What Happens After Major Cuts In Government Spending? The Latest From Argentina

Manhattan Contrarian ^ | 19 Nov, 2024 | Francis Menton

[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.

[MtnClimber]

The parasites in government are not going to cooperate voluntarily.

[MtnClimber]

Manhattan Contrarian ping

[Tell It Right]

I've always felt like the GDP is a horrible barometer for the health of the economy. I believe about 1/3rd of GDP is government spending. So spending ourselves further into debt tells the "economists" that we're economically healthy.

It'd be like back when I was married to my ex-wife, if I had tried to say that our family finances were just fine because she was running up tons of credit card debt.

[MMusson]

The Reduction regulation creating bureaucrats will push the economy ahead.

[Tailback]

So what does this mean for the stock market?

[Red Badger]

Ivermectin will cure that.......

[Nervous Tick]

Your Thessalonians tag line is quite appropriate for this thread!

[Vermont Lt]

A 10% reduction in government spending would result in many lost jobs, plus a multiplier effect within the general economy.

I am fine with all of this. But its going to be painful for a while.

[redfreedom]

Getting rid of 70,000 federal employees in this country is heresy.

[rlmorel]

I just Photoshopped this yesterday, because it illustrates the problem:

Absolutely not, they will generally not depart of their own free will. But that is why we refer to them as "parasites".

No parasite ever voluntarily departs the host unless it has accomplished its goal, whatever that might be, laying of eggs, sucking it dry of nourishment, etc. or if its own survival is threatened by staying in place as a parasite.

In the case of the parasites infesting our government, they will not retire until they have enhanced their nest egg of retirement and pension, or until the government becomes bankrupt.

So we will have to treat real parasites both in and out of our government the same way we treat parasites in medicine, both human and veterinary.

We must destroy the parasites, figuratively speaking. If we can target them and make their parasitical environment too dangerous (professionally speaking, or legally speaking depending on what they have been doing since 2008) or uncomfortable (by causing them to actually work) causing them to self-evacuate from their host, that is the way to go.

If not, we take active action to destroy the parasites professionally by removing them from the host (our government, and our taxpayer dollars) against their will.

Some parasites cannot be removed without destroying the host. And like the image shown at the top, the Deep State, Democrats, and RINOs are going to tighten that tail encircling our necks to make us scream out in protest.

[Widget Jr]

Also worth mentioning is when compared to the US dollar, the decline of the Argentinean peso has dropped sharply since Milei took office (ARS to USD Chart , https://archive.is/8la0L). Economic growth and entrepreneurship are not possible when a currency has sustained hyperinflation.

Milei is fixing Argentina's economy step by step. Amazing, how the Trump-friendly populist leaders understand basic economics better than compassionate progressives.

[b4me]

“ Because all government spending is (foolishly) counted as a 100% addition to GDP,....”

So if its foolish, and just because it was what was usual, doesnt mean that’s how it should properly be counted.

Trump made it clear he doesnt want to continue usual.

[rlmorel]

"...Amazing, how the Trump-friendly populist leaders understand basic economics better than compassionate progressives..."

Yes. Amazing how the people they populate all vectors of Media with are these Keynesian jackasses (at best, or who are economic illiterates or outright socialists/communists) who don't know their ass from their elbow.

But they are the "compassionate" ones.

[MtnClimber]

“ Because all government spending is (foolishly) counted as a 100% addition to GDP,....”

But because government spending is paid with taxes removed from the real GDP or else added to debt, it should be subtracted from the real GDP before it is added to the fake GDP.

[Red Badger]

“The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power, pure power. What pure power means you will understand presently. We are different from the oligarchies of the past in that we know what we are doing. All the others, even those who resembled ourselves, were cowards and hypocrites. The German Nazis and the Russian Communists came very close to us in their methods, but they never had the courage to recognize their own motives. They pretended, perhaps they even believed, that they had seized power unwillingly and for a limited time, and that just around the corner there lay a paradise where human beings would be free and equal. We are not like that. We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power. Now you begin to understand me.”
― George Orwell, 1984

[Sequoyah101]

The short version: It is all good.

[rlmorel]

Right. There are a lot of things that are asinine about the way economics are reported.

And they seem to change them on an ongoing basis, not to reflect best practices in reporting performance, but to provide the Leftist Deep State with cover, because the Left is usually the one that wants to alter the statistics to indicate success (Not that Republicans don’t want the same, but how that manifests itself is probably different)

I mean, I was shocked when I heard energy costs were excluded from the calculations of economy performance! I can’t see how, in any world, that would provide the correct reflection of performance reality. It would be like cutting out food costs. Or housing costs.

I pray that Trump is serious about not doing business as usual. His nominations for Cabinet officials indicate he is, and the wails of protests from the Left, RINO’s and Deep State REALLY indicate they think he is.

[volare737]

Government employees produce NOTHING.

The 300,000 plus government employees in the Wash, DC, area produce only restrictive paperwork.

[rlmorel]

"...The object of persecution is persecution. The object of torture is torture. The object of power is power. Now you begin to understand me..."

Well. That sure does describe the Left to a "T".