Argentina Leaps

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 Thing^TM. 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, 19^th-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.