Transcript: Nicolás Cachanosky Interviewed on The Savvy Street Show

 

Date of recording: March 7, 2024, The Savvy Street Show

Hosts: Roger Bissell and Vinay Kolhatkar. Guest: Nicolás Cachanosky.

 

For those who prefer to watch the video, it is here.

 

Editor’s Note: The Savvy Street Show’s AI-generated transcripts are edited for removal of repetitions and pause terms, and for grammar and clarity. Explanatory references are added in parentheses. Material edits are advised to the reader as edits [in square brackets].

 

Vinay Kolhatkar

Hello and good evening. Welcome back to the Savvy Street Show. I am joined by my usual co-host Roger Bissell, who most of you know is a writer, musician, and part-time philosopher, and he’s going to introduce our special guest for tonight.

Welcome to the show, Roger.

 

Roger Bissell

Thank you, Vinay. Our guest this evening or morning or whenever you’re watching this is Nicolás Cachanosky. He’s the director of the Center for Free Enterprise at the University of Texas at El Paso, where he is an associate professor of economics and finance. He was eminently qualified to be the co-author of Argentina’s president Javier Milei’s proposal to “dollarize” the peso. I believe that’s a good way to say it.

President Milei has captured the imagination of people around the world with his libertarian proposals.

We know that President Milei has captured the imagination of people around the world with his libertarian proposals, and some of the excitement has been very positive, and there have been some people who weren’t so positive, but were excited or agitated, nonetheless. So, Dr. Cachanoski, would you like to begin by giving us a brief sketch of what has happened so far since President Milei has taken office? What kind of success has he had? Obstacles? What sort of success do you expect and hope for during his term in office?

 

Nicolas Cachanosky

Now you can drive your car and work peacefully in Argentina without being afraid that a strike will just ruin your day.

Yes, of course. And let me thank you for your invitation and for the audience for listening to us. Milei has been in the government for barely three months. So, he’s still very new. He’s still going through what is usually called the “honeymoon” [period] of a new government. He got some good results in the sense of controlling social protests by strong unions and different organizations. Now you can drive your car and work peacefully in Argentina without being afraid that a strike will just ruin your day. Now, on the economic front, his results have been mixed, and there’s still a big question mark of what’s going to happen in the next few months. He has a transitory stabilization plan that some economists think is not sustainable in the long run. The big question is, what is this leading to and for how long can it last before they have to do another change? So, given that the alternative was to continue with the Kirchneristas (Néstor Kirchner was the President of Argentina from 2003 to 2007), Milei’s government is an improvement. (Kirchnerism is a left-wing populist political movement in Argentina formed by the supporters of Nestor Kirchner and his wife Cristina Fernandez de Kirchner, both former Presidents of Argentina.) I don’t think that’s up to discussion. I think the question that most people have is how much success will he be able to have, especially since he doesn’t have a lot of political muscle in Congress to pass his reforms; so everything he wants to do, he has to negotiate with the same people that he wants to go up against. It’s not an easy task.

 

Vinay Kolhatkar

That brings me to our second question of the day. How far is he constrained by a lack of majority in both houses? Plus, I believe there are something like 22 provinces in Argentina and the provincial governors are Peronist, so to speak, or leftist. How much do they matter? (Peronism is a labor and left-leaning Argentine political movement based on the ideas and legacy of President Juan Perón, term 1946–1955).

 

Nicolás Cachanosky

Well, I think he’s finding out that they matter more than he thought, I’m sure more than he wanted. There were three main policies that he was putting forward. One was the idea of the dollarization and closing down the central bank as soon as possible. That did not happen. So that’s on the bench. Worst case scenario. The second one was what in Argentina is called a “Necessity and Urgency Decree.” It’s something like an Executive Order in the U.S., and there are some constitutional limits under which a president may be allowed to issue one of these decrees. It had many chapters, many articles, but the courts put a stop on some of them. And that became a problem because now it was only a partial decree that was moving forward, and later the Senate got enough votes to cancel this decree. The third one is the Omnibus Law, which was a huge law with a lot of reforms. That basically was quashed, and it’s back to square zero. So, the three main policy reforms that he was presenting—and these were going to be foundational for the country, they were going to be a game changer—all three of them didn’t move forward. As of now, he hasn’t passed any single law, and he’s trying to navigate this restriction. He has a big problem in the sense that, in Congress, he doesn’t have [enough] representatives from his party, so to get the vote he has no option but to negotiate with other parties. One of Milei’s characteristic behaviors is that he’s very antagonistic and very dismissive of his opposition—at the same time as I’m insulting you, I’m trying to get you to vote for me—and now this is becoming a problem for him. We may like that he can go to a conference and [talk about great things], but as a president he needs to be able to pass his reforms. And so far it’s been challenging.

