August 4, 2012


How Milton Friedman Saved Chile : Milton Friedman gave Chileans the intellectual wherewithal first to survive the quake, and now to build their lives anew. (BRET STEPHENS, 3/01/10, WSJ)

It's not by chance that Chileans were living in houses of brick--and Haitians in houses of straw--when the wolf arrived to try to blow them down. In 1973, the year the proto-Chavista government of Salvador Allende was overthrown by Gen. Augusto Pinochet, Chile was an economic shambles. Inflation topped out at an annual rate of 1000%, foreign-currency reserves were totally depleted, and per capita GDP was roughly that of Peru and well below Argentina's.

What Chile did have was intellectual capital, thanks to an exchange program between its Catholic University and the economics department of the University of Chicago, then Friedman's academic home. Even before the 1973 coup, several of Chile's "Chicago Boys" had drafted a set of policy proposals which amounted to an off-the-shelf recipe for economic liberalization: sharp reductions to government spending and the money supply; privatization of state-owned companies; the elimination of obstacles to free enterprise and foreign investment, and so on.

In left-wing mythology--notably Naomi Klein's tedious 2007 screed "The Shock Doctrine"--the Chicago Boys weren't just strange bedfellows to Pinochet's dictatorship. They were complicit in its crimes. "If the pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?" wrote New York Times columnist Anthony Lewis in October 1975. In fact, Pinochet had been mostly indifferent to the Chicago Boys' advice until the continuing economic crisis forced him to look for some policy alternatives. In March 1975, he had a 45-minute meeting with Friedman and asked him to write a letter proposing some remedies. Friedman responded a month later with an eight-point proposal that largely mirrored the themes of the Chicago Boys.

For his trouble, Friedman would spend the rest of his life being defamed as an accomplice to evil: at his Nobel Prize ceremony the following year, he was met by protests and hecklers. Friedman himself couldn't decide whether to be amused or annoyed by the obloquies; he later wryly noted that he had given communist dictatorships the same advice he gave Pinochet, without raising leftist hackles.

As for Chile, Pinochet appointed a succession of Chicago Boys to senior economic posts. By 1990, the year he ceded power, per capita GDP had risen by 40% (in 2005 dollars) even as Peru and Argentina stagnated. Pinochet's democratic successors--all of them nominally left-of-center--only deepened the liberalization drive. Result: Chileans have become South America's richest people.

Posted by at August 4, 2012 9:09 AM

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