Milei’s dollarisation plan isn’t as crazy as it sounds (Ben Ramanauskas, 11/28/23, Cap X)

As the great economist Simon Kuznets once said, ‘There are four types of countries in the world: developed, underdeveloped, Japan, and Argentina’. The economy of Argentina continues to confound economists. Despite once being one of the wealthiest nations on Earth, it is now an economic basket case which experiences endless cycles of borrowing, money printing, high inflation, and default due to the failed policies of its politicians – and it is the ordinary people who see their livelihoods destroyed. There is nothing normal about Argentina’s economy.

Moreover, an independent central bank only works if it is actually independent and run by competent officials. This is hardly the case with Banco Central de la República Argentina. It has enabled successive governments in their profligacy by excessive money printing which has led to inflation of over 142%.

Dollarisation is perhaps the only thing which can help to put an end to Argentina’s rampant inflation. Milton Friedman wasn’t quite right when he said that inflation is always and everywhere a monetary phenomenon. However, he was spot on with Argentina. The central bank has printed so much money that the peso has been completely debased. Replacing it with the much more valuable US dollar would help to put an end to this and get inflation back under control.

This is not just economic theory – the experience of other countries show that this can work. El Salvador, Ecuador, and Panama which have all dollarised and Peru which has semi-dollarised all have the lowest inflation in the region, and the fully dollarised nations have seen their GDP per capita surpass that of Argentina in recent years.


The appeal of Argentina’s radical libertarian Javier Milei (HARRIET MARSDEN, 11/21/23, THE WEEK)

Despite the “fervent” support for Milei, his success owes more to the failures of his opponent, said Sam Meadows in The Spectator. Sergio Massa took the lead in October’s first poll, with Milei coming second, but the finance minister’s “inability” to tackle the nation’s economic woes over the past year “ultimately proved an electoral millstone he was unable to shrug off”. Inflation is the fourth highest in the world, and the country owes “gargantuan” debts to the IMF. […]

After spending most of a century “in thrall to one self-destructive economic ideology”, said the Financial Times’ newsletter “Trade Secrets”, Argentina has “decided to have a shot at another” after Milei takes office in December. “How a country manages to hop straight from Peronism to reactionary anarcho-capitalism without ever having a go at boring old liberal social democracy is a wonder to behold.”


Milei’s Policy Challenges (luis pablo de la horra, 11/24/23, Law & Liberty)

Milei’s plan to tackle inflation hinges on the radical step of dismantling Argentina’s central bank (BCRA) and embracing the US dollar as the nation’s official currency. This proposition has sparked fervent debate, evident in the strong resistance it faces from politicians across the political spectrum and prominent academics. Nonetheless, there is a widespread acknowledgment that decisive action must be taken to confront the nation’s foremost economic challenge. Does dollarization represent the optimal strategy to set the nation on a path toward monetary stability?

There is no straightforward answer. Dollarization is not the first best choice, as it deprives central banks of the monetary policy tools they typically employ to address economic crises. For instance, in the face of deflationary pressures, a central bank would typically reduce the policy rates to stimulate economic activity. In a dollarized economy, the national central bank is either eliminated (as Milei proposes) or loses its authority over monetary policy, leaving policymakers with fewer resources to use in the event of a crisis.

Furthermore, the elimination of the BCRA implies the loss of its role as a lender of last resort to address liquidity issues within the banking sector, especially during financial crises. Likewise, the process of dollarization demands an ample supply of dollar reserves, and the BCRA has notably reduced its holdings over the past year. This reduction in reserves could potentially introduce complications in the dollarization process. The question then arises: are these challenges insurmountable?

Undoubtedly, the ideal stance for a country or a group of countries is to uphold monetary policy autonomy. However, the effectiveness of such a policy hinges on the existence of an independent central bank endowed with the capacity to promote price stability through judicious monetary measures. This stands in contrast to the BCRA, which has demonstrated a dismal track record in controlling inflation, as evidenced by the recurring inflationary episodes over the past decades.