 

Roger Bissell

Wow. You have mentioned some of the opposition that he has faced, and you also mentioned the labor unions. I’d like to ask you about the news media in Argentina and in the Spanish-speaking world in general. Do you think that they are being fair to him, or is there just a real spectrum of opinion pro and con like we have in the United States for our politicians? It just seems to be a cacophony of voices going back and forth depending upon who they like or don’t like. Tell us about that.

 

Nicolas Cachanosky

In Argentina, like in many countries, different media channels have different preferences. I think my sense is that in Argentina, they are not as explicit or obvious as they might be in the US. So, you’re going to have some spectrum. Now, broadly speaking, my sense, at least so far, is that the media has been fair to Milei. Now, on some occasions, there will be some misrepresentation of something that Milei is saying or pushing forward. And I want to be fair here. It’s also the case that Milei is not always clear on what he says. He changes his mind very frequently. So that invites honest mistakes on the other side as well. Sometimes it’s a mistake. Sometimes [it’s] maybe like, I don’t like him so much, I’m going to misrepresent what he’s doing. For example, there was a news article today—Milei wants to present the Omnibus Law to Congress again. The article says, if Congress doesn’t approve, then Milei will have to apply retroactive taxation. A need to reimpose taxes, and tax you on previous years instead of moving forward. Now, the way this is written gives the impression that that’s what Milei wants to do. But what the government is trying to say is—if this law doesn’t pass, then I have a legal mandate to retroactively collect taxes from what the previous government did. But the way it was presented invites the other interpretation that it was Milei’s intention to collect taxes retroactively. So, that might be an example where the media is not being totally fair to him. But sometimes he is confusing [to the media].

 

Roger Bissell

I see.

 

Vinay Kolhatkar

When we say we want to get rid of a central bank, we want to go typically to a gold-backed currency, get rid of fiat currency, get rid of all monetary policy.

In terms of [Milei being] confusing, I, too, am surprised in a way because when we say we want to get rid of a central bank, we want to go typically to a gold-backed currency, get rid of fiat currency, get rid of all monetary policy, and [thereby] get rid of a central bank. To me, the dollarization seems like you’re hitching your wagon from a central bank that gives you [about] 100% to 200% inflation in Argentina to the Federal Reserve in the United States, which gives you [about] 10% inflation. But you’re not really getting rid of fiat currency and central banking. Is this dollarization like an interim step towards getting rid of central banking altogether, or something else?

 

Nicolás Cachanosky

Dollarization doesn’t have to be an endgame. It can be what you need to get to something else.

I don’t think that’s the end game of dollarization, at least [it’s not] the way that we worked this proposal. The idea of dollarization is that for better or worse, the U.S. dollar is a world reserve currency. Argentina can connect to the world reserve currency network. Argentine debt is denominated in U.S. dollars. If the dollar becomes your legal-tender currency, then you avoid the currency mismatch between your tax revenues and what you have to pay [in, by dollarization], and you eliminate a lot of problems. The other issue is that Argentines are already saving dollars, and they think in dollars; they’re already standing in dollars. This is not about imposing the dollars on Argentines, it’s letting them have the freedom to use the currency they decide [upon]. Now, most of the discussion about dollarization implicitly takes the position that dollarization is an endgame. You dollarize and that’s it. And that can be the case. For instance, Ecuador has been dollarized for 20 years and El Salvador for 20 years. Panama has been dollarized for more than 100 years. But other countries, after they dollarize, they de-dollarize. So one option is that dollarization can be that bridge, that channel, that opening, that door that allows you to get into a different monetary regime that you prefer over the dollarization that, without dollarizing and bringing price stability and organizing and fixing your economy, you won’t be able to get to that regime. So dollarization doesn’t have to be an endgame. It can be what you need to get to something else. And there can be a very long discussion of what that something else should be or could be. But my point here is that I think it’s a mistake to think of dollarization as: It’s the endgame, and that’s it.

