Milei and the Rise of Austrian Politics
Significant change could be coming for Argentina with Javier Milei's success in the presidential primaries
Javier Milei’s supporters are celebrating the fact that the Libertarian and Austrian economist has won the presidential primary with 30% of the vote, and is the current favourite to be the next president of Argentina after the elections in October.
As a relative outsider, Milei has risen to prominence extremely quickly with his focus on drastic economic reform, most significantly his goal to abolish the Argentine central bank.
Known as “The Wig” (“El Peluca”) thanks to his unusual hairstyle, Milei is a former rock singer and self-anointed “tantric sex instructor” who believes that “climate change is a socialist lie”, sex education is a plot to destroy the nuclear family, people should be allowed to sell their organs on the free market, and it should be easier to acquire handguns. His charismatic performance in television debates have made him extremely popular, especially amongst the younger generation who feel particularly disenfranchised with the status quo.
Abolishing the Argentine central bank
“Argentina is a G20 country, but guess what? I’ve been trading bonds for 30 years and Argentina has defaulted four times in my career. Four times they defaulted in 30 years! Which is to say, there’s never been a 30 year bond which has matured in Argentina. They’ve always issued, defaulted, re-issued, defaulted, re-issued, defaulted…”
— Greg Foss
One of the main facets of Milei’s mission to reform Argentina is that of abolishing the Argentine central bank, and gradually dollarising the country. He wants to “abandon the scam that is the peso”, thus effectively destroying the banking cartels’ exploitation of the country.
In order to help prepare the presidential candidate for his ambitions, some helpful broadcasters prepared a piñata of the central bank, which he happily destroyed whilst exclaiming “Enough inflation! Enough!”
He explains that this process would not happen overnight, and that it could occur in a manner in between Ecuador’s and El Salvador’s dollarisation. Such a process would give the population around 18 months to convert their ARS to dollars, but given the high degree of inflation in the ARS it is unlikely that such a change would take so long. He has stated that the country could dollarise at a rate of 350 ARS/$ thanks to the government’s foreign currency reserves.
Reform of government ministries
Another example of Milei’s conviction in Austrian economics is his commitment to dismantle many branches of the state. On various television appearances he has repeated that all but eight ministries will be disbanded. The Ministry of Tourism and Sport, The Ministry of Culture, The Ministry of the Environment and Sustainable Development, The Ministry of Women, Gender and Diversity, The Ministry of Construction, The Ministry of Science, Technology and Innovation, The Ministry of Work, Employment and Social Security, The Ministry of Education, The Ministry of Transport, The Ministry of Health, and The Ministry of Social Development are all for the chopping block.
Health, education and welfare will all be incorporated into a new Ministry of Human Capital. Other than that, the only ones that remain are The Ministry of Infrastructure, The Ministry of the Economy, The Ministry of Justice, The Ministry of Security, The Ministry of Defence, The Ministry of Foreign Relations and The Ministry of the Interior.
Ending inflation in Argentina
The economic phenomenon that Argentina has been most famous for over the last few decades has been their history of inflation, which has consistently been completely out of control.
According to World Data, the inflation rate in Argentina over the last 42 years has oscillated between -1.2% and 3,078%, with an average inflation rate from 1980 to 2022 of 206.2% and a cumulative inflation rate of 902.38 billion percent. The most recent figures show that the YoY inflation rate in the country currently stands at 115.6%, although these are the official (manipulated) numbers. In reality, the Argentine peso has fallen out of use for large transactions, where US dollars are preferred. It also isn’t uncommon for restaurants to offer two prices: an “official” price to be paid in ARS and a discounted price in USD.
It would not be an understatement to say that the issue of inflation is one of, if not the, largest problem that has plagued the country over the last few decades.
Argentina should be a very wealthy country
There are many reasons as to why Argentina should be an incredibly wealthy country — at the turn of the 20th century, Argentina was one of the wealthiest countries in the world. The country is abundant with natural resources and replete with fertile plains such as Pampas, home to ~300 million acres of grasslands. The climate is diverse and spans a range of latitudes which allows for a plethora of different agricultural activities. Argentina also has large shale oil and gas reserves in Vaca Muerta. The population is extremely well educated and has very favourable demographics. Tourists are attracted by penguins in Ushuaia, tango in Buenos Aires, and steak just about everywhere.
