British eco-fundamentalist George Monbiot was left badly upset, whether performatively or otherwise, about the early stages of the program announced by Argentina’s new “anarcho-capitalist” president, Javier Milei, before Christmas, tweeting that:
[it] is 1930s-style fascism, with the added twist that Milei is a creature of the Atlas Network, a confederation of rightwing junktanks funded by some of the world’s grimmest oligarchs and corporations. What they are getting in Argentina is what they want everywhere.
And:
It’s always the same story with fascism. It’s a front for the interests of the very rich, shutting down opposition, deregulating their predatory activities, handing the control of state assets.
More tweets follow.
It appears that Monbiot is unfamiliar with the economic ideas that ran through 1930s fascism or ideologies adjacent to it, much of which involved a “harnessed” capitalism, subordinated to the interests of the state. This was typically supplemented by heavily increasing the level of direct state involvement in the economy, whether through massive public spending programs, heavy regulation, or, in Italy’s case, the formation of a giant holding company, the Institute for Industrial Reconstruction (Istituto per la Ricostruzione Industriale, or IRI). Another country where a variant of fascism caught on, but, in this case, persisted was, well, Argentina.
Monbiot’s tweet caught the attention of economic and political historian Phil Magness, who commented that Milei unseated “a political party founded by an actual 1930s fascist. The Mussolini-infused history of Peronism does not seem to bother people who obsess about ‘neoliberal’ conspiracy theories though.”
That fascist (who is better, if rather clumsily, described as fascist adjacent) was Juan Perón, and it is the enduring and catastrophic effect of his ideas — and what they inspired and led to — that Milei is trying to tackle. Milei is charismatic, and makes use of that charisma, but so far this falls far short of a cult of personality akin to that which developed around Perón and, more so, his first wife, Evita, a formidable political figure in her own right.
Milei wants to scale back the overbearing and overcontrolling state that has contributed to Argentina’s slide down the global economic league over the past century. Reducing the power of the state is not normally thought of as a hallmark of fascism. On the other hand, the eco-fundamentalist direction in which Monbiot would like to see society move is unlikely to be sustainable without resort to increasingly authoritarian rule. Latin American politics are what they are, and Argentina can expect a very rough road ahead, but for Monbiot to accuse Milei of 1930s-style fascism (while throwing in some conspiracism too) looks a lot like projection.
And that road ahead will be rough. In the early 1900s, Argentina was one of the richest countries in the world. Today, despite its still immense potential, it is a developing country, and one, moreover, that is developing in the wrong direction. Annual inflation is now running at 160 percent and is forecast to hit 200 percent very shortly. The country is essentially out of money. Shock therapy of the type that Milei is trying to press through is probably the best hope that Argentina has had for a long time, if ever, of finally breaking the shackles of Peronism, but it will be an uphill struggle.
As was demonstrated in some Eastern European countries in the 1990s, shock therapy can work, but, among other things, success requires a reasonably unified sense of national purpose and institutional buy-in. Milei won the presidency with an impressive majority (he took 56 percent of the vote), but much of that was made up of voters voting against the country’s current mess rather than for his prescriptions for what ails it. When the painful side-effects of those prescriptions become apparent, some of his support will fade away. Making matters more difficult still, LLA, Milei’s fledgling party only has a small presence in Congress and regional government. The Peronist political machine remains powerful and, along with other elements on the left, is ready to punch back in the legislature, on the streets, and elsewhere.
Nevertheless, while some of Milei’s earliest moves (such as backing away from instant dollarization) seemed to suggest that he would opt for incrementalism, he has (perhaps concluding that small steps would get him nowhere) chosen something far more radical, perhaps hoping that some (or more than some) of it will stick, and, looking further out, that a blueprint for an alternative Argentina will have been created.
Almost as soon as Milei was in office, his finance minister, Luis Caputo announced a set of reforms including a phased-in, but dramatic devaluation of the peso’s principal official rate. There will be major cuts in public spending (Argentina has run a deficit for 113 of the last 123 years), including on the subsidy regimes that do so much to distort the Argentine economy, although some support programs for the poorest would be boosted. I wrote about these proposals here.
Then came a sweeping emergency decree (and, for once, the word “sweeping” is more than a cliché).
The Financial Times’ Ciara Nugent explains:
The decree included 300 measures, striking down major regulations covering Argentina’s housing rental market, export customs arrangements, land ownership, food retailers and more. It also modifies rules for the airline, healthcare, pharmaceuticals and tourism sectors to encourage competition.