A less radical course of action could involve retaining the peso while endowing the BCRA with independence from political interference, thereby curbing its tendency to monetize government debt. Regrettably, this option might be hindered by the BCRA’s lack of credibility and the historical inability of politicians over the past decades to effectively address and control inflation by granting independence to Argentina’s central bank.


Misunderstanding Milei (g. patrick lynch, 11/23/23, Law & Liberty)

It took almost 80 years. That’s how long Argentina’s economy and society have been in free fall. In some ways, it’s a testament to our greatest fears about democracy and self-government that no political leader had the political incentives and simple nerve to buck the status quo. Eighty years of relentless, grinding inflation and spiraling deficits, followed by defaults, currency devaluations, and restarts before November 19. But finally, the people of Argentina have rejected a failed status quo. Javier Milei publicly won a near landslide by Argentinian standards, and when one considers the probability of Peronist cheating at approximately 100%, the margin was likely much higher. Whether or not the alternative Argentinians have chosen will “fix the situation” is for now beside the point. They have exercised the one option they have—rejecting the incumbents for the promise of something different. That’s all that democracy promises.


Milei’s main, nay fundamental, policy proposals are all in the context of this backdrop. His firm commitment to abolishing Argentine central banking and cutting social spending is straight out of Ludwig von Mises and Milton Friedman, and it is completely appropriate given the circumstances. The only way that an “anarcho-capitalist” could be elected was in a situation of failed governance and welfare statism so dire that he could crack the door open slightly and introduce ideas unknown by the mainstream intelligentsia, let alone the average Argentine on the street. […]

There are no easy solutions here, which is part of the reason the media and its stale-minded intellectual influences have no solutions to offer. They are left with nothing but vague language, scare tactics, and labeling. What took 80 years to destroy will take decades, perhaps centuries to recreate. Well before he won the first round of voting back in September, Milei was asked what his model for Argentina was. He replied, Ireland. Ireland of course famously cut taxes and regulation, freeing its economy and spurring rapid economic growth. Argentina could do worse than Ireland, but anything different than its current path will be an improvement.

We know what works and what doesn’t. Do what works.


Inflation Destroys Rotten Governments (HAROLD JAMES, 11/23/23, Project Syndicate)

In Argentina, the election of a radical self-styled anarcho-capitalist, Javier Milei, as president can be understood as the immediate consequence of the incumbent Peronist regime’s inability to deal with inflation, which has hit an annualized rate of 143%. Milei’s most important campaign promise was to restore price stability by abolishing the central bank and replacing the Argentine peso with the US dollar.

Ending monetary autonomy is obviously a bold and risky experiment that will severely limit government action. But that is exactly the point. Since the previous government tried to do too much, and manifestly failed, voters now feel as though anything would be better than more mismanagement. […]

[R]ussian inflation also surged in 2022, following the full-scale invasion of Ukraine – just as it had done in 2014 after the initial seizure of territory in Crimea and eastern Ukraine. Then, from April 2022, the inflation rate fell for a full year, and almost looked as though it would settle at a respectable 2.5%. But that stability turned out to be an illusion. Inflation returned this summer, following Wagner Group leader Yevgeny Prigozhin’s aborted putsch, and it now represents the greatest immediate risk to Russian President Vladimir Putin’s wartime regime.

Moscow’s city government is candid about this source of angst, and even Putin, who generally avoids acknowledging weaknesses, recently commented on inflation and its threat to Russian families. The Russian central bank has duly hiked its policy rate to 15% – almost three times higher than the US federal funds rate.

As Putin may well know, discontent over prices is often the first sign of an authoritarian regime’s loss of social support.


Privatize State-Owned Media, Public Companies (Associated Press, 11/20/23)

Populist Javier Milei, a libertarian economist and self-described “anarcho-capitalist,” won a presidential runoff election Sunday with 55.7% of the vote. He said Monday that he would move quickly to privatize the country’s state-owned media outlets and look to do the same with other public companies.

