Argentina Leaps
November 22, 2023·Politics
The election of Javier Milei as Argentina’s president is a classic Great Unmooring event. Don’t get me wrong – I am totally rooting for the guy and I am not saying this is a Bad ThingTM. In fact, I think Milei is absolutely right to take a flamethrower to the Argentine central bank and entrenched public sector. But it is a profound unmooring all the same, not just for Argentina but for the world.
In the immortal words of WWI-era British PM David Lloyd George, you can’t cross a chasm in two small steps. Or to quote the other famous middle-name-Lloyd guy, 19th-century abolitionist William Lloyd Garrison, gradualism in theory is perpetuity in practice. There are plenty of ten-dollar academic phrases to express what the Lloyds are saying, all of which contain the word ‘equilibrium’, but the skinny is that it’s just not possible to put Argentina’s economy back onto a sustainable path of real growth and a stable currency through incrementalism and more-of-the-same-ism. Taking a big leap like Milei is proposing is the only chance you’ve got if you actually want meaningful change in Argentina.
Looking back at the Lloyds (and other historical Big Leap proponents) is useful, I think, because they don’t have a consistent left/right political bias. For example, the Lloyds were on the opposite end of the left/right political spectrum from Milei, and the entrenched status quo states they sought to transform by radical, non-incremental policy was as ‘conservative’ as the entrenched Argentine state is ‘liberal’. What’s important about Milei and the Lloyds isn’t where they sit on a left/right dimension but where they sit on a status quo/radicalism dimension, and the non-incremental, Big Leap nature of what Milei and the Lloyds represent is what we should be focused on.
I say that’s what we should be focused on, but that’s not what will happen. Instead, Milei will be framed in narrative-world like everything else is framed, through left/right narrative archetypes. Why? Because that’s what is most useful to Big Politics, Big Tech and Big Media, the three-headed hydra of our Fiat World, where reality is declared rather than lived.
You will be told that it’s a left/right thing, and you will believe it. And that’s why Milei will fail. Not because a shock treatment of currency dollar-pegging and public sector-slashing can’t work, but because everyone knows that everyone knows that it can’t work.
Yes, it’s our old friend Common Knowledge.
The shock treatment of pegging to the dollar and slashing public sector involvement in the economy can succeed if and only if one thing happens – new capital comes into Argentina and is invested productively (ie, creates real growth, especially in export-oriented sectors) faster than the domestic economy contracts. It could happen! There’s a lot of private capital sloshing around in the world, plenty of it held by Argentine expats or people just looking for a good investment at a bargain price, and Milei can tell a very attractive story to that private capital. Like me, private capital outside of Argentina is rooting for the guy.
But no one wants to catch a falling knife. Everyone is going to wait for what everyone knows that everyone knows is going to happen – a massive recession, a sovereign debt reset, and a cheaper price tomorrow for whatever opportunity you’re looking at today. Ordinarily you’d look to the government’s dollar reserves or a central bank-adjacent institution with dollars to lend like the IMF to bridge this, and ordinarily private sector investors would look through that public sector bridge and start to lick their chops. But no one believes that can happen here. Instead, private capital outside of Argentina is going to wait and see, giving plenty of time for Big Politics, Big Tech and Big Media outside of Argentina to characterize Milei’s leap as a “far-right experiment that is failing as the country descends into chaos”. This will be the narrative on the political, tech and media right just as much as on the political, tech and media left! The left will emphasize failure and chaos in Argentina as a “see what these right-wing monsters like Milei will do here” story, and the right will emphasize failure and chaos in Argentina as a “see how these left-wing monsters are thwarting Milei’s reforms” story.
And so it will. Fail, that is. Descend into chaos, that is. Because even if you personally are brave enough or far-seeing enough to invest your private capital into Argentina despite this narrative campaign of “far-right” and “failure” and “chaos”, you will not believe that everyone else is that brave. You will make the perfectly rational decision not to invest, not because you personally believe the narrative campaign, but because you believe that everyone else does. This is the power of common knowledge.
