Milei is not Roca

 

From the 'conquest of desert' to the creation of a productive desert

Pablo Gerchunoff has an interesting interview in La Nación in which he suggests that Milei, like Roca (the Argentine Porfirio, for gringos that know something about Mexico), has seen a structural change in the Argentine economy and has been able to convert it into a political opportunity. In Roca’s case, the combination of railways and refrigerated shipping opened the possibility of the old agro-export model. In Milei’s case, Gerchunoff points to the new productive geography along Route 40, with mining and energy potential. Vaca Muerta, lithium, mining, energy, Patagonia and the northwest frontier. There is something to the point. But the analogy, I think, is more misleading than illuminating. I also might add that it is striking that someone like Gerchunoff, who once admired what he saw as Alfonsín’s non-Peronist social-democratic model (something that I share), could now find historical promise in Milei.*

On the historical issue, it is clear that Roca's model was not similar to the current one. The so-called generation of 80 did talk the language of liberalism, but the construction of that economic model required a very active state. Military occupation, territorial incorporation, railways, ports, public credit, land policy, immigration policy, and a political regime designed to guarantee the conditions for accumulation. Free markets did not spontaneously build the agro-export economy. It was built by the state, often violently. The current government wants the epic of a new productive frontier without public works, without infrastructure, and without the political construction that made the old liberal order possible.

There is another problem. Much of the so-called Route 40 strategy depends on investments and institutional decisions that preceded Milei. Vaca Muerta did not fall from the sky in December 2023. Energy infrastructure, the development of shale production, and the reduction of energy imports are the result of previous policies and investments. Milei can try to appropriate the narrative, and he may even give excessive incentives to some sectors, like AI (see Milei's piece in the FT), through the RIGI and other measures (for an explanation of the investment regime go here). But the current improvement in the external sector is not evidence that chainsaw economics works. It is evidence that past public investment, together with favorable external conditions (and a lot of dollars from the IMF and the US Treasury), can temporarily improve the balance of payments.

This is also why the idea that Milei is an outsider was always implausible. As I have noted before, the economic team is not new. Caputo and Sturzenegger are not outsiders to Argentine economic policy. They were central to the Macri experiment, which led to the 2018 IMF agreement and the renewed dollar debt trap. Milei’s rhetoric is anti-caste, but the economic program is the old neoliberal package of fiscal austerity, deregulation, trade and financial liberalization, and external indebtedness. The dog may be new, but the fleas are not.

Gerchunoff is right to worry about the losers of creative destruction (not sure how much is being created). But here too the Roca analogy fails. Argentina today is not a sparse nineteenth-century frontier society organized around land, beef exports, and a small urban elite. It is a modern, urban, very unequal society with a large working class, a complex service sector, industrial remnants, public employment, pensions, universities, health systems, infrastructure needs, and a binding external constraint. You cannot tell workers in the so-called conurbano to wait until 2050 or move to Patagonia. That is not a transition strategy. And it is not even good politics.

Where I disagree more sharply with Gerchunoff is on the exchange rate. He suggests that if the central bank moved the dollar closer to the top of the band (a devaluation in Latin American usage), Milei would almost guarantee reelection. That seems wishful thinking. Milei’s only clear achievement has been the reduction of inflation from the very high levels reached after the exchange-rate jumps of 2023. But that stabilization was not caused by fiscal austerity as such. The fiscal shock caused recession and the persistence of Argentina stagnation since 2011. The stabilization of prices came mainly from controlling the exchange rate, with substantial external support. The initial maxi-devaluation in December 2023 doubled monthly inflation and produced the collapse of real wages. Another depreciation would risk repeating the same mechanism. Higher import costs, higher prices, lower real wages, weaker consumption, and renewed instability.

In a peripheral economy with a strong pass-through from the exchange rate to prices, depreciation is not a magic route to competitiveness. It is often contractionary and inflationary. It reduces real wages, worsens distributional conflict, raises the domestic cost of imported inputs, and may fail to generate exports to compensate for the contraction of domestic demand. The idea that a cheaper currency automatically solves the external constraint is another version of the same marginalist fantasy that relative prices are the main mechanism of adjustment. In Argentina, relative prices often adjust by generating a crisis. Note that he already has a positive external situation in the short run (in the long run, the next several governments will have to contend with much higher external debt obligations).

This does not mean that the current exchange rate regime is sustainable indefinitely. It probably is not. But the problem is not solved by devaluation. The problem is that the government is trying to stabilize a highly dollarized economy with negative interest rate differential, offering insufficient incentives to hold pesos, scarce reserves, external dependence, and a brutal recessionary adjustment. In those conditions, a depreciation may be less a solution than the beginning of the next round of instability.

