What the US Can Learn From Javier Milei

Commentary

Javier Milei, the libertarian economist who has been Argentina’s president for the past year and a half, deserves more publicity here in the States than he is receiving. A recent online search led me mostly to reports by think tanks in foreign countries. Reports from domestic media outlets were conspicuously absent from my search results.

I suspect that the lack of coverage of Milei is because his policies are anathema to progressive orthodoxies. His low profile is unfortunate, because what he has done includes valuable lessons for us to learn. (Here is a half-hour video that does a commendable job of telling Milei’s story.)

He could easily serve as a poster boy for the Department of Government Efficiency initiative. He famously brandishes a chainsaw at public appearances when he advocates slashing government spending. The fact is, he has taken a figurative chainsaw to Argentina’s national budget. Milei reduced the number of government ministries in Argentina from 18 to 8 and laid off nearly 10 percent of government employees. He has cut government spending by 31 percent—an amount approximately equal to 10 percent of the country’s gross domestic product (GDP). A 31 percent cut in U.S. government spending would be more than $2.1 trillion, and yet we have just seen how politically difficult it was to pass a rescission bill that cut a measly $9 billion from federal spending. (A 10 percent cut of our GDP would be more than $2.7 trillion.)

So what has happened in Argentina in the aftermath of Milei’s massive spending cuts? Has the economy collapsed? Hardly. Second-quarter GDP rose by 7.6 percent, and the government is running a fiscal surplus for the first time in 14 years. If only U.S. President Donald Trump could have half the success as his Argentine counterpart in slashing government spending!

The significance of Milei’s accomplishments is that he has slain an old Keynesian dogma that has repeatedly hampered the U.S. economy for more than 90 years now. A quick refresher course in U.S. economic history:

Throughout the 1930s—first under Herbert Hoover, then under Franklin Roosevelt—the U.S. government engaged in heavy government deficit spending in a committed effort to pull the country out of depression. Clearly, running up the federal debt and intervening in various parts of the economy didn’t work. Halfway through the decade, in December 1935, famous British economist John Maynard Keynes published a new book, “The General Theory of Employment, Interest, and Money,” in which he basically said to the Roosevelt administration: “You are doing the right thing. Keep spending!” Well, Roosevelt followed the economist’s advice, and the depression lingered for another five years.

This had two pernicious long-term effects. 1) Economists got the message that governments weren’t interested in free-market solutions. They wanted intellectual support for government intervention, and if you wanted fame as an economist, it helped if you gave intellectual cover to politicians who wanted to be seen as “doing something.” 2) Government intervention, including deficit spending, became the unquestionable political orthodoxy. As Barack Obama framed the orthodoxy in January 2009, “only government can” lead a country out of recession. The problem with that assertion is that it is spectacularly wrong.

The recent events in Argentina have proven to the world that an economy can grow vigorously at a time of drastically reduced government spending. Our own history features a similar example. A decade before the Great Depression started, the United States suffered a wrenching depression. Largely forgotten today, the Depression of 1921 was a jarring economic contraction in 1920 and 1921. It was as steep, rapid, and severe as any economic downturn in American history. GDP plummeted by 23.9 percent, wholesale prices collapsed by a stunning 40.8 percent, and unemployment jumped by more than 10 percentage points in a single year, hitting 14 percent in 1921.

What was the federal government’s policy response to this brutal depression? Newly elected President Warren Harding cut federal spending almost in half from President Woodrow Wilson’s 1920 budget ($6.3 billion) to $3.3 billion in 1922. Harding also reduced income tax rates, leaving more of the country’s wealth in the private sector. He cut the top marginal tax rate to 58 percent from 73 percent. From 14 percent in 1921, the unemployment rate fell to 6.7 percent in 1922 and all the way down to 2.4 percent in 1923. Industrial production soared by 27.3 percent in 1922, and in just a few years, GDP rose a whopping 60 percent. Harding presided over one of the greatest economic success stories in American history.

Keep this in mind the next time you read one of those historians’ polls that routinely grade Harding—who had the most successful economic policies of the 20th century—as one of our worst presidents, while Roosevelt, whose deficit-spending policies caused years of stagnation and misery, is ranked as one of the best. This is ideological blindness. Progressive historians believe religiously in big government; thus, Roosevelt, a leading practitioner of big government, is lionized (even though his policies crippled the economy) while Harding, who eschewed government intervention and chose to trust in free markets, is vilified (even though his policies led to booming prosperity).

Harding’s handling of the Depression of 1921, along with Milei’s current policy successes in Argentina, should drive a dagger through the heart of the Keynesian dogma that government deficit spending is the cure for economic depressions.

Shrinking government and getting it off people’s backs is what works. But don’t expect most of our “intellectual” and political classes to accept this lesson. Their dogged (and self-serving) faith in big government will not yield to mere facts.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.