Chainsaw economics: What can Argentina’s Milei teach us about beating inflation
A year ago, Javier Milei, an accomplished economist, occasional rock singer, and firebrand defender of free markets, was sworn in as president of Argentina.
He campaigned with a chainsaw in hand, promising deep government cuts, a balanced budget, getting government out of the economy, and ending one of the world’s highest inflation rates.
Argentines, facing 25% price hikes every month, decided to give the clear-thinking libertarian a chance and elected him president.
He promised a 180-degree change in Argentina, defending the “radical” idea that prosperity is only possible when the people — not government bureaucrats — lead the economy through the free market.
Many wondered whether the viral Austrian school economist turned president could be successful. After all, Argentina has a long history of failed economic reforms and political instability.
Yet, just one year after he took office, it’s clear Milei’s fulfilling his first task: He got inflation under control, as prices rose by only 2.7% in October.
How did he do it?
He kept his promises.
ARGENTINA: A HISTORY OF LOUSY ECONOMICS
But before we get to Milei’s first year in government, we need to understand Argentina’s infamous economic history.
In 1913, Argentina was one of the world’s 10 wealthiest economies, as the country was an agricultural powerhouse. Yet, over the last 100 years, waves of nationalizations, government regulations, price and currency controls, financial collapses, and inflationary cycles have taken Argentina down to the 74th-highest GDP per capita in the world.
When Milei got elected last year, the government’s out-of-control spending threatened to bankrupt (once again) millions of Argentines, and it seemed like the country was heading unstoppably toward hyperinflation.
With an economic catastrophe looming, Milei got to work. His first and most urgent task was curbing inflation.
‘AFUERA’: STAMPING OUT INFLATION AND GOVERNMENT WASTE
Milei’s recipe to slow inflation was simple: get government spending under control. Like he said in a viral campaign video, useless government spending would go “afuera” (out) during his presidency.
He stayed true to his word.
Milei dissolved or merged many government departments, reduced the size of the bureaucracy, ended government subsidies in gas, electricity, and other public utilities, and temporarily paused the funding of public works.
In total, Milei reduced government spending by 28% and did something many people thought impossible: He balanced the budget.
The result?
For the first time in over a decade, Argentina reported a budget surplus.
With less government spending, the Central Bank didn’t need to print millions of Argentine pesos to finance the government. With less money in the market, prices went down.
CHALLENGES AHEAD AND LESSONS FOR AMERICA
Milei and Argentina still have a long road ahead.
After years of measured GDP being artificially pumped by massive government spending, the spending cuts needed to bring inflation under control also slowed down official estimates of growth in the Argentine economy.
Experts expect the economy to rebound next year as new investments produce real returns, but many reforms are still needed to achieve sustainable growth.
After decades of top-down government control of the economy, doing business in Argentina has been a nightmarish labyrinth of red tape and bureaucracy. One that Congress (which Milei’s party doesn’t control) and Milei will need to sort out if there’s any chance for future prosperity.
If Milei is half as successful as he’s been in his first year and implements substantial freedom-minded economic reforms, then Argentina might be on its way to sustainable prosperity.
What we’ve seen in Argentina is a powerful reminder of how out-of-control government spending and regulations can drive even one of the world’s most prosperous countries to ruin — and how sound, freedom-based policy solutions are the only way to build it back.
This is true whether you are in Washington, D.C., or Buenos Aires.
That’s why Americans for Prosperity is pushing for sound economic policies that will protect American prosperity and ensure its success for generations to come.
If you want to learn how to join the country’s largest grassroots organization, click here.
