Argentina's "Miracle Turnaround"
In case you’re thinking about moving to Argentina, just 6 months into office Javier Milei is getting it done, turning around one of the world's longest-running socialist basketcases.
He's slashed inflation by four-fifths, the peso is finally stabilizing, and he's tamed a monster 5% budget deficit -- equivalent to nearly $2 trillion in US terms -- into what's apparently an enduring budget surplus.
Put that man in Washington.
As Wall Street Silver puts it, Milei is "destroying left-wing socialist economic theory."
As Fox puts it, he's "shut up critics with a miracle turnaround."
Even the IMF is now begrudgingly accepting that Milei's doing what he promised.
Taming Inflation
First the numbers. In the month Milei took office, Argentina was sporting an inflation rate of 25% -- per month. Now, just six months later, it's down to single-digits -- 8.8% and falling.
Keep in mind these are monthly numbers, so annualized that comes to a 5-fold reduction in inflation, down from from the annualized 1,355% inflation the socialists had dumped on the living room carpets of long-suffering Argentines.
Also keep in mind that was despite Milei's slashing subsidies to public transportation, electricity, gas and water, in order to fix the budget deficit. As well as his intentional devaluation of the peso, which he had to do to stabilize a financial system that had two peso rates -- the official and unofficial rates -- much like the Soviet Union.
These necessary repairs should have sent inflation soaring in the short run. Instead, it fell by 80%.
This has allowed Milei to cut interest rates from 126% when he took office to just 40%. Which is higher than Jerome Powell, but pretty good progress for 6 months into one of the world's worst socialist trainwrecks.
Taming Deficits
The other big win has been on Argentina's monstrous budget deficit -- which was a main driver of hyper-inflation for going on decades.
The problem is roughly one in five Argentinians work for the government -- well, they may not work, but they collect salaries from the government.
That's almost twice the proportion in countries like Mexico or Chile. And it's a big reason why it's been so hard to change Argentina; if 20% of the population is collecting a government salary, your small-government candidate don't need to win 51% of the voters, he needs 71%.
Nonetheless, voters were sick of it and Milei delivered. He slashed public-sector wages, suspended make-work government projects, as well as cutting those subsidies so markets can actually function and invest.
He paired the cuts with deregulation in sclerotic markets -- above all housing -- that boosted private-sector growth to cushion the cuts in government spending.
What’s Next
Milei and his economy minister Caputo freely admit the work's just begun. Inflation, spending, and regulation are still suffocating Argentina, while the opposition controls Congress and will do everything they can to stop or sabotage reforms.
When Milei first came to office, I ventured that his prospects would depend on winning over regular Argentinians. After all, if you get 60 or 70% approval even a hostile opposition goes along out of self-preservation.
That means the most important thing near-term is getting wages rising faster than inflation to bring down sky-high poverty rates.
That means getting off the back of especially small business, via deregulation and even tax cuts.
If Milei can do this, he'll get enought political momentum to push his core labor and monetary reforms that would fundamentally transform Argentina.
Either way, millions of us will be cheering him on.
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Peter do you think this miracle is portable?
Roughly the same % of our population works for the Government...
I'd wager we have a larger Corpo-Gov state where folks are employed by Corporations ostensibly but the economic energy that PAYS for those folks is sapped up by the Gov and transferred to the Corporate arm via a number of dimensions -- subsidies, GSA contracts, etc...
this is the most positive economic story since Reaganomics