As a classical liberal economist, I ought to be thrilled about Javier Milei. A self-proclaimed libertarian winning the presidency of Argentina on a platform of radical economic liberalisation? It sounds like something straight out of a classical liberal dream.

And to be fair, there’s plenty to like about Milei. He’s an economist — not just another lawyer or career politician. I agree with perhaps 95% of what he says on economics.

But I must admit: I prefer the Friedman-Hayek approach — radical in substance, conservative in method. Milei’s theatrical style may be effective (at least in the short term), but it’s not my cup of tea.

Let me also be frank: I’ve previously spoken favourably about Milei and his reform agenda. I still hope his reforms succeed. Argentina desperately needs them. The country needs structural reforms to break with decades of economic mismanagement.

But concern has gradually crept in. Not over Milei’s results per se — they are what they are — but over how we classical liberals around the world may have overestimated him. That we’ve allowed ourselves to be dazzled by rhetoric and short-term wins, while ignoring a fundamental truth: He’s not delivering the lasting reforms Argentina needs.

Let me be absolutely clear: I didn’t buy the hysterical warnings from the left about Milei — and I still don’t. That criticism has largely been ideological and overwrought.

My concern is not that he’s doing too much — but rather that he’s doing far too little. That much of it is political theatre.

When I take a closer look at what has actually happened in Argentina since December 2023, I get worried. Not so much because of Milei’s outcomes — but because we classical liberals have constructed a narrative that has surprisingly little to do with reality.

Then there’s the matter of character. The shitcoin scandal of February 2025, in which Milei promoted a cryptocurrency called $LIBRA that collapsed within hours and wiped out $250 million in investor value?

That raises serious questions about judgement and integrity. Even if he was misled, as he claims, it suggests a troubling naïveté for a head of state. Yes, he was formally cleared of legal wrongdoing — but the episode still casts doubt on his judgement.

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The Uncomfortable Truth About the Reforms

And here’s the crux: Milei’s style and rhetoric are one thing. Implementing lasting reforms is something else entirely.

Real reform work is difficult — and often boring legislative work. It requires patience, political craftsmanship, and coalition-building. This is where Milei falls short.

In fact, Argentina saw more far-reaching market-oriented reforms during the 1990s under Carlos Menem. Those reforms were far from perfect, but they were largely enacted through the legislative process and institutionally anchored via Parliament — not simply decreed from the presidential palace.

Let’s begin with the facts: Milei’s most high-profile campaign promise was to dollarise the Argentine economy. That hasn’t happened. His promise to shut down the central bank? Abandoned.

What about privatisation? Of the 41 state-owned enterprises originally targeted, only between 2 and 8 have actually been approved for sale. Major SOEs remain firmly in state hands.

His flagship reform package — the so-called Ley de Bases — was trimmed down from 664 articles to just 232.

His labour reforms were declared unconstitutional. With just 15% of seats in the lower house, Milei simply lacks the political capital needed to push through serious structural reform.

So what has he actually achieved?

The key result is, in fact, quite simple: Through decree, he has frozen nominal public expenditure. With inflation running above 200%, this results in massive real cuts — up to 35% reductions in pensions and public sector wages.

It’s a clever trick — and yes, it worked. Argentina recorded its first primary budget surplus in 123 years.

But let’s be honest about what that is: It’s not structural reform. It’s not legislation. It’s effectively an inflation tax applied to the state itself. And it’s certainly not sustainable in the long run.

Lower Inflation, But Deep Structural Problems

Even these headline “successes” come with major caveats. Yes, inflation has dropped dramatically — from 25.5% monthly to around 1.5% in May 2025.

Annual inflation now stands at 43.5% — which sounds impressive until you realise that’s roughly where Argentina was back in 2019–2020. In other words, we’re merely back where we started 4–5 years ago.

The economy is indeed showing signs of recovery, but that comes after a sharp recession — with GDP contracting by 3.5% in 2024. More worryingly, unemployment is rising — now at 7.9%, the highest since 2021.

