New Argentine President
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Buenos Aires - Argentina is a country that got woke and went broke. See: https://miamiindependent.com/argentina-launches-worlds-first-libertarian-president/. At the end of last year, however, they elected libertarian Javier Milei as their new President. He agrees with Milton Friedman, UChicago economist, that: “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”
President Milei has pointed out the destructive and envious nature of social justice: “A society that obsesses with equality sooner or later becomes a society of looters and falls apart. That is the story of Argentina. Therefore, the point is that social justice is unjust.” He added: “When you adhere to the idea of social justice, which means the redistribution of income, what you are really doing is using the repressive state apparatus, so that you can take from the successful, to distribute it capriciously according to the wishes of whomever is in power.”
A “society of looters” includes not only outright looters like Black Lives Matter in America, but also rent-seeking businesses looking to obtain favorable regulations and create barriers to entry, as well as labor unions in the private and especially the public sectors, such as the unionized government bureaucrats of the administrative state and public enterprises. However, as Charlie Munger, former chief investment officer of Berkshire Hathaway, has observed: “It’s not greed that drives the world, but envy.” No wonder it is listed as a cardinal sin. Envy is at the root of social justice.
Weimar Argentina
Our flight to Buenos Aires was delayed from departing for six hours, because all the labor unions had declared a nation-wide general strike that day to protest against the policies of President Milei. The Milei administration announced that any state employees who did not work that day would have a day’s wages deducted from their salaries. It doesn’t pay to subsidize delinquency.
There are three major agricultural basins in the world: the American Midwest, the Argentine Pampas and Ukraine. Accordingly, properly governed and cultivated, Argentina should be a prosperous country. Alas, that has not been the case. Instead, Argentina is very much a third-world country, with net disinvestment since abandoning its monetary peg to the United States Dollar in 2001. That peg had been in place during the 1990’s, when Argentina attracted a substantial amount of investment. All that investment and more has flowed out since then. Argentina has many genteel buildings, but almost all the buildings are shabby and run down.
This unhinged monetary policy was compounded by the lawlessness of its government, such as when President Cristina Kirchner confiscated all private pension accounts in 2008, and turned all pensioners into creditors of the government. This occurred the week after the International Bar Association had held its annual convention in Buenos Aires, promoting the importance of the rule of law for economic development. As a result, investors have fled Argentina.
For example, in 2018 Walmart left the country. It sold its approximately 90 stores, including 13 in the metropolitan Buenos Aires area, to a local operator for a nominal price. Walmart took an accounting charge of over one billion United States Dollars. It is estimated that eight percent of all investors in real estate in the United States are from Argentina, and the founders of all Argentine unicorns (startup companies that reached a value of at least one billion United States Dollars) have left the country.
Argentina is an antidote to the myth of white supremacy. It is a country colonized by European settlers, who overwhelmed the few nomadic indigenous people, that has lagged in economic development and lost its prosperity. This occurred because of its adoption over the last 100 years or so of European welfare state policies. Everyone has tried to live off the state, forgetting that the state lives off everyone.
The market exchange rate is around 1,250 Argentine Pesos for one United States Dollar. As a result, a wad of 100,000 Argentine Pesos is the equivalent of US$80.00. There are no wheel barrows required to carry all the currency notes, but the situation looks like the Weimar Republic. Restaurants accept payments with credit cards (like Visa or American Express), but request that you pay your tip in cash, either local or United States currency. Shopping is great, if you are into leather. The folks at the Libertad y Progreso think tank in Buenos Aires are sure that dollarization will be completed this year.
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In the outskirts of Buenos Aires, we enjoyed Lacarra Restaurante Historico in San Antonio de Areco, La Parrilla in Tomas Jofre and the Tigre Boat Club. In the city, we enjoyed grass-fed steaks at Cabana Las Lilas and El Mirasol, and Italian pasta at Sorrento and Sottovoce. The prices were very reasonable.
The Road from Serfdom
During the first month after his inauguration, President Milei issued an executive order liberalizing and deregulating the Argentine economy. He is attempting to reverse around 100 years of collectivist and statist policies: unreasonable regulations, excessive spending, unsound currency and their inevitable corruption, which have led to inflation, unemployment and poverty. As he said in his inauguration speech: “Today begins the reconstruction of Argentina.”
