The Econ Rave

On November 19th, 2023, the world was filled with the sound of Libertarians cracking open beers. They had a reason to be happy – Javier Milei, a self-described anarcho-capitalist, had been elected the president of Argentina. That’s not something you hear every day. Nor is it something to be completely optimistic about. At heart, I’m glad Argentina now has a leader with such an interest in neoliberal economic reforms who’s willing to reverse decades of failed Peronism; and if their situation were normal, I’d be in favour of Milei implementing such reforms as quickly as possible. But sadly, they may provide a slight exception to that, much in part due to what Milei is proposing. I’ll elaborate more later.

I have no doubt that Milei’s injection of free-market principles will alleviate Argentina’s current predicament. But that doesn’t mean he always hits the right notes in terms of policy – some of his ideas are downright ridiculous:

Namely, his proposal to abolish the Central Bank

The political incentive to do this may be great, as Argentina’s inflation rate hovers at 40%. But abolishing the central bank is still a fully idiotic thing to do. 

It’s not hard to see why doing this will medicate Argentina’s exorbitant inflation rate, since the country’s experienced uncontrollable monetary growth over the past few years. But the cure might be so powerful that it creates a new disease – deflation, the self-perpetuating, investment-destroying, debt-increasing monster which characterises economic stagnation. If Milei actually goes through with this, he could turn Argentina into Japan. 

Or worse than that, Great Depression America, when times get rough. The whole point of a central bank is to act as an economic stabiliser when a recession hits, doing so by providing liquidity to member banks through quantitative easing. This mitigates the likelihood of bank runs, giving an economy’s financial structure the power to weather the storm. The consequences of not doing this are to be learnt from the US Great Depression. The fact that the problem of illiquidity drove the majority of bank suspensions implies that the crisis could have been prevented very easily by banks having greater access to liquidity, facilitated by the central bank. The collapse of thousands of banks brought a 36% reduction in the quantity of money in circulation. Before you knew it, a quarter of the workforce was jobless. 

Dollarization needs to be done very, very, very carefully (Beware the Quicksand Effect)

One of Milei’s more laudable solutions to inflation has been to do away with the Peso and install the Dollar. He aims to do this by both deregulating the consumption of Dollars within Argentina and using IMF funds to buy up Dollars from abroad. A popular criticism of Dollarization (from the Left in particular) has been that it’ll concede Argentina’s monetary sovereignty to the United States, signalling a return of good ol’ American economic imperialism. There have been academic attempts to downplay this. The Cato Institute, for example, says:

Nor does dollarization imply, as the sovereigntists claim, a country’s surrender of its monetary policy to the United States. As economist Juan Luis Moreno‐​Villalaz argued in the Cato Journal in 1999, Panama’s banks, which have been integrated to the global financial system after a series of liberalization measures in the 1970s, allocate their resources inside or outside the country without major restrictions, adjusting their liquidity according to the local demand for credit or money. Hence, changes in the money supply—which arise from the interplay between local factors and the specific conditions of global credit markets—and not the Federal Reserve, determine Panama’s monetary policy. Fed policy affects Panama only to the same extent that it does the rest of the world. 

Right. But this doesn’t discredit the basic fear that sovereigntists have: Argentina’s adoption of the Dollar will mean that the Argentinian central bank no longer has sovereignty over the nation’s currency, and hence the money supply will be almost entirely at the whim of the markets. As I’ve stated before in reference to the Euro, this makes the assumption of vast quantities of public debt way riskier, as the central bank can no longer produce the currency in which that debt is denominated. Hence, Dollarization will undoubtedly put fiscal pressure on Argentina, given how high its debt level is. But hey – there are no solutions, only trade-offs. Dollarization is a fundamentally good aim. The Peso is so devalued, that getting rid of it would be the most humane and efficient way at tackling inflation, as opposed to jacking up interest rates beyond their already exorbitant levels. 

