December 18, 2006

a moonbat among moonbats...

An economist friend has sent me some thoughts on Pinochet, responding to the comment thread here. I'm keenly grateful—thanks!

First of all Greg Palast is a moonbat among moonbats. He used to write for the UK’s Guardian and was a lefty even by their standards. His most recent claim to fame is arguing that Kerry won Ohio because if you count 100% of the Ohio ballots that were disallowed as votes for Kerry, he would have squeaked out a win. ‘Nuf said.

His comments on Pinochet are a combination of omissions, selective dates for comparisons and various other distortions. Notice that one economic term Palast never uses is “inflation.” When Pinochet took power from Allende in 1973 inflation was between 120 and 200 percent per year. The economy was in collapse. He cites the low unemployment rate of 4.3% in 1973 when Pinochet came in compared with 22% 10 years later. First of all it is easy to have low unemployment when everyone works for the government, but beyond that, his comparison date, 1983, was chosen to correspond to an international recession/debt crisis (not unlike the Asian crisis 10 years ago) in which Chile was entangled. No doubt they were excessively vulnerable (too much domestic debt denominated in foreign currencies) and they had to do things differently in the future. But they learned and did do a better job of controlling international debt. As a prime example, they came through that late nineties debt crisis which impacted Brazil and especially nailed Argentina in good shape.

The closest analogy I can think of to a Pinochet following an Allende in Chile was Reagan following Carter in the US. And we have the advantage of an established institution, the Federal Reserve Bank that, if properly run, can do much of the heavy lifting. But even then it was a struggle getting Carter’s 18% inflation down to the middle single digits in 10 years. As you may recall things were pretty ugly here in the early 80s. So imagine what it was like to tackle inflation of 150% plus the rest of a screwed up list of socialist initiatives. Pinochet didn’t get it all right all the time and he certainly broke quite a few eggs to make his omelet, but as Frank Perdue used to say (to mix a metaphor) “it takes a tough man to make a tender chicken.”...
...Meanwhile, back on the chicken farm, Pinochet instituted a land reform package that was enormously successful. Allende had wanted to use the land confiscated earlier from large landowners (about one-half Chile’s arable land) to start a Soviet style large state-farm system. Pinochet used the land to establish family farms and solidify property rights. To me property rights are the bedrock of a market economy.

It’s probably true he moved too fast on banking reform and that led to some of the hot money inflows that contributed to the vulnerability in 1983. But, as I said, he didn’t always get it right the first time, but banking reform had to be tackled sooner or later for Chile to enter the global economy. And indeed it has entered.

Like all dictators Pinochet overstayed his “welcome” and was either kicked out or persuaded to resign (I don’t recall the details). Nevertheless, the subsequent democratically elected governments seem to have kept most of his reforms. If there is a more robust, freer and faster growing country in SA I don’t know what it is. As for the Palast claim that poverty doubled under Pinochet I find that hard to believe. Maybe they did what welfare agencies do in this country when they begin to run low on poor people, just change the definition and create some more of them.

Finally, there has been a debate for years over whether you can have economic freedom without political freedom (think Singapore). Milton Friedman thought it was economic freedom that was the prerequisite and that political freedom would eventually follow. Seems to have worked in Chile. It also seems to be working in Eastern Europe and much of the Former Soviet Union. Palast should have been with me in the mid-nineties when I was in Eastern Europe accompanying a friend working on a library project. The number of books on scientific socialism that were being swept out the doors was amazing. They were stacked high in corridors awaiting disposal – not for doctrinal reasons, but for disinterest and irrelevance.
Greg! It’s never worked. It will never work
A Soviet style large state-farm system! Oh yeah, that's "compassion for the poor" all right...and I well remember the bloodbath it took for Reagan to wring-out inflation. And Thatcher too. You could probably cherry-pick statistics from back then and "prove" that they were disasterous leaders. But in fact the result was superb economic growth, and we are still cruising on the momentum that Reagan started. Posted by John Weidner at December 18, 2006 6:48 PM
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