 

Roger Bissell

Right. There has been a lot of turbulence in the currency world. Recently, Russia, China, India, Brazil, some other countries have joined together and decoupled from the US dollar. I guess you’d call that a kind of “de-dollarizing.” They have thrown aside what they call the “petrodollar.” And I see that by Argentina connecting to the dollar like this, it’s basically just recognizing what the citizens have already strongly preferred: to hold dollars. It’s almost like some people buying gold. It’s a safer place to have their wealth. So you’re saying that the dollarization is not necessarily the last stop, the endgame. But to me, it’s just a refreshing sign, at this point in time, because those big countries have moved in another direction [de-dollarization]. Do you have any comment about that in relation to Argentina’s future plans or possible plans?

 

Nicolás Cachanosky

Dollarization in itself also means currency competition. You are free to use any currency you want other than the peso that will be faded away.

Yes, two points. One is that one feature of money is that it’s what economists call a “network good.” It’s like social media: the more actors are connected to this network, the more utility I get from being in this network. It’s not that easy to say, I’m going to stop using the US dollar, and that will be a threat to the US dollar worldwide. I don’t think that we’re at the point where we need to be really worried about the US dollar losing its worth, relevance, status. On the other side, dollarization doesn’t mean that Argentines are not allowed to save, use, or contract in different currencies. If you’re in Argentina and you want to have a bank deposit in Brazilian reals, you are free to do so. If you want to sign a contract in euros, you are free to do so. The point is that you need a currency with a legal-tender status, and that will be the US dollar because that’s where Argentina is standing today. Some of the confusion that I see in Argentina on this topic is that many economists, analysts, etc., talk about dollarization versus currency competition. That’s confusing because dollarization in itself also means currency competition. You are free to use any currency you want other than the peso that will be faded away. But that doesn’t mean you don’t have currency competition. So yes, you take the peso away. You are standing on the US dollar. I give you that platform. If the market then wants to move to another currency, [you’re] free to do so.

 

Vinay Kolhatkar

Okay. One other thing—as a co-author and professor of the dollarization proposal, you also wrote about the impact of the Argentinian dollarization on the United States. Can you elaborate a little on that?

 

Nicolas Cachanosky

Yes. I was writing for a US audience, and I was thinking why the US will take any interest in this. So, what will happen to the US if Argentina dollarizes? Because to dollarize, Argentina or any country, they don’t have to ask any permission of the US, the Federal Reserve, the Treasury…no one. They can just do it by themselves. I mean, the US may oppose it, but Argentina can do it by themselves. But what are three potential indirect benefits for the US if Argentina dollarizes? One is that even if in today’s Argentina you have a high demand for dollars by formalizing what today is a de facto dollarized country, you can increase the demand for US dollars in the region, which means the Federal Reserve can benefit from the demand rush, which coincidentally comes at a time when the Federal Reserve is for the first time in its history making losses. Now, will this be a lot of money for the Federal Reserve? Maybe not, but at the margin, it will be beneficial for the Fed. Another two potential benefits, and this is more like sheer political issues: One is a change for the better…there is a strong anti-US sentiment you have in Argentina. I think Argentina has the strongest anti-US sentiment in Latin America. Of course, every Argentine will save in dollars, eat in McDonald’s, go spend their vacations in Miami. But other than that, Argentina for some reason hates the US. So if that sentiment starts to change, the international diplomacy between the US government and Argentina can improve, and Argentina and the US can be in a better political relationship. So, at least from a geopolitical point of view, for the US government, that will be beneficial, having a more friendly nation in South America. The third reason relates to the previous point. As you have China and these countries trying to push their currencies in the world reserve market, if Argentina dollarizes, that’s a very large economy in South America taking the sure position that their currency is the US dollar. So that can be a benefit from the US government’s point of view of having someone in Latin America having a more robust presence with the dollar as a world reserve currency. And, by the way, these benefits to the US are [at a] zero cost for the US.