I hope I’m wrong. I really hope I do. And I’m not unaware of the fact that by writing to a lot of people that I think Milei will fail I am adding to the common knowledge that makes this failure more likely. But I can’t ignore the fact that when I look at the common denominator of the Lloyds’ ultimate success in seeing their non-incremental, radical policies take root, I see one thing: war. And not just war but Total War, conflict that creates a single, overwhelming narrative that crushes every other competing narrative.
This is the nature of the Great Ravine. Everything has to get a lot worse before anything gets any better, not because it’s necessary in the real world for non-incremental, status quo-busting policies to succeed, but because it’s necessary in narrative-world. I think that’s true for Argentina today, and I think it will be true for us tomorrow.
Comments
Another great note that show how entrenched interests (left/right or media, tech, etc…) believe in the concept attributed to Rahm Immanuel / Saul Alinsky ‘Never let a crisis go to waste’. The fact that a big step is needed will not be noticed and all that led to it, only the narrative carrion they can pick off and put to use.
Bukele in El Salvador thumbed his nose at further handouts from the IMF, and common knowledge was that it would be disastrous. There were of course other actors at play, such as rounding up all the gang members, but his policies have been a resounding success. I’m rooting for Milei!
The first article I read about his election win called him a “libertarian.” The second article, a day later, called him, “a far right libertarian.” And the third and final one I read today referred to him as “an extremely far right candidate.”
Extremely disappointing post.
You say you are “rooting for the guy” but aside from one passing mention about dismantling the Central Bank you don’t say what specific changes he hopes to accomplish, or why such changes would broadly benefit the Argentine people.
This strikes me as a largely emotional show of support for anyone who superficially appears to be challenging an entrenched status quo that has produced lousy results for years. Lots of politicians have tapped into this kind of frustration but never had anything close to a coherent plan for fixing the underlying problems and did nothing to actually undermine entrenched elites (or just transferred wealth and public assets to a slightly different set of elites.) What’s your evidence Milei has a real plan and isn’t just the latest in a long line of faux-populists?
Are you rooting for dollarization? Where would Argentina get the dollars to accomplish this? How would this directly improve productivity and reduce inequity and poverty? Can you cite other examples where large countries with seriously troubled economies achieved lasting economic growth following dollarization? Wouldn’t this pose major risks for Argentina’s sovereignty over time? Would the Argentine public broadly support reduced sovereignty?
Are you rooting for transfer of all public assets (including public transportation) into private hands? A small number of entrenched families have long had a stranglehold on Argentina’s big industries, media and political parties? Wouldn’t radical privatization just strengthen these elites? Or do you have evidence that he has the first large scale privatization plan that will actually weaken entrenched power and increase competition? What could a rapid sale of assets raise relative to the current debt?
Are you rooting for his stated foreign policy objectives (align very tightly with Washington/Israel against BRICS/China/Russia? Attack Lula as an “angry communist”?
Are you rooting for his alliance with the Military Party and their attempts to rewrite the story of the pre-83 dictatorship? Again would seem to further entrench elite power, not disrupt it.
Agree that simple left/right framing is silly. Agree that propaganda programs based on things like “common knowledge” can always be used to prevent real reform, but exactly who are (or who controls) the forces that might unleash “common knowledge” to undermine Milei? Sure the public sector unions will oppose his policies, unions have never been the ones to orchestrate behind the scenes propaganda campaigns. And how could narrow groups like unions suddenly reverse election results like these?
Perhaps there are good answers to these, but your post didn’t even acknowledge the questions. It read as an extensive “Yea Populism!” cheer.
Investopedia reckons as of Dec 31, 2020 approx $1trillion value of Dollar currency notes are circulating outside the US.
Officially inflation is 138% annually in Argentina. This creates a very tilted playing pampa for those unable to hedge Peso exposure (i.e. labor).