Employee severance packages will be cut and the trial period for new employees extended, while companies will no longer pay fines for failing to register workers. The new rules, which enter into force on December 29, also change the legal statuses of the country’s state-owned companies, which include an airline, media companies and energy group YPF, allowing them to be privatised.
“Today we are taking our first step to end Argentina’s model of decline,” Milei said in a pre-recorded broadcast. “I have signed an emergency decree to start to unpick the oppressive institutional and legal framework that has destroyed our country.”
The decree marks the realisation of Milei’s campaign promise of a sharp break with the extensive regulations, high taxes and sprawling public sector introduced by the left-leaning Peronist movement over the past two decades.
In reality, the roots of the rot that has ruined this once prosperous country stretch far further back than two decades, becoming embedded in the first presidencies of Juan Perón (1946-55), even if obvious signs of dysfunction were visible before then.
A few more details of Milei’s decree can be found in this Bloomberg report. The change to the rent law (which limits rent increases) is to abolish it. He wants to see a properly functioning rental market. The change to the current land law (which limits ownership by foreigners) is, yes, to repeal it. Mileo wants foreign investment in Argentina, and the much-needed hard currency that comes with it.
Some other changes:
[Scrapping] the current Supply Law that allows the government to set minimum and maximum prices and profit margins for goods and services of private companies.
[Eliminating] the Economy Ministry’s price observatory to “avoid the persecution of companies.”
Somewhere, the FTC’s Lina Khan screams.
Nugent:
Opposition politicians accused the president of issuing the new mandates via decree in order to bypass votes on them in congress, where his La Libertad Avanza coalition holds just 15 per cent of seats in the lower house and less than 10 per cent of the senate.
Under Argentina’s constitution, presidents can issue “decrees of urgency and necessity” on most areas of policy — except tax, penal and electoral matters and rules for political parties — when “exceptional circumstances make it impossible to follow ordinary procedures”. Decrees stay in place until both houses of congress vote to strike them down.
Margarita Stolbizer, a legislator for the non-Peronist centre-left party Gen, said the decree was “abusive and unconstitutional”. “The legislature will have to analyse every part of this deeply,” she added. Analysts said the unprecedented breadth of the presidential decree made it hard to predict whether the measures could be implemented.
You can watch Milei discussing these proposals here (the video is subtitled and worth the time).
The package itself seems to have been generally well received (one poll showed support running at 71 percent), and in economist Tyler Cowen’s view, voters will accept a recession (which has probably already arrived) “for a year or two” as the price of seeing off hyperinflation. Maybe. “Recession” may be too mild a word for what lies ahead. Cowen liked what he saw of Milei’s deregulatory plans, but “until a broader business confidence is restored, they may not help economic growth much.” Quite what that will take is, to say the least, unclear. However, “one ace in the hole,” if Milei can hang on for long enough, may come from fossil fuels.
The Wall Street Journal (December 21):
South American companies are fast trying to position themselves to become new global suppliers as Western governments and energy majors are increasingly looking at the region to diversify away from conflict-ridden choke points of the Middle East and Russia.
“What we know is that Europe and the Western world is never going back to depending on Russian gas,” said Marcelo Mindlin, president of Buenos Aires-based Pampa Energía . “This is a big opportunity.”
His company is among a number that are increasingly active in Argentina’s large oil-and-gas patch called Vaca Muerta—which means dead cow in Spanish.
Sitting on arid, windswept terrain as big as Belgium near Argentina’s border with Chile, the shale field has potential output comparable to the Permian Basin, long the most prolific region in the U.S., according to Rystad Energy.
Chronic economic crises and rigid currency controls have long hindered infrastructure development in Argentina, economists say, leaving trucks slowly plying dirt roads around rigs while companies struggle to import drilling equipment amid dollar shortages.
But thanks to a new political landscape in the country, Vaca Muerta could soon turn into a cash cow, say government officials and oil executives.
The country’s new libertarian President Javier Milei is promising a sweeping deregulation and privatization of the industry, sending local energy stocks soaring since his victory in November’s elections.
Although Milei did not follow through on his pre-election commitment to withdraw from the Paris climate agreement, he is unlikely (to put it mildly) to be willing to let the climate police stand in the way of attempting to maximize returns on an asset which may be one of the country’s best hopes (if Milei is given the time to take advantage of it) of a strong recovery from the current shambles. Even before Milei assumed the presidency, his incoming infrastructure minister, Guillermo Ferraro, had said that a priority would be to build what was needed to support development of Vaca Muerta.
