigid labour laws and high taxation on companies, while redistributing “generous” unemployment benefits. Yet, when unemployment becomes “too” high because of these actions, then the state itself is expected to solve the problem—for instance, by providing tax incentives to companies for hiring low-skilled workers or by hiring more civil servants.

The Fallacy of “Market Failure”

It seems counterintuitive to believe that an agent responsible for social problems should also be the one to solve those problems. The only reason this flawed logic continues to be accepted is because of errors of causality. The real causes for economic problems are not well understood by the general public and are often confused with its consequences. In economics, this disregard for causal connections has probably wrecked as much damage upon societies as the international conflicts mentioned earlier by giving free rein to those who see few limits to the state’s regulation of economic and social life.

The same reasoning is applicable to an aspect that is usually blamed on the free market: so-called “externalities,” or the “external” costs that third parties sometimes bear. The extreme case of this is the concept of the “tragedy of the commons,” which is often used to justify the many globalist “green” initiatives to “fight” climate change. Quite apart from whether there are apocalyptic grounds to support such extreme social top-down policies, the libertarian view is that the real cause of many “externalities” is generally that private property rights have not been adequately defined.

Since causality is disregarded, social and economic problems such as those mentioned earlier are generally attributed to so-called “market failure,” thereby reducing the credibility of libertarianism among the general public. Indeed, libertarianism is usually rejected by the majority as a political and economic system because social problems are attributed erroneously to an incapability of the free market to provide solutions. There is rarely any perception that the real causes of these problems are statist interventions in the free market in the first place.

Libertarians have always recognized the importance of causality, as per the title of Mises’s magnum opus Human Action. Carl Menger, the founder of the Austrian School of Economics, explicitly mentioned that, as an important means of gaining insight into economic processes, he had “devoted special attention to the investigation of the causal connections.” Importantly, this was not only the position of the Austrian School at the time: “the search for these causal laws of reality was very much an international enterprise among economists in the last quarter of the nineteenth century and up to World War I.” However, for several sad and tragic reasons, this focus on causal connections in economic research was then lost.

As this article has tried to show, it is essential for causality in both economics and politics to be better understood -- by politicians, economists, and the general public. 

This is key to rein in the authoritarian inroads from governments that are taking place in all areas of life. 

And by demonstrating that the market only fails when it is constantly disrupted by state intervention, a better understanding of causal connections would also lead to an increase in the appreciation and popularity of libertarianism.

In fact, it would improve the standard of thinking all round.

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"Viva la libertad, carajo" => The thievery of politics is over in Argentina [updated]

Here's a decent agenda for NZ's incoming government, announced by Austrian-school economist and former rockstar Javier Milei who has just been elected President of Argentina:

"In terms of political logic, I am a mistake, because what I have come to do is in fact stamp out the privileges of politicians," Milei told Reuters last year.

"Socialism is crap," he says. 

When it was implemented in its pure form, it was an economic failure, it was a social failure, it was a cultural failure, and it also cost the lives of 150 million human beings. So, whatever some socialist, communist, or piece-of-shit leftist says, I just shove it up my arse.

Reasonable. As Reason magazine explains: 

So is he "right-wing," as you'll be hearing --- or even (as he'll be smeared) "far right"? No, of course not, he's a self-proclaimed libertarian, whom socialists/leftists hate because, he explains, 

we libertarians are the only ones who are able to confront the politicians and tell them that they are not the solution, that they are the problem.

They are.

Argentina has experienced 80 years of Peronism, with intervals of murderous military thugs as dictators [reminds Nikos Sotirakopoulos]. It has been the Greece of Latin America.

    It ranks no. 144 in the Economic Freedom Index; it's been a statist basket case.  That it elects someone who shouts freedom slogans from the rooftops is a political miracle. At the same time it makes sense: [the] country has been in urgent need of change. 

    My two concerns: 

1) Milei's anti-abortion stance, and the possibility to end up a conservative culture warrior edgelord; 

2) The balance of power in the legislative branch, which Milei still doesn’t control, and how it might halt meaningful reforms.

So, fingers crossed for Argentina then.  Let's hope he succeeds. 

This will be fun -- and instructive -- to watch.

Viva la libertad, carajo!*

* Long live freedom, dammit!

UPDATE:

It's election season, so be careful of "trendy economics"

"With the rise of social media (especially Twitter), it has becomes easier to observe changes in the zeitgeist. Over the past few years, I’ve seen the following trends:

1. Claims that increases in the minimum wage do not have negative side effects.
2. Claims that we don’t have to worry about big budget deficits when the interest rate is low.
3. Claims that changes in the money supply don’t impact inflation.
4. Claims that 'neoliberalism' no longer works, and that we need an industrial policy. 

