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Saturday, January 13, 2024

Will America Choose Javier Milei or Hugo Chavez?

A heavy dose of Adam Smith is what Milei is offering, and it's precisely what Argentina needs.

Image Credit: Vox España

In January 2007, the newly reelected Hugo Chavez sent what the New York Times described as a “chilling message to foreign investors.”

“Let it be nationalized,” the Venezuelan president said of CANTV, the country’s largest telecommunications provider. “All that was privatized, let it be nationalized.”

Over the next few years, Chavez would make good on his word. The socialist tightened his grip on Venezuela’s economy by nationalizing various industries, including gold mining, banking, and transportation.

Though many Westerners applauded the move, Chavez’s nationalization movement would prove disastrous.

Venezuela’s gross domestic product, which was $316 billion in 2008, had fallen to $288 billion by 2016. When Chavez’s successor, Nicolas Maduro, accelerated expansion of Venezuela’s money supply to attempt to stimulate economic growth, GDP plunged further and hyperinflation soon arrived. Venezuela’s central bank estimates that between 2016 and 2019, Venezuela experienced inflation of just under 54 million percent.

By 2019, 96% of Venezuelans were living in poverty, and 79% were living in extreme poverty, prompting a mass exodus of some 4.6 million Venezuelans.

In Argentina today, something very different is happening.

Argentina, the second-largest economy in South America trailing only Brazil, saw its annual inflation rate reach 161% in November, a consequence of the massive expansion of its money supply.

But Argentines have chosen a different path.

In November, the country elected libertarian Javier Milei as its new president. And whereas Hugo Chavez said, “All that was privatized, let it be nationalized,” Milei is essentially saying the opposite: All that was nationalized, let it be privatized.

Milei started by cutting in half the number of federal ministries in Argentina, reducing them from 18 to nine. This was followed by a massive currency devaluation.

Milei did not stop there. In a recent televised announcement, he said he would “repeal rules that impede the privatization of state companies.”

Those words were backed up by a 300-measure order designed to deregulate internet services, eliminate various government price controls, repeal laws that discourage foreign capital investment, abolish the Economy Ministry’s price observatory, and “prepare all state-owned companies to be privatized.”

Milei capped it off on Wednesday with a 351-page omnibus bill that takes aim at Argentina’s regulatory state and would grant Milei emergency powers “until December 31, 2025.”

Giving any president emergency powers is no small thing, even during a genuine crisis. Though Milei’s bill is designed to curb state power, not to expand it — a notable contrast to the typical crisis response paradigm — history and recent events in El Salvador show how emergency powers can be abused and used to violate human rights and liberty.

Whether Milei can get his full agenda through is unclear, but there’s reason for optimism.

His stunning election is itself evidence that Argentines are hungry for change. He’s already shown an impressive pragmatism to wed to his undeniable political flair, surrounding himself with a slew of talented policy experts. This includes Federico Sturzenegger, a former chief economist of Argentina’s central bank who two decades ago managed to turn around the failing Bank of the City of Buenos Aires. Sturzenegger’s reforms were so effective they became a Harvard case study.

Success is by no means certain, of course.

Recovering from decades of Peronism — a blend of socialism, nationalism, and fascism, which dominated Argentina’s political system for years — will not happen overnight. And Argentina’s political class has spent the last few years making a bad situation worse.

Still, the great economist Adam Smith once observed that the key to economic prosperity is surprisingly simple.

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice,” the Wealth of Nations author said.

Milei knows this. He has not just read Smith (in addition to Austrian school economists such as Friedrich Hayek and Ludwig von Mises). In a 2017 profile, he dubbed himself “Adam Smith’s heir.”

A heavy dose of Adam Smith is precisely what Argentina needs, and Milei has correctly diagnosed the affliction of Argentina’s once-prosperous economy.

“The state doesn’t create wealth; it only destroys it,” Milei said in a widely viewed 2023 interview.

America’s own economic trajectory is more than a little alarming, which is why Americans should be paying attention to events in South America.

In the coming decades, as the federal debt continues to surge, interest payments on the federal debt snowball, and the dollar’s purchasing power is further eroded, we’re likely to face a choice similar to that of the Venezuelans and Argentines.

Will we choose Chavez or Milei?

This article originally appeared in The Washington Examiner.


  • Jonathan Miltimore is the Senior Creative Strategist of FEE.org at the Foundation for Economic Education.