In libertarian circles, where the leader of the German liberals, Christian Lindner, regularly moves, it has become chic to refer to the ‘successes’ of the Argentine president elected a year ago, thus creating the impression that shock therapy could also be appropriate in this country. The Argentine president, Javier Milei, is being held up as a paragon of liberalism before anyone can even present well-founded empirical evidence that his radical approach is having positive effects. Even the no-less libertarian Elon Musk is repeatedly cited as Milei’s kindred spirit, presumably to show how much money can be made if you have the right attitude.
However, it is not only liberal politicians or libertarian fanatics who are fascinated by the economic policy of the Argentine president. Even in the conservative-bourgeois mainstream and its media in Germany, such as in FOCUS or in WELT, one is fully in line with Lindner’s thesis that now it is time to ‘dare more Milei’. Obviously, the aim of media reporting is not to soberly assess the situation and development perspectives, but to underpin one’s own ideological positions.
True to the motto ‘What must not be, cannot be’, the media campaign repeatedly refers to individual questionable indicators and completely ignores overarching relationships. Once again, the aim is not to provide serious reporting, but to stir up sentiment. If you look at Argentina without rose-tinted libertarian glasses, there is nothing that could serve as a role model for Germany. The supposed successes of the man with the chainsaw are not successes at all.
Argument 1: Inflation has fallen
The first argument is that inflation has fallen. That’s true. However, it skyrocketed after Milei took office – in stark contrast to inflation trends in the rest of the world. In Argentina, Milei cut many public subsidies that had a price-dampening effect. In December 2023, the month Milei took office as president, the inflation rate rose from 161 per cent to 210 per cent, to 250 per cent in January, 277 per cent in February, and peaked at 292 per cent in April (over the same month in the previous year).
Since then, the rate has fallen continuously, but at 193 per cent in October, it was still extremely high. The current rate of inflation (i.e. month on month) has also fallen. In October 2024, prices rose by only 2.7 per cent compared to the previous month, although it is unclear whether this takes into account purely seasonal effects. Nevertheless, there is much to suggest that the rate of inflation will fall significantly because, after such a huge negative production shock as that triggered by Milei, price dynamics are disrupted in the short term and inflation rates have also fallen significantly in the rest of the world. The relevant question, however, is how Argentina intends to get down from 40 to 50 percent, which is expected for the coming year.
So far, Milei’s monetary policy has done nothing to get a grip on inflation. There is no action by the central bank that could be pointed to. The key variable, the central bank interest rate, also fell during the phase of falling inflation rates. Consequently, there is every reason to believe that inflation dynamics in Argentina have also benefited from the global decline in price pressure. Argentine politics has only to do with the ‘success in combating inflation’ insofar as it first pushed up prices and then, due to the massive economic downturn, also shockingly slowed price development.
Argument 2: Milei has turned the state deficit into a surplus
The second argument often cited as Milei’s success is the balancing of the state budget for a few months. The fact is true. A primary surplus of 1.8 per cent of GDP is expected for 2024, after the primary deficit in 2023 was still 2.8 per cent. But what does this mean? It is clear that the radical cut in public spending has been met with a sharp increase in unemployment and poverty in the country – more than half of all Argentinians now live in poverty and unemployment has risen from 5.7 per cent when Milei took office to 7.6 per cent.
Success looks different. If you slash government spending by force and without regard for the losses, you create unemployment and poverty. That is obvious. But what is gained by that? Where should the impetus for a fresh start come from? From the unemployed and the poor, whose real wages have fallen significantly because they now have greater incentives to work?
Argument 3: Growth will return
In terms of real incomes and the labour market, Milei’s policies have so far had a devastating impact. In industry, there has been a massive downturn, especially in capital-intensive sectors: by the end of October, metal products, machinery and equipment recorded a 20 per cent drop compared to the same period last year, while non-metallic minerals and basic metals fell by 22.4 per cent and motor vehicles and other means of transport by 13 per cent. Overall, industry recorded a drop of production of 11.6 per cent.
But the libertarians are quick to point out that growth is predicted for next year. Even if it were true, however, after the sharp decline in real GDP of 3.5 (IMF) to 3.8 per cent (OECD) this year, a slight recovery next year would by no means be a success. If there has been such a severe downturn, an increased growth forecast for the following year says little about the ‘success’ or ‘necessity’ of the previous year’s policies. After all, in Germany, no one would think of celebrating growth in the year after the pandemic (2021) as a success of the 2020 coronavirus policy that brought the economy close to a collapse. This argument also shows that the libertarian ideologues are religiously committed to saving their world view instead of correcting it in the face of the catastrophe in Argentina.
More importantly, so far the positive reports are only forecasts. Let’s just wait and see what happens next year. It would not be the first time that the forecasts of the International Monetary Fund for ‘ideologically friendly states’ were based more on hope than on an objective assessment.
Where is the growth going to come from?
The crucial question for assessing the forecasts and Milei’s chances of success is how things are supposed to get better – and this is precisely where most of the media coverage lacks clear criteria. Monetary policy will remain restrictive and stifle investment activity because there is no alternative to high interest rates when inflation remains high and a libertarian-oriented policy is in place. Fiscal policy will remain super-restrictive and thus unable to provide any impetus either. In any case, impulses from private households are not to be expected in view of rising unemployment and huge real wage losses.
So that leaves the rest of the world to provide growth. At the beginning of his term in office, Milei devalued the exchange rate of the Argentine peso in an act that does not appear libertarian at all (a direct intervention in market pricing that must be absolutely taboo for libertarians). This could have helped the economy, but the devaluation was too weak and has already been offset this autumn by the still very high inflation in its effect on the country’s competitiveness. According to a BIS calculation, the real exchange rate, which measures the improvement in international competitiveness, is back to pre-Milei levels. The effect of the devaluation has thus evaporated, which rules out from the outset an export boom like the one in the early 2000s that allowed the economy to grow sustainably. The impulse from abroad will thus also fail to materialise. Should Milei decide to float the Argentine currency to the market, he will experience first hand how inefficient the world’s capital markets and in particular those for currencies are.
Forecasts will therefore be based more on gut feeling and the sound of breaking waves than on serious real economic considerations. At present, there is absolutely no reason to believe that the economy will be able to free itself from the deep trough into which it has fallen this year. But even then, libertarians will probably find a scapegoat to explain why their wishes have not been fulfilled.
In the US, we are willing to bet that the attempt by the libertarian ideologues gathered around Trump to use restrictive measures to revive the economy will fail within a few weeks. American DNA, and Donald Trump’s in particular, demands growth. However, according to logic and not neoliberal outbursts, this will only happen if the state continues to be massively involved in the form of rising debt (as shown here). Donald Trump will understand this very quickly and will sack Elon Musk if he tries to take the state, which guarantees success, out of the game.