There are those, I suppose, who still think of the World Economic Forum’s annual meeting Davos as some kind of capitalist jamboree, but it is far better seen as a gathering not of capitalists — or at least capitalists in any free market sense of that word — but of corporatists.
In an article from November 2020 in which I looked at how the WEF was attempting to use the pandemic as an argument for “a great reset,” I wrote about how the WEF’s technocratic agenda was an expression of corporatism, which I described as:
[A] hydra-headed ideology with origins in the premodern, and a very mixed past — sometimes benignly (it influenced the formation of West Germany’s social market economy) and sometimes not (it was an important element in pre-war fascist theory.) The different forms corporatism has taken make it tricky to define with precision, but they share a common core: the conviction that society should be organized by and for its principal interest groups — let’s call them “stakeholders” — intermediated by, and ultimately subordinate to, the state. The individual does not get a look in.
In 1943, following a military coup in Argentina, Juan Perón (a colonel in the army) was given the job of heading up the Department of Labor and Social Security, which, through a series of broadly progressive reforms, he used to create a power base within organized labor, and did so with such effectiveness that he rapidly rose up the governmental hierarchy. In 1946 he was elected president on what might roughly be described as a left-corporatist program. Peronism was not always easy to describe (and, after various mutations still isn’t), but Perón was certainly influenced by what he’d seen of Mussolini’s regime, which was corporatist, if, in key respects, more in theory than in practice.
But if Peronism is not easy to define, its disdain for free markets and fondness for heavy state intervention in the economy had, before too long, taken their inevitable toll. There were some clear, deep-seated structural problems in the Argentine economy before Perón (as Milei has noted elsewhere), but his program, taken as a whole, not only represented a wrong turn, but institutionalized it. A century ago, Argentina was one of the richest countries in the world. It has since fallen a long, long way after decades in which its advantages were systematically squandered. Despite that, Alberto Fernandez, its president until December, headed up a party firmly in the Peronist tradition, not least in its interventionism, high deficit spending (the new finance minister has noted that the country has had a fiscal deficit for 113 out of the last 123 years), and inflationary legacy.
It was thus a dramatic break from eight decades or more of Argentina’s intellectual and political history when the charismatic Javier Milei, an economist, (relatively) novice legislator, self-styled anarcho-capitalist, and eccentric, was elected president in November on a platform of profound change (he took office the following month). His victory was, in many respects, a vote against the failures of the established regime, rather than a vote for his libertarian economic ideas, something he surely understands.
Nevertheless, convinced not only that those ideas are the right ones, but also that, in light of the scale of the Argentina’s problems, there is no acceptable alternative, Milei is plowing ahead rapidly with a hugely ambitious program of reforms, which I wrote about here. This is despite the additional obstacle posed by the fact that his party (which was only formed in 2021) is only lightly represented in the legislature, raising the prospect that significant portions of his agenda will be blocked. One of the many unanswered questions about what lies ahead is how willing Milei will be to accept, so to speak, half a loaf. Both the nature of his beliefs and, probably, his instincts suggest that he is an all or nothing negotiator, and that is the message he is sending even if the representatives of his party, the LLA, in Congress seem more willing to compromise than their leader. However, Milei may be more flexible than his rhetoric suggests. Thus it’s worth noting that dollarization, a key plank of his campaign, seems to be on hold and that he has toned down his fierce criticism of China, a nation run by a regime that he does not hold in, uh, high esteem.
[Milei] insulted communist-run China in a fiery campaign but takes office on Sunday needing the country’s second-largest trade partner more than ever as a recession looms and foreign currency reserves run dry.
Since he won the Nov. 19 election, Milei’s team have taken a more diplomatic tone, reflecting complex ties with China, the top buyer of Argentine soybeans and beef, a key investor in its lithium, and the provider of an $18 billion currency swap – effectively, a form of credit provision that has helped Argentina avoid default.
