WE ARE ALL ARGENTINES / PROJECT SYNDICATE

We Are All Argentines

The victory of “anarcho-capitalist” Javier Milei in Argentina’s presidential election naturally captured headlines. But just as remarkable were the 11.5 million votes (44.3% of the total) obtained by the Peronist candidate, Sergio Massa, who, as finance minister, has presided over fiscal chaos and sky-high inflation.

Andrés Velasco

SANTIAGO – “Why can’t we ever learn?” 

The exasperated question came from one of Latin America’s top policymakers, as he told a webinar audience that his country was about to make the same mistake it had made a dozen times before.

I was reminded of this episode by the outcome of Argentina’s presidential election. 

The victory of “anarcho-capitalist” Javier Milei naturally captured the headlines. 

But just as remarkable were the 11.5 million votes (44.3% of the total) obtained by the Peronist candidate, Sergio Massa, the sitting finance minister who had won the election’s first round.

Under Massa’s watch, Argentina has been running a massive fiscal deficit financed entirely by printing money. 

The lowest available estimate for 2023 inflation puts it at 135%. 

Public debt reached 95% of GDP, and the central bank’s dollar reserves are at least $5 billion in the red.

Do 11.5 million Argentines really believe that this represents a record of sound macroeconomic management, and that the man responsible for it – and who launched a spending and tax-cutting binge in a desperate effort to be elected president – might do anything else if he won? 

Given how many times Argentina has crashed on the shoals of fiscal chaos and hyperinflation, the question is unavoidable: Why can’t the Argentines ever learn?

In truth, that question is not one but two: Do experts ever learn? 

And do voters ever come to believe what the experts think they have learned?

Most experts – except for advocates of Modern Monetary Theory, which, as the quip goes, is neither modern nor a theory – would agree that Argentina’s economic policies are somewhere between silly and suicidal. 

But make the case less extreme, and the expert consensus fades away.

Members of “Team Transitory” and “Team Permanent” battled over the right response to the global surge of inflation in 2021. 

Team Transitory initially won, and many central banks sat on their hands and allowed inflation to reach its highest level in decades. 

Panic followed.

Monetary policy then became much tighter, and Team Permanent declared victory. 

Prominent advocates of the inflation-will-go-away-on-its-own view admitted they had been wrong.

Fast-forward to the present and the expert debate is again unsettled. 

High interest rates look unlikely to cause a recession in the United States, with the disinflation gain requiring surprisingly little pain. 

So, members of Team Transitory are now claiming they were right all along. 

One of them, Nobel laureate Joseph E. Stiglitz, calls for a victory lap, going as far as to assert that “disinflation has happened despite central banks’ actions, not because of them.”

Many experts (including me) think Stiglitz is wrong. 

To control inflation in the US, the massive fiscal expansion had to be offset by higher interest rates. 

And even in the United Kingdom, where demand was tighter and high energy prices played a larger role in the rise of inflation, contractionary policy was needed to prevent a wage-price spiral.

But citizens see only intellectual disarray, with the people who are supposed to know unable to agree on the right lessons. 

The same citizens could be forgiven if they listen to the prescriptions of cranks (perhaps imported from Argentina?) next time inflation goes up.

Now, even if the experts could agree, there are good reasons why regular folks might not listen to them. 

Most policies (including those to quell inflation) take time to succeed, and modern voters seldom have enough patience to give them a chance.

A plausible explanation of Argentine voters’ behavior is that deep budget cuts are painful, and the politicians who apply them seldom last long in office. 

The populists who replace them benefit from their predecessors’ anti-inflation and get to preside over a period of price stability and growing fiscal expenditures.

Voters then conclude that the populists were right all along, and re-elect them. 

The cycle starts again when the budget deficit gets so large that it can be financed only by printing money.

Besides, experts belong to the elite, and who wants to listen to stuck-up elitists? 

UK minister Michael Gove was on to something when he quipped that “Britain has had enough of experts.” 

Nowadays, books with titles like “The Death of Expertise” proliferate, and eminences brandishing PhDs do not command the respect they once did.

In fact, the idea that experts help voters learn about which policies work, and that this determines political preferences, points the arrow of causality in the wrong direction. 

It is not that millions of Argentines have concluded that orthodox fiscal and monetary policy are counterproductive, and therefore vote Peronist. 

They are Peronists, and since Peronism holds that austerity of any kind, in any circumstance, is evil, that is what they must believe.

Or, to change the setting: it is not that students on North American college campuses are progressive because they have listened to Stiglitz, parsed his arguments, and concluded that he is right. 

Those students are progressives, and hence have little choice but to believe that Stiglitz’s claims make sense.

The idea that identities determine beliefs and policy preferences, and not the other way around, was once heretical, but evidence in its favor is mounting. 

How else to explain the peculiar and persistent pairing of beliefs? 

There is no reason why people who think that climate change is a threat should also think that foreign aid is effective. 

Yet progressives invariably hold both sets of beliefs, while people who identify as conservatives swear that global warming is a hoax and that sending money abroad is a waste.

Political scientists Christopher Achen and Larry Bartels have made the point forcefully: “voters, even the most informed of voters, typically make choices … on the basis of who they are – their social identities. 

In turn, those social identities shape how they think, what they think, and where they belong in the party system.”

The key policy question, then, is not how to change beliefs, but how to modify identities. 

And here, social scientists have little advice to offer. 

The one thing that we know is that identities change at a glacial pace. 

Someone who identifies with the political right may come to believe the left’s arguments are correct, but will vote for a leftist candidate (and tell friends about it) only after much trepidation.

Experts in Argentina want to believe that their fellow citizens have finally “learned.” 

That is why 14.5 million voted for Milei and his promises to slash deficits and quash inflation. 

I am skeptical. 

It is just as likely that they voted for Milei because he was an outsider. 

Once he becomes the Establishment – and especially if he governs in a coalition with the mainstream right, as he probably will – they will turn against him. 

The never-ending Argentine political cycle, with its perennial lack of “learning,” will have started once again.

Andrés Velasco, a former finance minister of Chile, is Project Director of the G30 Working Group on Latin America and Dean of the School of Public Policy at the London School of Economics and Political Science.