Javier Milei’s Address to the World Economic Forum

Author
Dr. Robert P. Murphy
Date
January 22, 2024
Categories
Economics, Market Failure, Argentina, International Economics
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On January 17, newly elected President of Argentina Javier Milei delivered a scathing address to the World Economic Forum, an organization headed by Klaus Schwab. As a self-proclaimed “anarcho-capitalist” and trained economist, Milei presented a concise case for freedom and pinpointed the specific arguments that academics use to ostensibly justify State intervention in the economy. In this post I’ll amplify some of Milei’s major points.

0:05 – 0:49 “Today I’m here to tell you that the Western world is in danger. It is in danger because those who are supposed to defend the values of the West are co-opted by a vision of the world that leads to socialism and thereby to poverty. Unfortunately, in recent decades, motivated by some well-meaning individuals willing to help others, and others motivated by a desire to belong to a privileged class, the main leaders of the Western world have abandoned the model of freedom for different versions of what we call collectivism.”

The above framing of his remarks is a masterful move, and helps illuminate how such a radical figure like Milei won a nationwide election. He doesn’t pull any punches and accuses some of his opponents of more than mere intellectual error; no, they are attacking the underpinnings of Western values out of a lust for power and wealth. However, Milei concedes that others who are advancing the collectivist agenda are doing so because of a misguided desire to help the downtrodden.

In this way, Milei lets his hardcore supporters know that he is nobody’s fool and understands how we got into the current mess, but on the other hand, for any specific individual hearing his message, it will not come across necessarily as a personal condemnation. Because that person can think, “Oh wow, I support progressive income taxes and a vigorous central bank, but I thought those were scientifically established mechanisms for helping the poor. Let me give this strange fellow Milei a chance to show me I’ve been mistaken.”

Next Milei makes it personal, explaining that Argentina historically had been one of the richest countries in the world, and then squandered its wealth through the adoption of collectivist measures. (According to Wikipedia, on the eve of the first World War, the per capita wealth of Argentina was in the top ten globally.) Again, this is very effective rhetorically, because it’s hard for an outsider to challenge the president of Argentina—who has decades of experience working in international banking—when he matter of factly discusses the economic history of his own country.

The Hockey Stick

Some readers may be familiar with the “hockey stick” chart from the debate over climate change, but there is a similar chart having to do with global per capita income. For example, the following chart shows real (i.e. inflation-adjusted) output per person in various countries over a thousand-year stretch:

The above chart is well known among economic historians. They differ in their precise explanations as to why the Industrial Revolution occurred in Great Britain and at the time that it did, but a growing literature stresses the necessity of strong institutions of private property and the rule of law, as well as a culture’s general admiration of and respect for the merchant class and entrepreneurs.

This context sheds light on some of Milei’s remarks in his address. At around the 5:00 mark, he says that free-trade capitalism is the only system that can end global poverty. To buttress his claim, consider these statistics

As the chart makes clear, there has been absolutely phenomenal progress made on the goal of eradicating “extreme poverty” (which has a precise definition) over the last two centuries. In recent decades, the introduction of pro-market reforms into communist China has lifted many millions out of destitution.

Of course there are nuances in these debates. Merely relying on the charts above, one could plausibly argue that a “mixed economy” delivers superior performance to raw laissez-faire, since the major powers were certainly not exercises in applied libertarianism from 1950 onward. However, in terms of the stark contrast between capitalism and collectivism, the evidence is overwhelming.

Besides the aggregate trends documented above, we have case studies such as North versus South Korea, and East versus West Germany. Even when we split the same culture down the middle, implementing capitalism in one and socialism in the other leads to enormous differences in the standard of living as well as personal liberties. For those interested in quantitative regression analysis, the Fraser Institute ranks countries on an Economic Freedom Index, and dozens of studies have shown the connection between scoring high on this index and doing well in terms of standard metrics of economic growth, low childhood mortality, etc.

Praising Israel Kirzner, Dissing “Market Failure”

Those of us hailing from the Austrian School were delighted to hear Milei (around 6:35) say that wealth creation comes from “what Israel Kirzner calls a market discovery process.” The context was to argue that income and wealth redistribution do not rearrange a fixed or given “pie”, but that the size of the pie itself depends critically on the underlying legal institutions and cultural norms. In contrast, Milei went on to excoriate standard neoclassical models that exhibit “market failure.” It may be useful for me to explain the difference between these two approaches.

Israel Kirzner directly studied under Ludwig von Mises while getting his PhD from New York University, and then taught there himself for decades. (I was lucky enough to have taken a course in the history of economic thought from Kirzner before he retired.) In contrast to neoclassical models that take most of the economic data as “given”—and then showcase various scenarios in which the competitive market outcome is inferior to what a hypothetical central planner might do with society’s scarce resources—Kirzner amplified points that Friedrich Hayek made in his seminal economic articles.

Specifically, in the real world we don’t know where all of the resources are located, we don’t know what the least-cost “production functions” are for turning resources into finished goods and services, and we don’t know how the consumers would rank the desirability of various potential combinations of goods and services. It is only through the institution of private property in not just personal items but also the “means of production,” as well as the use of money, that entrepreneurs can engage in economic calculation (Mises’ term) and discover better ways to serve customers.

Conclusion

Many of us are still in a state of shock that someone who is so well-versed in free-market economics ran a successful populist campaign to become the president of Argentina. We can only hope that Javier Milei can implement at least enough of his agenda in order to give his proposed reforms a serious test. Both theory and history suggest that turning away from collectivism and back towards economic liberty is not only the right thing to do, but it will also make people richer.

NOTE: This article was released 24 hours earlier on the Infinite Banking (IB) 3.0 - The Future of Finance Group.

Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together Whole Life insurance policies and digital blockchain-based issuance.

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