Argentina’s economy is collapsing as its citizens refuse to work amid emergency subsidy cuts. Over the past 90 days, violent protests have erupted in Buenos Aries, the capital of a South American nation drowning in debt, plagued by unemployment, and defenseless against soaring inflation.
This impoverished country has found itself unable to repay its $44 Billion debt to the International Monetary Fund (IMF) which is now due. To make matters worse, unemployment in Argentina is almost 60%, inflation has risen to 61.7%, and a revolution seems to be forming as residents demand even greater living subsidies from their bankrupt government.
In Argentina, state-sponsored aid for civilians has soared in the past 20 years, leaving 22 million Argentinians dependent on some form of government assistance. Due to rising inflation and a dwindling tax base (as the minority who contribute are being taxed out of existence), the Argentinian government is trying to stay afloat by making cuts to its exorbitant welfare and social programs.
In response to their reduced entitlements, residents have turned to violence, burning cars and smashing windows outside government buildings. Clashes with police are frequent. Argentina is a country on the brink and yet the people are crying for more.
“The government expects us to work for the same amount of money that we now receive for free,” an outraged woman in Buenos Aires shouted to reporters. Another protester, a man, decried the proposed welfare changes telling reporters, “…We have to go to work instead of receiving social benefits? Going to work, that’s the policy of a right-winger!”
Alvaro Gomez, a taxi driver who has lived and worked in Buenos Aires for more than 15 years opined, “What the people are asking for is madness. I’ve seen five presidents come and go…nothing has improved. Half of our country doesn’t want a job, and the ones that do, don’t want to pay the taxes for the others.”
Hmmm, this rhetoric is eerily familiar. In many ways, what’s happening in Argentina is a type and shadow for the United States, if things here don’t change.
The spending habits of Argentina’s government are at the root of the escalating problem. The country’s state-funded programs extend to nearly every aspect of the economy, from wages to utilities, education, and health care. Using the recent pandemic as justification for even more out-of-control spending, Argentina has been pushed to the precipice.
The combination of insurmountable debt, and out-of-control government spending insistent on maintaining (or even expanding) social entitlements, has led to Argentina’s inevitable economic collapse. There is a point where the system breaks, and Argentina is there.
In the United States, the most recent budget approved by Congress and signed by President Biden allocates 51% of its total to entitlement programs. Inflation is nearing a 50-year high.
Since 2020, the Federal Government has spent over $3.83 trillion in similarly-questionable “Covid relief,” contributing largely to our own inflationary environment. On the Sunday before last, the Senate approved another $433 Billion to fund the “Inflation Reduction Act”, with $369 Billion, or 85%, going to climate change initiatives. The bill passed the House of Representatives on Friday.
In response, many have been left wondering, “what about inflation reduction?” It seems antithetical to me to try and reduce inflation by fanning the spending flames that created it.
Utah’s Senator Mike Lee, who opposed the Act, stated, “If the definition of insanity is doing the same thing and expecting different results, then spending more money and increasing taxes to reduce inflation meets that definition.”
Representative Blake Moore added, “I fail to understand how this package reduces inflation. This bill will reduce economic output, add to the deficit and cost tens of thousands of full-time jobs.”
In America, like Argentina, Federal spending is on an unsustainable trajectory and is the key driver of growing deficits and debt. Government spending is growing faster than the economy that funds it. Raising taxes (as proposed in the Inflation Reduction Act) is not a workable solution because taxes cannot grow faster than the country’s economic base in the long run.
The hiring crisis many U.S. businesses are experiencing is due in part to competing with government subsidies to the unemployed. Many Americans, like their Argentinian counterparts, do the simple cost/benefit analysis and stay home. A society that is not gainfully employed will quickly see its income-consuming liabilities overpower its income-producing assets. This cardinal error is the beginning of the end.
As inflation continues to take its toll, middle-class Americans are being squeezed from both sides as their cost of living increases and their savings decrease. No wonder consumer and small business confidence are at record lows. An analysis released in June by LendingClub found that 61% of U.S. consumers, or approximately 157 million adults, were living paycheck to paycheck.
Although the United States, like Argentina, has cycled through economic crises before, our day of reckoning will come. Argentina’s best hope today is a bailout from foreign investors or a foreign government, but with the collapse of the Argentinian peso, high inflation, and no viable strategy for a path forward from the government, outside investor confidence has hit rock bottom.
A country whose appetite for entitlement over gainful employment is setting itself up for economic and financial collapse. People have to work. Once an entitlement is given, it’s difficult to take back or even moderate. There is a point where the few can no longer shoulder the many. Like Argentina, America is not immune from the effects of bad economic policy.
Marc K. Ensign
Paradise