The peso remains another weak spot. Rather than stabilising the currency, Milei has presided over continued depreciation. If that trend continues, any disinflation gains will eventually be reversed. It’s basic macroeconomics: a persistently weakening currency will feed back into prices.

And then there’s the method behind the “miracle cuts”. Milei exploited a particular institutional quirk: If Parliament fails to pass a new budget, the previous year’s budget is automatically extended — but in nominal terms. In a high-inflation environment, this effectively creates sharp real cuts without lifting a finger. Clever? Yes. Sustainable? Hardly.

The Echo Chamber

And yet, what do we hear from classical liberal and libertarian commentators globally?

“Milei’s miracle!” they proclaim. Reason Magazine, the Cato Institute, and a chorus of free-market advocates celebrate his “shock therapy” as a triumph of market economics. And yes, I too have been among those praising the results.

We highlight falling inflation, the budget surplus, and a 160% rally in the stock market as signs of success. We talk about renewed growth — but fail to mention that it’s growth from a deeply depressed base.

This is dangerous for several reasons:

First, it simply overstates the extent of reform. To call Milei’s programme a “libertarian revolution” is misleading when most structural reforms were never enacted, and most changes were made by decree, not legislation.

Second, it ignores how fragile the methods are. Decrees can be reversed as quickly as they were issued. Without legislative backing, nothing is durable.

Third — and perhaps most importantly — we risk discrediting the entire case for liberal reform by overselling the Milei experiment.

The Risk of Overselling

Here’s my greatest concern: What happens when reality catches up with the narrative?

What if the Argentine economy — as it has many times before — collapses under the weight of an overvalued currency, rising unemployment, and unfulfilled reforms?

If we classical liberals have spent years celebrating Milei as a free-market hero and his policies as a miracle, who will take us seriously the next time we argue for market reform?

We risk becoming the ideological boys who cried wolf — too eager to claim victory, too blind to the obvious weaknesses.

A More Honest Assessment

Let me be clear: Many of Milei’s spending cuts were both necessary and sensible. I would have voted for them all.

Argentina urgently needed to regain control of its public finances. Fighting inflation remains essential. Reducing the chronic fiscal deficit was a vital step. And I genuinely hope Milei finds a way to implement the structural reforms Argentina so desperately needs.

But let’s not confuse emergency crisis management by decree with long-term structural reform through legislation. When the next president can undo everything with a stroke of a pen, we haven’t achieved change — we’ve merely delayed the reckoning. Perhaps not for long.

The real problem isn’t that Milei cut spending — it’s that he did so without securing the institutional foundations to make those changes permanent. Without parliamentary support, broad political consensus, or legislation that binds future governments, nothing is truly anchored.

What We Should Learn

The real lesson from the Milei experiment is likely more nuanced than either supporters or critics admit:

1. Decrees are not reform: Real structural change requires legislation. Without parliamentary backing, it’s all temporary.
2. Argentina’s root problem is constitutional: The country lacks the institutional framework to deliver long-term reform. What’s really needed is constitutional reform — a Herculean task Milei hasn’t even attempted.
3. Timing isn’t enough: Crisis may make reform possible, but that doesn’t make it lasting.
4. Institutions cannot be bypassed: The attempt to govern by decree shows exactly why institutional anchoring is essential.

A Warning to My Classical Liberal Friends and Colleagues

So here is my appeal to my fellow classical liberals around the world: Let’s be honest about what is happening in Argentina.

Let us acknowledge both the successes and the shortcomings. Let us not oversell the results or exaggerate the scale of reform.

Because if we elevate Milei as a free-market champion, and the Argentine experiment fails — as it very well might — then we haven’t just damaged our own credibility.

We’ve also made it harder for future reformers to make the case for the market-based policies so many countries desperately need.

The truth is, Milei has delivered something — but almost entirely by decree. The economic results are mixed, not miraculous. And without institutional anchoring, even the positive changes are extremely fragile.

