In November 2023, the warning came, as clear as an omen.\u00a0<\/p>\n
A political upstart was seeking office and, if elected, his policies were likely to cause \u201cdevastation\u201d in his own country and \u201cseverely reduce policy space in the long run.\u201d\u00a0<\/p>\n
The threat was a chainsaw-wielding<\/a> disciple of Austrian economics<\/a> from Argentina who embraced laissez-faire economics. The predictions of doom came not from Old Testament prophets, but 108 economists who signed a public letter<\/a> saying his anachronistic ideas had long ago been discredited.<\/p>\n \u201cAs economists from around the world who are supportive of broad-based economic development in Argentina, we are especially concerned by the economic program of one of the candidates, which has become a major issue of discussion in the national election,\u201d the letter read.<\/p>\n The economists (who included Thomas Piketty<\/a>, a leading global scholar on wealth and income inequality<\/a>) conceded that a desire for change in Argentina was understandable, considering the rampant inflation<\/a> and economic crises<\/a> the country was experiencing.\u00a0<\/p>\n Yet the warning was clear.\u00a0<\/p>\n \u201cJavier Milei\u2019s economic proposals are presented as a radical departure from the traditional economic thinking,\u201d the economists wrote. \u201c\u2026we believe that these proposals, rooted in laissez-faire economics and involving contentious ideas like dollarization<\/a> and significant reductions in government spending, are fraught with risks\u2026 . \u201c<\/p>\n The people of Argentina either failed to hear or declined to heed the warning.\u00a0<\/p>\n On November 19, voters elected<\/a> as their next president the wild-haired Milei, who defeated his Peronist opponent by a ten-point margin<\/a>. Milei was inaugurated on December 10 and wasted little time<\/a> implementing his laissez-faire agenda, which included an immediate five-percent (chainsaw<\/a>) slash in government spending.\u00a0<\/p>\n More reforms followed.\u00a0<\/p>\n Public work programs were put on hold, welfare programs were slashed, and subsidies were eliminated. State-owned companies were privatized<\/a> and hundreds of regulations were cut. Tax codes were simplified and levies on exports were lifted or reduced. Labor laws were relaxed<\/a>. The number of government ministries was reduced from 18 to 9<\/a> (\u00a1afuera!) and a job freeze was implemented on federal positions. Tens of thousands of public employees were given pink slips<\/a>.\u00a0<\/p>\n On the monetary side, the currency was sharply devalued and the central bank was ordered to halt its money-printing<\/a>.\u00a0<\/p>\n These actions were not painless. Indeed, Milei himself had described them<\/a> as a kind of \u201cshock\u201d therapy that was necessary for economic healing. Argentina was battling triple-digit inflation, economic sclerosis, and mass poverty<\/a>.\u00a0<\/p>\n \u201cI will make a shock adjustment and I will put the economy in a fiscal balance,\u201d Milei said following his win. \u201cAs I pledged not to raise taxes, this means I will do so by cutting spending.\u201d\u00a0<\/p>\n Milei recently completed his first year as president, and the results are not what Piketty and company predicted. Duke University economist Michael Munger, a contributor to these pages, recently pointed out<\/a> that Argentina\u2019s economy outperformed any reasonable expectation under Milei. He\u2019s right.\u00a0<\/p>\n Inflation, which had peaked<\/a> at an annualized rate of 300 percent in April, nosedived, reaching a four-year low in November. In his first month in office, the Associated Foreign Press reports<\/a>, Milei oversaw a record 25.5 percent inflation rate. By November, inflation had fallen to 2.4 percent.\u00a0<\/p>\n \u201cIn just 12 months we pulverized inflation,\u201d the Economy Ministry wrote on X<\/a>.<\/p>\n Meanwhile, Argentina\u2019s economy officially exited recession<\/a>.\u00a0<\/p>\n GDP grew nearly four percent in the July-to-September quarter after a sluggish first half, and the International Monetary Fund forecasts growth<\/a> of five percent in 2025 and 2026. Meanwhile, Munger notes, there is a strong likelihood of foreign investment, as evidenced by the JP Morgan \u201ccountry risk index.\u201d\u00a0<\/p>\n There\u2019s more work to be done in Argentina, a country that for decades has struggled economically under the yoke of Peronism. Yet the results are nothing short of miraculous \u2014 and precisely the opposite of what the 108 economists predicted (not to mention prestigious media outlets like The New York Times<\/em>, which reported on<\/a> the \u201cconcern in Argentina and beyond about the damage [a Milei] government could inflict on Latin America\u2019s third-largest economy\u201d).<\/p>\n A \u2018Superficial\u2019 Understanding<\/strong><\/p>\n It bears asking, how did Piketty and company get things so wrong?\u00a0<\/p>\n Economics, after all, is a science \u2014 a dismal one<\/a> perhaps, but a science nevertheless. And though there was never a clear consensus on Milei among professional economists, many of the most vocal and prominent ones were predicting that Milei and his laissez-faire policies would be disastrous.\u00a0<\/p>\n I reached out to several professional economists to get their hypotheses on why their peers missed so badly in their predictions on what Milei\u2019s policies would achieve. I didn\u2019t sense an eagerness to discuss the issue, perhaps because these economists are more humble than the 108 who signed the letter in 2023, and fully understand that predicting economic outcomes is challenging.\u00a0<\/p>\n One economist who has written about the failed prediction is David Henderson, a research fellow at the Hoover Institution. In a post<\/a>, Henderson attributes the failure of Piketty and company to a lack of understanding of free markets and government intervention.\u00a0<\/p>\n Henderson points out several flawed assertions the authors make and demolishes at least one straw man \u2014 \u201cthe laissez-faire model assumes that markets work perfectly\u201d \u2014 before offering a blunt assessment of the economists.<\/p>\n \u201cTheir understanding of how markets work and of how governments work is superficial,\u201d writes Henderson. \u201cI wonder if any of them, seeing the apparent success of Milei\u2019s policies, are questioning their prior views. We can always hope.\u201d<\/p>\n Indeed we can. But for now, it\u2019s not unfair to assume from their silence that they\u2019ve learned little from Argentina\u2019s economic progress.\u00a0<\/p>\n As President Donald Trump begins his own second term as president, there\u2019s much he can learn<\/a> from Milei\u2019s first year in office.\u00a0<\/p>\n This includes ignoring economists who claim that cutting government spending, regulations, and bureaucracy will result in economic devastation. And perhaps most importantly, the danger of using government printing presses to avoid making difficult budget decisions.<\/p>\n The post How Did 108 Economists Predict Milei's Results Exactly Wrong?<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" In November 2023, the warning came, as clear as an omen.\u00a0 A political upstart was seeking office and, if elected, his policies were likely to cause \u201cdevastation\u201d in his own country and \u201cseverely reduce policy space in the long run.\u201d\u00a0 The threat was a chainsaw-wielding disciple of Austrian economics from Argentina who embraced laissez-faire economics. …<\/p>\n","protected":false},"author":391,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2376997","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2376997","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/391"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2376997"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2376997\/revisions"}],"predecessor-version":[{"id":2376998,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2376997\/revisions\/2376998"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2376997"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2376997"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2376997"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
<\/strong>Milei\u2019s \u2018Shock Therapy\u2019<\/strong><\/p>\nThe Results, One Year Later\u00a0<\/h3>\n