I am also very interested in the answers to all these questions, as a potential investor for one reason. I was also fascinated by the Argentine hyperinflation event a few decades ago. Would be interested in any good deep reads anyone has on these topics.
But my take on the essay is that Ben was not trying to answer any of these questions. Nor does his personal opinion about Argentina even matter for his conclusion, which I think was more about game theory and Common Knowledge.
I do understand Ben’s choice to lead with his opinion for rhetorical/Tweetin’/X’ing reasons. In the world but not of it, etc.
My impression is that Ben “rooting for the guy” was that he was rooting for Argentina to solve their economic problems so that the average citizen can succeed.
On a tour of the country a couple years ago one of our more educated guides was almost in tears discussing the inherent problems of the fiscal/monetary problems of Argentina. He would discuss that half the population has become so dependent on Gov’t handouts and would only vote for politicians that promised more gov’t handouts.
Of course, career-oriented politicians (are there any other kind anymore?) would then hand out money they didn’t have and then the Central Bank would be “forced” to print the money to “finance that spending”
Hello Rudy Haverstein and
Hello 100+% Inflation, devaluations and a destroyed Middle Class.
We should be glad one of the descendants of the emigrated Nazi’s hasn’t taken over that country.
I think Ben is rooting for that Middle Class
I really hate that I agree with this statement so much, and that fatalistic mindset is what makes me want to completely disengage.
Then my ADHD kicks in and I really want to re-read/link to another one of Ben or Rusty’s articles that talked about how things like this that lead to disengagement or hopelessness and how that’s exactly the wrong response. But unfortunately it’s my first cup of coffee and the caffeine hasn’t made me normal yet lol. Happy Thanksgiving!
Good article.
The topic has reminded me of a episode/film I saw a little bit ago, made by one of the major Bitcoin podcasters here in the UK. He filmed an episode of his Bitcoin themed documentary series in Argentina, interviewing two of Milei’s economic advisers - before the election.
The Argentina episode barely touches on Bitcoin, it is really about what it is like to live in Argentina. The day to day experience of 100%+ inflation. It’s really a mini-documentary dealing with some of the following topics:
As Peter remarks towards the end of the episode. Inflation is the shadow that you can feel but cannot see. And in the fight against this “shadow” perhaps radical is what is needed. Much like Ben’s David Lloyd George quote. “You can’t cross a chasm in two small steps”.
It’s interesting that despite the pessimism surrounding the likelihood of success, we can find other examples of a similar “great leap” approaches.
PhilRichter mentions El Salvador. I’ve seen the recent election in Nigeria cited:
"But, Tinubu, who has now survived all legal challenges to the legitimacy of his election win, surprised everyone — even his most senior advisors — by impulsively declaring an end to fuel subsidies during his inauguration speech, and jailing the former central bank governor the very next day.
Immediately, two of the biggest issues were put front and centre.
The population has been wincing in pain since, as petrol prices, long held at absurdly low, subsidised rates, went up 6-fold overnight. The pretence that 460 Naira could buy 1 USD also went out the window, with the official exchange rate adjusting to nearer 800 when it was allowed to float. That has pushed up the cost of many imports, on which Nigeria depends heavily… not just capital equipment, but even basic foodstuffs, such as wheat, sugar, and crucial farm inputs like fertiliser. Don’t forget, this is a country that, despite its vast agricultural hinterland and enormous rural population cannot feed itself.
With the Naira devaluation, inflation soared and daily life became an even bigger struggle for nearly all Nigerians.
But, Nigerians are a resilient and optimistic bunch, and they are adapting. More than one person I spoke to from the rank and file — not the guys in fancy suits who are paid to tell me what I want to hear — said that they were willing to suck up the temporary pain, if it is necessary for a long-term gain." (from We Are Ready To Add To Our Nigerian Exposure. Here’s Why (globalvaluehunter.com)
Are there more cases than we realise around the world? Could that in itself shift the common kwowledge from isolated cases will fail to at least some of these cases will succeed…?
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