Will Javier Milei Be The Next Argentinian Demagogue?

"There are four kinds of countries: Developed, underdeveloped, Japan, and Argentina" 

- Simon Kuznets.

What comes to mind when you hear about Argentina? Most commonly, people would think of these three things: Lionel Messi, Tango, and perhaps their beautiful woman. However, the answer would be completely different if you ask an economist. Their answer would probably look like this: Stagnation, hyperinflation, and Poverty. These three words pretty much sum up the state of the Argentinian economy for the last 30 years.

Figure 1: Argentina Monthly Inflation Rate From 2018 - 2024. Source: Statista (2024)  

This is merely because, for decades, Argentina's Economy has been stuck in a deep economic stagflation. Annual inflation has soared and stood at triple digits. The value of their Currency, Argentina's Peso, has plummeted for years. In the past two decades, they have defaulted on their international sovereign debt three times, and today, more than two in five Argentinians live in poverty.

However, if we took a step back to the early 20th century and compared the landscape of the Argentinian Economy to that of today, it would seem like we're seeing two completely different nations. From the late 19th century until the early 20th century, Argentina was on track to become one of the world's biggest economies. During this period, Argentina had everything it needed to become an economic powerhouse.  Endowment-wise, Argentina has a massive comparative advantage over its Latin American neighbors because of its abundant natural resources. Human capital-wise, during this period, Argentina had a population with one of the highest literacy rates in the world (Alejandro & Carlos, 1970). Due to these massive advantages, their economy excelled, making them the world's ten wealthiest countries by 1913 (Spruk, 2019).

At this time, Argentina has positioned itself comfortably among the ranks of rich countries. But we all know how the story ends. Instead of becoming the economic wonder that everyone expected Argentina to become, Argentina's Economy somehow took a turn and became a catastrophe. Then one can only wonder, what went wrong?

What Went Wrong With Argentina?

The answer to the previous question is simple: everything went wrong for the Argentinian economy. For decades, Argentina has experienced a continuous institutional breakdown, where its historical norm is characterized by a poorly limited government, persistent militarism, amateur self-government, and political absolutism (Spruk, 2019). The 1930 military coup in Argentina was to blame for embarking the nation on the path of years of chronic instability. It eroded the nation's checks and balances system, allowing demagogues, politicians who often make false claims and promises to appeal to the voter’s emotions, like Juan Peron, to be elected as their 35th president in 1944 (Spruk 2019).

Juan Peron was mainly known for his Peronism ideology, which was characterized by extensive welfare state programs oriented toward the working class. With his ideology, Peron's primary focus is to improve the well-being of the lower class, where he consistently promises to provide the Argentinian people with free public health care, education, and higher wages. Eventually, due to his populist approach, Peron gained massive loyalty from the Argentinian lower class, allowing him to win the 1946 election in a landslide.

Despite its popularity, Juan Peron and his philosophy were mainly blamed for directing the Argentinian economy toward failure. His populism bloated Argentina's spending on welfare state programs, which caught the nation in a deep budget deficit of $160 million in 1949 (Pahowka, 2005). This caused printing money to be customary to cover the government deficit, which sparked inflation. The increase in Argentinian workers' wages during Peron's time in office also significantly contributed to inflation as wages grew faster than worker productivity (Jordan, 1975).