 

Roger Bissell

I read in an article yesterday that President Milei just got into politics very recently, and I’m curious to know at what point did he decide that in order to help solve Argentina’s problems, it wasn’t enough simply to be a teacher or a professor/lecturer, but that he would have to really get into the political process and try to work that way? At what point did this happen?

 

Nicolás Cachanosky

I’m honestly not sure. Milei has been rising in the Argentine public opinion market for some time now. He started to become prominent by going to some TV media shows…prime times. His mannerisms, his personality, his passion…captured a lot of attention. He started to become very popular on social media platforms. I don’t know exactly how he decided to join the political world, but he’s not the only free-market thinker that did this. A few years back, there was something called the Libertarian Party in Argentina that only existed for a few years. So, there was some presence before this. And at the same time that Milei was shown in the political world, other economies that have good eyes for free markets were also shown in the political world. José Luis Espert is a Congress member and [there are] a few others (see https://www.wilsoncenter.org/event/the-future-argentina-conversation-jose-luis-espert). So he wasn’t the only one. I don’t know what made him make that decision. I have no idea. I never spoke to him. Actually on Twitter/X, he blocked me. So I have no idea what he says. I don’t know what made that change, but his rise from being an outsider to president was spectacular. It was, I think, four years [ago] maybe. That’s very hard to find. I know we have a few cases, but those are exceptional. They’re not normal. Now, what Milei was able to capture…I mean, you have to remember something. Argentina is having high and rising inflation since 2007. Argentina’s economy has stagnated, flatlined since 2011. That’s more than 10 years. So, you have more than 10 years of stagflation. Think of the younger population that have all their future ahead of them, and all they see is despair. When Cambiemos, the opposition [Mauricio Macri’s center-right coalition party], was in government, their economy blew up, there was a crisis, and they stepped down with more inflation than they got when they assumed, and the Justicialists (https://en.wikipedia.org/wiki/Justicialist_Party) came back. So, for a large part of the population, they don’t see a solution other than outside Argentine politics. And Milei was able very efficiently, clearly, to capture those votes.

 

Vinay Kolhatkar

I was intrigued by an earlier statement you made, Professor, about Milei being confusing to the media, and I thought at least in terms of principles it seemed to me that he’s a classic Austrian economist. He’s even seemingly wedded philosophically to anarcho-capitalism, so that he should be very clear, but he apparently isn’t. And so I want to roll three questions into one. What is he really like? And some of the media have been comparing him with Donald Trump or Geert Wilders in the Netherlands. Is he anti-immigration like Wilders? What’s the immigration policy in Argentina, and is he going to change it?

 

Nicolas Cachanosky

The Mileian voter may not be very familiar with macroeconomics, let alone different schools of thought.

So, going to the first point, you need to keep in mind that the Mileian voter may not be very familiar with macroeconomics, let alone different schools of thought. One example: at some point he was talking about having a market for organ donation. I have an extra kidney and instead of just donating to whoever gets it, why not have a market? If you follow economic discussion, these topics have been discussed for many years by very important economists. Recent Nobel Prize winners won the Nobel Prize by creating what would be a kind of a market for this type of problem; on how to match these donations. But the way he talks about this gives the impression, for those who don’t know these debates in economics, that he wants to implement [this] tomorrow, like in a crazy free-market, I’m going to force you to sell your kidney. The way he explains things that, for him, people that understand these topics, they know what he means. For the public at large, it is going to be confusing. Now, that goes to principles, [too]. Then you have the policy proposals. One day he says he wants to dollarize. Another day he says he wants to have currency competition. Another day he says that he wants to have a law against having the central bank finance the treasury, which makes you wonder: then are you not going to dollarize? Because if you’re not going to dollarize, what’s the point of that law? The way he communicates—unless you can navigate what he’s trying to say, I think, my impression is that he invites confusion. In terms of immigration, that’s not a big issue in Argentina, like you see in some European countries and the US. That’s not an issue in Argentina, so I don’t imagine that changing immigration laws will be a priority for this government or any other government. Where there may be issues is when some governments use migrants for political reasons, so I’m going to make it easy for you to have residency, if you vote for me—that kind of problem. But that’s different than saying immigration is good or bad for the economy or something like that. Immigration is not a big issue in Argentina.

