The Argentinization of America

Argentina is what happens to a country when the people running it have no idea what they are doing. They think they know what they are doing and are undeterred when things don’t turn out so well. Socialist countries suffer this fate. Ditto most government-run economies. I call this process “Argentinization.”

I mention Argentina because they are the poster child of this phenomenon. At the turn of the twentieth century they were one of the wealthiest countries in the world. Today they are a basket case of inflation, depression, corruption, stagnation, and poverty.

There are some parallels of this phenomenon in the USA.

What set me off was a recent Wall Street Journal article, “Trump Allies Draw Up Plans to Blunt Fed’s Independence.” It knocked me off my perch. The article lede is “Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term …” 

The gist is that Trump loves low interest rates, he wants to get rid of Fed Chair Jerome Powell, and it would be really neat if he as president could affect Fed decisions on policy, especially interest rates. 

This would be very bad for America and the world. Even if you assume Trump is the greatest authority on monetary policy, by removing the Fed’s independence from political pressure, the next president might not be so knowledgeable. Coming up for re-election a president might want lower interest rates and expansive monetary policy to buy votes. This is a very slippery slope to Argentinization. 

We may think that the wise adults in the room would not let this happen, but that naively ignores history. Deficit spending, Quantitative Easing (money printing) to finance deficits, industrial policy (government funding of businesses it favors), excessive regulation of business, excessive taxation, tariff walls, and threats to free speech will get us there sooner than you think. Before you say, “It can’t happen here!” the things in the preceding sentence are happening here right now.

Back to Argentina. Yes, it was wealthy until the socialists and Peronists got control of government in the 1940s. They promised wonderful things to voters and unions and spent foolishly. The fascist-socialist government took over much of the economy. When things didn’t work out like they wanted, money printing, currency controls, thuggery, corruption, coups, and black markets followed. 

One way to destroy an economy is to destroy the currency. Argentina is really good at that. Currently inflation is running at about 285% per year. Not too bad considering that in 1989 it ran at 3,000% (hyperinflation). Their poverty rate is about 43%.

Argentinos got fed up and just voted in a radical libertarian to fix things. Javier Milei is trying to reform the country’s economy by bringing back free market classical liberal principles. He immediately cut back spending and got rid of useless bureaucracies and balanced the budget in nine weeks. He promises to stop inflation by tying the peso to the dollar. He promises to cut taxes, reduce regulations on business, cut tariffs, and privatize failing nationalized companies.

He is wildly popular in Argentina. But he has a tough fight ahead. The legislature is controlled by socialists, union bosses, and bureaucrats, and they don’t want to give up their power and privileges.

Libertarianism is not some unrealistic intellectual fantasy. It’s what made America the best country in the world. Javier Milei is doing his best to make it happen in Argentina.

Libertarianism is just the classical liberalism of the Enlightenment on which our Founders based our constitution. Individual liberty, free markets, free trade, stable currency, the right to private property, freedom to act and pursue one’s “happiness,” a just government, and the rule of just laws. Basically, it’s freedom from governments’ excesses and interference into our affairs.

It worked pretty well here.

Can you imagine what Trump could do with some control over the Fed? 

He would try to get rid of Fed Chairman Powell and replace him with a compliant inflation-friendly person. He will demand low interest rates. He will push for money printing to keep himself in office. He might appoint Stephanie Kelton, the high priestess of Modern [Magical] Monetary Theory in which, she says, all the government has to do to pay for things is print money. Again, history and theory suggest that this is the path to hyperinflationary hell. But I think it would be appealing to Trump.

The Fed is bad enough as the generator of our booms and busts, but if politicians get hold of it, any semblance of good monetary policy will be trumped by political expediency. And that gets us well on the road to Argentinization.