The broader issue is that the nineteenth-century liberal model cannot be recreated in a twenty-first-century Argentina. Even the nineteenth-century liberal model was less liberal than its admirers pretend. Today, a development strategy would require public investment, infrastructure, industrial and technological policy, energy planning, external management, and institutions capable of integrating the losers of structural change. Milei has none of that. He has a chainsaw, a Twitter account, and the enthusiastic support of the same groups that benefited from previous failed neoliberal experiments.

Roca, for all the brutality and exclusions of his project, built a state capable of organizing a model of accumulation. Milei is dismantling state capacity while claiming to inaugurate a new era of material progress. The result may last long enough to win an election if external financing keeps arriving. But the logic of the model points, as before, toward a crash. Roca 'conquered' the desert, Milei is creating a productive one.

* If you read Spanish I highly recommend his book on Alfonsín. 

On Mirowski and neoliberalism

New post on Substack that argues that Mirowski is right that neoliberalism cannot be reduced to textbook neoclassical economics, since it is a broader political and institutional project (see the old debate here). But I defend that, on a theoretical, the reverse point is correct. Neoliberalism also cannot be separated from marginalist economics, that is in a sense broader than neoliberalism. All neoliberals must be in some sense neoclassical, I argue.

The more detailed reasons are in the Substack post. The gist is that the public policy rhetoric of neoliberalism invokes Adam Smith's laissez-faire and classical liberalism, but its analytical core comes from neoclassical ideas about the theory of value and the notion of markets as superior coordinating mechanisms. The key distinction is therefore that classical liberalism provides neoliberalism with political legitimacy, while neoclassical economics provides its theoretical foundation. Mirowski helps clarify neoliberalism as a movement, but the post argues that his account underplays the common marginalist ground uniting its different strands.

Chokepoints and the resilience of American power

Quinn Slobodian has a good review in the New York Review of Books of Edward Fishman’s Chokepoints: American Power in the Age of Economic Warfare. Fishman’s book, as discussed by Slobodian, suggests that the old geography of imperial power, associated with control over maritime chokepoints, has been displaced, or at least supplemented, by a new kind of geopolitical chokepoint embedded in the infrastructure of globalization itself.

The old strategic passages, Suez, Hormuz, Malacca, have not ceased to matter, of course. But the new chokepoints are less visible. They are located in dollar payment systems, correspondent banking networks, shipping lists, insurance, transaction data, export controls, semiconductor supply chains, and the legal mechanisms that allow American sanctions to reach firms and governments well beyond U.S. territory. The empire is not only in the fleet, but also in the spreadsheet, the compliance office, the server, and the bank account.

Slobodian’s central point, a moral or ethical one, is that Fishman is too complacent about the American use of these instruments. Sanctions and export controls are presented too easily as clever instruments of policy, when in fact they are instruments of economic warfare. They often miss ruling elites and impose enormous costs on ordinary people. They restrict access to medicines, raise the cost of living, reduce growth, and produce humanitarian consequences that rarely enter the calculations of the sanctioning power. No surprise there. Fishman is an insider of the US bureaucracy.

More importantly, he notes that there is also a paradox. Sanctions and economic warfare reveal American power and erode it at the same time. In the short run, they demonstrate the extraordinary coercive capacity of the United States. Washington can freeze assets, cut access to dollar payments, block technology transfers, threaten third-party firms, and punish countries that do business with the wrong partners. In the longer run, however, the repeated use of these instruments encourages both adversaries and allies to search for alternatives. Russia, China, Iran, and even European firms and governments learn that dependence on US-controlled networks is a vulnerability (The Chinese already knew that; see Jake Sullivan’s piece in the last issue of Foreign Affairs).

That is certainly right. But it is also incomplete. Slobodian’s critique captures the self-undermining logic of financial and technological chokepoints, but it underplays the military dimension that makes those chokepoints effective in the first place. The dollar system, the control over payment systems, the ability to impose secondary sanctions, and the capacity to define who can and cannot participate in global markets are not simply instruments of market power or legal jurisdiction. They are embedded in a broader imperial architecture.

That architecture includes US military reach, naval dominance, intelligence capabilities, alliance systems, bases surrounding potential rivals, and the capacity to enforce rules globally. The chokepoint is not only financial or technological. It is also geopolitical and military. The old geography of power has not disappeared. It has been internalized into the institutional and technological infrastructure of globalization. This is important because otherwise one ends up with an overly pessimistic view of American hegemony.