But that does not mean that Dollarization shouldn’t be adopted without caution. Due to regulatory constraints, there are relatively few Dollars circulating in the Argentinian economy. It will take time before the country has fully Dollarized. In the meantime, inflation will get dramatically worse if Milei proceeds too quickly, thanks to a “currency quicksand effect” which is bound to occur. The more Dollars Argentina imports, the more the demand for the Peso will fall, worsening the inflation of the Peso. You might say that this will just accelerate the acquisition of Dollars. But not so fast – Dollars need to be purchased from abroad, and this will become exponentially difficult with an exponentially devaluing Peso. Sure, the IMF may provide significant funds for the Dollarization process to be completed swiftly. But it would be reckless to place a country’s entire monetary health on the goodwill of an anonymous international institution. Argentina could find itself mired in an even more suffocating inflationary treacle with nowhere to go.  

To reduce pressure on the Peso during the adoption of the Dollar, Milei must be willing to compromise on some of his free-market principles by (temporarily) retaining governmental controls on currency and capital. Capital controls should be kept in place or even tightened to avoid a financial exodus from Argentina which would be the worst thing for inflation. India followed similar measures in 2013, and successfully fended off a speculative attack on the Rupee. Studies also suggest that capital controls make foreign exchange reserves far more efficient at promoting economic growth by limiting the chaotic slipping and sliding of exchange rates.

But in the meantime, Milei needs to do his best to strengthen Argentina with neoliberal reforms. He should reduce the regulatory burden as much as possible; privatise where he can; put Argentina on the road out of the Peronist nightmare it’s been stuck in for far too long now. 

Unsure of where you sit politically? The Political Compass Test might offer some guidance. It’s the ideal thing to sit on an eventless Tuesday night – there are loads of questions, they cover topics ranging from economics to sex, and the end result is pretty cool: your political stance is displayed on a 2-d quadrant, which you can print out and stick on your wall, if you’re on the more obsessive side (which I’m not, of course). 

For those of you unfamiliar with the test, here’s how the 2-d quadrant works. Your position on the x-axis marks where you stand on the capitalism-socialism debate – the further right you are, the less government intervention into economic matters you favour, but the further left, the more. (Any good Marxist should already see a problem with this). Your position on the y-axis, meanwhile, is where you sit on social issues. The further you go up the axis, the more Authoritarian you are on all thing’s abortion, homosexuality, drugs, and parenting. So, if you come out in the bottom right of the quadrant, it means you favour market economics and are socially liberal, whereas someone in the top left leans away from capitalism, though also isn’t a fan of immigration, homosexuality or drugs. Despite it being a fun test to take, I think it’s actually highly inaccurate, especially on the economics axis. I have 3 problems with the test’s evaluation of economic ideology. 

Number 1: the test contains some heavily loaded questions 

The first question on the test is “if globalisation is inevitable, it should primarily serve the interests of humanity, not corporations – strongly agree all the way down to strongly disagree?”. “Did Bernie Sanders write this test?”, muses a frustrated Ben Shapiro. He is right. The question tacitly implies that free-market economists favour corporate interests in the ostensible trade-off between corporate money-making and human welfare. This ignores basic market theory – in a free-market, competitive economic pressures mean that corporate capital has to be used in a way which benefits humanity, whether through producing innovation, lowering prices, or raising wages. Moreover, the theory states, market forces are more efficient at improving living standards than redistributionist measures, for many reasons expounded in the public choice literature. Hence, openness to corporate investment by developing countries has been a huge force for good. Papers continuously suggest that sweatshop workers employed by multinationals enjoy a significant wage premium; and that globalisation itself has done a tonne of good for poverty reduction, child labour, and infrastructural development.

Another question which I’d say is loaded is “because corporations cannot be trusted to voluntarily protect the environment, they require regulation”. This is a stupid basis on which to assess someone’s aversion to government regulation. In fact, environmental regulation is probably the kind which is most favoured by free-market economists, as it is designed to limit negative externalities, stuff you can easily characterise as violating the Non-Aggression Principle. 

