The world has the opportunity to witness an amazing exercise in democracy and economics because Argentina elected Javier Milei as president in December 2023. His philosophy and understanding are new to Argentina. He was elected because the economy was collapsing, one measure of which is inflation of about 50% per year for several years before heading to 100% in 2023. Argentines found it increasingly difficult to obtain basic needs. Out of desperation, they voted for something totally different.
What will Argentina learn? What will the United States learn? What will the rest of the world learn? Learning might mean acquiring new understanding; it often means to be reminded of or gaining a deeper appreciation of what we once knew.
Argentina was blessed with natural resources and a temperate climate. After it gained independence in the first part of the nineteenth century, many assumed Argentina would be a prosperous country. Indeed, and despite tumultuous politics, by 1900, Argentina was in the top ten most prosperous countries in the world. At one time, a common phrase was “to be as rich as an Argentine.” However, they could not maintain what was required for continued prosperity.
Following World War II, Juan Perón assumed power. Officially, there was a vote of the people, but it was not a free vote. From that time forward, Argentina has been governed under some variation of socialism. Later, as elections became freer, the people still voted consistently to support socialism. One of the mysteries is why some societies willingly accept—even explicitly vote for—socialism despite overwhelming evidence that it leads to poverty and reduced freedom.
Argentina’s particular path to economic disaster included a great deal of loans from the United States and elsewhere. Multiple times, the International Monetary Fund (IMF) provided loans. This process continued through the decades despite multiple defaults by Argentina, including three times since 2000. Why this external money was continually provided is beyond the scope of this article.
Argentina would be better off today had those external loans not been made. Of the many reasons, the most important one is that external money enabled the government to firmly entrench socialist structures in society. At least three large groups now want socialism to continue: (1) the government itself, including agencies and bureaucracies, (2) unions, especially of large companies, (3) large companies, especially those who produce exports to bring in hard currency. Previous attempts at reform—most of which have been weak—have been easily resisted by those groups. To be fair, the problem cannot be blamed entirely on those three powerful groups. Many average citizens also supported socialist ideas.
Things were different in this most recent election. So many average citizens were suffering enough they decided something radical must be done. Milei was elected even though he promised to drastically reduce government spending, break the power of entrenched groups, and dollarize the economy. Tying the peso directly to the dollar is the most radical change and the most essential. When a foreign country truly ties its currency to the dollar, it can no longer print and borrow money indiscriminately as Argentina did for many decades.
A technical sidenote is useful here. Previous administrations, in attempts to manage society and prevent collapse, created more than ten peso-dollar exchange rates. There was one exchange rate for certain types of farmers, another for certain types of businesses, and so on. The black-market exchange rate, of course, reflected a much weaker peso than any of the official rates. Multiple exchange rates together with high inflation make the usual measures of economic performance even less useful than normal. This is especially true of economic output commonly measured by GDP. This will also be true for the first part of Milei’s attempts to reform the economy. Some changes, however, will be real and measurable from the start. Examples include shutting down government programs and offices, removing subsidies, and going to a single exchange rate.
What ideas are driving Javier Milei? Does he have an underlying philosophy? He describes himself as a “hyper-orthodox libertarian.” As with most political and philosophical labels, different people will take different meanings from that description. However, he has said and done enough already that we can see the following characteristics. He believes government should be as small as possible and do only what government must do. He believes in personal freedom and responsibility. He believes in the free market. He believes in a sound currency.
As we watch the unfolding drama in Argentina, what can we learn?
One of the most important things should also have been the most obvious. Socialism will ultimately destroy prosperity. It has been proven over and over. Why then do citizens nonetheless sometimes bring it upon themselves? Answers are beyond the scope of this article except to recognize that the answer can be found in elements of the worldviews of the citizens.
Perhaps the most important thing to learn is that if a country has free elections, the citizens hold great power to initiate change. The Argentines have bravely done so. Now they must see for themselves, as the world watches, if they have the perseverance to work through what is required to transform their economy for long-term prosperity. Unfree structures that developed over decades will not be transformed in a year.
We see again that power is the dominant force. In any society, there will always be people who want power badly enough they are willing to see a majority of citizens suffer as the price for power.
For the United States as well as other countries, we can recognize two important things about socialism. First, there is not just one manifestation of socialism; there are variants. Second, a country like the United States is not likely to explicitly vote, in a single spectacular election, for direct state ownership or control of the economy. More likely, if we continue our move toward socialism, it will come through regulations, paternalism, and the financial system.
The entire world can relearn that prosperity does not come from ever-increasing debt. This is doubly true in a world of fiat currency in which money can effectively be printed to settle debts.
President Milei understands these things. He and his country have lived it. Not only has he sounded the warning in Argentina, but he has also done so on the world stage. In January 2023, he addressed the World Economic Forum in Davos, Switzerland. He warned that many leaders in the Western world have abandoned the model of freedom and been co-opted by other dangerous visions. He pleaded for the world to look at what happened to Argentina and to diligently resist all paths to any variant of socialism. Will the rest of the world listen? In particular, will the United States pay attention?