“Everything that can be in the hands of the private sector will be in the hands of the private sector,” Milei told Bueno Aires station Radio Mitre.


On foreign policy, Argentina’s Milei leans neoconservative, not libertarian (ELDAR MAMEDOV, NOV 22, 2023, Responsible Statecraft)

This is not an area in which he has displayed much interest or knowledge to date, but someone like Sen. Rand Paul (R-KY), a standard bearer of libertarianism in the U.S., would hardly recognize himself in the positions embraced by Milei. In fact, Milei’s foreign policy views, to the extent they exist, are far closer to neoconservative than libertarian. His views would easily find home in hawkish Washington D.C. think tanks and parts of the mainstream of both the Republican and Democratic parties.

This is not to be underestimated, as Argentina is a member of the G-20, the third largest economy in Latin America, and has recently been invited to join BRICS, a grouping that comprises China, Russia, India, Brazil and South Africa.

Milei’s foreign policy views, as expressed repeatedly during the election campaign, are starkly Manichean — they divide the world into democracies and “communist autocracies.” Counter-intuitively for a self-proclaimed champion of free trade, he promised to sever ties with two of Argentina’s main trade partners — China and Brazil (combined, both account for around 25% of the total of Argentinian exports) — on the grounds that both are ruled by “communists.” China was an object of particular scorn, with Milei dubbing the country at one point “an assassin”.

Milei is a staunch supporter of Ukraine, in contrast to a more moderate position espoused by the outgoing center-left Peronist administration which, while condemning Russia’s aggression of Ukraine, was also reluctant to sever ties with Moscow, which grew closer during the pandemic when Argentina acquired Russian vaccines, with results generally deemed acceptable.

Perhaps on no issue Milei’s neoconservative credentials are more on display than in his fervid embrace of Israel. While Argentina, under different governments, has generally enjoyed good relations with Israel, those were traditionally balanced by Buenos Aires’ engagement with Arab countries and, at times, even Iran. That balancing act did not prevent Argentina from declaring Hezbollah a terrorist organization for its alleged role in the notorious 1994 bombing of a Jewish community center in Buenos Aires.

Milei’s defeated opponent, Sergio Massa, promised to similarly add Palestinian Hamas to Argentina’s terrorist list if he had been elected. Milei, however, wants to go much further. He declared that his first international trips as president-elect will be to Israel and the U.S. He also promised to move Argentina’s embassy from Tel Aviv to Jerusalem. Such a one-sided reorientation would represent a major break in Argentina’s traditional foreign policy consensus.

Milei is also opposed, on ideological grounds, to Argentina joining the BRICS, despite the invitation issued by the existing members, reportedly the result of heavy lobbying by Brazil on Buenos Aires’ behalf. While the prospect of joining the group that represents more than 40% of the world’s population and 31% of global GDP (and also a destiny of some 30% of total Argentine exports) is seen as an opportunity by many Argentine businesspeople and politicians, for Milei BRICS represents little more than a dictators’ club.

It’s an ever more Unipolar World.


Dollarization for Argentina? (Scott Sumner, 11/20/23. Econlib)

  1. Dollarization would solve the problem of hyperinflation.
  2. If Argentina intends to dollarize, now would be a good time to do so.
  3. Dollarization is not a panacea. Argentina still needs Chilean-style economic reforms, and there’s no guarantee that dollarization would lead to those reforms.
  4. Dollarization is less risky than a currency board, but not completely free of risk.

There are two reasons why this is an ideal time for dollarization. First, years of hyperinflation have produced a very small monetary base (in real terms, obviously.) Many Argentine citizens have already switched their money holdings from pesos to dollars. Thus the fiscal cost of dollarization would be relatively low. Given Argentina’s severe economic problems, it would still be a heavy lift, but it’s doable if they are determined to make the switch. Fiscal reforms would obviously make the job much easier, and Milei has promised to slash the budget. I certainly don’t think he’ll cut anywhere near as much as promised, but some cuts seem likely.