Number 2: the test assumes all government intervention is the same ideologically 

“The more the government does, the more socialister it is”, reads a famous meme making fun of Turning Point USA. Essentially, a popular right-wing characterisation of socialism is that it is defined by its rejection of market economics, meaning any form of government intervention is socialism. That’s logically equivalent to saying that since cats and dogs are both animals, cats and dogs are the same thing. 

Anyone vaguely familiar with socialist teachings will know the matter’s far more complex than this. Socialism is the abolition of capitalist institutions – namely, private property – for the sake of allowing workers to control the means of production, permitting the dismantlement of Bourgeois exploitation. To phrase it differently, socialism necessitates state intervention for the sake of economic equalisation/redistributionism. But the way the political quadrant is constructed assumes that anyone who would sit on the left of the axis because of rejecting market economics accepts this. This is incorrect: you can hate capitalism while at the same time rejecting what socialism aspires to achieve. Let’s look at a hypothetical example, then two real-world ones. 

Suppose the state chose to spend 100% of GDP on the military, corporate subsidies, bank bailouts, establishing a global empire, and buying Elon Musk more mansions. We can safely say that everyone on the right of the axis would object to these policies, as they absolutely represent an impingement on the free-market order. But placing this hypothetical government on the left of the axis would be tricky, to say the least – no socialist, who undoubtedly does reside on the left, would see much commonality with them. Those policies clearly repudiate the aim of economic equalisation, and just attempt to provide more power to the ruling class. 

It’s just obvious that one cannot frame economic policy in terms of a dichotomous, left-right spectrum, as there are lots of different economic systems which involve rejecting market principles, yet can’t be identified as ‘left-wing’ or socialist. Let’s proceed to our two real-world examples.

First, the Nazi government, a textbook example of where people use a genocidal dictatorship to make their opponents’ views look bad. The right never shuts up about the fact they incorporated ‘socialism’ into their name. The left, meanwhile, takes a much more academic (but equally dumb) approach, arguing fascists were agents deployed by the elites to prop up a failing capitalist order. But the Nazis’ policy record really shows that they fit neither description, as it contained a messy mix of both pro-market and anti-market policies. 

On the pro-market side, many industries were privatised, labour unions were dismantled, and tax cuts were implemented. On the anti-market side, hefty price controls were imposed, banks were essentially prohibited from investing in smaller businesses, high tariffs were implemented, and the rule of law was basically suspended to enable the expropriation of Jewish assets. Where, one must ask, would we place the Nazis on this test’s economic spectrum? Even if, on net, the Nazis militated towards anti-market economics, very few socialists would be happy with being placed on the same side of the spectrum as genocidal anti-egalitarians! After all, the Nazis used their anti-market principles to reinforce hierarchy, not abolish it, by delegating greater power to the ruling class through explosive military spending and asset expropriation. 

A second example is Apartheid South Africa, where the government needed to heavily suppress market forces to sustain vast racial inequalities: the 1913 Native Lands Act legally reserved only 7% of the country’s land to Black people. More racist legislation followed, such as Pass Laws, which largely prevented Black people from moving into the cities, guaranteeing mining and agricultural companies a monopsony over labour in underdeveloped rural areas. Clearly, the Apartheid government wouldn’t appear on the Right of the economic spectrum in our test, as it wholeheartedly rejected free-market principles. On the other hand, leftists/Marxists wouldn’t be happy with the Apartheid government sitting in their boat, either, as deliberately creating a system through government intervention to make Black people the slaves of corporate capital clearly violates the socialist objective of the dismantlement of Bourgeois power. 

To sum it up as simply as possible: not all instances of government doing stuff can be equated ideologically. To represent economic beliefs with a linear spectrum is therefore idiotic.  

