Posted on 11/19/2024 5:37:04 AM PST by MtnClimber
If you believe the messaging of the Trump transition, big cuts in U.S. government spending are coming. Announced cabinet appointments include several who are opponents of the mission of the agencies they will soon be heading. A new Department of Government Efficiency is to be created, headed by Elon Musk and Vivek Ramaswamy, with instructions to take an ax to wasteful programs.
But, assuming that some big cuts actually get implemented, you know what inevitably comes next: Because all government spending is (foolishly) counted as a 100% addition to GDP, the cuts first get recorded as a decline in GDP. Economists on the left (e.g., Krugman) then immediately scream that the cuts have failed, the country has gone into recession, and the people are suffering. In recent U.S. experience, the Republicans have never had the political fortitude to stay the course.
But let’s look at the latest news from Argentina.
Argentine President Javier Milei was elected just over a year ago, on October 22, 2023. He then took office on December 10. The main thrust of his program was major cuts to government spending, and he immediately set to work to accomplish that. While I find it difficult to get comprehensive statistics in English, here are some notable data points:
- An April 23, 2024 article in the Buenos Aires Times reported that, according to the Argentine Institute of Fiscal Analysis (IARAF), for the first quarter of 2024, “primary [government] expenses fell by 28.6 percent year-to-year in real terms (deducting inflation).”
- From the same piece: “IARAF indicated that in the first three months of the year, 15 of 16 categories of spending were found to have declined in real terms, with the exception of universal social protection allowances (10.6 percent).”
- From a piece in Reason magazine, June 6, 2024: In March Milei had announced a cut of 70,000 employees from Argentina’s public sector workforce; and by June, 25,000 of those job cuts had been accomplished. Then, in early June, “Argentine President Javier Milei on Wednesday [June 5] announced the layoff of an additional 50,000 state employees, advancing his effort to "reduce the state in half."
- The result of the large spending cuts was that Argentina’s fiscal balance had swung from large deficit to surplus in the course of mere months. From IARAF via the Buenos Aires Times: “[For the first quarter of 2024] the primary deficit became a primary surplus of 625 billion pesos,” wrote the IARAF. “Interest expenses dropped by 31 percent in real terms from the same month last year. Consequently, a fiscal deficit turned into a 276-billion-peso fiscal surplus.”
The inevitable immediate result of the large cuts to government spending was an official recession, as the government spending was removed from the official GDP accounts. From BBVA Research, October 2, 2024:
[Argentine] GDP contracted by 3.4% in the first half of 2024.
Trading Economics shows similar figures for Argentine GDP: -2.49% for 4Q 2023, -2.57% for 1Q 2024, and -1.7% for 2Q 2024. Actually, those declines were remarkably small given the very large cuts to government spending. Perhaps unnoticed to the statisticians, some entrepreneurial spirits were beginning to awaken among the Argentine people.
And now, what’s the latest from Argentina? It looks like the economy is starting to take off. From Mario Nawfal on X, November 16:
ARGENTINA’S ECONOMIC SURGE: JP MORGAN HIKES GDP GROWTH FORECAST TO 8.5% UNDER MILEI’S POLICIES JP Morgan has raised Argentina’s GDP growth forecast to 8.5%, citing optimism around recent reforms by President Milei. Milei, known for his bold free-market agenda, is pushing plans to dollarize Argentina’s economy, slash public spending, and reduce government intervention — aiming to curb inflation and boost economic stability. This updated forecast signals rising confidence in Argentina’s potential for a turnaround. Source: Buenos Aires Times.
As of this writing it’s still just a forecast. However, all indications are positive. Milei has stayed the course through a first year of strenuous opposition from entrenched interests. The dead hand of government overspending, over-regulation, crony capitalism and handouts has been dramatically loosened.
Now it’s up to Trump, Musk, Ramaswamy, et al., to follow the same course. May they have every success.
Argentina is a good example. We should bring in some intellectuals and academics from Argentina who supported this government cutting and who provided the intellectual arguments for it. And put them in front of TV cameras to lecture the leftists here. I think having smart people and intellectuals support conservative policies blunts the edges of the leftist criticisms - notice there is not much they can say about Vance or Vivek, who are the smartest of the bunch.
What the article says, is that cutting government spending and government results initially in a decrease in economy, followed later by a substantially more robust growth in private sector economy.
Consider this. Keynesian economists say to expand government to expand the economy. This obviously does expand the economy initially, but results in a heavy burden to private sector with eventual overtaxation and economy. Stagnation.
The concept that raising taxes to increase government spending has been a hallmark of socialists, communists, and United States Democrats (or do I repeat myself) for years. That bigger government ends in private sector stagnation. The immediate fix of which is to deficit spend to hide the economic repercussions of increasing government, since that spending increases GDP by both the spending and by inflation.
Let that sink in. We have reached a huge deficit, a now unstable currency, small business failures since 2008 at record rates. The democrats answer is more government. Yet, with a 45% increase in FEDGOV in 3 years, and the economy produced only 12k jobs nation wide in October, and Boeing played off 17k last Thursday………
In my humble opinion, we are way overdue for a ‘government sector’ correction. Like maybe 9 million of the 17 million employee correction.
By eliminating the EPA, we can once again have $20,000 pickups. And no, they won’t pollute that much.
Interesting news from Argentina. Here the “Civil Service” regulations and unions present major obstacles to removing even nonproductive deadwood. The requirements for reduction in force (RIF) are complicated and will be hard to overcome. That plus the inevitable flood of litigations, will work against the whole idea of reducing the bloat. I hope for the best, but don’t expect to see the same level of success as Argentina, at least not soon.
By the way, that quote has always made my blood run cold.
I am just fine with Trump using the same rigor in calculating GDP, as dementia Joe used to calculate inflation numbers.
Never thought about that but it’s true.
They believe ‘circulating the money’ helps drive the economy. How convenient for those that don’t have to do much and aren’t accountable, producing nothing.
Their fired a**es will have to go into the private sector and actually produce something instead. Win win.
Does Argentina have Inflation numbers out yet?
“It would be like cutting out food costs. Or housing costs.”
I think food costs are left out too.
Housing costs are not well treated for all of those out here who have no shortage of different types and lived-in ages of housing. Not to speak of the Property Taxes on real estate.
Then the inflation “gains” on assets should never be taxed.
After 20 years with DoD, we could easily get rid of 400,000 with the only impact of improving products and services. The problem is you can’t. EEOC (women, minorities are 60%) + ADA (Another 25%) means you can only fire healthy white males, and they are generally not the problem.
The problem is you can’t.
There is a way, we just don’t know what it is yet.
You would think someone would be able to devise a real set of metrics, but I have come to the conclusion that isn’t the point at all.
The point is to have meaningless metrics that can be pushed in any direction the Deep State wants them to go.
“The point is to have meaningless metrics that can be pushed in any direction the Deep State wants them to go.”
Your Congress Critters are NOT your friends.
Pretty much ALL of them.
The are but a handful, percentage wise, in each Chamber of any value.
Pretty much agree there on all counts...
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