Javier Milei, the radically pro-free market President of Argentina, has been on a mission to cut the government down to the bare essentials and restore sound monetary policy to a country that has faced rampant inflation and economic issues. The populist president gained a following among the Argentines who were sick of living in poverty due to government meddling in the economy. The problems were not even a result of incompetence, though. The problems are baked into the system. When the government gets involved in the economy, and especially when it gets involved in the financial market, there are going to be problems.
The Keynesian economic school, which has dominated Western economies for decades, puts a premium on stimulating the economy. The government drives down interest rates through artificial means so that there is more investment, more cash flow, and more consumption. This economic style is alluring to politicians with short terms in office because they provide a quick hit. The stimulus hits the economy and everyone is happy until they aren’t. Eventually, the chickens come home to roost, and the financial markets must readjust to the actual interest rates absent government interference. This is a painful process. This is what the Austrian economists call the boom-and-bust cycle.
Politicians like to fix it by adding more stimulus just to make their constituents happy, but this is just kicking the can down the road. The problem is pushed off into the future, and it gets bigger because investments have gone where they shouldn’t have. It is like beating a hangover by drinking more alcohol – it just means there is going to be a bigger hangover later.
The best thing to do is stop stimulating and let the economy adjust. This is what President Milei is doing. This leads to prosperity.
This post originally appeared at https://www.phyllisschlafly.com/liberalism-and-conservatism/prosperity-vs-national-economic-hangover/
