If you believe the messaging of the Trump transition, big cuts in U.S. government spending are coming. Announced cabinet appointments include several who are opponents of the mission of the agencies they will soon be heading. A new Department of Government Efficiency is to be created, headed by Elon Musk and Vivek Ramaswamy, with instructions to take an ax to wasteful programs.

But, assuming that some big cuts actually get implemented, you know what inevitably comes next: Because all government spending is (foolishly) counted as a 100% addition to GDP, the cuts first get recorded as a decline in GDP. Economists on the left (e.g., Krugman) then immediately scream that the cuts have failed, the country has gone into recession, and the people are suffering. In recent U.S. experience, the Republicans have never had the political fortitude to stay the course.

But let’s look at the latest news from Argentina.

Argentine President Javier Milei was elected just over a year ago, on October 22, 2023. He then took office on December 10. The main thrust of his program was major cuts to government spending, and he immediately set to work to accomplish that. While I find it difficult to get comprehensive statistics in English, here are some notable data points:

• An April 23, 2024 article in the Buenos Aires Times reported that, according to the Argentine Institute of Fiscal Analysis (IARAF), for the first quarter of 2024, “primary [government] expenses fell by 28.6 percent year-to-year in real terms (deducting inflation).”

• From the same piece: “IARAF indicated that in the first three months of the year, 15 of 16 categories of spending were found to have declined in real terms, with the exception of universal social protection allowances (10.6 percent).”

• From a piece in Reason magazine, June 6, 2024: In March Milei had announced a cut of 70,000 employees from Argentina’s public sector workforce; and by June, 25,000 of those job cuts had been accomplished. Then, in early June, “Argentine President Javier Milei on Wednesday [June 5] announced the layoff of an additional 50,000 state employees, advancing his effort to "reduce the state in half."

• The result of the large spending cuts was that Argentina’s fiscal balance had swung from large deficit to surplus in the course of mere months. From IARAF via the Buenos Aires Times: “[For the first quarter of 2024] the primary deficit became a primary surplus of 625 billion pesos,” wrote the IARAF. “Interest expenses dropped by 31 percent in real terms from the same month last year. Consequently, a fiscal deficit turned into a 276-billion-peso fiscal surplus.”

The inevitable immediate result of the large cuts to government spending was an official recession, as the government spending was removed from the official GDP accounts. From BBVA Research, October 2, 2024:

[Argentine] GDP contracted by 3.4% in the first half of 2024.

Trading Economics shows similar figures for Argentine GDP: -2.49% for 4Q 2023, -2.57% for 1Q 2024, and -1.7% for 2Q 2024. Actually, those declines were remarkably small given the very large cuts to government spending. Perhaps unnoticed to the statisticians, some entrepreneurial spirits were beginning to awaken among the Argentine people.

And now, what’s the latest from Argentina? It looks like the economy is starting to take off. From Mario Nawfal on X, November 16:

ARGENTINA’S ECONOMIC SURGE: JP MORGAN HIKES GDP GROWTH FORECAST TO 8.5% UNDER MILEI’S POLICIES JP Morgan has raised Argentina’s GDP growth forecast to 8.5%, citing optimism around recent reforms by President Milei. Milei, known for his bold free-market agenda, is pushing plans to dollarize Argentina’s economy, slash public spending, and reduce government intervention — aiming to curb inflation and boost economic stability. This updated forecast signals rising confidence in Argentina’s potential for a turnaround. Source: Buenos Aires Times.

As of this writing it’s still just a forecast. However, all indications are positive. Milei has stayed the course through a first year of strenuous opposition from entrenched interests. The dead hand of government overspending, over-regulation, crony capitalism and handouts has been dramatically loosened.

Now it’s up to Trump, Musk, Ramaswamy, et al., to follow the same course. May they have every success.