Niall Ferguson: Milei’s Man-made Miracle
The great English lexicographer Samuel Johnson said of the actor David Garrick that his demise “eclipsed the gaiety of nations and impoverished the public stock of harmless pleasure.” If the Argentine president Javier Milei were ultimately to fail in his bid to extricate his country from a century of economic underachievement, I would feel the same way. Happily, I don’t think he will.
Since he burst onto the Latin American political scene a few years ago, Milei has added immeasurably to both the gaiety of nations and the public stock of harmless pleasure. With his shaggy sideburns and loopy facial expressions, there is more than a hint of the Mad Hatter about him.
Yet there is a method to Milei’s madness. While the world fixates on Donald Trump’s populist cocktail of reciprocal tariffs and big, beautiful deficits, Milei is delivering a man-made miracle that should gladden the heart of every classical economist and quicken the pulse of all political libertarians.
Consider what Milei has achieved in just a year and a half.
When he was sworn in as president in December 2023, the Argentine economy was a seemingly incurable basket case. In 2023, its gross domestic product had shrunk by 1.6 percent, according to the International Monetary Fund (IMF). Perhaps more strikingly, per capita gross domestic product (GDP) on an inflation-adjusted basis was lower than it had been in 2007. Public finances were in disarray. The last time the government had run a surplus was in 2008. The IMF estimated total public debt at around 90 percent of GDP, but the important thing was how much of that debt—more than $40 billion—Argentina owed to the IMF, the culmination of no fewer than 22 programs.
The previous Peronist government’s reckless fiscal and monetary policies had created annualized inflation exceeding 200 percent. Indeed, wholesale price inflation in December 2023 was 54 percent month over month—technically hyperinflation, according to the widely accepted definition. To give you some idea, in 2023 the price of a latte roughly tripled from around 1,500 pesos to around 4,500. For the last three years, Cuervo Café—the coolest coffee shop in Buenos Aires—had to adjust its prices twice a month.
After less than 20 months, Milei has eliminated the fiscal deficit, cutting it from 5 percent of GDP to zero. He has reduced the number of government ministries from 18 to 8. (“Ministry of Tourism and Sports—out!” he declared in a campaign video, tearing its name off a whiteboard. “Ministry of Culture—out! Ministry of the Environment and Sustainable Development—out! Ministry of Women, Gender, and Diversity—out! Ministry of Public Works—out, even if you resist!”) With Executive Order 70, issued a few days after his inauguration, he deregulated key markets, including property rentals, commercial airlines, and road freight transport. Labor market reforms took longer but were enacted after a fight in Congress.
Milei has ended the artificial dual exchange-rate system and restored the central bank’s independence. He has terminated the so-called “intermediate organizations” such as Polo Obrero, Movimiento Teresa Rodríguez, and Barrios de Pie, which used to administer various social benefits and for years disrupted Argentine economic life with pickets and mass mobilizations. He has overhauled the import system, removing quotas, licenses, and nonessential certifications. And he has launched a long-term program of tax and regulatory reform.
The result of this shock therapy has been a stunning recovery. Milei has brought monthly inflation down from 13 percent to 2 percent. The economy is now growing at an annual rate of 7 percent. Investors no longer shun Argentine bonds and stocks—indeed, they were among the best investments you could have made over the past two years. After a brief upward jump, the poverty rate has fallen from 42 percent, when Milei was elected, to 31 percent. There is much work still to be done, but a new program from the IMF will provide $12 billion of new lending upfront and potentially another $2 billion, which should enable Milei to remove the remaining capital and exchange controls without reigniting inflation.
Most governments that cut their fiscal deficit by five percentage points of GDP pay a heavy political price for the resulting pain. Margaret Thatcher took nearly all her years in office to get the British public sector borrowing requirement down from 4.5 percent of GDP when she was elected in 1979 to −1.1 percent 10 years later.
When Elon Musk tried to imitate Milei earlier this year, his chainsaw was quite swiftly blunted by the forces of inertia.
But Milei and his party—La Libertad Avanza (LLA)—defy political gravity.
In May his spokesman was the LLA’s lead candidate in the Buenos Aires municipal election. LLA beat both Milei’s archfoes, the Peronists, and his allies, the center-right party of the former president, Mauricio Macri. There is good reason to hope LLA will go on to win September’s provincial elections and the midterm congressional election in October.