And then there was this in an interview with the Economist in September, in which he discussed the “restrictions” imposed by political reality:
Some you can accept, others you cannot, and still others you accept in the short term but with the intention of lifting them in the long term […].
I have a vision of the world and that marks where I want to go. But the world is what it is, so I have to act with these restrictions and try to do what most resembles my ideal world. Some people don’t understand that and well, that’s part of life.
Meanwhile, inflation stands at 211 percent, a terrible number, but, tellingly, not a record for Argentina, “merely” the highest in 32 years. Unsurprisingly, the peso continues to slide, and has fallen by around one-third this year. The “blue dollar,” the peso’s “unofficial” rate, currently trades at around 1,225 pesos to the dollar. In February 2019, the rate was around 37.
To quote The Lord of The Rings’ Gimli: “Certainty of death? Small chance of success? What are we waiting for?”
Milei’s thinking, I suspect, is that anything other than the shock therapy he is advancing, which is institutional (for example, he has shut down various ministries) as well as economic, will be quickly neutralized. He could well be right. He is also doubtless calculating that he has to act as quickly as he can. Argentines know that the crisis is not Milei’s fault, but, with the economy still deteriorating, their patience — and their willingness to give their new president a chance — may fade.
Even if Milei does not get all that he wants, he may be able to achieve enough to preserve the shift in Argentina’s Overton Window that his election represents, and his country needs. Maybe. If, as is all too possible, his presidency fails either because of the immensity of the challenge he faces or simply because he messes up, the libertarian moment could pass as Argentines opt to return to the Peronist straitjacket they know best.
Nevertheless (via the Financial Times):
Milei’s economic policies have also won initial support from the IMF, whose technical staff approved a disbursement of funds to Argentina last week and whose deputy managing director Gita Gopinath told the Financial Times the new administration had “moved boldly to correct several of the misalignments that are there in the economy”….
Gopinath cited Milei’s 54 per cent devaluation of the official exchange rate in December as one of his administration’s “bold” moves. She said a “strong fiscal anchor” was an “important” condition for an improvement. “And that was what this administration did, which previous administrations were not able to do.”
The IMF held tense, drawn-out talks last year with Argentina’s previous left-leaning Peronist government, which printed billions of pesos to fund pre-election cash handouts and publicly blamed the IMF for an unpopular currency devaluation in August. Argentina and the fund last week unveiled a target for the country to reach a fiscal surplus of 2 per cent of gross domestic product in 2024, revised upwards from a 0.9 per cent deficit target. The new goal would imply spending cuts and tax increases worth about 5 per cent of GDP.
Markets have responded positively to Milei’s plans. Argentina’s deeply distressed 2030 dollar bonds, some of the most liquid, have risen 22 per cent since November’s election to 37 cents.
That said, the FT reports that the IMF “will probably hold back from committing significant new financing to Argentina until Milei can show his reforms are sustainable.”
That won’t be easy.
But however long it lasts, this moment is already generating some, well, moments to savor, not least the speech Milei made this week at Davos, a speech that may have attracted more attention than anything said by an Argentine-born politician since the days when Che Guevara was holding court. But, Milei, by contrast, is worth listening to. Oh yes and, unlike some at Davos, he flew commercial to get there.
An English-language transcript of the speech can be found here.
Some extracts:
[I]n recent decades, the main leaders of the Western world have abandoned the model of freedom for different versions of what we call collectivism. Some have been motivated by well-meaning individuals who are willing to help others, and others have been motivated by the wish to belong to a privileged caste.
Count me skeptical about how many of them are or were well-meaning, although some may be relatively sincere. But, if I had to guess, the majority are after a place in the ranks of that “privileged caste.” And that’s certainly true of those pushing the Davos brand of corporatism, stakeholder capitalism.
To (but of course!) quote myself from November 2020:
[S]takeholder capitalism is a betrayal of democracy as well as of shareholders. The power it gives to managers is used to support an agenda influenced by a cabal of activists, NGOs, representatives of the “international community,” and politicians too arrogant to go through the usual legislative channels.