What does Javier Milei’s win in Argentina mean to America?(Juan P. Villasmil, November 20, 2023, The Spectator)

Argentina’s major ill is inflation, not a shrinking manufacturing base or tremendous levels of immigration. He emerges as an antidote to a unique illness.

The US media has fixated on his opposition to state-funded sexual education and his pro-life position, but in reality, Milei’s election cannot be wholly understood through the lens of cultural preservation. He rose to prominence lambasting subsidies, taxes and tariffs. While a growing faction of the European and US right distances itself from the small-government-rocks consensus, Milei embraced it. He’s a self-described anarcho-capitalist who became a star for deriding statism. He’s more Ronald Reagan than Viktor Orbán, more Milton Friedman than Pat Buchanan.

For these reasons, it’s somewhat comical that many of the “let’s use state power to punish our enemies” folks in the US have celebrated Milei’s rise as if he were one of them.


What’s the Matter with Chile?: A review of The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism by Sebastian Edwards (Geoff Shullenberger, Winter 2023, American Affairs)

The Left, in Chile and abroad, has been blindsided by recent events, as evidenced by its inability to make sense of the failure of the new consti­tution, much less the rise of Kast. For its part, the surging Chilean Right, which now openly harkens back to the Pinochet era as a political ideal, has little to say about why so much of the public took to the streets in 2019 or why nearly 80 percent rejected the old constitution in the 2020 plebiscite. A more sober and insightful response to these questions comes from the Chilean economist Sebastian Edwards, who teaches at UCLA. His new book, The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, was written to make sense of the 2019 estallido social and the subsequent ascent of Boric. But he takes the long view, returning to the economic policies of the Allende administration, then documenting in painstaking detail the controversial reforms of the “Chicago Boys”—the University of Chicago–trained economists who devised the neoliberal model imposed under Pinochet—and the modifications of this program after the return of democracy.

Edwards’s central aim is to account for what he calls the “Chile paradox.” “By 2015,” he writes, “Chile was the indisputable economic leader of Latin America.” How is it, then, that the country with “the highest income per capita, the lowest incidence of poverty, and the best overall social indicators” in the region witnessed a massive revolt on material grounds, the leaders of which demanded a total overhaul of the economic system? The answer cannot simply be that other modes of social well-being were sacrificed to the neoliberal ideal of growth at all costs. This was largely true in the period the neoliberal model was initially imposed under Pinochet, but most of the period of sustained growth was overseen by social democratic leaders who were deeply concerned with avoiding this exact pitfall, and governed accordingly. At the same time, given the coalescence of four-fifths of the public around scrapping the constitution, the revolt can’t be dismissed as ideological confusion or a fit of pique. Clearly something was and is deeply amiss in this apparently successful nation; the willingness of voters to support candidates nostalgic for the dictatorship is as conspicuous a symptom of this as was the earlier left-wing revolt.

In various ways, Edwards is uniquely well-positioned to interpret the history he sets out to chart. He is a member of one of the most illustrious old-money families in Chile. His forebears include the publishers of Santiago’s premier newspaper, El Mercurio, and the literary figures Joaquín Edwards Bello and Jorge Edwards. The latter served as Allende’s ambassador to Cuba, even as other members of the family were among those lobbying the U.S. government to assist in Allende’s overthrow. Sebastian, like Jorge, was evidently something of a black sheep in his largely conservative family. As he recounts, he studied economics at the Universidad de Chile, the more left-leaning of the country’s two most prestigious universities, supported the Socialist Party, and even took a job in Allende’s government while still a student. “After the coup d’état,” Edwards recounts, “our school was closed because, according to the military, it was a ‘nest of communist rats.’” He managed to avoid the misfortunes that befell other student activists after the coup—perhaps due to family connections—and transferred to the Universidad Católica, the more conservative of the two major universities. It was a fateful change of scene.