However, little of this geographical, human and cultural capital has translated into sustained economic success and stability. According to Emilio Campo, Argentina “experienced four hyperinflationary episodes that were part of a long-term cycle that started in 1945”.
As well as degenerate fiscal spending, the country has also experienced several instances of more direct corruption: Juan Domingo Perón's presidency (1946-1955) was heavily criticised for siphoning funds away from the Eva Perón Foundation for personal use. After being reelected in 1973, he died in 1974 and his wife Isabel took over the helm. Her government (1974-1976) was then also accused of corruption relating to the misuse of welfare funds. The administration of Carlos Menem (1989-1999) was then also plagued by allegations of corruption, particularly regarding bribery for government contracts and the sale of weapons to Croatia and Ecuador in violation of arms embargoes. Néstor and Cristina Fernández de Kirchner (2003-2015) also had presidencies that were heavily criticised for corruption, such as in the case of the Notebooks Scandal (more bribes for government contracts) and the Hotesur Case, in which the Kirchner family hotel was accused of money laundering. Cristina was even sentenced to six years in prison after a jury found her guilty of committing a $1 billion fraud. Even Mauricio Macri (2015-2019), who stood on a firm anti-corruption platform, was implicated in the Panama Papers, although never charged.
Milei’s supporters hope that by cutting out the waste and exploitation of the state, the country will be able to recapture some of its former glory and fulfil its potential.
Latin American countries can pivot away from Keynesianism more easily
With the aforementioned positive demographics, Latin American countries are dynamic and sociologically-speaking have a high degree of “national energy” when compared with their Western counterparts. They aren’t constrained by hegemonic status, tend to have favourable demographics, and a solid work ethic. Most importantly, Argentinians are ready for change. Norman Tebbitt once said that the best thing to happen to the UK was the disaster in 1973-1974 and the Winter of Discontent, since things had become so bad that people were ready for a radically different leader. A growing portion of the Argentine population now appears to be ready to take the leap of faith and make the necessary reforms, no matter how uncomfortable in the short term.
Milei’s plans are bold, and he has managed to garner widespread support thanks to his determination to cut down the size of the state.
However, if he truly wants to “exterminate” inflation, dollarising won’t be a panacea. Stablecoins are already popular in the country, but countries that simply defer control of their monetary policy to the US risk becoming vassal states and victims of seigniorage (the USD is, after all, still inflationary). For this reason, it seems only logical that the Bitcoin industry will continue to grow in the country. Given his stance on Austrian economics, it ought to come as no surprise that Milei is supportive of Bitcoin, which he has stated in a “natural response” from the free market, and that taking money out of the hands of the public sector is a good thing.
Following the success of Bitcoin Beach in El Zonte, El Salvador's President Bukele made Bitcoin legal tender. El Salvador’s economy has since rocketed and is currently the fastest growing country in all of the Americas (as well as having developed from the country with the most homicides in the world to the safest country on the continent). Similar circular economy initiatives have now sprung up in many of their neighbouring countries: Guatemala is home to Bitcoin Lake, Costa Rica has Bitcoin Jungle, Honduras has Bitcoin Valley, and adoption on the continent more generally is growing consistently. El Salvador even managed to use their newfound success to pay off the country’s national debt, and has opted to raise capital from the free market with Bitcoin-backed Volcano Bonds in lieu of the IMF’s protestations.
Rather than making Bitcoin legal tender, Milei has spoken candidly about how he doesn’t believe in legal tender laws at all, and that people should be allowed to use whichever currency they prefer, letting the invisible hand of the free market dictate which is the best. As such, it is unlikely that Argentina will follow exactly the same path as countries like El Salvador, but that Bitcoin will compete in the free market of cryptocurrencies.
This is hugely significant, and by far one of the most Austrian perspectives that any contemporary politician has taken. Too much of the Western world is divided between left wing and right wing, conservative and liberal, nationalist and globalist. As far as economic theory is concerned, there is almost complete uniformity in favour of Keynesian doctrine, with very little public discourse to the contrary (“Ministerio de Educación: adoctrinamiento!”). The national debt crisis that major economies around the world currently find themselves embroiled in may inevitably force a radical change of thinking, with the countries most able and most willing to adapt set to become the largest beneficiaries. After lockdowns, mask mandates, vaccine passports, etc., people all around the world are now cognisant of the dangers of having such oversized states, and are ready for change.