The United States can boast the highest federal debt and biggest deficits in the entire history of civilization. You know the numbers … $40 trillion in debt and $1.9 trillion in annual federal deficits. The entire world is as bad or worse off.
It’s reckless, unsustainable, and guarantees a coming economic reckoning. But we’re seeing a glimmer of hope from an unlikely source.
Until very recently, Argentina suffered from the worst economic management in the new world aside perhaps from Venezuela. In both cases, what were once the richest countries in Latin America were driven into economic shambles.
Venezuela is still such a mess that a third of the population has fled.
Argentina, by contrast, is starting to show signs of a turnaround.
“We are genuinely very satisfied,” declared President Javier Milei on local radio, after inflation in February fell by more than expected, to 13%. The fact that Millie found cause to celebrate a monthly inflation rate of 13% just goes to show you how bad things had gotten.
Over the previous year, inflation had soared by nearly 300% — one of the highest inflation rates in the world. A monthly print of 13% looks tame by comparison.
Better yet, Argentina ran its first budget surplus in 12 years in January – a positive one month balance of $589 million. The government has run a surplus every single month since, the biggest in May was $2.57 billion.
Milei campaigned for office last year with a chain saw. Since taking office, he’s used that chain saw to slash spending on energy and transportation subsidies, pension contributions, and transfer payments to municipalities and provinces.
He’s attacked the bureaucracy with a vengeance, pursued a relentless agenda of regulatory reform, and reversed dozens of decrees used by his predecessors to buy popularity.
The road out of Argentina’s insolvency has been brutal on the average citizen. When Milei took office, 45% of the population lived in poverty. Today, it’s 60%.
Invecq, a business consultancy, estimates that salaries have been set back 20 years in real terms. Purchases of prescription medicines have fallen by 7% … overall pharmacy sales are down 46%.
Sales volumes at small and mid-sized firms fell by almost 30% in January, year on year; and the economy is expected to shrink this year by 4%.
Argentina’s fallout from reckless spending is instructive to our own circumstances, or should be. Our politicians have irresponsibly promoted government programs as a way to purchase votes. And like in Argentina, when the bill comes due, it will be devastating on regular Americans.
We can also learn from the way Argentinians have organized locally to weather the storm.
Business owners, farmers, local officials and church leaders are organizing local assemblies. They meet in churches and public spaces to discuss ways they can work together and provide shelter, health care, and other necessities. Communities realize savings by purchasing food and supplies at wholesale prices, then develop systematic means of distribution.
Barter networks have also emerged to help people cope. Fix a car in exchange for a couple of chickens. Keep a business’s books and get a new water heater.
It’s hard, but people are learning that the only way to traverse the raging economic river and reach the other side safely is by coming together rather than going it alone.
There are signs the other side is coming within sight. Inflation is down and government debt is receding. Banks and international investors are returning to Argentina, a country that looked to be about to default on its commitments just 7 months ago.
Going forward, Milei has talked of stabilizing the currency by dollarizing, or at least giving people the choice of trading in dollars or pesos. He’s also proposed reforms to further reduce debt and put the economy on a sound footing.
The biggest problem, other than the economic pain experienced by Argentine families, is the political problem. To bring structural and lasting reform, Milei needs congressional approval.
His popularity among regular Argentinians is holding, but his coalition has no governors and just 15% of seats in the lower house. A massive reform bill he sent to congress last December was a non-starter. To move forward, he’ll need a strong showing in next year’s midterm elections.
The question is how much economic pain are Argentines willing to endure before their economy recovers from decades of malfeasance.
The long term results of those policies caused the rich to get a little less rich while the poor got a lot more poor. It should be familiar to us because it’s how US politicians gain and maintain power.
There are signs Milei’s free-market reforms are working, but Argentina has a long way to go.
At least they’ve started. Few other countries have taken even the first step. We’ve put off the inevitable pain about as long as we can. Hard times are coming. Whatever else the election yields, our votes may impact the length and severity of the pain, but they won’t negate it.
Thomas Jefferson said, “The government you elect, is the government you deserve.” He might well have said the same about our economy. In the past we’ve chosen poorly. This November, we have the chance to start tunneling out.
Hopefully, we’ll choose more wisely, and accept the pain while building a better foundation for our future.
In the meantime, we’d be smart to take a page from Argentinians who are avoiding personal catastrophe by joining together to help one another through. We don’t have to wait. We know what’s coming. We can start now to prepare.