When people outside Argentina talk about Javier Millais being sworn in as President of Argentina in December 2023, it sometimes feels like they are actually talking about what it would be like if Millais were elected in their country. for example, In one year, Millais cut Argentina’s government spending by a real 30 percent.. So US-based commentators tend to judge him on whether he favors a 30% cut in US government spending. They did not ask whether such a policy would be specifically feasible in Argentina, or what facts about Argentina’s history might indicate that a majority of voters would be willing to attempt such a policy.
To understand why Argentines are turning to Millais, it’s helpful to ask the following questions: What if the growth in living standards in your country has lagged for decades? Moreover, what if we had experience with reforms that seemed to work in the 1990s and early 2000s, but now feel like the country has fallen back on the old treadmill of very slow growth and high inflation? In “Argentina at the Crossroads,” Tobias Martinez Gonzalez and Juan Pablo Nicolini provide context for Argentina’s economic experience throughout history. (quarterly review: Minneapolis Federal Reserve Bank, November 13, 2024). Both are affiliated with the Universidad Torcuato Di Tella in Buenos Aires, where they take a closer look at Argentina’s economy and President Mailay’s election. Their point is not to analyze what Milei has accomplished in his first year as president, but to convey the economic situation in Argentina, where Milei was elected.
Consider some numbers. The vertical axis is inflation-adjusted output per capita for the United States, Canada, the United Kingdom, and Argentina since 1950. In particular, Argentina was quite similar to the UK in 1950, but is now significantly behind.
But would it make more sense to compare Argentina with slower-growing countries in southern Europe that historically have closer ties to Argentina? As of 1950, Argentina’s per capita output was much higher than that of Spain, Portugal, and Italy. After the 1980s, it lagged significantly behind all three.
Or would it make more sense to compare Argentina to other large economies in South America? In 1950, Argentina was far ahead of Chile, Uruguay, and Brazil in per capita production. But now Chile has caught up, Uruguay is catching up, and Brazil is closing the gap.
The point here is that Argentina’s economic problems are recent events and not small. Gonzalez and Nicolini argue that Argentina’s problem in the big picture is an overly large budget deficit. “In this paper we propose a script for Argentina’s economic tragedy since the mid-1970s.
It contains one villain: chronic fiscal deficits. “The bad guys have the ability to present themselves under seemingly different identities, sometimes hyperinflation, sometimes default, sometimes balance of payments crisis.”
The authors summarize Argentina’s economic experience over the past half century in tables and figures. This table shows that Argentina enjoyed a period of strong growth in the 1990s and early 2000s when the government was able to control inflation. But as inflation rose, growth fell.
These figures show Argentina’s budget deficit since 1960. Notice how it increased in the 1970s. (The horizontal line represents a 3 percent budget deficit for comparison.) Once deficits were brought under control in the late 1980s and early 1990s, growth blossomed. When deficits soared again in the 1990s, Argentina experienced a financial and economic crisis in the early 2000s that was “to some extent similar to the Great Depression in the United States.” Growth followed from 2003 to 2010 when the deficit was brought back under control. But the deficit rose again, along with inflation.
Javier Milei is not my type of politician, but regular readers will not be surprised to learn that “my style of politician” rarely wins elections. I can’t claim to follow Argentine politics closely, and I haven’t read about any other candidate saying he would use chainsaws to fix Argentina’s budget deficit. economist The magazine recently described Milei’s challenge: “This resolution ushered in explosive reforms to shake up Argentina after decades of humiliating decline due to rampant inflation, exorbitant handouts and a thicket of regulations.” Looking at decades of “humiliating decline” and a glimpse into alternative economic futures in the 1990s and early 2000s, it does not seem shocking to me that a majority of Argentines were willing to vote for something very different.
