Javier Milei 2022 - Ilan Berkenwald - Flickr

Argentina’s Recent Inflation Trends Are Proving Hazlitt Right

Milei has drastically cut public spending in Argentina since being elected. The result, as Hazlitt predicted, is that inflation is getting more under control.

Argentina’s inflation rate has recently dropped to its lowest point since January 2022, registering a monthly increase of 4.2 percent in May according to the National Institute of Statistics and Census (INDEC). Although annual inflation has slowed for the first time since mid-2023, it still stands at 276.4 percent, one of the highest rates globally.

Source: INDEC

When Javier Milei assumed the presidency in December 2023, monthly inflation had skyrocketed to an unprecedented 25.5 percent. Within five months, Milei’s administration managed to reduce this figure by more than 20 percentage points. Despite the persistently high annual inflation rate, the trend indicates potential stabilization of the Argentine economy.

Javier Milei’s reforms have been described as aggressive. In his inaugural speech, he emphasized the need to clean up the economy before implementing his promises to dollarize and close the central bank.

To achieve a zero deficit, Milei enacted a 35 percent reduction in public spending. He achieved this by closing half of the ministries and secretariats, suspending public works for a year, reducing subsidies for energy and transportation, canceling government advertising, and maintaining the 2023 budget for 2024 despite an inflation rate of 300 percent. Essentially, the government drastically cut its expenditures.

These measures, although unpopular, yielded results. Milei’s government not only avoided a deficit, but achieved a surplus, and most importantly, inflation began to decline.

Following the inflation story in Argentina recently brought to mind Henry Hazlitt’s famous 1978 article “Inflation in One Page.” As the title suggests, Hazlitt summarizes the causes and remedies of inflation in a brief and simple explanation. He argued that inflation is a consequence of government monetary policies, specifically excessive money printing due to unbalanced budgets caused by extravagant government spending.

1. Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.

2. The most frequent reason for printing more money is the existence of an unbalanced budget. Unbalanced budgets are caused by extravagant expenditures which the government is unwilling or unable to pay for by raising corresponding tax revenues. The excessive expen­ditures are mainly the result of government efforts to redistribute wealth and income—in short, to force the productive to support the unproductive. This erodes the working incentives of both the productive and the unpro­ductive.

3. The causes of inflation are not, as so often said, “multiple and complex,” but simply the result of printing too much money.

Hazlitt also discussed the cure for inflation in his book The Inflation Crisis, and How To Resolve It, asserting that the solution lies in halting the increase in money and credit:

The cure for inflation, like most cures, consists chiefly in the removal of the cause. The cause of price inflation is the increase in money and credit. The cure is to stop inflating. It is as simple as that. Although simple in principle, this cure often involves complex and disagreeable decisions in detail.

Javier Milei, an avid reader of Henry Hazlitt, appears to have effectively applied these principles in his economic strategy.

Hazlitt anticipated that radical decisions to solve inflation would be disagreeable, and indeed, many Argentinians have expressed discontent with the measures implemented in the last few months.

But despite the controversy, Milei’s approach is a compelling example of how free-market principles and a limited government can address economic challenges.

This piece originally appeared on FEE.org, you can find it here.