The US and Peronist Argentina: a comparison
In recent years, especially since Obama became president, many have pondered if the United States was on a similar path as Argentina. Less than a year ago, Peter Ferrara wrote a column in Forbes where he showed similarities between Argentina’s decline under Peronism and the US. He forecasted that voters were going to take the nation back and bring another round of Reaganesque pro free-enterprise policies. Voters, however, decided for the re-election of President Obama. The use of government agencies for political gain was an essential element for the consolidation of Peronism in Argentina. What we are witnessing today with the revelations of the I.R.S. singling out political enemies is a bad omen. The question therefore remains: are we again on an “Argentinean course”?
The road to the decay of my native country, Argentina, began with the implementation of one of the powerful collectivist doctrines of the 20th century: Fascism. The Carta del Lavoro the Labour Charter of 1927, promulgated by the Grand Council of Fascism, is one of the guiding documents of this doctrine.
Article 7 of Mussolini’s, states:
• “The corporate State considers private initiative, in the field of production, as the most efficient and useful instrument of the Nation,” then goes on to say in article 9 that: “State intervention in economic production may take place only where private initiative is lacking or is insufficient, or when are at stakes the political interest of the State. This intervention may take the form of control, encouragement or direct management.”
The same document recommends government provision of health care and unemployment insurance. Since adopting its own brand of Fascism, “Justicialismo,” Argentina began to fall in world economic rankings.
• By 1930, Argentina was the 6th country in the world with most gold reserves. From then on, especially after the “experts” took over the Central Bank, reserves began to fall in absolute and relative terms. Argentina was 9th in 1948 (with 700 million dollars), 16th during 1950-54 (with 530 million), and 28th, during 1960-1964 (with 290 million).
• The Argentine Central Bank, created in 1935, was at first a private corporation, (sociedad anónima). Its president lasted longer (7 years) than the president of the country, it had strict limits for the amount of government debt it could buy, and even had foreign bankers on its board. It became a government entity in 1946, during the government of General Farrell, which preceded the government of Col. Juan Domingo Peron.
When Peron assumed power, he did not waste time in his effort to expand the role of government. He immediately relaxed the limits so the banking authority could buy more government debt, he expanded the type of bonds that the Central Bank could buy, and encouraged it to play a major role as an instrument to facilitate his statist policies. In just ten years, the peso went from 4.05 per U$, to 18 in 1955 (and later peaked at 36$ that same year).
The bad news continued. The new economic guru of the government that replaced Peron was Raúl Prebisch (1901-1986), an interventionist neo-classical economist who some have called “The Latin American Keynes.” Rather than returning to the Currency Board which had served Argentina so well, he went back to a central bank structure that gave much more flexibility and allowed even more inflationary policies than during Peron’s dictatorship. From a rate of 36 pesos for dollar in 1955 the Argentine currency went to 400 pesos per U$ in 1970.
Bi-partisanship in bad policies can be especially damaging. In the same manner that some of President Obama’s monetary interventionist policies were preceded by similar policies in the Bush administration, some of Perón’s policies were started even before his arrival: “Already before we reached power, we started to reform, with the approval and collaboration of the previous de facto regime.” In his words: “The Post War National Council created the groundwork by a complete study of the Argentine economy in the areas of consumption, production, industry and commerce. Through surveys and statistical studies we got a grasp of the situation, we considered different aspects, and then decided on the most appropriate steps, but waiting for the right moment to act.”
Perón was removed from power in 1955 but his policies continued. The “Liberating Revolution” claimed it was leading an effort to return to the free-market system dictated by the Argentine Constitution of 1853. But they chose an interventionist, Raúl Prebisch, as minister. When Perón saw his policies, he chided these Argentine Keynesians. In his words: “The set of powers, authorizations, and delegate faculties that make up the legal body of the Central Bank turns this institution in the all embracing and uncontestable regulator of almost the entire economic life of the Nation. Manipulating exchange rates, import and export permits, foreign exchange, setting discount rates and policies, restricting or expanding credit, from the comfortable inflexibility of bureaucratic decision making, fragmented in hundreds of forms, paperwork, signed declarations, one can increase or repress trade with any foreign nation, create, mandate or destroy any industry, help certain regions of the country, or letting them sink, capitalize or under-capitalize chosen activities, promote the building industry or repressing it, encourage or discourage a branch of commerce, disseminate a certain crop or work for its extinction. In short, the legal structure of the Central Bank has attributes which openly contradict the Constitution of a democratic nation and allow it to handle all its economic life.” He even labeled the Central Bank an institution of “an almost diabolical nature” and correctly blamed Argentine conservatives, and British technocrats, such as Sir Otto Niemeyer (1883-1971), for its creation.
Inflationary policies and a political use of the monetary regulatory authority, especially after Perón’s first presidency, devastated the economic culture and rule of law of Argentina. In the United States, the Fed does not have all the powers delineated by Peron and has not caused as much destruction as the Argentine Central Bank. The process has been similar but more gradual. The US dollar buys less than 10% of what it did when the Federal Reserve was created in 1913, the debt limit is raised year after year, allowing increased monetization of the debt, and the monetary authorities have increased their arbitrary interventions.
