A Case of Contrasts

In the Winter edition of City Journal, possibly one of the finest public policy publications produced today, Guy Sorman has an interesting and instructive article on the effect of the Chicago Boys – that is, the Milton Friedman-molded Chicago School of Economics – on Chile’s dramatic economic growth between Allende’s failed, ruinous collectivization and the present Chilean economy, which is easily the healthiest in South America. An excerpt:

“Pinochet had no clue about economics,” Lüders recalls, “and our country was in a desperate situation.” But when Pinochet asked Friedman, who had helped mold Chicago’s economics department, to provide solutions for hyperinflation, the great economist proposed just the right cure: monetary control. Harshly criticized in the U.S. for his “collaboration” with the dictator, Friedman responded by asking whether he should have let the patient—the Chilean economy—die instead.

Neither Sorman nor Friedman makes any apology for Pinochet’s brutal but not regionally atypical regime, and rightly so, but instead focus on the very real progress borne from free market policies that continue to benefit all Chileans today. Even as legions of ill-informed instinctively cheer on leftist Latin American dictators and their less-successful wannabes, the debate in Chile is long over. Michele Bachelet, the current Socialist president of Chile, continues her Socialist predecessor Ricardo Lagos’ very Miltonian economic policies; there has been no major discontinuity in economic policy stretching all the way back from right-wing Pinochet to Bachelet, and Chile is better for it.

Compare this with Latin America’s perennial sick man, Argentina. An article from the BBC tells us that glamorous President Cristina Fernandez-Kirchner is pushing for new tax increases – this time on farmers – to help offset revenue shortages (i.e. more public spending), curb inflation and discourage exporting.

Of course, the Argentine government claims that the farmers can afford it with global high commodity prices, but if you can’t be a farmer when it’s profitable, why on earth would anyone want to farm? And, as any proper mind with an Econ 101 background should realize, sector-targeted taxation will have a very limited effect on inflation; instead, the government should work through its central bank to restrict capital through supply mechanisms, which is essentially what Milton recommended in Chile writ large. Finally, to ensure more stable domestic commodity markets, the last thing you want to do is restrict the profitability of those producing goods, which produces such externalities to stymie any existing or eventual motive for catering to that domestic market.

This contrast between Chile and Argentina, or more starkly between Columbia and Venezuela, both lends itself to simultaneous hope and cynicism for South America’s future.

–UPDATE–
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