Ferraro said that investment for this and other projects will be sought from the private sector, unlike the outgoing administration of President Alberto Fernández, which put a focus on state oversight and control over projects, often via concessions with private investors.
“The approach we have is that the state has to reduce its participation in the economy to make room for the private sector,” Ferraro said. “There is an enormous opportunity for the private sector to invest in Argentina.”
Ferraro said there is a more than 20-year deficit in infrastructure in the country, adding that to close this gap and build new projects will require annual investments equivalent to 15% of the country’s gross domestic product. That is more than the 1%-1.5% of GDP that has been invested over the past few years, he added.
The key for attracting this investment, he said, is for there to be “a credible government.”
This decree was followed by a bill containing 664 articles (there is a lot to do). The idea, explained Milei, referring back to Argentina’s lost nineteenth century dawn, is to restore “the economic and social order based on the liberal doctrine embodied in the National Constitution of 1853.”
Nugent commented on some of what was proposed in another article for the Financial Times:
[The bill] proposes allowing Argentines to register undeclared assets at home and abroad without paying hefty taxes, scrapping the country’s proportional representation voting system for Congress, giving stronger legal penalties to those who organise road-blocking protests and granting new powers for the security ministry to limit demonstrations.
The tax liberalization measures are clearly designed to encourage the repatriation or, uh, “bringing into the light” of some of those dollars that Argentina so badly needs. It was estimated that, at the end of 2022, Argentinians held more than $246 billion (€225 billion) in foreign accounts or as dollar bills.
The measures on demonstrations reveal that Milei understands the potential for trouble ahead. Protests, in fact, have already begun.
The bill also makes provision, as Nugent explains, for Congress to “cede some legislative power on areas including tax, pensions, energy and security to the presidency until the end of 2025.” Milei is well aware of his weakness within Congress. Additionally, there is provision for the cession of some of these powers to be extended for another two years, which would see Milei through to the end of a first term.
The bill also includes the privatization of 41 public companies -among them, Aerolíneas Argentina, Banco Nación, and YPF.
As described above, this had already been foreshadowed in the earlier decrees.
Nugent:
Congress must approve the bill Milei presented on Wednesday for it to become law. The decree, however, will remain in place unless both the lower house and senate vote against it. Should that happen, Milei said in an interview on Tuesday night that he would call a non-binding referendum “so then [Congress] can explain to me why they are against the people”.
Meanwhile, big labor, an important element in the Peronist power structure since the early days of Perón’s rule (a role in keeping with the strong corporatist element running through Peronism) is setting the stage for confrontation.
One of the most influential workers unions in Argentina has called for a national strike next month as opposition to the government’s overhaul of the economy builds.
The General Confederation of Labor (CGT) announced on Thursday that it is planning a general strike on Jan. 24 in protest against a series of measures put forward by libertarian President Javier Milei.
Milei never said that this would be easy.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Click on the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 150th episode David recaps 2023 in this final episode of the year, remembering some of the highlight guests, walking through the issues that challenged us, and summarizing what this year has meant for the cause of a free and virtuous society.
Capital Writing
As part of a project for Capital Matters, called Capital Writing, Dominic Pino interviews authors of books on subjects related to Capital Matters’ remit for the National Review Institute’s YouTube channel.
This time Dominic talked to Jennifer Burns of Stanford University and the Hoover Institution about her book Milton Friedman: The Last Conservative. Here is a link to an edited transcript of a few key parts of our conversation as well as the full video of the interview.
The Capital Matters fortnight that was . . .
Fiscal Policy
Fortunately, there is another way to avert fiscal disaster: phase out $1.3 trillion a year in federal subsidies for state and local activities such as K–12 education, low-income housing, welfare, urban transit, and Medicaid. Devolving funding for state and local activities would slash federal deficits and stabilize the debt…
The Red Sea
Standing between violence and global commerce is the U.S. Navy. Because of the global presence of U.S. naval vessels, Captain Phillips–style situations don’t happen very often. Shipping lines from all around the world ordinarily feel confident routing their ships through one of the world’s most unstable regions because of the deterrence the U.S. Navy provides.
