For me, austerity is a term I remember coming across frequently during the Great Recession and subsequent years. It is reminiscent of the economic malaise from last decade. Whether it was the Netherlands, Greece, or Great Britain, the neo-Keynsians were disparaging of any attempt of cutting government spending by labeling it as "austerity." Austerity refers to strict economic policy to rein in growing public debt, typically in the form of lower taxes, lower government spending, or a combination. Regardless of how the tax rates or government spending rates pan out, the idea is to implement these measures to improve economic health.
Fast-forward to December 2023 when Javier Gerardo Milei became president of Argentina. While Trump and Milei both have exuberant and flamboyant delivery styles, that is where their similarities end. Unlike Trump and his tariff-loving populism, Milei is a right-wing libertarian and a component of free markets. Milei promised to take a chainsaw to the country's crippled economy with a laissez-faire approach. Milei consolidated eighteen governmental ministries into nine ministries. This also included eliminating the National Institute Against Discrimination, Xenophobia, and Racism (INADI), about which Milei said "[INADI] no sirve para nada," or loosely translated, "it does not do squat." He let go of 7,000 government employees, as well as devalue the Argentinean peso by about half so that Argentinean goods can be more competitive in the global markets. As I brought up last month, Milei also brought up a series of ways to deregulate the government.
The reason why Milei is taking this approach is because the Argentinean economy is in trouble. When I asked in December 2023 whether Argentina should dollarize, I pointed out that Argentina's economy is plagued with unemployment, devaluation, inflation, and poverty. The reason why Argentina elected a libertarian to the office of President was in part because decades of government largesse and irresponsible monetary policy was not serving the Argentinean people. These austere measures are needed because Argentina is economically in hot water.
Although Milei has only been in power for a couple of months, we are already seeing positive results. For the first time in twelve years, Argentina's government has produced a budgetary surplus (see government data here). The importance and gravitas cannot be stated enough. Milei took what was projected to be a budget deficit of 5.2 percent of GDP and turned it into a surplus of $580 million USD in less than three months. To translate that into the U.S. federal budget, that would be like taking Congress' $1.2 billion deficit and turning that into a $400 million surplus. That is more impressive considering the United States has not had a budgetary surplus in over two decades. Even U.S. Secretary of State Antony Blinken praised Milei for his economic efforts.
It has only been a little over two months and Milei has plenty of political opposition that could hinder what he is looking to accomplish. At the same time, this is a great start to helping Argentina become the economic powerhouse it once was. It is not only Milei's political career or the Argentinean economy that hang in the balance. The stakes are higher than that. If Milei succeeds, he will show other countries that freer markets and less government intervention lead to greater economic prosperity. It will serve as an inspiration to other countries to get their profligate government spending under wraps.
After all, it is why the United States experienced another downgrading of its credit rating last year. Last year, I compared the United States' fiscal deterioration to that of Argentina and rightly so. Argentina serves as a fine example of what economic misery comes when government spending runs wild. Hopefully, Milei can be successful in his efforts and show us what happens when economies abandon socialistic tendencies for more capitalistic ones. By embracing capitalism can we hope to improve the quality of life for citizens across the globe.
¡Viva la libertad, carajo!
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