Nowadays, in Argentina under the administration of Javier Milei, there is intense discussion about the presence of the State and the limits of its reach. We have come from a process of high inflation, elevated country risk, and critical levels of informality, poverty, and extreme poverty. This scenario was exacerbated by uncontrolled monetary issuance, a persistent primary fiscal deficit, and an imbalance in the balance of payments.
With the change of government, economic policy took a radical turn: issuance was stopped, fiscal balance was established as a fundamental pillar, and rates and services were deregulated. As a result, the economy entered a path of greater normalcy: inflation decreased, a fiscal surplus was achieved, and country risk fell—although it remains high compared to our neighboring countries. The prices of services aligned with more logical costs than in previous years.
However, while macroeconomics managed to stabilize, this improvement is not perceived in the daily lives of citizens. It is logical: real wages fell, while rates and services increased. The sustained fiscal surplus is mainly explained by the elimination of subsidies and the reduction of social benefits, which allowed for a drastic decrease in current spending. These measures cleaned up public accounts, but what has been the cost? The answer is simple: a decline in consumption, with the consequent loss of formal jobs and the collapse of real wages.
This phenomenon responds to the logic of supply and demand. With lower labor demand from employers and a constant supply of workers, the price of labor (real wages) tends to fall. It is important to remember that labor markets operate under the same laws as any other goods market. Even Karl Marx, in his work Wage Labour and Capital (1849), explains how the market effectively operates under capitalism, describing that wages behave on the surface like any other commodity: fluctuating according to supply and demand. This dynamic explains why, on the micro level, the average citizen does not perceive an improvement.
For the President, stabilizing the macro seems to be enough: maintaining a stable dollar, keeping the surplus, meeting debt commitments, and lowering country risk, assuming that microeconomics will adjust accordingly. But this is not happening. Is the Government wrong in its diagnosis? Partly, yes. While organizing macroeconomics is a necessary condition, it is not sufficient. Order is of no use if wages collapse, consumption falls, and national industry loses competitiveness against foreign companies whose costs are lower, partly due to significantly lower tax burdens than in Argentina. We need a context in which local businesses can compete, which requires a reduction in fiscal pressure and a comprehensive labor reform. Protecting the national industry is a common practice in powers like the United States, the bastion of capitalism; however, for the current Government, such measures seem to contradict its ideals.
To deepen this criticism, it is valuable to quote Richard Musgrave, who in his work The Theory of Public Finance (1959) describes the three fundamental functions of the State in a market economy: resource allocation, income and wealth distribution, and macroeconomic stability.
While the Government fulfills macroeconomic stability—using fiscal and monetary policy to maintain balance and mitigate recessionary cycles—it falters in the other two. Regarding resource allocation, the paralysis of public works has halted critical improvements in roads and logistics infrastructure, essential elements not only for safety but also to foster tourism and transportation competitiveness. As for income and wealth distribution, the Government seems to be going against the tide: its main objective should be to achieve a balance between efficiency and social equity, but by eliminating subsidies and programs without a compensation plan, it deepens the distributive gap.
In conclusion, while I believe that the presence of the State in the economy should be the minimum necessary, today it is imperative that it be pragmatic. The State must provide the tools for the economy to grow by itself, protecting the most vulnerable sectors and empowering citizens to be autonomous rather than dependent on the current government. The adjustment was necessary to clean up the accounts, but measures are needed to relieve the pressure of budgetary constraints on families, without jeopardizing the fiscal balance achieved with great effort.
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