Milei removed price controls and deregulated real estate leases and agricultural land transactions, reduced customs regulations, and deregulated telecommunications. All state enterprises are being prepared for privatization. The left protested: “This is worse than Thatcher.” Milei has replied: “Some people suffer from Stockholm syndrome and are attached to the model that’s making them poor.” The left’s policies led last year to over 140% inflation and over 40% of the population falling below the poverty line.
He understands that he cannot afford gradualism, but must apply shock therapy, with the costs coming right up front so that the benefits may flow thereafter. His policies include reducing public employment, which represents approximately 18% of all employment, and also social plans (planes sociales), by which the government pays people not to work. His main opposition is led by academics and public-employee unions.
At Davos last month, President Milei delivered a speech in defense of free-market capitalism, and opposing collectivist and statist policies. These policies allow the state to control all aspects of the life of an individual, and lead to hunger and poverty. Milei is a professor of economics, and in his speech he started by reviewing economic history. Before around the year 1800, global economic growth was mostly stagnant. Starting then, however, the application of free market capitalism produced the Industrial Revolution, which led to an explosion of economic growth, continuing today when the same policies are applied.
The left claims that capitalism is evil because it is individualistic and self-interested, and that collectivism is good because it is altruistic. Of course, as Margaret Thatcher observed: “Socialism works until you run out of other people’s money.” Accordingly, social justice is unjust, and does not contribute to the general welfare, because the state is financed through coercion, not voluntary exchange. A progressive state must impose a heavy tax burden in order to pay for social justice. Now the Argentine government has run out of money, so it has been borrowing from the International Monetary Fund, and printing money like there is no tomorrow.
Instead, prosperity is created by economic freedom and respect for property rights, free markets, free competition and the division of labor. The successful entrepreneur is a hero, and should not be intimidated by members of the political caste and by other parasites who live off the state. So-called market failures can be shown to be caused by regulatory intervention. A monopoly can only be maintained through government assistance.
Today the state does not need to control directly the means of production. Instead, it implements collectivist policies through fiat currency, excessive borrowing, providing subsidies, price controls, and regulations to correct so-called market failures. Finally, in his speech at Davos President Milei echoed President Reagan: “The state is not the solution. The state is the problem.”
Last week President Milei’s program started its way through the Argentine Congress, and while he is not getting everything he wants, the biggest national tabloid newspaper declared that after the first half of the soccer game, the score was Milei 1-0 Opposition. As a result, Enel, an Italian electric utility that owns the distributor for the southern part of Buenos Aires city and province, has announced that it will not follow Walmart out of the country. Instead, they will wait to see if the business climate improves under the new administration.
The Rule of Law
The biggest difference between the civilizations of Latin America and North America is Latin America’s relative lack of respect for the rule of law, although North America is catching up. See: https://miamiindependent.com/trump-and-the-chipmunks/. Respect for the rule of law is rooted in Judeo-Christian principles. As Dostoyevsky observed, if God is dead, then everything is permitted. The law comes through Moses, and if you expel Moses and his people (as Spain and Portugal did starting in the spring of 1492), then you also expel the principles that undergird the rule of law.
As President Milei has observed: “Liberalism’s greatest achievement is ‘equality before the law.’ This is to say, the law is the same for everyone.” Disregard for the rule of law paves the way for everyone to try to live off the state, ignoring the warning from French economist Frederic Bastiat that the state lives off everyone. The rule of law disproportionately benefits small and medium-sized enterprises. Large enterprises can more readily purchase political influence and employ compliance technocrats. Economic dynamism relies on smaller enterprises and limited regulatory intervention.
What Is To Be Done
There are some who think that Milei is the Argentine version of Ukrainian President Zelensky, and that each represents a project of the World Economic Forum. For example, Zelensky attended Milei’s inauguration, and Milei was welcomed in Davos to deliver his speech during January this year. However, Kevin Roberts, President of the Heritage Foundation, probably the leading conservative think tank in America, also gave a speech in Davos, and no one thinks that he is a WEF project. Of course, Milei has declared that alarm over climate change is a Marxist hoax, but he has not withdrawn from the Paris climate accord.
In any event, he cannot be all bad if he prays at the Western Wall in Jerusalem. The jury is still out on whether President Milei will fundamentally transform Argentina. Let Freedom Ring, Damn It!
Excellent article! Argentina is a very cultured country. It's a shame that corruption ruined it but perhaps Milei can turn things around.