Historians hundreds of years from now will look back on this fact as one of the greatest accomplishments of the United States. The U.S. took over the primary duty of securing global sea-trade routes from the United Kingdom after World War II. Modern containerization, which began in the 1950s, has made sea trade more important than it ever was when the British ruled the waves.
The current pause on international shipping through the Red Sea is a black eye for the U.S., and U.S. leaders should understand it as such…
The Houthi threat to shipping in the Red Sea (which we have discussed here, here and here) is having the desired effect….
The U.S. announced on Monday that it is forming a coalition to restore a safe pathway for shipping through the Red Sea. Ten countries had signed up as of Monday, and more are expected.
Their job will have to be more than just supervisory, as the Houthis show no sign of giving up the attacks and (inevitably) have threatened to take on the coalition’s warships. Those threats may be bravado, but commercial shippers (and their insurers) will need to be reassured that the risk posed by the Houthis is no longer anything they have to worry about (too much) …
[T]he reluctance of some nations to participate in a new U.S.-led operation to secure something as basic as the security of an international sea lane is both evidence of the waning of Pax Americana and a development that may provide further ammunition to those in the U.S. who would like to see less American engagement abroad…
Trade Policy
Mexico would like to be wealthier than it currently is. One of the ways it seeks to achieve that goal is by attracting foreign investment. A natural candidate for foreign investment is its much wealthier northern neighbor, the United States.
But the United States makes it more difficult than it should be to invest in Mexico. One of the most important ways, for industries that produce physical goods, is the difficulty U.S. policy creates for trucking from Mexico….
Inflation
President Biden’s April 2021 spending package was an absurdity in every sense of the word, and should have been opposed when President Trump was seeking the same level of direct transfer payments just months earlier. The distortions created by “too low for too long” Fed policies were an atrocity, and are no doubt significant factors in housing’s 2021 price inflation.
But the almost perfect correlation between a dozen indicators of stress in the supply chain and price inflation, a correlation that held up perfectly on the way back down the mountain as well, has to count for something…
Tax
Georgia lawmakers are enhancing the appeal of an income-tax overhaul first set in motion back in 2018. Effective January 1, 2024, Georgia’s tax code will transition from a six-rate progressive tax structure to a streamlined, single-rate flat tax. As the dawn of Georgia’s flat-tax implementation approaches, state leaders have opted to give Georgians an early tax cut…
The ERC is found in Internal Revenue Code Section 3134. It was designed to provide an incentive for employers to keep their employees on the payroll, even if they were not working. The ERC is a refundable credit against employment taxes owed by employers. The law allows employers to obtain a credit of up to $7,000 per employee per quarter (capped at $21,000).
Recently, the IRS sounded the alarm concerning potentially bogus ERC claims…
Colorado governor Jared Polis (D) and Art Laffer, the economist and Presidential Medal of Freedom honoree, recently critiqued the state’s Taxpayer’s Bill of Rights (TABOR) at this venue. While not meritless, much of their argument is paradoxical, highlighting an overarching issue of fiscal unsustainability that warrants a reality check…
Childcare
Beware whenever the government says it will intervene in some area of the economy to increase affordability or ensure quality. It means the government is about to destroy a market. Health care, rent control, labor relations, or anything else — the story is always the same. Canadians are now suffering the destruction of yet another market through the federal government’s takeover of child-care services. In 2021, the federal Liberal government committed $30 billion over five years, then $9.2 billion annually after that, to establish national $10-per-day child care. Researchers with the think tank Cardus estimate provincial governments will need to kick in at least another $4.2 billion (and possibly much more than that on top) to help achieve the Liberals’ child-care ambitions. Two years in, it’s already shaping up to be a massive disaster…
Inequality
Few topics have animated more intense mainstream-media coverage and outrage from progressive politicians than the idea that income inequality has skyrocketed over the past 60 years in the United States. The left-wing senator Bernie Sanders, for example, has decried income inequality as the “great moral, economic, and political issue of our time.” Meanwhile, CNN coverage suggests that “America is suffering from ever-worsening income inequality.”
But what if this was always all based on a series of mistakes?…
For many years, authors such as Piketty, Emmanuel Saez, and Gabriel Zucman have had a sort of monopoly on the IRS microdata used to produce their top 1 percent income-share and wealth-share estimates (few researchers have access to the fixed number of IRS data seats). Many critics publicly and privately questioned whether their analysis was biased in ways designed to reinforce the case that inequality was rising sharply.