"In each case, trendy pundits rejected long established economic principles. And now the chickens are coming home to roost. [See post for the various chickens' flight paths.] ...
    "To summarise, stay away from trendy economic fads. The eternal verities never change:

1. Price controls are bad (whether on wages, prices rents or interest rates.)
2. Large budget deficits are bad, even if interest rates are low at the time. 
3. Persistent inflation is always and everywhere a monetary phenomenon.
4. Free market economies do better than statist economies. Emulate Denmark, not Argentina."

~ Scott Sumner, from his post 'Avoid trendy economics'

Instead of deploying the flawed and simplistic "left-right" political spectrum -- two ends of a spectrum that depict similars instead of opposites -- Lawrence Reed argues in this guest post that we should judge political and economic systems by whom they empower: the State, or the individual.

The Big Problem With the Traditional 'Political Spectrum' Children Are Taught in Schools

guest post by Lawrence Reed

In classes on Government and Political Science, with few exceptions, students in both high school and university are taught that the so-called “political spectrum” (or “political/economic” spectrum) looks like this: Communism and Socialism reside on the Left, Capitalism and Fascism dwell on the Right. Various mixtures of those things lie somewhere in between:

This is not only false and misleading, it is also idiocy. Toss it into the trash bin and demand a refund from the teacher who presented it as fact, or as any kind of insightful educational tool.

At the very least, a spectrum that looks like that should raise some tough questions. Why should socialists and fascists be depicted as virtual opposites when they share so much in common—from their fundamental, intellectual principles to their methods of implementation? If a political spectrum is supposed to illustrate a range of relationships between the individual and the State, or the very size and scope of the State, then why are systems of Big State/Small Individuals present at both ends of it?

On any other topic, the two ends of a spectrum would depict opposites. Let’s say you wanted to illustrate a range for stupidity. It would look like this:

How much sense would it make for “Extremely Stupid” to appear at both the far Left and the far Right ends of the range?

For the same reason, you would create only confusion with a spectrum that looks like this:

If you wanted to depict a range of options regarding the size of government, a more meaningful range would be this one:

Let us get back to that first sketch above, the spectrum that is most often presented to students as gospel. It is a big reason why so many people think that the communism of Lenin and Stalin was diametrically opposed to the fascism of Hitler and Mussolini (even if people who lived under those systems could not tell much difference).

I must say that in the first place, I am not a fan of one-dimensional spectra as a device for understanding politics, especially when those who construct them insert terms along the range that are not all compatible with what the range is supposed to depict. (Capitalism, for example, is not a political system; it is an economic one. It is entirely possible (though uncommon and ultimately unstable) for a one-party political monopoly to allow a considerable degree of economic freedom. And the spectra shown here are literally one-dimensional, when it would take at least two dimensions, if not three, to truly show the complexity of political positioning.) But my purpose here is not to go that broad, but to deal only with the defective one-dimensional political/economic spectrum that most students learn.

My contention is that if Communism, Socialism, Fascism and Capitalism all appear on the same range line it is terribly misleading and utterly useless, to place the first two on the left and the second two on the right. 

If we were to place opposites at each end, then, the placement that makes the most sense is probably this one:

I can already hear the spluttering from the cheap (communist-leaning seasts!) The perspective represented in that last sketch, just above, immediately arouses dispute because its implications are quite different from what students are typically taught. The inevitable objections include these three:

1. Communism and fascism cannot be close together because communists and fascists fought each other bitterly. Hitler attacked Stalin, for example!

This objection is equivalent to claiming, “Al Capone and Bugs Moran hated and fought each other so they can’t both be considered gangsters.” Or, “Since Argentina and Brazil compete so fiercely in football, both teams cannot be composed of footballers.”

Both communism and fascism demonstrate in actual practice an extremely low regard for the lives and rights of their subject peoples. Why should anyone expect their practitioners to be nice to each other, especially when they are rivals for territory and influence on the world stage?

We should remember that Hitler and Stalin were allies before they were enemies. They secretly agreed to carve up Poland in August 1939, leading directly to World War II. The fact that Hitler turned on Stalin two years later is nothing more than proof of the proverb, “There’s no honour among thieves.” Thieves are still thieves even if they steal from each other.

2. Under communism as Karl Marx defined it, government “withers away.” So it cannot be aligned closely with socialism because socialism involves lots of government.

Marx’s conception of communism is worse than purely hypothetical. It is sheer lunacy. The idea that the absolutist despots of the all-powerful “proletarian dictatorship” would one day simply walk away from power has no precedent to point to and no logic behind it. Even as a prophecy, it strains credulity to the breaking point.

Communism is my Sketch 5 appears where it does because in actual practice, it is just a little more radical than the worst socialism. It is the difference between the murderous, totalitarian Khmer Rouge of Cambodia and, say, the socialism of Castro’s Cuba.

