How Did Those 108 Economists Get Javier Milei's Reforms So Wrong?

As President Donald Trump begins his second term as president, there’s much he can learn from Milei’s first year in office.

In November 2023, the warning came, as clear as an omen.

A political upstart was seeking office and, if elected, his policies were likely to cause “devastation” in his own country and “severely reduce policy space in the long run.”

The threat was a chainsaw-wielding disciple of Austrian economics from Argentina who embraced laissez-faire economics. The predictions of doom came not from Old Testament prophets, but 108 economists who signed a public letter saying his anachronistic ideas had long ago been discredited.

“As economists from around the world who are supportive of broad-based economic development in Argentina, we are especially concerned by the economic program of one of the candidates, which has become a major issue of discussion in the national election,” the letter read.

The economists (who included Thomas Piketty, a leading global scholar on wealth and income inequality) conceded that a desire for change in Argentina was understandable, considering the rampant inflation and economic crises the country was experiencing.

Yet the warning was clear.

“Javier Milei’s economic proposals are presented as a radical departure from the traditional economic thinking,” the economists wrote. “…we believe that these proposals, rooted in laissez-faire economics and involving contentious ideas like dollarization and significant reductions in government spending, are fraught with risks… . “

Milei’s ‘Shock Therapy’

The people of Argentina either failed to hear or declined to heed the warning.

On November 19, voters elected as their next president the wild-haired Milei, who defeated his Peronist opponent by a ten-point margin. Milei was inaugurated on December 10 and wasted little time implementing his laissez-faire agenda, which included an immediate five-percent (chainsaw) slash in government spending.

More reforms followed.

Public work programs were put on hold, welfare programs were slashed, and subsidies were eliminated. State-owned companies were privatized and hundreds of regulations were cut. Tax codes were simplified and levies on exports were lifted or reduced. Labor laws were relaxed. The number of government ministries was reduced from 18 to 9 (¡afuera!) and a job freeze was implemented on federal positions. Tens of thousands of public employees were given pink slips.

On the monetary side, the currency was sharply devalued and the central bank was ordered to halt its money-printing.

These actions were not painless. Indeed, Milei himself had described them as a kind of “shock” therapy that was necessary for economic healing. Argentina was battling triple-digit inflation, economic sclerosis, and mass poverty.

“I will make a shock adjustment and I will put the economy in a fiscal balance,” Milei said following his win. “As I pledged not to raise taxes, this means I will do so by cutting spending.”

The Results, One Year Later

Milei recently completed his first year as president, and the results are not what Piketty and company predicted. Duke University economist Michael Munger, a contributor to these pages, recently pointed out that Argentina’s economy outperformed any reasonable expectation under Milei. He’s right.

Inflation, which had peaked at an annualized rate of 300 percent in April, nosedived, reaching a four-year low in November. In his first month in office, the Associated Foreign Press reports, Milei oversaw a record 25.5 percent inflation rate. By November, inflation had fallen to 2.4 percent.

“In just 12 months we pulverized inflation,” the Economy Ministry wrote on X.

Meanwhile, Argentina’s economy officially exited recession.

GDP grew nearly four percent in the July-to-September quarter after a sluggish first half, and the International Monetary Fund forecasts growth of five percent in 2025 and 2026. Meanwhile, Munger notes, there is a strong likelihood of foreign investment, as evidenced by the JP Morgan “country risk index.”

There’s more work to be done in Argentina, a country that for decades has struggled economically under the yoke of Peronism. Yet the results are nothing short of miraculous — and precisely the opposite of what the 108 economists predicted (not to mention prestigious media outlets like The New York Times, which reported on the “concern in Argentina and beyond about the damage [a Milei] government could inflict on Latin America’s third-largest economy”).

A ‘Superficial’ Understanding

It bears asking, how did Piketty and company get things so wrong?

Economics, after all, is a science — a dismal one perhaps, but a science nevertheless. And though there was never a clear consensus on Milei among professional economists, many of the most vocal and prominent ones were predicting that Milei and his laissez-faire policies would be disastrous.

I reached out to several professional economists to get their hypotheses on why their peers missed so badly in their predictions on what Milei’s policies would achieve. I didn’t sense an eagerness to discuss the issue, perhaps because these economists are more humble than the 108 who signed the letter in 2023, and fully understand that predicting economic outcomes is challenging.

One economist who has written about the failed prediction is David Henderson, a research fellow at the Hoover Institution. In a post, Henderson attributes the failure of Piketty and company to a lack of understanding of free markets and government intervention.

Henderson points out several flawed assertions the authors make and demolishes at least one straw man — “the laissez-faire model assumes that markets work perfectly” — before offering a blunt assessment of the economists.

“Their understanding of how markets work and of how governments work is superficial,” writes Henderson. “I wonder if any of them, seeing the apparent success of Milei’s policies, are questioning their prior views. We can always hope.”

Indeed we can. But for now, it’s not unfair to assume from their silence that they’ve learned little from Argentina’s economic progress.

As President Donald Trump begins his second term as president, there’s much he can learn from Milei’s first year in office.

This includes ignoring economists who claim that cutting government spending, regulations, and bureaucracy will result in economic devastation. And perhaps most importantly, the danger of using government printing presses to avoid making difficult budget decisions.