Back to Milei:
Far from being the cause of our problems, free trade capitalism as an economic system is the only instrument we have to end hunger, poverty and extreme poverty across our planet. The empirical evidence is unquestionable.
Therefore since there is no doubt that free enterprise capitalism is superior in productive terms, the left-wing doxa has attacked capitalism, alleging matters of morality, saying – that’s what the detractors claim – that it’s unjust. They say that capitalism is evil because it’s individualistic and that collectivism is good because it’s altruistic. Of course, with the money of others.
So they therefore advocate for social justice. But this concept, which in the developed world became fashionable in recent times, in my country has been a constant in political discourse for over 80 years. The problem is that social justice is not just, and it doesn’t contribute to general well-being.
A notion of “social justice” with roots that can be found in Catholic social teaching is an important element in corporatism and indeed Peronism, something even reflected in the name of Perón’s Justicialist Party (Partido Justicialista). Milei’s speech was clearly written with two audiences in mind, the attendees in Davos, and people back home.
Milei is an academic and (for good or ill: he can be — how to put this — dogmatic) a true believer. Both give him an urge to explain, as does, I suspect, the political importance he attaches to the battle of ideas, of winning the argument, and not just for a day or a month. He is clearly aiming to reset the terms of debate. And so, part of the speech includes passages (among others) on “market failure,” an instinctive hostility to antitrust (good to read, but taken a little far), a swipe at neoclassical liberalism (oh dear), and an explanation of the market as a discovery process, fare not usually found in a politician’s speech. Arriving back from Davos at Buenos Aires’ Ezeiza airport, Milei was photographed carrying a copy of Hayek’s Individualism and Economic Order, a book he must have already read (many times?) before, but a book he clearly wanted to be seen to be reading, in the hope, presumably, that others might give it a try.
Milei asks:
How come academia, international organisations, economic theorists and politicians demonise an economic system that has not only lifted 90% of the world’s population out of extreme poverty but has continued to do this faster and faster?
It’s a question that he left unanswered, but perhaps best the way to respond can be to look again at the reasons why Western leaders have been drawn to collectivism. Some may be well-meaning, and some may believe it, but for most it is a pathway to a career, to money, to power, or to all three, which is less demanding than that offered by free markets.
One mystery (for me) resolved was Milei’s explanation of the way in which he typically uses the word “socialism”:
I know, to many it may sound ridiculous to suggest that the West has turned to socialism, but it’s only ridiculous if you only limit yourself to the traditional economic definition of socialism, which says that it’s an economic system where the state owns the means of production. This definition in my view, should be updated in the light of current circumstances.
Interestingly, for a man often described as a populist, he includes populism as an example of yet another collectivist variant. Trouble in the narrative! To its credit, in its report in the speech, the FT’s writers described Milei as “ultraliberal,” a rather more accurate description than “populist” or, another favorite, the inevitable “far right.”
Sadly, Milei didn’t specifically take “stakeholder capitalism” or its symbiont, ESG, to the woodshed although his jibe at altruism with “the money of others” certainly applies to both those concepts, but he did have this to say:
[S]uccessful businesspeople are social benefactors who, far from appropriating the wealth of others, contribute to the general well-being. Ultimately, a successful entrepreneur is a hero…
The case of Argentina is an empirical demonstration that no matter how rich you may be, how much you may have in terms of natural resources, how skilled your population may be, how educated, or how many bars of gold you may have in the central bank – if measures are adopted that hinder the free functioning of markets, competition, price systems, trade and ownership of private property, the only possible fate is poverty.
To have a president of Argentina say that is quite something.
To have a president of anywhere say that is quite something.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow 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 153rd episode David is joined by the country’s most prolific housing expert, Ed Pinto of the American Enterprise Institute Housing Center, for a thorough discussion on the state of the housing market. In this methodical and digestible conversation, the case is made for what the real, ultimate, through-the-noise, bottom-line issue in housing may be, and what the solution to that one thing really is.