Number 3: the test neglects motivations for beliefs

The previous problem I just highlighted indicates that vastly different policy prescriptions can’t be placed in conjunction with one another. But another problem with the test is that it can’t compute the possibility that two people can support exactly the same belief for vastly different reasons – so different, that placing them in the same ideological camp just wouldn’t make sense. There are tonnes of examples of this. 

The first is free trade: both a Marxist and a far-right nationalist may oppose the globalised trading system, but for completely different reasons – a Marxist, on the belief that globalisation instantiates the capitalist exploitation of labour and resources in developing countries. A far-right nationalist, meanwhile, hates free trade because to them it threatens the ethnic superiority of the West by deporting jobs and capital to non-white countries. As we can see, a Marxist opposes free trade on egalitarian grounds, whereas the nationalist opposes it on anti-egalitarian grounds. Can we really say that they are ideologically aligned? At least, that’s what the test would imply, because it does not investigate why we believe the stuff we do. It simply asks us to state how much we agree or disagree with certain propositions.

The second example is environmentalism. Support for the environmental cause is something certainly associated with the left, who argue that our environmental problems are symptomatic of unrestrained capitalist profiteering. At the same time, few know that the environmental cause has been hijacked by far more sinister political movements – namely, the far-right. The belief that the planet totters on the brink of environmental collapse has been awfully convenient to right-wing extremists, giving oxygen to terrible notions of racial dynamics. Of course, these two different kinds of support for the environmental movement may well lead to dramatically different policy prescriptions – one may recommend regulations to limit environmental externalities, while the other might suggest genocide. A test could uncover this with deeper questioning. But most political ideology tests tend not to get too specific with this kind of motivational detail, so it goes to show that support for broad beliefs can’t always be correlated with ideology. 

It would be the worst thing if someone actually adjusted their voting behaviour based on this test; if a socialist, placed on the left of the economic axis, came to support all forms of anti-market policies, even when they clearly simp for the Bourgeoisie – tariffs, bailouts, subsidies, and more. This would create a homogeneous block of everyone who opposes markets, producing an unruly alliance between the left and certain brands of right-wing extremism. As a result, this would grant legitimacy to some of the worst people in society.

Ah, Ben Shapiro. The intellectual cool kid of the American Right. The fast-speaking, numbers-spouting, logic-churning, college-kid-destroying public figure whose high-pitched tone makes us all more comfortable with hearing our own voices on record. Though that might sound like a mean way of describing him, my views on Shapiro’s takes are mixed. Being fiscally conservative, he’s got a thing or two to say about economics, though I think his diagnosis of poverty in America is somewhat oversimplistic; on the other hand, he has his fair share of utterly dim-witted takes, whether it be his nonchalant attitude towards climate change, his bellicose views on the Israel-Gaza war, or, as expressed most recently, his positions on multiculturalism and immigration.  

A new video’s been released on his “Facts” channel, titled “We need to close our borders: here’s why” – or at least, that’s what it was called when it was initially released. It’s now been changed to “The Monster Attacking America”. Much of what I wrote in the article was based on that initial title, but I don’t see that as a massive inconvenience. The video’s attitude towards immigration remains unchanged, and the fact that this was the original title shows that border restrictions are the policy position Ben is attempting to corroborate. 

Anyway, the video quickly garnered my attention and angry scratchings at a notepad. In the space of 8 minutes, he tries his best to ultimately justify restricting immigration, as the initial title implied. But he doesn’t: Ben argues that multiculturalism has been a failure in the West – that’s very different from wanting to close your borders in their entirety and let in not a single immigrant? 

Ben’s analysis immediately begins with a serious mistake – conflating multiculturalism with cultural relativism: 

multiculturalists have long suggested that all cultures are equally worthy of respect and inclusion and the best society is the most diverse

Multiculturalists don’t argue that some cultural practises are morally worse or better than others. Nor do they say that there is some inherent moral good in diversity. What they say is that the economic benefits of assimilating people are massive and will outweigh the disadvantages brought by social conflict. Clearly, Ben doesn’t understand this premise. I’d say most analyses of immigration fail to understand this, as the costs of immigration are rarely contextualised within the gains societies enjoy from them.

