One economist who was a teenager in Chile during the Allende years was Sebastian Edwards, now an economics professor at the University of California at Los Angeles. Edwards has written a book that has been badly needed: a fairly objective analysis of the economics and politics of economic policy in Chile over the last number of decades. Edwards documents the harmful effects of Allende’s interventions, the economic reforms proposed by and somewhat implemented by Pinochet and even by later nominally socialist governments, and the effects of these reforms on Chile’s economy. He shows that the reforms made Chile’s economy the jewel of Latin America. He also shows, though, how the reformers dropped the ball. They failed to stay active in the debate over policy and they paid little attention to the increasing demand for reducing economic inequality. The result was a strong and violent backlash. One of the main lessons from his book is that economic freedom is always at risk and must always be vigorously defended.
This is from David R. Henderson, “A Fascinating History of Chile’s Economic Reforms and Reversals,” Financial and Economic Review, Vol. 22, Issue 3, September 2o23, 173-180.
Another excerpt:
Friedman’s visit led to a lot of controversy, a controversy that was heightened by the announcement of his Nobel Prize in October 1976. A number of previous Nobel prize winners, although none of them recipients of the economics prize, denounced Friedman in a letter to the New York Times because he had spoken to a dictator who had killed and/or tortured thousands of people. But Friedman, always the scrapper, defended his visit. He pointed out that he had visited the Communist leaders of China, whose government had killed millions of people, and had heard not a peep from the same people who denounced his Pinochet visit.
Edwards’ treatment of the aftermath of the Friedman visit was the one part of the book that I found unsatisfying. Edwards writes, “But deep inside, Friedman was bothered by the Chilean episode.” How did Edwards know what was deep inside Friedman? He doesn’t say. The closest he comes to explaining his conclusion is his observation that every time he talked to Friedman about Chile and Pinochet, he“noticed some discomfort and uneasiness.” Could it be that Friedman was tired of being attacked for, or even asked about, this? Edwards doesn’t seem to consider that possibility.
Read the whole thing.
READER COMMENTS
Andrew_FL
Oct 2 2023 at 10:05am
It is true that Pinochet somewhat liberalized Chile economically, but it is easy to overstate this. Chile’s economic freedom score in the Fraser/Cato index improved from 3.54 to 5.31 by 1985 to 6.91 by 1990-a score which in the present would place it between Indonesia and Kyrgyzstan. Not insubstantial, but hardly a free market paradise, or anywhere near Chile’s current place of 30th in the world, let alone in the pre-2020 days of the 2000s when Chile regularly ranked in the top 15, or even top 10. Notably, Chile’s Freedom to Trade Internationally sub score actually decreased between 1980 (6.86) and 1985 (4.44), to a level higher than 1975 (4.38) but not by much. Chile’s regulatory score also backslide somewhat in the mid 80s.
Of course, such an improvement was hugely important. But it is important context for those who would try to paint Pinochet as a doctrinaire Chicago liberal, whether to praise him to to damn liberalism.
Bill
Oct 2 2023 at 12:25pm
I don’t understand this sentence:
“A number of previous Nobel prize winners, although none of them recipients of the economics prize, … ”
Is there a difference between being a prize winner and being a prize recipient?
Bill
Oct 2 2023 at 12:31pm
Or is it the case that “previous Nobel prize winners” were prize recipients in fields other than economics?
Henri Hein
Oct 2 2023 at 1:38pm
That’s how I read it.
Bill
Oct 2 2023 at 1:56pm
Seems reasonable. I should think more carefully before reacting.
David Henderson
Oct 2 2023 at 4:49pm
No.
Thomas L Hutcheson
Oct 2 2023 at 12:54pm
“paid little attention to the increasing demand for reducing economic inequality.”
A besetting sin of economic reformers. 🙁 And for some good reasons. It’s a lot easier to know that the benefits will exceed the costs of trade or tax , or immigration, or land use reform than to know how and when the reform will affect the Gini coefficient or social group X. Sometimes it just better to specialize; reform policy X to increase efficiency and have policy Y to reduce inequality.
David Henderson
Oct 2 2023 at 4:51pm
It depends on whether you value economic equality or moves in the direction of more equality or whether you value pretty much everyone being better off. I focus on the latter.
steve
Oct 2 2023 at 9:41pm
I think most people actually prefer some of both.
Steve
Mark Z
Oct 4 2023 at 3:31pm
I think this is debatable actually. Most people like to signal that they care about inequality in ways that are costless to them, including voting, but I’m doubtful people are actually willing to sacrifice much in material well-being for the sake of income equality. E.g. if asked to choose between one’s own income going up 1% and Bezos’s going up by 0, or one’s own going up by 2% and Bezos’s going up by 10%, I think most will choose the latter. Revealed preferences suggest people care way more about absolute material well-being than equality.
Thomas L Hutcheson
Oct 3 2023 at 11:48am
I’m happy to focus on growth and efficiency, but not exclusively. And often the tradeoff are pretty gentle or even negative. More EITC instead of more minimum wage, VAT instead of wage tax, personal income tax over business taxation, higher personal taxes to lower deficits that would have been better for growth AND “protected” Midwestern manufacturing, tax on net emissions of CO2 rather than subsides to zero CO2 emitting energy production.
steve
Oct 3 2023 at 12:38pm
Me too. You have to have growth but you cant ignore the results. There is some ratio, I dont know what it is, at which people will balk when increased growth selectively rewards the few and the benefits to everyone else are very small. We build in a lot of advantages in our economic system, like LLCs, that favor growth but specifically favor and protect the high earners.
Steve
johnson85
Oct 3 2023 at 9:47am
I think the reasons for the “failures” are more simple than that. How much citizens/residents/voters will be bothered by other people getting richer faster than them is a question of politics and highly unpredictable.
Some people are wired (or taught? I think a lot of it is probably innate though) to care deeply about what other people have, to the point that they would knowingly vote to make themselves and others worse off if it shrinks the gap between them and the people they are envious of. Other people are wired (or again, taught?) to really just care about their situation and whether they are generally treated fairly and have “enough”.
The vast majority are between these two extremes. Most people won’t willingly vote to make themselves worse off, but they are envious enough that they will pretty obviously deceive themselves about the consequences of a particular policy, as long as the stated intentions are to close the gap (whether financial or status) between them and the people they are envious of. And of course how much they are willing to deceive themselves often depends on how much they have, either because they know they can afford to be worse off (and essentially they are spending some of their resources on a policy to bring other people down to them) or because they feel like they are low enough in the income/wealth percentiles that they don’t have much to lose (a belief that sadly is often proven to be erroneous).
Certainly it could be helpful if the economic reformers tried to keep an eye on the politics, but there’s no reason to expect them to be any good at it. And the fact that there are so few politicians that understand economics at all seems to me to be decent evidence that understanding economics is a hindrance to political advancement, all else being equal.
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