Let’s focus on Argentina. After Argentina's new President Milai came to power on December 10, the comprehensive economic reforms he proposed have actually been the focus of attention of the international community. Because his reform measures are very radical, his international evaluation is also very polarized. Some people think that his reforms may be successful, while a considerable number of people think that his reforms are actually digging their own graves. It has been almost 20 days since the reform. We can already roughly see his results. The so-called results are that he has triggered a domestic inflation rate of 160%. Argentine prices are soaring at a dizzying speed. More than 10 provinces have declared a state of economic emergency. Originally, With the poverty level exceeding 40%, the lives of ordinary people have become even more difficult. People are increasingly unable to bear rising prices and shrinking assets. The entire Argentine economy is on the verge of collapse.
On December 27, thousands of Argentines took to the streets of the capital to protest against the comprehensive economic reform and deregulation decree proposed by Milley. At the call of the unions, protesters took to the streets and asked the Argentine courts to intervene and rule that the large-scale reform decree proposed by President Milai was invalid. Some protesters also waved Argentinian flags and signs that read "Homeland Not for Sale." But the Argentinian version of Trump still behaved very stubbornly and remained unmoved, in line with his campaign slogan. Give him 30 years and he will make Argentina a world-class power. He may really be sticking to his so-called shock therapy. How long he can hold on is unknown. As ordinary people, life becomes increasingly difficult. The protests will become more intense, especially at the end of the year and the beginning of the year, a very special time when people will be less tolerant of life difficulties than usual. Therefore, it is unknown whether more intense conflicts will break out between the two sides in the foreseeable future.
Xiaojin would like to make a comment on this.
We have also talked about Milley and his economic reform policies in previous programs. Millais was actually an economist by training. In theory, his economic reform measures should not be so outrageous. From the perspective of many Chinese people, shock therapy is a very dangerous reform measure. Because everyone knows that the use of shock therapy led to the disintegration of the former Soviet Union. So we think this is similar to a scourge. When we hear about shock therapy, we feel that this is a reform measure that is bound to fail. But why does Argentina's Millay still use shock therapy? Here I would like to briefly introduce shock therapy to you. In Western economics, shock therapy is not as scourge as we Chinese think. In fact, there are some successful cases in history.
What is shock therapy? That means that the country will proactively and suddenly relax price and currency controls, reduce state subsidies, and rapidly liberalize trade. This type of plan is usually accompanied by large-scale privatization measures of state-owned assets that were originally controlled by the state. Since this set of measures is to be implemented quickly in a short period of time, it has a strong impact and is likely to cause huge shocks to social and economic life, or even cause a state of shock. The American economist Jeffrey Sachs was the first to propose this concept, but it was the Nobel Prize winner in economics, American economist Milton Friedman and his students who actually implemented this concept. They were called the Chicago Boys.
In history, many countries have adopted shock therapy in their economic recovery, and have achieved good results. For example, in the Federal Republic of Germany, in 1948 after the war, domestic inflation in the Federal Republic of Germany was very severe. In July of that year, the German government abolished the price control policy implemented by the Allied Occupation Bureau and implemented market liberalization of commodity prices. Although there were some problems at first, by 1950, the situation had improved. Germany's economy has begun to grow steadily and prices are relatively stable.
In the 1970s, due to the political turmoil in Chile and the alternation between democratically elected governments and military governments, the entire country fell into hyperinflation and commodity shortages.Coupled with the severe impact of the global economic contraction, Chile's economy was in a very depressed state from 1973 to 1975, and the people were in dire straits. The Chilean military government at that time found the Chicago Boys, a group of young Chilean economists, and put them in charge of Chile's economic reform. At first, these Chicago Boys couldn't handle it, so they invited their teachers, who we just mentioned said Friedman, a professor at the University of Chicago. After Friedman arrived in Chile, he first held a six-day seminar to train the Chilean leaders and dismantle their deep-rooted ideas of state intervention in the economy. Friedman said, your country always controls the economy. If the economy is not doing well, long-term pain is worse than short-term pain. Although there will be short-term costs, after the painful period is over, the economy will be reborn. It was also under this economic thinking that Chile launched reforms, significantly reduced government spending, liberalized prices, eliminated tariff protection, and attracted foreign capital injection to activate the economy. The net effect was that after an initial period of extreme pain, Chile's economy gradually recovered and began to grow strongly.
The same is true in the United States. In the early 1980s, the U.S. economy was in recession. The then U.S. President Ronald Reagan, in cooperation with Federal Reserve Chairman Volcker, also took the initiative to adopt shock therapy. The basic measures were similar to those in Chile. Cut government welfare expenditures, reduce personal income taxes and corporate taxes, relax business management regulations, and control the money supply, etc. The pain experienced by the United States from the beginning was unprecedented, and the economy even declined to a level comparable to the Great Depression. But after a few years of hard times, the United States has completely emerged from failure and created a round of major innovations, laying the foundation for the United States to once again lead the world.
What made shock therapy famous was the case in Bolivia, which many people may have heard of. Between 1980 and 1985. Due to long-term political turmoil, Bolivia's economic policies continued to make mistakes, and its domestic economic problems accumulated in large numbers without being resolved, eventually leading to a severe economic crisis with an inflation rate as high as 240 times. Sax, the Bolivian government’s economic adviser, proposed a reform plan for shock therapy. The results are remarkable. After an initial period of extreme pain, Bolivia's hyperinflation has been strongly contained. By around 1987 and 1988, the inflation period had passed and its economy began to recover.
Then why was shock therapy successful in so many countries but failed in the former Soviet Union? There are currently many analytical articles on the Internet that you can read. Some talk about the strong control of the military government, some talk about the national character, and many other reasons. One of the key links is the confidence and patience of the people. Because shock therapy itself has to go through an extremely difficult stage. Whether you can get through this stage actually becomes one of the key factors for the success of shock therapy. This time Argentina’s shock therapy reform is also facing this problem. Where does people's confidence come from? Xiaojin said in the program before that I am not optimistic about Argentina’s shock therapy. One is because the current people's tolerance for suffering is completely different from that of the previous century. And more importantly, we cannot accept unfair reforms. For Argentina. The current reforms are most affected by ordinary people, but the elites are not affected at all, because their assets are stored overseas, and inflation in Argentina does not have much impact on them. This caused ordinary people to be dissatisfied with the reform. And when this dissatisfaction accumulates to a certain extent, it will definitely trigger their subversive protests. Today is December 29th, and in two days it will be the New Year. What will happen next year with this round of reforms in Argentina will even affect Argentina's political stability. We will also be watching closely.