Now, ten years after the publication of Piketty’s best seller, a different research team — Gerald Auten and David Splinter (of the U.S. Treasury Department and the Joint Committee on Taxation, respectively) — with access to the same IRS data, has produced radically different results trying to measure the same top income shares, albeit with a slightly different methodology…
Industrial Policy
The 572nd most valuable company in America is being bought out. This isn’t big news, but some people think it is…
I wrote earlier today about the freak-out over the acquisition of U.S. Steel by Nippon Steel and why much of the rhetoric from politicians is bunk. As I noted in the piece, one of the things economic populists are usually concerned about is market concentration. This deal will have a negligible effect on market concentration in the U.S., and the alternative of Ohio-based Cleveland-Cliffs buying U.S. Steel, which some populists and the United Steelworkers union support, would increase market concentration significantly…
Electric Vehicles
Large, sparsely populated (just over 2.1 million people), relatively poor, and, depending on the season and where you are, subject to temperatures high and low enough to affect EV battery life, New Mexico must be one of the states least suited to EVs. But, as is explained on the NRDC site, sales of new conventional cars in the state will be squeezed from 2026, culminating in a ban in 2035…
To ask this question once again: What do car dealers know about the car market anyway?…
There are many reasons that EVs are, once relatively wealthy early adopters have bought theirs (typically making sure that they hang on to a spare traditional car — or two), struggling to find the hoped-for demand, but one of them is that they do not appear to hold their value…
For those who have their own garage (or a private driveway) where they can charge their electric vehicles (EVs), these cars may be good enough for the daily commute or a quick shopping trip, but otherwise, well, just read Christian Seabaugh’s recent account in MotorTrend of an unplanned 600-mile drive (there had been a family emergency) in a Ford F-150 Lightning Lariat extended-range pickup. Extended range, eh?…
California’s overexuberant push for the “energy transition” in cars and trucks is well known. Electric cars and trucks aren’t yet ready for prime time, and the charging infrastructure they need to function is underdeveloped despite the tons of government money spent on it.
But at least electric cars and trucks exist. California is also phasing in mandates for zero-emissions freight trains that do not currently exist in the United States…
Municipal Finance
The controversy over campus antisemitism appears to be triggering a backlash against diversity, equity and inclusion (DEI) at universities and other institutions. Donors are now realizing that DEI protects some groups while neglecting others, and those donors are now pressuring administrators to make reforms.
If those reforms break the momentum toward DEI, it will not be a moment too soon for the municipal-finance industry, which has been embracing racial equity in the aftermath of George Floyd’s death…
Unions
At various points in the past, some unions weren’t very ideological. These tended to be the ones that specialized in corruption instead, such as the Teamsters. And corruption and ideology aren’t mutually exclusive, as the UAW had two former presidents convicted of crimes and is still under the watch of a court-appointed monitor. Today, though, it’s clear that organized labor and progressivism are the same cause…
Economics
Robert Solow has passed away at the age of 99. He was the 1987 winner of the Nobel prize in economics for his work on the study of economic growth. He first became a professor at MIT in 1949, and was still a professor emeritus there at the time of his death.
There are many coincidences of scientific advancement in history. Newton and Leibniz independently developed calculus at roughly the same time. Oxygen was discovered independently by Carl Wilhelm Scheele and Joseph Priestley. One of economics’ iterations of this phenomenon was the exogenous growth model, formulated independently by Solow and Australian economist Trevor Swan in 1956…
It is important to keep in mind that nobody has macroeconomics all figured out. Friedman’s contribution for monetary policy was to remind economists that money matters. Believe it or not, that was a controversial take at the time, but it is commonly accepted now. Exactly what that means varies, but good economists have to at least think about money in relation to business cycles now, largely because of Friedman. His obsession wasn’t for nothing…
Regulatory Policy
The Biden administration is engaged in an unprecedented effort to boost American manufacturing. With scores of subsidies and tax credits, it hopes to revive a sector that has shed millions of jobs since a peak over 40 years ago.
It is odd, then, that another part of the government is doing its best to hamstring industry. Biden’s environmental regulators are layering more and more requirements on factories and utilities…
Climate Policy
This month, the Environmental Protection Agency (EPA) published revised estimates of the social cost of carbon dioxide, methane, and nitrous oxide — the three main greenhouse gases emitted by industrial civilization. The EPA’s new estimates of the social cost of carbon dioxide (SC-CO2) are not only higher than those published by the U.S. government less than three years ago, but also weirder…
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