It is true that the strength of the system creates vulnerabilities. The more the United States weaponizes interdependence, the more other countries have incentives to escape from it. China’s efforts to build technological autonomy, Russia’s attempts to find payment alternatives, and the search for non-dollar channels of trade all reflect this dynamic. However, as Tim Barker notes in a recent piece in Phenomenal World, American declinism has often been less a description of terminal weakness than a political language for imperial renewal.

Further, hegemony also reproduces American power. The dollar is not simply a convenient currency that survives because markets trust it. Nor is its dominance ultimately explained by gold, credibility, or some spontaneous market convention. The willingness of agents across the world to accept dollars, to denominate contracts in dollars, to hold reserves in dollars, and to organize their calculations around the dollar rests on power. More precisely, it rests on the capacity of the United States to enforce the rules of the global system.

Monetary hegemony (the role of key currency) depends on military technology, which in turn depends on access to key commodities (mostly energy) and technological dominance (mostly in sectors related to the military), but then access to commodities and military power depend on the ability to spend without significant limits, which is based on monetary hegemony, in a circular and self-reinforcing way.

In a simplified way, since the transition to capitalism, there have been essentially three monetary standards. A silver standard, dominated by the Spanish silver peso (which anchored global trade), and was mostly managed by Italian (Genoese) and then Dutch bankers (Bank of Amsterdam), a gold standard, dominated by British pound (that anchored the Industrial Revolution, 1st and 2nd), and was managed by the Bank of England, and a fiat standard, dominated by the dollar, and managed by the Federal Reserve and the multilateral organizations (IMF, World Bank, BIS, etc.).

The rise of the pound was associated to the demonetization of silver, and the end of Bretton Woods to the demonetization of gold. The end of Breton Woods, in this sense, did not represent the beginning of the end of dollar hegemony. Quite the opposite. The collapse of the dollar-gold link created the first genuinely global fiat standard and enlarged the policy space of the United States. Freed from the gold constraint, the United States could use its currency, its public debt, and its central bank in ways unavailable to other countries. The dollar standard allowed the United States to spend, borrow, and sustain its military and technological capacities on a scale that others could not replicate.

This is the fiscal-military side of dollar hegemony. The hegemonic currency allows the state to spend without the same external constraint faced by peripheral countries. That spending supports the military-industrial complex, government procurement, research & development, and the hidden developmental state. In turn, military power sustains the international order in which the dollar remains central. Monetary power and military power are not separate. They are mutually reinforcing.

This is why the rise of China must be analyzed carefully. China has changed the geography of global production. It is no longer simply a low-wage assembler of cheap consumer goods. It is now a central actor in high-tech manufacturing, electric vehicles, batteries, solar panels, telecommunications, and other strategic sectors. The old complacent view that the United States would innovate and design while China assembled is gone. That was one of the illusions of the pro-globalization cheerleaders.

There is an argument, the energy-hegemony argument,, we may call it, made recently by Danny Bessner in David Sirota’s podcast, and in a more systematic way by Helen Thompson in her book Disorder,* that suggest that China is to become dominant because of its control of clean energy sources. Bessner said that “the country that is the leader in new energy technologies is the country that is going to dominate global economics,” and he frames the present as a possible hinge point in which countries begin shifting toward a different energy base. Britain with coal, the United States with oil, and perhaps China with batteries, solar panels, electric vehicles, and the supply chains required for electrification.

There is something to this. Energy transitions are never merely technical, and they reorganize production, finance, and geopolitics. But one should be cautious about moving too quickly from China’s lead in renewables to the end of American hegemony. Energy leadership matters, but monetary and military power have their own inertia. The dollar system, the Treasury market, US military reach, and the legal-financial architecture of sanctions do not disappear because China sells more electric vehicles.

In other words, China’s productive rise has not displaced the financial and military architecture centered on the United States. The geography of production has changed much more than the geography of money. China remains deeply constrained by the dollar system, while the United States does not need to hold renminbi reserves. The United States has military bases around China’s neighborhood and China does not have anything comparable around the United States. China has become a great manufacturing power, but it has not become the issuer of the world’s hegemonic currency.

This asymmetry is central for understanding the current world order as I suggested in my Jacobin piece. In that sense, the discussion of chokepoints should not lead to the conclusion that American hegemony is disappearing. It should lead to a better understanding of how that hegemony operates. The United States no longer relies only on the direct control of territorial routes, although naval power remains essential. It also controls the institutional and technological circuits through which trade, finance, and production are organized. The sea is supplemented by the payment system, the microchip, the export license, and the sanctions list. In a sense, the notion that finance was central to hegemony not just trade, was true (with technological differences) about the pound centered world of the 19th century.**

The overuse of these instruments may indeed generate resistance. But resistance is not the same thing as successful displacement. Alternatives to the dollar system are costly, partial, and difficult to build. Technological autonomy takes time. Financial autonomy requires deep markets, political power, and geopolitical protection. The capacity to escape American chokepoints is unevenly distributed, and most countries remain trapped in the networks they would like to avoid.

