Javier Milei is fond of attributing his economic philosophy to sages of Austrian origin such as Friedrich von Hayek and Ludwig von Mises, but it surely owes just as much to that notorious right-wing propagandist Charles Dickens as it does to the thinkers he enjoys alluding to. In his 1850 novel David Copperfield, the English novelist has Mr Micawber memorably sum up what, almost two centuries later, would be the guiding principle of Argentina’s new administration: “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Like Mr Micawber, who despite suffering many hard knocks always clung to the belief that, as eventually happened, “something will turn up” to put matters right, Milei and his first economy minister, Luis Caputo, are convinced that deficit spending is at the root of many of the bad things that have happened to Argentina and are determined to put an end to it. In the lecture Caputo delivered to the nation on Tuesday, he pointed out that in 113 of the last 123 years, the politicians in charge of economic affairs had spent more than they managed to rake in.
This sort of behaviour is not so outlandish as Caputo, Milei and others would have us believe. Many governments, including those of the United States – this year, Joe Biden’s will pile up a deficit of roughly US$1.7 trillion – have long been accustomed to plunging deeply into the red. This habit greatly alarms prudent folk who warn that one day what they see as a giant Ponzi scheme will crash down to earth, impoverish hundreds of millions of families and trigger a worldwide depression which could be every bit as dangerous as the one that caused such damage almost a century ago.
Their fears are shared by many economists who suspect that the international financial markets have some unpleasant surprises in store for us and that even an apparently routine event, such as another Argentine default, could have far-reaching consequences. If it were not for such fears, the International Monetary Fund would have washed its hands off Argentina and made former economy minister Sergio Massa pay a hefty price for his irresponsible antics.
In the United States and elsewhere, politicians tend to fear austerity programmes rather more than what they pray is just scare-mongering by alarmists and refuse to do much to rein in public spending because for them it seems far safer to satisfy people by borrowing money than it would be to ask them to tighten their belts in the national interest. The option they prefer is no longer available to their Argentine counterparts. As happened to Mr Micawber on one occasion, the country continues to languish in debtors’ prison. People here are well aware of this unfortunate fact, which is why, to the astonishment of most observers in other parts of the world, Milei has won popular backing for the ruthless cost-cutting programme that is now underway.
After four years of Kirchnerite squandermania, which was topped off by Massa’s wild pre-electoral splurge in which he invested a large chunk of the country’s economy in his presidential campaign, people understand that, thanks to his efforts, the choice has narrowed down to either hyperinflation or a period of extreme austerity in which long-delayed structural reforms can be carried out. While most are aware that the next few months are going to be very painful for many who will find it all but impossible to make ends meet, for now at any rate they are gritting their teeth and say they will put up with whatever comes their way. Will this mood last long enough to allow Milei and his team to finish the “dirty work” they think is necessary? It had better be: if they fail, as they well could, the result would not be a return to the situation that prevailed before they took over but something far worse.
As luck would have it, Milei’s war on the reckless overspending that is typical of what he calls the political “caste” not only here but also in many other countries, kicked off in early summer, which means households will need to spend far less on gas for heating than they do in winter and, on the whole, life should be easier than in other parts of the year. Though the holiday season is often enlivened by outbreaks of looting, once it is over calm usually returns. If this happens, the government will have to keep its fingers crossed until, after a few months of drudgery, increased farm exports start bringing in considerable amounts of much-needed money and those businesses that are still standing have adapted themselves to the new circumstances.
Milei and other government spokespeople have been careful to take a decidedly pessimistic view of the country’s prospects by saying that it will take years for the inflationary poison injected into the system by Massa and company to work its way through the economy, but they surely hope that recovery comes much sooner than they say they expect. If it does and as a result most of the citizenry feels that everything is going as planned, the populist old guard will find it far harder to take advantage of the disaster that it has done so much to bring about than many malcontents still hope.
Well before the midterm elections of 2021 showed them most voters wanted them to depart, the Kirchnerite faithful decided that, seeing they would be unable to bring themselves to do anything that might improve the country’s economic performance, it would be better for them to concentrate on so arranging matters that the next government would receive a bomb timed to blow up in its face and cause so much chaos that a stricken populace would beg them to return.
This, more or less, is what the Kirchnerites did before Mauricio Macri won office in 2015. It was due to his inability to sort out the mess they bequeathed him that they managed to stage the comeback that would have such disastrous consequences. Like the proverbial dog in the manger, Peronists of all descriptions have been very good at winning political power but have never learned to make proper use of it. Some seem to have realised that this was bad for the country, but millions of others remain more interested in beating their opponents than in doing anything to help the country get back on its feet.
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