Argentina‘s troubled economy has led to the victory of President-elect Javier Milei, whom many have branded a radical. Given our own fiscal and monetary troubles, what has happened in Argentina has implications for the United States.
Mr. Milei’s ideas are neither radical nor novel. They represent a move toward returning to normal and a repudiation of the economic sins Argentina has repeatedly committed.
The nation is in the throes of its fifth hyperinflation in less than five decades, with prices now rising 143% per year. It was enough to convince the Argentine electorate that it was time for a 180-degree change in economic policy. The people want to make Argentina great again, as former President Donald Trump said in congratulating Mr. Milei.
A century ago, Argentina was the crown jewel of South America. It was one of the richest countries in the world, with a gold-backed currency and a higher per-capita gross domestic product than Austria, Italy or Spain, its former master.
But Argentina got caught up in the progressive era of the early 20th century and elected socialists around World War I. Government meddling in the economy took root with new laws controlling factory production and working hours. Major industries such as energy and transportation were nationalized. Government schools became ubiquitous.
Economic efficiency declined and output fell as the bureaucracy became bloated.
With the onset of the Great Depression, socialists in both the U.S. and Argentina found a new excuse to implement the agenda they had been advocating for decades. Argentina‘s government exploded its budget and launched an economywide industrial policy, which backfired spectacularly, just as the New Deal drove U.S. economic output lower.
To finance an expanded government, Argentina chose to print money and abandoned the gold standard, then devalued the peso by half. Agricultural output plunged, including beef, and Argentina lost its place as one of the world’s biggest beef exporters.
The political unrest that followed led to a military coup and takeover by fascist-sympathizing national socialists who doubled down on their predecessors’ failed policies. The next four decades saw more inflation and the nationalization and unionization of more industries and workers amid constant pushes for social justice.
The middle class all but disappeared, replaced by an overregulated, overtaxed underclass.
In the first of a series of hyperinflations, the peso’s value went from 42 cents American to less than three one-thousands of a cent in 1969. Argentina abandoned its throne among the pantheon of the richest nations in the world, descending to perennial economic basket cases.
Although the peso was restored in 1970, it quickly lost 99.9% of its value. It was reset again in 1981, only to lose 95% of its value thereafter. Each time government spending expanded beyond its means, Argentina printed the money to pay for it, robbing the people of their wealth.
After resetting the peso in 1983, hyperinflation was repeated yet again with a 98% devaluation. A further reset of the peso in 1985 was preceded by a collapse of the currency, losing 99.9% of its value once more.
By 1992, then-President Carlos Menem was able to restore the Argentine peso to parity with the U.S. dollar, but the feat lasted only a decade before the nation returned to its socialist credo. Government spending grew, financed by printed money, and the currency predictably lost more than 90% of its value.
Argentina returned to being persona non grata in the world of investment-grade bonds, and Argentines were once again laboring away under the yoke of hyperinflation.
This is the context that elected Javier Milei. At long last, Argentines have had enough socialism and want their country back. Sadly, it took Argentina almost a century of chaos to learn that lesson.
The United States is following in Argentina’s footsteps, but it is running instead of walking. Relative to the size of the economy, Washington is racking up deficits twice as large as those of Buenos Aires. More than 40% of U.S. personal income taxes in America are consumed just in interest on the federal debt. If the spending is not cut soon, Argentina-style hyperinflation will follow as the only way to pay for excessive government spending.
America should skip to the end of the story of Argentina instead of reliving the whole tragedy page by page. That seems unlikely since, as our South American cousin has shown, even repeated bouts of hyperinflation aren’t always enough to wake people up to the disastrous reality of socialism.
This piece originally appeared in The Washington Times