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De Omnibus Dubitandum - Lux Veritas

Monday, November 27, 2023

A Self-Described Libertarian Wins In Argentina

November 21, 2023 @ Manhattan Contrarian

In an election held on Sunday, Argentina chose as its new President self-described libertarian Javier Milei. Milei won by a not-close margin of about 56/44 over Sergio Massa, who has been the economics minister under the incumbent President Alberto Fernandez. Milei is known for a bombastic style of speaking, and for using a chainsaw in his campaign appearances as a symbol of how he plans to hack away at the government. He is also known for having even worse hair than Donald Trump.

Current President Fernandez is what they call in Argentina a “Perónist.” That’s after Juan Perón, who became President of the country in 1946, promising to deliver a more just and fair society through government action and spending. Perón served for about a decade before getting thrown out in a military coup in 1955. (He later came back to power for a brief period in the 70s.). Although the 77 years since 1946 have seen some substantial periods of non-Perónist rule, including both military dictatorships and elected governments, Perónism has been the dominant ideology of Argentina’s government over that period. Recent Perónist Presidents have included Nestor Kirchner (2003-2007), Christina Fernandez de Kirchner (2007-2015), and current incumbent Alberto Fernandez (2019-2023).

The Perónist model of economic policy basically tracks the Democratic Party/Paul Krugman/blue state model here in the U.S. Key elements include: high taxes, high government spending, heavy government regulation of the economy, large state-owned or -supported crony capitalist business sector, tight controls over labor markets, and special protected status for labor unions.

The last 100 years — and particularly the Perónist period from 1946 on — have seen Argentina decline from one of the richest countries in the world to a kind of perennial basket case. From Manuel Llamas at The Economic Standard:

In the first third of the 20th century, it was one of the ten wealthiest countries in the world, today it is 63 (IMF, 2017).

Here is the latest Wikipedia chart of GDP per capita by country, according to calculations by the IMF, World Bank, and United Nations. The chart indeed has Argentina in 66th place, with GDP per capita of $13,297 according to the IMF (and even lower according to the UN). That puts Argentina behind such places as Mexico and Chile (although slightly ahead of Russia, China and Brazil). But any way you look at it, it’s a huge fall from one of the ten richest in the world.

Some of the economic statistics out of Argentina are relatively well-known, and others less so. In the well-known category, there is the inflation rate. In the period of Perónist rule, Argentina’s government has consistently overspent and run large deficits, and then relied on the central bank to monetize the debt to avoid having to raise taxes. Inevitably, inflation takes off. Current it is running over 100% per year. Such inflation makes everyday life enormously complicated. For starters, bank credit becomes almost impossible to obtain. Here’s a recent (April 2023) piece on that subject from the Australian ABC. Excerpt:

Few people know what $US220,000 ($334,200) in cash looks like. Ana does. She showed up with a backpack of her life savings to buy the land for her house in Patagonia in Argentina. No deposit. No mortgage. Just one lump sum payment. . . . Ana bought the land for her home in Argentina with cash. . . . "There's almost no bank credit here. I saved for 20 years to buy that land. It would have been impossible otherwise." Bank financing is rare in Argentina. Most people buy their properties outright with cash.

Note that the “cash” in question is U.S. dollars, not Argentine pesos. If you tried to save those, they would have lost all value well before you could ever buy a house.

The fifteen years since the 2008-09 “Great Recession” have been relatively good ones for the U.S. economy, and for the world. But not for Argentina, with most of that period under Perónist rule. Here is a chart from Trading Economics of Argentine economic growth (and shrinkage) over the past 10 years since 2014:

Take out the sharp decline and recovery in the pandemic years of 2020-2021, and what remains is a decade when the economy shrank as often as it grew, and when it grew the growth was rarely above 1%.

Of various less-well-known economic statistics about Argentina, here is one of my favorites: the percentage of employment in the “informal” sector of the economy is nearly 50%. (Statista here puts the percentage at 48.9% for 2021.). In other words, intensive government regulation of the labor market and attempts to support unionization have only led nearly half the population to flee into the informal sector.

I wish Mr. Milei the best of luck in hacking away at the parasitic bureaucracy in Argentina. However, he will clearly need legislative support to accomplish his goals.

UPDATE, November 22: I should mention that Milei is also a self-described “proud climate skeptic,” who has promised to privatized the Argentine government state-owned oil and gas monopoly and to unleash the fossil fuel energy sector. Here is a report on that subject from Forbes, November 20. Excerpt:

[T]he President-Elect, who takes pride in declaring himself to be a climate skeptic, has promised to unshackle Argentina's energy industry from red tape. This broad all encompassing pledge seemingly ranges from closing the country's ministry for the environment and sustainable development to encouraging private sector investment in renewables should there be takers.

Don’t worry about that last pledge to “encourage private sector investment in renewables should there be any takers.” Without massive subsidies, there won’t be any takers.

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