You can’t be radical enough if you are only liberal or libertarian. In a society that shies away from any kind of radicalism, radical liberalism is at least secretly admired. Argentina’s new president, who many in his country call the “madman”, is thus suddenly becoming a political strategist to be taken seriously. Super-liberal media such as the German Handelsblatt or the Swiss Neue Züricher Zeitung are endeavouring to find “experts” who make it easy for them to praise Argentina’s new president because they are cut from the same cloth as Miley himself. Kiel (the radical-liberal Institute for the World Economy in Germany) and FIEL (the no less radical institute in Argentina) are relevant addresses. The editor-in-chief of Die Welt also attests to Milei’s “economic expertise” and looks on this revolutionary attempt with undisguised admiration.
Now all the liberal “experts” and their media followers are being ennobled by the fact that Argentina has reached an agreement with the equally radical liberal International Monetary Fund (IMF) on the disbursement of a loan that was blocked under the previous president. This success is attributed to “Milei’s plan” to turn the massive budget deficit into a surplus of two per cent of gross domestic product (GDP). Handelsblatt quotes FIEL’s chief economist, who surmises that Milei’s strategy seems to be to solve the budget problem quickly, correct some of the inherited relative price imbalances and push ahead with structural reforms.
That really is a good plan. Nothing is easier than that. In the middle of a severe economic crisis, you quickly solve the government budget problem by simply cutting government spending radically. You immediately generate surpluses and gain the trust of all liberal and libertarian experts as well as the IMF, which, it should never be forgotten, is also supported by the German government and its European partners. To be sure, the Europeans are the greatest experts in cutting government spending in the middle of a recession.
The US as a role model?
However, it is more than surprising that the IMF is dominated by the country that has needed government debt like no other in the world in recent years and decades to make ends meet. Although the USA directs the IMF, it never applies the prescriptions it prescribes to others itself. Reducing state deficits or even reporting surpluses in the national budget never occurs to them. Implementing a “plan” like Milei’s would be tantamount to a revolution in the USA and would shake the economy to its foundations.
The US have managed (as shown here) to more than double its national debt between 2007 and today because it is apparently completely impossible for the country to boost its growth with the famous “structural reforms”. In every phase of weakness, the state is needed to ensure that the economy keeps running by constantly setting new debt records. The government deficit (i.e. current new debt in 2023) currently stands at a staggering seven per cent of GDP and even reached a record level of almost 15 per cent in 2020.
Liberality hinders thinking
Liberality is all well and good, but because it regularly impedes thinking, it is incredibly dangerous. Anyone who says that with sufficient political will it is possible to cut government spending and thus achieve surpluses in the state budget has undoubtedly switched off their brain. You only have to look a little beyond the horizon of the Swabian housewife to realise that cutting government spending will not be without consequences. All those who are affected by the cuts in one way or another will immediately have to adjust their own expenditure downwards by cutting their income, which has now been reduced by the state. But this is by no means the end of the matter.
After all, who will feel the impact of the reduction in spending by those affected by the government cuts? Liberal economists will never be able to answer this question, because the answer will show the liberals’ own clientele just how far-fetched the liberal economic theory is. When unemployment benefits are cut, social welfare is slashed or “subsidies” are reduced, this always has an immediate negative impact on company profits.
Because companies receive the so-called residual income, i.e. what is left over after all contractual claims have been settled, they are the ones who suffer directly and permanently from a cut in state spending. It goes without saying that companies react to this by cutting their spending and investments. This deepens the recession, increases poverty and unemployment and ultimately forces the state to take on even more debt because it cannot cope with a permanent slump for political reasons.
Liberal programmes that focus on cuts harm the very people they actually want to benefit. Milei explicitly said in Davos that he wants to become the “ally” of entrepreneurs. But what good is an ally if he doesn’t understand what helps his allies and what harms them?
An economy that is still in a deep recession and struggling with extremely high inflation cannot be cured with liberal radicalism, neither in terms of fiscal nor monetary policy. Many have tried to do this, most recently Milei’s brother in spirit from Brazil called Bolsonaro, but it has never worked. When countries that had put themselves at the mercy of the IMF got back on their feet economically, it was only because their currency was massively devalued and export demand more than compensated for what was destroyed elsewhere by the austerity policy imposed by the IMF.
Eyes closed and through?
All US governments in the last 20 years have apparently understood the crucial role that the state has to play in stimulating the economy when companies wait and see instead of moving forward due to high interest rates or generally weak demand. Have they forbidden the other countries and the IMF to be at least as smart?
Apparently, because a real liberal must never consider the connection between demand and corporate profits, let alone talk about it. He would have to admit that demand plays a role for companies – and that, heaven forbid, would be downright left-wing. So the radical liberals of the world close their eyes tightly, switch off their brains and march through, just like the spiritus rector of Milei, then President Macri, tried to do between 2015 and 2019. The fact that Macri failed miserably with the support of the IMF (see this paper) is something that none of those involved want to acknowledge today.
Javier Milei will not only fail politically, but also economically. The fact that libertarians around the world are cheering him on does not help him, because the entire libertarian-liberal movement suffers from having a world view in which the closest “allies” of liberals, businesses, are thoroughly misunderstood. Anyone who, for ideological reasons, systematically ignores the economy as a whole and all its feedback from their own economic policy considerations is a bad counsellor even if he pretends to be an ally.