These are astonishing feats. And they have ramifications that go far beyond South America. Free-market economics and political libertarianism are sometimes dismissed as a fad of the “neoliberal” 1980s, long ago superseded by the new populisms of the left and the right. Not so. The world has never seen a government more radically libertarian than Milei’s. But the amazing thing is not that it is working economically—Adam Smith would say, “I told you so.” The true miracle is that Milei’s shock therapy is working politically.
Born in the Palermo barrio of Buenos Aires in 1970, the son of a bus driver, Milei is authentically a “man of the people.” Estranged from his parents, he is unusually close to his younger sister Karina, whom he calls “the boss.” Nicknamed variously as el Loco (“the Madman”) and el Peluca (“the Wig”) in his youth, he played football and sang in a Rolling Stones tribute band until he was mugged by economic reality in the form of Argentina’s 1989–90 hyperinflation—when annual inflation peaked at 20,263 percent.
That inflationary shock turned Milei’s attention to the dismal science and quickly moved him to the anti-Keynesian end of the economic spectrum. Of his five cloned English mastiffs, four are named in honor of economists: Milton (after Milton Friedman), Murray (after Murray Rothbard), Robert, and Lucas (both after Robert Lucas Jr.)—the three economists least likely to be cited by Paul Krugman or Joe Stiglitz. After college, Milei worked as a professional economist for a variety of banks, industrial conglomerates, and think tanks, building a profile as a combative commentator on Argentine television.
Superficially, Milei’s meteoric political rise to the presidency—which began just four years ago, when he won a seat in the national Congress—is just the latest example of populism in the Americas. The crucial difference is that Milei doesn’t offer the usual populist remedies, such as tariffs, subsidies, or bigger government, much less flag-waving nationalism. (Having discovered his grandfather’s Jewish roots, Milei is as likely to wave an Israeli flag.) In his 2023 presidential campaign, he campaigned as a radical libertarian, wielding a hammer to destroy a scale model of the money-printing central bank, and a chainsaw to symbolize his plan to cut the bloated Argentine state down to size.
When Elon Musk tried to imitate Milei earlier this year, his chainsaw was quite swiftly blunted by the forces of inertia, while Musk himself was acrimoniously expelled from Donald Trump’s inner circle, and now finds his approval rating down to 23 percent. How is Milei succeeding where Musk failed?
For those unable to distinguish a populist from a radical libertarian, Milei provided clarification with his extraordinary lecture at the World Economic Forum in Davos in January 2024. “Collectivist experiments,” he told his audience of somewhat bewildered globalists, “are never the solution to the problems that afflict the citizens of the world. Rather, they are the root cause.” Echoing Friedman, he went on: “Socialism is always and everywhere an impoverishing phenomenon that has failed in all countries where it’s been tried out. It’s been a failure economically, socially, culturally, and it also murdered over 100 million human beings.” By contrast, “free enterprise capitalism is not just the only possible system to end world poverty, but also . . . the only morally desirable system to achieve this.”
Milei’s peroration was a glorious call to the authentic capitalists in the audience to rise up against their ancient enemy—the state. He said:
- “Do not be intimidated by the political caste or by parasites who live off the state. . . . You are social benefactors. You are heroes. You are the creators of the most extraordinary period of prosperity we’ve ever seen.”
- “Let no one tell you that your ambition is immoral. If you make money, it’s because you offer a better product at a better price, thereby contributing to general well-being.”
- “Do not surrender to the advance of the state. The state is not the solution. The state is the problem itself.”
Yet a man does not win elections merely by wooing the capitalists, least of all in a country such as Argentina, where the workers and welfare recipients vastly outnumber the entrepreneurs. When I asked one of his economic advisers to explain Milei’s wider political appeal, he provided a brilliant summary of how Milei himself would answer the question:
- “As opposed to traditional politicians, I’ll always speak the truth. It doesn’t matter whether people share my views. If I’m asked whether it’s ethical to sell my own children, I’d say, like Rothbard, that it shouldn’t be illegal.”
- “More than buying my program, people will buy the fact that I’m genuine. I’m one of them. I can scream on TV because that’s the way I am.”
- “I’m really a Rothbardian libertarian: The state shouldn’t exist. But in the short run I’m a ‘minarchist’—I’ll settle for a minimal government that provides defense, justice, and security, with social services left to the private sector.”
