The Bear’s Lair: Mexico needs a Milei

Mexico appears to face a dismal future after its election on 6 June this year. The leading candidate Claudia Scheinbaum is a devoted follower of current President Manuel Lopez Obrador, and according to current polls is likely to win and thereafter follow his hard-left policies. The opposition candidate Xóchitl Galvez combines the forces of both previous governing parties, the PRI and the PAN, but appears distressingly moderate (and unlikely to win). Of all the nominal democracies in the world that in practice have entrenched socialism, Mexico most needs the breath of fresh air that the new President Javier Milei represents in Argentina.

Let us not overstate the case for Milei. It is by no means certain that he will succeed. The Left in Argentina is extremely strong, with powerful extra-parliamentary forces in the media, the colleges, the judiciary, government officials and the unions that can destabilize a government and destroy its policies. The Argentine economy is by no means certain to respond to Milei’s free market policies quickly enough to avoid running out of money altogether, with devastating consequences on domestic living standards and Milei’s chances of political survival. Milei does not quite enjoy a majority in the Argentine Congress, even with the support of Mauricio Macri and Patricia Bullrich of the traditional center-right, who in any case may wimp out at some crucial stage.

Milei, with his extensive economic knowledge and libertarian free-market ideology, represents one strand of what is needed to restore a free society. His Vice President, Victoria Villarruel, represents the other main strand needed. She is the daughter of an official of the 1976 Argentine dictatorship and has dedicated herself to refuting the leftist lies about that dictatorship and about the leftist government that preceded it. A successful revolution needs both an economic and a social strand, both of them indomitable. Donald Trump, in the United States, is not a carbon copy of either Milei or Villarruel, but like both he represents a sharp break with the almost invincible socialist Blob that has come to dominate our lives.

“Normal” center-right politicians are not sufficient to effect the necessary change, indeed they are generally damaging to it. Leaders like the Bushes, Eisenhower, Edward Heath, John Major and “Squishy” Rishi Sunak do not fight the socialist Blob, they entrench it. Their occasional feeble attempts against it are outweighed by the incessant cowardly surrenders they make to it, and if they represent the “right” party in a two-party system their weakness both disenfranchises their country’s freedom-loving voters and damages the “brand” that their party nominally represents. Similarly in Argentina, Mauricio Macri’s 2015 government doubtless meant well, but by failing to cut back the public sector sufficiently and by exhausting Argentina’s credit in the international markets, it paved the way for the much more damaging hard-left government that followed and severely weakened the “brand” of the mainstream center-right party.

Turning now to Mexico, you may remember that Mexico had not one but two successive “squishy” Presidents of the nominally conservative PAN (Partido Acción Nacional) party in 2000-12, Vicente Fox and Felipe Calderon. Fox in particular had been elected as the first President in 71 years that was not a member of the PRI (Partido Revolucionario Institucional) which had ruled the one-party state of Mexico as a corrupt state-dominated absolutist-socialist fiefdom since 1929. Thus, hopes were bright for free-market reforms and a rooting out of corruption. In the event, no significant reforms took place, corruption if anything worsened, and by 2012 the Mexican drug cartels were even more in control of the political system than they had been previously.

We thus have a country that has groaned beneath the socialist yoke for over 90 years and was suffering revolutions for 19 years before that. Admittedly, there were brief periods of prosperity such as under Miguel Alemán (President, 1946-52) when Mexico like Argentina under Juan Peron benefited from the prostration of Western Europe. Alemán was almost a free marketer, unlike Peron, producing a “Mexican Miracle” for the economy with some long-term results such as the development of Acapulco. Alas the period of prosperity was used largely to fill Alemán’s pockets and those of his cronies. Within a decade of his departure, Mexico was once again a basket-case.

I had one very interesting period dealing with Mexico, in 1981 when it was apparently prosperous again thanks to a tsunami of foreign borrowing in Citigroup Chairman Walter Wriston’s “countries do not go bankrupt” 1970s. The utterly charming Spanish-born chairman of the large Mexican subsidiary of a U.S. company, for whom I was doing a debt financing, explained to me in great detail that Mexico was an excellent example of a “Joan Robinson” economy, based on the principles of the socialist Cambridge economist (1903-1983), by which prices could be set by the state independently of the market in the interests of the economy as a whole. For the socialists who ran Mexico, this was an irresistibly attractive idea. Its folly (administered prices cause huge investments in the wrong areas, creating products that are uncompetitive in global markets) was demonstrated when the country entered yet another of its repeated bankruptcies in the following year, sinking thereafter once again into penury.

Before 1910, Mexico was well run on free-market, foreign investment-welcoming principles under the great Porfirio Diaz; indeed, it was much admired throughout the West in the last few years of Diaz’ rule. However, during the revolution and afterwards, Mexican schoolchildren were taught to revile Diaz’ memory, so there is no collective recollection of the sound economic principles Diaz employed. In addition, to most Mexicans capitalism is exemplified by the colossus to the north, which makes them desperate to immigrate to the United States, even illegally, while the population that remains has been taught a hatred of the United States and of capitalism itself.

Mexico has tried moderate change, of the type favored by the IMF and others, and it has been proven over and over again not to work. At this stage, the forces of the left are far too powerful to be quelled by a policy of moderation, which will simply run into the sands when every carefully constructed reform is resisted fiercely by the unions and the left. In addition, the pervasive corruption in Mexican politics and the growth of crime syndicates fueled by profits from drugs and human trafficking, which were far less powerful in Aleman’s time, or even in 1981, has made the country ungovernable by any “moderate” centrist. The total failure of the well-regarded Enrique Pena (2012-18) makes only too clear the utter futility of gradualist attempts at reform.

Now Milei has shown the world another way and has demonstrated that it can be attempted even without a military government, to which South American countries have frequently succumbed in the past (Mexico, too between Diaz and the PRI). Naturally, anyone who attempts such a solution will need the support of the military and must be prepared for the inevitable unrest. However, a program of economic “shock therapy” implemented within the first months of a newly elected government and accompanied by a massive police/Army roundup of the criminal cartels, might well be able to break through the stasis that is Mexican politics.

Such a leader will need U.S. help, not hindrance, so the timing of any such emergence will have to be carefully chosen. Nevertheless, Mexico is full of natural resources and is a natural manufacturing partner for the United States; it thus has an excellent economic base, which if built upon can finally achieve Diaz’ dream of prosperity for all Mexicans in a free-market open economy.

Mexico could be the flower of Latin America. All it needs is the right leader – someone like Javier Milei.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)