 

Roger Bissell

You mentioned earlier that because his party is a minority party in the government, so far he has not gotten approval for some of his plans, and if he doesn’t, then it’s going to revert back to…he’ll have to do some “retroactive taxes,” if I have that right. And I think that when we talk about leverage, sometimes we forget about the people. We think about, well, there’s the opposition, we’ll have to negotiate, or there’s the media, we’ll have to convince the media this is good. But I think in the United States, we’re finding that things have reached such a point that there’s kind of a groundswell of public opinion. You can look at some of the polls on issues and see that the public has finally had enough and they want change. And I think that part of the leverage that President Milei might have in this, particularly the taxation issue, is if he says, well, if your representative doesn’t go along with me, then I’m going to have to, by law, raise your taxes from last year. So, what do you think about the factor of the public opinion and public support? Do you think that could pressure the other parties to be more cooperative?

 

Nicolás Cachanosky

Milei’s trying to make the opposition take the spotlight, that they’re going against the Mileian voter wishes or the public wishes. That’s what he’s trying to play.

I think you are mostly right. And if you see Milei’s behavior, that’s the card he’s playing. He’s trying to make the opposition take the spotlight, that they’re going against the Mileian voter wishes or the public wishes. That’s what he’s trying to play. But if we look at the facts, they don’t seem to be strong enough. Because he’s not being able to pass his reforms in Congress. So the question is, okay, he’s trying this again with these new strategies. Is this time going to work? We don’t know for sure, because now we have instances that prove that it didn’t work before. And that’s part of the uncertainty surrounding Milei’s economic plan. Milei promised with dollarization to cut down inflation fast. Now, that’s not happening. So, another question is: for how long will the public support Milei? Because what the public wants is a change in the economic situation and social situation in Argentina. It’s not that the public has heartfully embraced libertarian ideas. That’s a rhetoric in Milei’s campaign. The public won’t change. They want to fix this problem. The public is not thinking like, yes, I’m a true Hayekian, or something like that. If the social patience runs away, that can be dangerous as well for the free-market ideas in Argentina, because now you have one person that is presented as the free-market guy and he cannot deliver, [and] that can taint free-market ideas, not just himself.

 

Vinay Kolhatkar

Interesting. You, yourself, wrote about the two Mileis (populist and principled). After Milei got elected and he did this speech to the World Economic Forum, I remember just joyfully clapping and applauding as though I was actually in the audience (I wasn’t). It’s been a very long time since we’ve ever had what I thought was a very principled [high-ranking] politician from, say, an Objectivist or a libertarian perspective. The US used to have Ron Paul, for instance. It’s been a long time between drinks. But your suggestion that even Milei may be a bit of a populist was a bit of a concern to me. Can you elaborate on that? Is he a populist, a Peronist in disguise, or is he really principled and just shackled by a lack of majority in Congress?

 

Nicolas Cachanosky

The first step is to try to define what we mean by a populist leader or a populist government.

Maybe the first step is to try to define what we mean by a populist person or a populist leader or a populist government. If you read the works on populism, there is always the same challenge, how you define populism. And like the saying goes, you cannot define it, but when you see it, you know it. So there are some distinctive characteristics, and one of them is that the populist leader creates a fracture, a social fracture between us, who are the good and have a high moral ground, and the others who are evil, so they have a lower moral ground. Additionally, [that] I’m the true, only real representative of “us.” I’m the guy and I have a direct mandate from us and because the others are evil, I don’t have to follow the rules. I have the moral mandate, the moral right to squash them. That’s the typical behavior of a populist leader. Every time I see a president from any ideological spectrum creating that kind of division, my populist antennae go a little crazy. If you look at Milei, all his behavior since he was starting until today, it’s just that. It’s always, you are the evil, you are the corrupt, you are the thieves, you are the liars. And we may agree with a lot of the criticism and things he is saying about the other side, but he’s a president now. Even if you think ideally there shouldn’t be a government, the fact today is that you do have a government, right? Especially when he’s a president, how you behave is also a message. One example I’ve been giving recently is when he had his presidential inauguration for the audience. The Argentine constitution was conceived following the US Constitution. That’s why both countries’ constitutions are so similar. The way this works is when a president gets inaugurated and he becomes president, he delivers a speech to the Congress. Why the Congress? Because the Congress [officials] are the representatives of the people. I cannot speak to the people directly, so I have to speak through Congress as a [form of] respect to the voters. So…what he does is he steps out of Congress, he shows his back to Congress and speaks to the plaza…directly to the people there. And the first reaction may be, yes, you know this Congress, look at the message sent to Argentina, they deserve it, and you know all this kind of payback emotion. But what he’s doing is degrading legislative power. And that made the message between the lines of: I speak directly to the public, and I give my back to Congress, then the line message can be very dangerous, right? That’s the kind of behavior that you see in Peron, in Evo Morales (former president of Bolivia), in all these guys. Now, he may not be a lefty. That doesn’t mean he’s not a populist. So, if I look at him objectively, I see too many populist behaviors that are uncomfortable to me. That’s something that even everyone who likes Milei needs to be aware of. We cannot be blind to the things that we don’t like. He’s a politician now. All the problems of the political world—he’s not immune to them. Public choice applies as much to him as it does to the Peronists, right?