- “The state, first and foremost, is a thief that spends on itself (the political caste), and not only by explicit taxes (literally a form of theft) but also by a hidden tax that destroys the economy: the inflation tax.”
- “Second, the state has been used by organized groups, a private sector caste, to get privileges that not only are unfair but also damage growth: protected ‘businessaurs’ (empresaurios) and trade union scumbags (sindigarcas).”
- “My electoral platform was therefore to end inflation by applying my chainsaw to public spending, and to liquidate the caste by eliminating their state-provided privileges.”
Rather than explaining himself in essays, Milei communicates his message through theatrical public appearances and an incessant stream of social media posts. With his leather jacket and late ’60s mop top, he is part–rock star, part–mad professor, dancing, singing, and screaming his catch phrase: ¡Viva la libertad, carajo!—“Long live liberty, damn it!” It’s as if Joe Cocker had gone onstage at Woodstock and sung “I’ll Get By with a Little Help from My Friedman.” Never in the history of democracy has a tribune of the people won power this way.
From an economic standpoint, Milei’s approach makes perfect sense. The Nobel laureate Thomas Sargent’s seminal paper “The Ends of Four Big Inflations,” which first appeared in 1981, argued that ending high inflation was harder than it looked. It could not be done by pulling on a single policy lever, either by cutting spending or shrinking the money supply. Ending such an inflation “would require a change in the policy regime: There must be an abrupt change in the continuing government policy, or strategy, for setting deficits now and in the future that is sufficiently binding as to be widely believed.”
Such an economic “regime change” is precisely what Milei is achieving. It is what his predecessor but one, Mauricio Macri, failed to do. By attempting a gradual approach to reform, Macri ended up with yet another economic crisis on the eve of an election, which—inevitably—he lost.
Can Milei now succeed where Macri failed? It must be acknowledged that the historical odds are stacked against him.
Just over a century ago, before World War I, Argentina was one of the 10 richest countries in the world. Outside the English-speaking world, per-capita GDP was higher in only Switzerland, Belgium, the Netherlands, and Denmark. However, particularly after World War II, Argentina consistently underperformed. So miserably did it fare in the 1960s, ’70s, and ’80s that per-capita GDP was the same in 1990 as it had been in 1967. Inflation was in double digits between 1945 and 1952, between 1956 and 1968, and between 1970 and 1974; and in treble (or quadruple) digits between 1975 and 1990. A serial defaulter, Argentina let down foreign creditors in 1982, 1989, 2001, and 2004.
This pattern of failure can be explained only because of fundamental flaws in Argentina’s political economy. An oligarchy of landowners had sought to base the country’s economy on agricultural exports to the English-speaking world, a model that failed utterly in the Depression. Large-scale immigration without (as in North America) the freeing of agricultural land for settlement had created a disproportionately large urban working class that was highly susceptible to populist mobilization.
With his leather jacket and late ’60s mop top, he is part–rock star, part–mad professor, dancing, singing, and screaming his catch phrase: ¡Viva la libertad, carajo!—“Long live liberty, damn it!”
Repeated military interventions in politics were the prelude to a new kind of quasi-fascistic politics under Juan Perón, who offered better wages and conditions for workers and protective tariffs for Argentine industrialists. The anti-labor alternative to Péron—attempted between 1955 and 1966—relied on currency devaluation to try to reconcile the interests of agriculture and industry.
Another military coup in 1966 promised technological modernization but instead delivered more devaluation and higher inflation. Perón’s return in 1973 was a fiasco, coinciding as it did with the onset of a global upsurge in inflation. After Perón’s death in office, yet another coup plunged Argentina into violence that condemned thousands to arbitrary detention and “disappearances.” In economic terms, the junta achieved nothing other than to saddle Argentina with a rapidly growing external debt.
As so often in inflationary crises, war played a part: the internal “dirty” war against “subversives,” the external war against Britain over the Falkland Islands. But what made Argentina’s inflation so unmanageable was not war, but the constellation of social forces: the oligarchy, the regional caudillos, the producers’ interest groups, the Peronist trade unions, and the impoverished underclass or descamisados (literally, “the shirtless”). To put it simply, there was no significant group with an interest in price stability.
Comments are closed.