3. Communism and Fascism are radically different because in focus, one is internationalist and the other is nationalist (as in Hitler’s “national socialism”).

Big deal. Again, chocolate and vanilla are two different flavors of ice cream, but they’re both ice cream. Was it any consolation to the French or the Norwegians or the Poles that Hitler was a national socialist instead of an international socialist? Did it make any difference to the Ethiopians that Mussolini was an Italian nationalist instead of a Soviet internationalist?

Endless confusion persists in political analysis because of the false dichotomy the conventional spectrum (Sketch 1) suggests. People are taught to think that fascists Mussolini and Hitler were polar opposites of communists Lenin, Stalin, and Mao. In fact, however, they were all peas in the same collectivist pod. They all claimed to be socialists. They all sought to concentrate power in the State and to glorify the State. They all stomped on individuals who wanted nothing more than to pursue their own ambitions in peaceful commerce. They all denigrated private property, either by outright seizure or regulating it to serve the purposes of the State.

Don’t take my word for it. Consider these remarks of the two principal Fascist kingpins, Adolf Hitler and Benito Mussolini. Ask yourself, “Are these remarks materially different from what Lenin, Stalin and Mao—or even Marx—believed and said?”

In a February 24, 1920 speech outlining the Nazi 25-Point Program, Hitler proclaimed, “The common good before the individual good!”

In a speech to Italy’s Chamber of Deputies on December 9, 1928, Mussolini declared, “All within the State, nothing outside the State, nothing against the State!”

“To put it quite clearly,” said Hitler in a 1931 interview with journalist Richard Breitling, a core program of his Party was “the nationalisation of all public companies, in other words socialisation, or what is known here as socialism…the principle of authority. The good of the community takes priority over that of the individual. But the State should retain control; every owner should feel himself to be an agent of the State; it is his duty not to misuse his possessions to the detriment of the State or the interests of his fellow countrymen. That is the overriding point. The Third Reich will always retain the right to control property owners.”

“This is what we propose now to the Treasury,” announced Mussolini on June 19, 1919. “Either the property owners expropriate themselves, or we summon the masses of war veterans to march against these obstacles and overthrow them.”

Less than two weeks before (on June 6, 1919), the future Il Duce virtually plagiarised The Communist Manifesto when he said, “We want an extraordinary heavy taxation, with a progressive character, on capital, that will represent an authentic partial expropriation of all wealth; seizures of all assets of religious congregations and suppression of all the ecclesiastic Episcopal revenues.”

This line from Hitler’s May Day speech at Templehof Air Field in 1934 could have come straight from Lenin: “The hammer will once more become the symbol of the German worker and the sickle the sign of the German peasant.”

That’s the same socialist fanatic who declared in an October 5, 1937 speech, “There is a difference between the theoretical knowledge of socialism and the practical life of socialism. People are not born socialists but must first be taught how to become them.” (Please note: communists and fascists share a common hostility to private and home schooling.)

Mussolini asserted that “there are plenty of intellectual affinities between us” (socialists of the communist variety and socialists of the fascist flavour). In the same interview in 1921, he said, “Tomorrow, Fascists and Communists, both persecuted by the police, may arrive at an agreement, sinking their differences until the time comes to share the spoils…Like them, we believe in the necessity for a centralized and unitary state, imposing an iron discipline on everyone, but with the difference that they reach this conclusion through the idea of class, we through the idea of the nation.”

Hitler once declared, “National Socialism is the determination to create a new man. There will no longer exist any individual arbitrary will, nor realms in which the individual belongs to himself. The time of happiness as a private matter is over.” In 1932 his fascist soul mate Mussolini echoed the most doctrinaire Bolshevik when he stated, “It was inevitable that I should become a Socialist ultra, a Blanquist, indeed a communist. I carried about a medallion with Marx’s head on it in my pocket. I think I regarded it as a sort of talisman… [Marx] had a profound critical intelligence and was in some sense even a prophet.”

The same Mussolini advised the American businessman and politician Grover Whalen in 1939, “You want to know what fascism is like? It is like your New Deal!” He was referring to the central planning, anti-capitalist mandates and sky-high taxes of Franklin Roosevelt.

On and on it goes. Based on what they said and what they did, it is ludicrous to separate Fascism from the Left and make it out to be just a purified form of classical liberal Capitalism. If you insist on using the conventional spectrum as depicted in Sketch 1, you are deceiving yourself as to the differences between Communism and Fascism. They both belong firmly on the socialist Left. Actual differences amounted to minimalist window-dressing. Even their primary implementers said so.

Instead of deploying flawed and simplistic spectrum charts, let us judge political and economic systems by whom they empower—the State or the individual. That makes things a lot clearer.

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Lawrence Read is the President Emeritus io the Foundation for Economic Education (FEE). This article was adapted from an issue of the FEE Daily email newsletter, and then appeared at the FEE blog.