The danger, then, is not that American hegemony is about to vanish. The danger is that it becomes more openly coercive as its legitimacy declines. The veneer of politeness associated to the liberal rhetoric of a rules-based order gives way to the crass use of direct interventions, sanctions, export controls, industrial policy for the center, and austerity for the periphery. The old ideology of globalization promised interdependence and efficiency, gives way to more openly nationalist discourses. The reality of coercive interdependence is the same.

* On the energy-hegemony nexus Thompson says: “Geopolitically, an energy change will necessarily result in upheaval. If Britain were the power that climbed to dominance during the age of coal and the United States the power that ascended during the age of oil and coal, the spectre haunting Washington is that without a decisive American strategic turn to renewables and electrification, the new energy age that depends on metals and minerals will belong to China.” Her statement is more nuanced than Bessner, and less categorical about the rise of China, but certainly linked to the energy transition.

** See my article on the use of central banks as weapons of hegemony, and why Ha-Joon Chang's kicking away the ladder was also monetary and financial in nature.

Two traditions in the history of ideas

The chart above is a summary of my history of thought class here at Bucknell. Over the last years I have used the Vaggi and Groenewegen textbook. The central divide in the history of economic thought is between the classical political economy tradition and the utilitarian-marginalist tradition. The classical tradition, running from Petty, Cantillon, and Quesnay through Smith, Ricardo, Marx, and later Sraffa, is organized around production, reproduction, surplus, accumulation, and distribution among social classes. Its object is the economy as a historically specific social system, marked by conflict over the surplus. By contrast, the Benthamite tradition, passing through John Stuart Mill, Jevons, Marshall, Pigou, and modern neoclassical economics, shifts the center of analysis toward utility, exchange, individual choice, scarcity, and the marginal calculus.

This divide in economics mirrors a broader division in social science, discussed by Randall Collins, between a conflict tradition, concerned with power, class, institutions, and historically evolving social structures, and a rationalist-utilitarian tradition, which begins from rational individuals and explains social order as the unintended or aggregate result of their choices (Collins has four traditions in sociology, and I'm simplifying here). In that sense, the Smith/Ricardo/Marx line belongs, despite its internal differences, to the conflict-centered political economy tradition, while the Bentham/Mill/Marshall line provides the economic counterpart to the rationalist/utilitarian strand of social theory.*

The same divide reappears in modern theories of value and distribution.** In the classical-Sraffian tradition, value is not derived from individual preferences or subjective scarcity, but from the technical conditions required for the reproduction of the system. In a Sraffa-Leontief framework, given the input-output relations of production and one distributive variable, such as the real wage or the profit rate, relative prices can be determined as prices of production. Distribution is therefore not solved by marginal productivity, but reflects a social and institutional determination of the division of the surplus.

By contrast, in the Arrow-Debreu intertemporal model, prices are equilibrium signals that reflect relative scarcities across commodities, dates, and states of nature, ultimately grounded in individual preferences, endowments, and technologies. In that framework, distribution is treated as the result of the initial allocation of resources and the competitive valuation of scarce factors, rather than as a historically specific conflict over the surplus.

Thus, the old contrast between classical political economy and marginalism survives in modern form as the contrast between reproduction, surplus, and distribution on the one hand, and scarcity, preference, and intertemporal exchange on the other.

* It is interesting that Friedman, in his classic Capitalism and Freedom, although he quotes Smith, mostly for rhetorical reasons, in my view, in his crucial chapter on the importance and antecedence of economic freedom over political rights, he only cites Jeremy Bentham as a precursor.

** On this, the kind of confusion in the profession is somewhat surprising. Some people (e.g. Cowen here) suggest that the classical tradition has no alternative to the simplistic labor theory of value (LTV), with prices proportional to the quantities of labor, and ignore the Sraffian model (see this). Alternative, some of the same people assume that the Marshallian, not even the general equilibrium version of say Knut Wicksell, has no problems, not considering the insurmountable issues with partial equilibrium shown by Sraffa's critique. The reasons for the change in the notion of equilibrium, noted by Garegnani go unnoticed by almost the whole profession.

PS: There are plenty of differences between authors in those two traditions. Clearly Friedman and Samuelson had many economic policy differences, and Samuelson and some left-Keynesians like Joan Robinson would agree on some of those.  But on an analytical level, Samuelson was closer to Friedman.