The Capital Matters week that was . . .
Inflation
[G]iven the magnitude of the excess money growth in 2020–21 and the quantity theory of money, it was possible to calculate quite accurately — as we did — the price increases that were likely to result from the Fed’s excesses. Indeed, we predicted that the CPI would increase to as much as 9 percent, which turned out to be very close to the 9.1 percent CPI peak recorded in June 2022...
This confusion, and particularly confusion concerning how many to hire and employ and how much to save and invest, likely plays a role in scrambling what is often presented as a straightforward relationship. On the other hand, lowering inflation reduces this confusion and makes all these decisions easier.
So reject the Phillips Curve and oppose inflationary policies. The data demonstrate that inflationary policies do not, as a rule, decrease unemployment.
Fiscal Policy
Much criticism of the welfare state revolves around the problem of “robbing Peter to pay Paul,” i.e., redistributing money to individuals through government transfers in a way that doesn’t make the whole better off. But what about robbing Peter to pay . . . Peter?
Industrial Policy
Scenario 2 seems more likely to me. As I noted back in September, economist Paul Winfree found that total private fixed investment has basically stagnated while this manufacturing-construction boom has occurred. That stagnation suggests that most of this manufacturing spending is driven by subsidies rather than market demand….
A boom in construction spending on manufacturing doesn’t necessarily translate into a boom in manufacturing production. In fact, manufacturing output has shown no signs of growth for a while now…
Imagine the large bureaucratic apparatus that is needed to decide who gets the semiconductor subsidies, to make sure that these companies comply with labor-union and buy-American requirements and don’t run afoul of the inevitable environmental requirements. Imagine the level of power that must be given to bureaucrats to enable them to decide who, exactly, can export what, precisely, to which countries.
Smith has no issue with growing the administrative state. If anything, he fears that we are lacking bureaucrats to do the work. But conservatives, national conservatives or not, should have a problem with this, as it is in direct contradiction their complaints about the administrative state, or even “the deep state.” Do they realize that industrial policy inevitably empowers that deep state they dislike so much?…
Electric Vehicles
Given that EV batteries take longer to charge in the cold, waiting for the car ahead to charge could take a while. And if, as it’s very cold outside, a foolish driver is tempted to turn on the car heater while waiting for the charger ahead to finish, he or she should keep away from that button. Turning on the car heating will drain the battery even faster. Just wear an overcoat, a hat, gloves. Setting a small fire, however, is not the way to go…
One of the many reasons that central planning has such a dismal record is that planners have a way of monkeying around with numbers to get the “right” result, however unrelated to reality it may be.
In light of that, this Wall Street Journal report by Michael Buschbacher and James Conde made interesting reading…
Tax
They’re doing it again: Some wealthy people are asking governments to tax them more…
Argentina
A few nights ago, I was in my office when I caught an interview with a Fox Business guest about the speech in Davos given by the new president of Argentina, Javier Milei. The guest commented that the last person to make comments like Milei’s in challenging the “globalists” and the status quo was President Trump. This isn’t the first time I have heard Milei compared to Trump.
But Milei is nothing like Trump. He is like no other politician we have had in recent years, I should add. However, since former president Trump is the one whom he is most compared to, I will focus on him and on one of the most striking differences I see between the two leaders.
Housing
Americans with little help from government, are reinventing themselves and boosting their prospects by settling in less expensive, less regulated regions where rents and house prices are more affordable.
Much of this is taking place in “red states,” leading some to link this movement to a conservative ideological agenda. But this is not primarily a political movement. It is a reflection of a largely apolitical grassroots and market-driven trend…
The Fed
Economic-policy decisions can happen for political reasons, or for economic ones. Politically motivated choices are almost never identified as such by their advocates, but when policy-makers signal policies that have little or no economic merit, then politics is always the reason why.
This observation should make those who correctly believe that central-bank independence is crucial to long-run economic stability very nervous in the United States right now…
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