After quite a bit of waffling after that, Ben finally gets onto more concrete arguments. There are between 11 and 22 million illegal immigrants in the US, he tells us, which has resulted in all kinds of problems:

the first is breakdown of civic bonds. Every society has baseline propositions to which all members must pledge loyalty. In the West, for example, most countries rely on social agreement to the rule of law and equal justice before the law, freedom of speech, freedom of religious practice, respect for private property among other general principles 

Ok, hold up – illegal immigrants, who constitute between 3 and 7 percent of the US population, are responsible for the breakdown of civic bonds? Ben’s assessment that a functioning society requires a common acceptance of liberal principles is right – but there’s little evidence that immigrants jeopardise those principles. Recall my other article on immigration; a large study from Sweden found that immigrants align with our views much more than we think, given the weakest correlation of any nationality was 0.46. The correlation for immigrants as a whole stood at 0.78. 

I think Ben’s cultural worries about immigration arise from a profound error: equating a nationality’s broad ‘views’ with its governments activities. This becomes most evident when he talks about some cultures having a “tribal relationship” to the rule of law. By “tribal”, I assume he means a propensity to use state institutions to target particular groups and ethnicities. Here he’s basically suggesting that we can deem a culture to have a hostility to the rule of law if such an attitude animates its government’s behaviour. But since many of these governments obtain power through force and can only sustain themselves through dictatorships, this inference is clearly hard to make. Before violent revolutions, many Middle Eastern countries were relatively liberal, and women enjoyed basic civil rights. 

Ben then proceeds to make the typical argument that mass migration brings crime and disorder:

as Ayaan Hirsi Ali has pointed out, from 2009 to 2021, some 3 million immigrants have come to Europe mostly from the Middle East and Africa. 2/3 were male, 80% were under the age of 35. Unsurprisingly, during that same period sexual coercion has become far more commonplace; in 2017 in Germany, for example, sexual coercion and rape jumped 41%.

These statistics alone don’t prove much, as they’re simply correlative. After delving deeper into the numbers, I found greater evidence to support Ben’s point – 4 in 10 sexual assaults in Germany are perpetrated by predominantly Muslim foreigners. Truly shocking. But does that endorse the policy which is the premise of Ben’s video, that “we need to close our borders”? No, for two reasons. (1) the presence of certain bad actors within a group doesn’t enable you to subject the entire group to collective punishment, like by increasing border restrictions or casting ‘multiculturalism’ itself a failure. The statistics Ben uses basically prove this. 3 million foreigners entered Germany – is one to imply that even a statically visible minority of them have committed acts of sexual assault, or that this minority should allow the German government to reduce the entry of foreigners? In the US, crime is disproportionately committed by African Americans. Would Ben have the guts to argue that the existence of Black people in the United States has been harmful to public welfare, or that we ought to develop policies targeting Black people to reduce crime? That is what “closing borders” and rejecting multiculturalism, on the grounds that some immigrants commit crime, is ethically akin to. (2) outlawing immigrants based on criminality seriously ignores what Bryan Caplan calls ‘keyhole solutions’ to the problem. Since the overwhelming majority of migrants will have nothing to do with crime, immigration bans are thus inefficient solutions to the issue – instead, we should look at policies to specifically target crime: drug legalisation, reforming the prison system, improving police efficiency, etc. 

Ben repeats this fallacy of holding an entire culture responsible for a handful of bad actors. He reports that foreigners are disproportionately responsible for anti-Semitic offenses in France. Would it have been just to restrict the mobility rights of the entire white population during the Jim Crow era, because whites were overwhelmingly responsible for anti-Black offenses? Would it be right to apply similar laws to men, who are overwhelmingly responsible for rape offenses? That’s what Ben’s logic equates to when he advocates border restrictions on these grounds. 