Starting in the 1950s, as Edwards explains, the Católica’s economics department had become the hub of an academic exchange with the University of Chicago. The program got its start from U.S. government efforts to fight the influence of communism abroad by instilling market-friendly views in economists in training. This was the birthplace of the “Chicago Boys.” Talented Católica economics students were given the opportunity to pursue further study at Chicago, the seat of Milton Friedman and Friedrich von Hayek. When Edwards joined the depart­ment in 1974, the Chicago Boys hadn’t made their name yet; on the contrary, they had toiled in relative obscurity for two decades, with free market ideals generally unpopular in an intellectual panorama still domi­nated by other paradigms. This situation in Chile reflected that in much of the world during the three decades after the Second World War, when Keynesianism was mostly uncontested.

Just a year before the coup in Chile, Friedman famously stated: “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” Left-wing intellectuals like David Harvey and Naomi Klein have often accounted for the triumph of neoliberalism in the 1970s by quoting Friedman’s words as an illustration of the movement’s playbook—the “shock doctrine,” as Klein called it. They have taken post-coup Chile as ground zero for the approach Friedman seemed to be advocating. In their simplest version, such accounts can take on a Manichaean, conspiratorial quality. Edwards, who through his deep connections to Católica and Chicago is well-acquainted with most of the people involved in Chile’s neoliberal reforms, offers a counterpoint to such narratives. His personal loyalties do not make him reticent to criticize the Chicago Boys’ policies or their complicity with the dicta­torship. Nonetheless, he argues that Chile’s neoliberalization was a far more contingent and internally conflicted process than is often understood.

Edwards’s qualified defense of the Chicago Boys begins with his highly critical account of Allende’s economic policies. Defenders of Allende tend to attribute the serious economic woes of his government to external meddling by the United States and internal sabotage by right‑wing elements. Without denying these were factors, Edwards argues that Allende’s policies failed for foreseeable reasons. Initially, the socialist government succeeded in its goal of increasing aggregate de­mand through government spending—a standard Keynesian aim, pur­sued in a particularly radical fashion. But the longer-term result was to cause inflation to surge to over 700 percent in the year prior to the coup. “What the Allende government engaged in,” Edwards writes, “decades before it got its name, were policies very similar to those touted by the supporters of Modern Monetary Theory”: in effect, print lots of money and pretend inflation isn’t a thing.

Edwards also offers an inside view of the Allende regime’s haphazard attempts to deal with the fallout through what he calls a “surrealistic system of price controls.” As a nineteen-year-old student, he was re­cruited to work in the government Directory of Industry and Commerce, which had the power to authorize or refuse requests for price increases from industry. With inflation rendering authorized prices almost instantly outdated, producers had to constantly submit new price requests, which were “promptly denied.” As Edwards remarks, “Any first year student would have predicted the results of this viciously circular process: massive shortages and a thriving black market for all sorts of goods.” The government responded by cracking down harshly on the black market, shutting down stores that failed to comply with official prices and confiscating their goods. These heavy-handed tactics became a drag on the government’s popularity.

It was in response to these mounting problems that some in Allende’s government began developing the secret project known as Cybersyn, which has recently become the subject of considerable scholarly and popular interest. Guided by the English management consultant Stafford Beer, Cybersyn was supposed to use cutting-edge cybernetic theory and the latest technologies—the telex and the computer—to determine the correct prices of every good in the country. The project has become attractive to those on the left today who imagine that new communication technologies might be used to develop a more intelligently managed economy than was viable in earlier socialist projects. But Edwards is dismissive of the oft-floated idea that Cybersyn could have remedied Chile’s deep economic woes if given more time. He recalls a meeting he attended, at which Beer was present, in which the impracticality of the project seemed evident even to the consultant on whose ideas it was based.

In other words, whatever errors the Chicago Boys themselves made once they had the opportunity to reshape Chile’s economy, Edwards is clear that they were right to believe that the path taken by Allende’s government could only lead to disaster.

Francis Spufford’s Red Plenty is an amusing look at why cybernetics is so unworkable.