Let’s tell that story instead. It may be less sexy, less ideologically gratifying — but it is honest. And in the long run, honesty serves the cause of economic liberty better than propaganda ever will.

Because if we truly believe in free markets and classical liberal reforms, we should also believe in the importance of strong institutions and democratically grounded change — not just quick-fix decree solutions that can vanish as easily as they appeared.

Argentina needs constitutional reform to lay the foundation for long-term economic policy. That’s the truly difficult task.

It requires political courage, broad cooperation, and long-term thinking. And that, quite frankly, is what Milei has failed to deliver.

And perhaps most importantly: we should insist on character and judgement in those we elevate as champions of liberty. A president promoting dodgy cryptocurrencies? That’s not the example we need.

After Trump announced “Liberation Day” on 2 April, US government bond yields began to rise – and even after the announcement on 9 April of a “pause” in the implementation of Trump’s massive tariff increases, yields continued to climb.

It was especially the 30-year Treasury yields that rose to alarmingly high levels, reaching just above 5% by the end of May.

However, in June, things seemed to calm down somewhat – partly because the economic data turned out slightly better than expected, keeping the door open for further interest rate cuts from the Federal Reserve.

Now, though, we are once again approaching the 5% mark on the 30-year US yield, after several weeks during which long-term interest rates have ticked upwards – not only in the US, but also in Japan, the Eurozone, and the UK.

So far, the equity markets have largely ignored the renewed rise in yields, but I firmly believe there’s good reason to keep a close eye on interest rates. Given that Trump and US politicians seem unwilling to take the country’s enormous fiscal challenges seriously, there is every reason to believe that we may be heading for a fresh wave of market turmoil. This could trigger a drop in US stock prices, a further weakening of the dollar – and yes, we might well see the 30-year Treasury yield rise above 5% again within the next few days.

The question is whether calm can be restored as easily as it was in May–June, or whether we’re in for a much rougher ride this time.

And yes, Trump’s tariff circus is also playing a role again – we are, as I’ve noted in recent days, effectively heading towards 1 August, when tariff levels could return to those originally announced on Liberation Day.

The Unpleasant Arithmetic Returns

Regular readers will recall my May post “The US Consumer Goes to Fiscal Reality Mart: Tariffs or VAT?” about what I’ve termed the “unpleasant arithmetic.” With US federal debt held by the public now at 100% of GDP, the United States has crossed a critical threshold where traditional monetary policy tools become dangerously constrained. The maths are brutally simple: with total US federal debt at $36 trillion, each percentage point rise in rates adds approximately $360 billion to annual interest costs.

This creates what economists call “fiscal dominance” – a situation where monetary policy becomes subservient to fiscal needs. When the US Court of International Trade struck down Trump’s Liberation Day tariff programme in April, they didn’t just deliver a legal judgement; they exposed the fundamental fiscal constraints facing the US administration.

As I wrote then, once you breach the 7-8% threshold on government borrowing costs, you enter an explosive feedback loop. Higher rates generate larger deficits, which require more debt issuance, which pushes up term premiums, which drives rates even higher. It’s a self-reinforcing spiral that, at 119% debt-to-GDP, becomes mathematically impossible to escape through conventional means.

Why This Time Is Different

Back in 2013, I argued in “Be right for the right reasons” that 5% yields on the 30-year US Treasury would signal the end of the Great Recession and a return to the nominal GDP growth rates of the Great Moderation. But context, as they say, is everything. Then, 5% yields meant healthy growth expectations; now, they signal something far more ominous – the stirring of the bond vigilantes.

The temporary calm in June shouldn’t fool anyone. Yes, US inflation expectations dipped from 6.6% to 5.1% according to the Michigan survey, and yes, some economic data surprised to the upside. But these are merely ripples on the surface whilst the underlying currents grow stronger.