At last, Ben concludes the cultural argument, and moves onto the economic case against mass migration:

in a vast welfare state immigration simply cannot be open. In 2014, the anti-illegal immigration group Federation for American Immigration Reform estimated social and government services to illegal aliens cost the state of California $25.3 billion per year.

And he presents further numbers showing illegal immigrants disproportionately consume state resources. This appears true, especially at a national level, as illegal immigrants cost the US $150 billion a year, according to one analysis. The issue with these big scary numbers is that you need to look at them in economic context. That may sound like a lot of money, but is it really a big problem for the US? No – it only represents around 0.9% of US GDP, a miniscule fraction. This begs the question, then, do the economic benefits of illegal immigration exceed 0.9% of GDP? Unequivocally, the answer is ‘yes’. Edwards and Ortega estimate it’s as much as 3% annually.  

Ben then proceeds to quickly revert to a diatribe about cultural values and criminality. He tells us that 

radical Muslim migration into Europe brings with it an attended increase in terrorism.

But a quick look at the numbers discredits this. From 2010 to 2021, the three most common types of terrorist attacks in the EU were perpetrated by ethnonationalists/separatists, left-wing anarchists, and those which can’t be placed in specific categories. Jihadi terrorism was less common than all of them. Would Ben be alright with European countries restricting the entry of white Republican-leaning Americans, Afrikaner South Africans, Nordics, or Eastern Europeans? After all, a statistical correlation between ethnicity/cultural background and propensity to terrorism permits the government to regulate entry, right Ben? But he continues his case, claiming that Muslims show strong support for acts of terror:

a poll in February 2015 found widespread sympathy for radical views among British Muslims: 27% said they had some sympathy for the motives behind the terrorist attack on French satire magazine Charlie Hebdo; according to a 2023 poll from Cygnal, 58% of American Muslims said that Hamas was justified in attacking Israel after Hamas’s genocidal attack on Israeli civilians on October 7th, 2023.

These statistics are shocking. For anyone to express sympathy for a group which engaged in the butchery, rape, capture, and torture of women and children is despicable. But as Ben himself has said, support for Hamas is a product of one of two-things: ignorance or Jew-hatred. I agree with this entirely. So, this begs the question: is support for Hamas among American Muslims rooted in ignorance or anti-Semitism? The very same poll from Cygnal tells us it’s probably ignorance. If American Muslims supported Hamas out of anti-Semitic bigotry, we wouldn’t expect two things: (1) Muslim disapproval of Israel to be relatively milk-toast. 37% of American Muslims have a negative attitude towards Israel, while 34% have a positive one. This is all while Hamas has a stated desire for the destruction of Israel. Can we really say that Muslims express an alignment to Hamas while even remotely aware of its aims? (2) while most disapprove of the invasion of Gaza, a majority of Muslims agree that Israel has a right to defend itself. Is this really a position an anti-Semite would adopt? 

What this therefore suggests is that Muslim support for Hamas, shocking as it is, is rooted in ignorance of the organisation’s aims and atrocities, along with a blind endorsement of anyone associated with the anti-Zionist movement, as opposed to anti-Semitism, as Ben fears. We can say the same of the Charlie Hebdo massacre.

Despite the harsh intro I gave, Ben Shapiro is a respectable person in many senses – well-spoken, extremely bright, and lawyer-like in debates. But many of his positions I think are just deliberately inflammatory, something the situation in the Middle East has exposed. Anyone would be correct to have concerns about multiculturalism; but if only Shapiro applied his legal mind to the matter, I think he’d see that one is obliged to think in terms of cost and benefits, and the wider implications of stances in the debate over multiculturalism. For all these reasons, we don’t need to close our borders, Ben.