 

Vinay Kolhatkar

And respect for the institutions that elected him and that he needs, and respect for the Constitution applies to him as much as to anyone else.

 

Nicolas Cachanosky

Yes, and we can agree, a wrong constitution has its problems, but if you’re going to start your presidency, you know, with “Argentina needs a serious institutional shock,” and this problem I see with that presidential address, and the same with when Macri and Cambiemos took office, was like being oblivious to the institutional problem. When Macri became president, they celebrated by dancing, with pop music in the balcony of the Casa Rosada, which is like the White House in the US. I know you’re celebrating, it’s all fine. You need to give an institutional shock, and the first thing you do, it’s going off like crazy, take off your ties and so on. And the message you send is that this [institutional framework] doesn’t matter. Now we won, that’s it. I worry about those messages because, at the end of the day, those matter.

 

Roger Bissell

Well, it’s worrisome for us here in this country, too. In our process, which happens every four years, they will have the primary party elections, and they sound very hardnosed. Then when they win the nomination, they pivot to try to appeal to the broad public, and you wonder, is this the same person I heard several months ago? That populism or appeal to the broad public can be kind of deceptive. We’re going to hear our president talk tonight in his annual State of the Union message, and I wonder if he’s going to be a unifying-message bringer, or if he’s going to be divisive, because we’re in rather chaotic times here, in case you haven’t noticed.

 

Nicolás Cachanosky

Yes, there is a key difference that sometimes it’s easy to miss. You know, you and I may agree in where we want to be, and we may disagree how to get there. Ideally, that should be a difference between one party and the other. We agree how we want the nation to be, but then we discuss and disagree how to get there, and we compromise, and we move slowly and so on. The difference is when, in my state of the union, my political behavior and so on, I want to go to the right point. You are evil, you want to go to the bad point. Because now it becomes disrespectful between political members and people that feel closer to one party or the other. So, if I’m a Democrat and you’re a Republican, then it’s not that we disagree how to get to a point. Now you become a bad person, and the other way around, right? And this opens the door to a lot of social problems.

 

Roger Bissell

Yes. Demonization. We hear a lot of demonization in the media, in the political sphere.

 

Vinay Kolhatkar

Anything else you want to add, Professor, or Roger? Any new questions?

 

Roger Bissell

I’m enjoying it very much, and I can’t think of anything else, but it’s great to talk to you, Professor.

 

Nicolás Cachanosky

Thank you for having me, and I hope the audience enjoys the conversation as well.

 

Vinay Kolhatkar

Thank you for being with us. I’m sure the audience enjoyed it and we, the whole world, especially the Objectivist and libertarian world, are watching and hoping whatever his flaws and faults are, Milei gets his way and Argentina improves dramatically, because that will be a fantastic illustration for the whole world. Just like Venezuela is an illustration in the wrong direction, we want an excellent illustration in the right direction.

 

Roger Bissell

Right.

 

Vinay Kolhatkar

All right, good night and good luck, and thank you for being here.

 

Nicolás Cachanosky

Okay, thank you.