Consider the global nature of the current yield surge. It’s not just US Treasuries – Japanese, European, and UK yields are all rising in tandem. This isn’t a story about relative growth differentials or monetary policy divergence. It’s about a fundamental reassessment of sovereign credit risk in an era of fiscal profligacy.

The August Deadline Looms

US Treasury Secretary Bessent’s announcement that tariffs will “boomerang back” to Liberation Day levels by 1 August for countries without trade deals represents more than diplomatic brinkmanship. It’s an acknowledgement of fiscal desperation dressed up as trade policy.

As I demonstrated in “The US Consumer Goes to Fiscal Reality Mart: Tariffs or VAT?”, even revenue-maximising tariffs at 33% would generate only 2.3% of GDP whilst creating deadweight losses of 1.14% of GDP. For every dollar collected, the economy loses an additional 49 cents. It’s fiscal madness masquerading as “America First” economics.

The court’s April ruling was clear: the US president cannot simply declare economic emergencies to impose tariffs at will. Yet here we are, three months later, with the administration attempting to achieve through negotiation what it couldn’t accomplish through executive fiat. The markets aren’t impressed, and neither should they be.

What the Markets Are Telling Us

The renewed talk about Trump potentially firing Powell is particularly troubling. Over the weekend, National Economic Council Director Kevin Hassett said the administration is “looking into” whether Trump has the authority to fire the Fed Chair, suggesting the $2.5 billion renovation of Fed headquarters could provide “cause.” This comes as Trump faces mounting pressure from his MAGA base over the Epstein files debacle, with many calling for Attorney General Bondi’s resignation.

When US presidents face political heat, they often create diversions. And with Trump defending Bondi while his base revolts – the first major split we’ve seen in the MAGA movement – firing Powell would certainly change the subject. It would also be catastrophically stupid from an economic perspective.

Through the lens of MV = PY, such a move could trigger the velocity shock I’ve been warning about. When central bank independence is questioned, households and businesses reduce their money holdings. Velocity accelerates, creating inflation without any increase in the money supply. It’s the mirror image of 2008, when velocity collapsed and the Federal Reserve struggled to prevent deflation.

The Fed now faces an impossible trilemma: they can’t simultaneously maintain price stability, fiscal sustainability, and financial stability. Something has to give. Powell’s recent comments about “staying the course” on inflation ring hollow when everyone knows that above 7-8% rates, the US fiscal arithmetic explodes.

This is why US equity markets’ current complacency strikes me as dangerously misguided. They’re pricing in a Goldilocks scenario where the Fed defeats inflation without triggering a fiscal crisis. The bond market, always the adult in the room, is telling a different story. And now we have the added risk of Trump doing something monumentally foolish to distract from his domestic political troubles.

What Happens Next

The risk I highlighted in May remains very real and is growing: the US could face a multi-phase crisis where rising term premiums lead to capital flight, forcing Fed intervention that sparks surging inflation and ultimately results in de facto debt restructuring. The probability of this scenario is increasing.

The approach to 5% on the 30-year US Treasury yield is the canary in the coal mine. Cross that threshold decisively, and we enter the danger zone where fiscal mathematics overwhelm monetary policy. The June respite bought time, nothing more. Unless US politicians suddenly discover fiscal religion – and Trump’s weekend theatrics defending Bondi whilst his own base calls for her resignation suggests otherwise – the unpleasant arithmetic will assert itself.

For investors, the message is clear: don’t mistake temporary calm for permanent resolution. The bond vigilantes are stirring, and they have mathematics on their side. When US sovereign debt reaches 100% of GDP, 5% long-term rates aren’t a sign of healthy growth expectations; they’re a warning that the game is nearly up.

As I’ve said before, whilst politicians debate, mathematics calculates. And right now, the sums are looking increasingly brutal. The question isn’t whether we’ll see fresh market turmoil, but when – and whether this time, the traditional policy tools will be enough to restore calm.

I suspect we’ll have our answer soon enough. The 1 August tariff deadline may prove to be about more than trade policy. It might just be the date when fiscal reality finally trumps political rhetoric.