Perón’s Argentina saw the agencies of the government gradually getting involved in all areas of the economy. We also see a similar pattern in the United States, more and more sectors of the economy now depend on control, encouragement or direct management by the US government. Obamacare is the best example, it is Peronism or Corporatism on steroids.
In areas that go beyond economics there are also similarities. Unlike other populist leaders, such as Adolf Hitler and Benito Mussolini, Juan Domingo Peron did not have imperialist ambitions, or believing that he had to rule beyond the borders of his country. The same can be said about President Obama. His conservative critics argue that he wants to reduce US influence around the world. Juan Domingo Perón shunned the Argentine founding fathers who favored the free society such as Manuel Belgrano, Juan Bautista Alberdi, and Domingo Faustino Sarmiento. President Obama is not prone to quote James Madison, George Washington, or Thomas Jefferson.
But some major differences between cultures still exist. I will focus on a few.
Cult of the Leader: Peronists celebrate October 17th as “St Peron’s day.” They commemorate the day when his partisans marched in 1945 to seek his release from jail. In one of those October 17th celebrations, during Peron’s life, he said, “tomorrow, October 18th is Santa Evita” in honor of his charismatic wife Eva Perón. Before that it was the feast of St. John. He also named a province after her. La Pampa became the Eva Peron province. I am sure that not even FDR would have been allowed to name a State after Elinor.
Eva Peron responded with her loyalty and public adulation. Instead of calling him by name, or “the President,” Evita called Peron “the Leader.”
Attack on mediating institutions: After taking control of much of the media, by stealing, blackmail, or mere economic power, Peron’s next step was to control the few institutions that dared to oppose his policies. Peron revoked the legal standing of Catholic associations in 1954. He created a multitude of controlled youth organizations and increased the number of welfare agencies dependent on the “Eva Perón Foundation.” Today the Peronists, with their left wing now in power, make efforts to control the few remaining free press outposts through indirect means. They curtail access to print paper, they provide government advertising to their allies and stopped advertising on independent media, and even dictate what private companies’ ads can be published. They recently banned publicity by super-markets. One of the first acts of President Nestor Kirchner, and repeated during the government of his wife Cristina, was to send the DGI (the Argentine IRS) to inspect and harass the opposition newspapers.
Appeal from the right as well as from the left: this allowed Peronism to achieve control of most segments of the three legs of the Fascist stool: the labor unions, business corporations, and the government. At least in the near future it is hard to see a political leader in the United States who can control the three. During the beginning of the Obama administration it looked as if most of the business world was going to go along, but if there was ever a honeymoon, it did not last long. The Chamber of Commerce, for example, voiced its opposition during the middle of Obama’s first term, and continues to voice it criticism on several fronts.
Other differences, so far, are:
• the use of government funds for partisan efforts in Argentina is much worse than in the US
• there is a reluctance in the US of directs attacks on capitalism on the part of government. Interventions are shown as going “against capitalism to save capitalism.”
• there is much more understanding about the dangers of closing the economy, of protectionist and nationalist economic policies in the US than in Argentina
• there are strong expectations in the United States that the rule of law should be respected. The control of the judiciary by the Argentine government, on the other hand, is reaching tyrannical levels.
Pessimists would argue that if a US president today would want, like Peron, to make most of the economy depend on government, part of his work is already done. When Peron assumed power and during the period he changed the country for the worse (1945-1955), total spending by the central government averaged 11% of GNP, this compares with 24% in the United States today. The conservatives in Argentina created the regulatory agencies thinking that they would be used for the common good. Conservatives in the US also helped expand government and regulations. The regulatory state is much larger today than in the old Peronist Argentina, and can be used to control, encourage or discourage business as much as the manipulation of government spending. Regulation also tends to be more obscure than spending and subsidies as a means to pick winners and losers. This creates more opportunity for corruption. It only took someone like Perón to see that government spending could be used to accumulate and preserve power, reward friends, and punish the enemies. He did it, and in turned the Argentine dream into a basket-case of decay. What we are seeing today in the US in many agencies, and the politicization of the IRS targeting the “Tea Party Patriots” and giving a free ride to the “Occupy Wall Street” is only one case, but shows that the US is not immune to the Argentine disease. Unless there is a strong commitment by all actors in civil society to preserve the institutions of the Republic the American dream can indeed be in grave danger.
A major source of hope for preventing the United States falling into an Argentine scenario is the strength and variety in the governments and civil society of the 50 states. Economic power is much more diffused than in Argentina, and some of it, as I noted in a recent column, is moving South and to more conservative states. Government spending and regulation has also grown in the states but the central government does not have the power yet to make them follow all its dictates and whims. In all States we have active think tanks, media outlets, independent educators, healthy businessmen who shun cronyism, and mediating institutions, from churches to brotherhoods, ready to prevent a Peronist destiny.
Watch a video of Dr. Chafuen discussing this subject when he visited Nassau back in July here…
Alejandro Antonio (Alex) Chafuen, Ph.D., has been president of Atlas Economic Research Foundation since 1991. A member of the board of advisors to The Center for Vision & Values and a trustee of Grove City College, he is also the president and founder of the Hispanic American Center of Economic Research. Dr. Chafuen serves on several boards including the Chase Foundation of Virginia, the Acton Institute, the Fraser Institute (Canada), and is an Active Honorary Member of the John Templeton Foundation.
