Tuesday, March 02, 2010

Milton Friedman, Economic Reforms Saved Chile


"How Milton Friedman Saved Chile," Bret Stephens in today's WSJ:

"Milton Friedman has been dead for more than three years. But his spirit was surely hovering protectively over Chile in the early morning hours of Saturday. Thanks largely to him, the country has endured a tragedy that elsewhere would have been an apocalypse.

Earthquake magnitudes are measured on a logarithmic scale. The earthquake that hit Northridge in 1994 measured 6.7 on the Richter scale. But its seismic-energy yield was only half that of the 7.0 quake that hit Haiti in January, which was the equivalent of 2,000 Hiroshima-sized bombs exploding all at once.

By contrast, Saturday's earthquake in Chile measured 8.8. That's nearly 500 times more powerful than Haiti's, or about one million Hiroshimas. Yet Chile's reported death toll—711 as of this writing—was a tiny fraction of the 230,000 believed to have perished in Haiti."

From yesterday's WSJ, "
A Tale of Two Quakes."

From
Don Boudreaux and John Stossel on Chile.

MP: From a previous
CD post, the top chart above helps to document graphically what has accurately been described as the “Chile economic miracle.” Up until the early 1980s, when the first round of economic reforms (1974–1983) were starting to have a positive effect, Chile’s economic performance was among the weakest of the Latin American countries, with annual increases of real GDP per capita averaging only 0.76% from 1913 to 1983. Additional economic reforms in 1985 and 1990 that included trade liberalization supercharged Chile’s economy, and annual growth in real per capita output since 1983 has averaged an impressive 4.2% per year.

Before the economic reforms, with only 0.76% annual growth, it took almost an entire century for living standards to double in Chile; living standards now double every 17 years with 4.2% real growth, and that’s a real economic miracle!

One major factor in Chile’s amazing economic success has been its active pursuit since the 1990s of becoming one of the world’s most open and free markets. To help overcome its natural handicap of being a small and remote country, Chile has become a world leader in free trade, demonstrated by its free trade agreements with more than 50 countries around the world, which give its consumers and companies access to more than half of the world’s customers and markets.

The bottom chart above shows that 2009 GDP (PPP) per capita in Chile (2009) is the third highest in The Americas for the major countries (
data here).

22 Comments:

At 3/02/2010 10:07 AM, Anonymous Juan said...

Friedman met with Pinochet once for 15 minutes. Leftists have used that one meeting as a catalyst to slur markets for many years.

 
At 3/02/2010 10:34 AM, Anonymous DrTorch said...

Mr. Stephens is a day behind me. I posted similar sentiments yesterday.

Kudos to free trade.

 
At 3/02/2010 10:36 AM, Anonymous Anonymous said...

Pinochet was no doubt a bastard, but unlike the left's hero - Castro - he ultimately brought democracy back to Chile. Funny, how the leftist scum who routinely fly down to Cuba to kiss Castro's ring have turned Pinochet into the "great white whale".

 
At 3/02/2010 10:44 AM, Anonymous Offa Rex said...

Just a nit-pick, but I assume you mean "third highest in the Americas"?

 
At 3/02/2010 10:54 AM, Blogger Mark J. Perry said...

Offa Rex: Yes, of course, it should the The Americas, and it's corrected now, thanks for pointing it out!

 
At 3/02/2010 11:13 AM, Anonymous Carion said...

Killing many of the socialists helped immensely.

 
At 3/02/2010 12:14 PM, Anonymous Benny The Man said...

Less buildings collapsed in Chile, despite a stronger earthquake?

But why? Due to free enterprise?

Or government-enforced building codes?

That's certainly the case in California--the government enforces strict building codes. Not a free market--one cannot throw up a building and put it out to buyers, caveat emptor.

I am happy the Chileans are moving to democracy and freer markets.

But building collapses and free markets? Not sure about that one. A bi rich, actually.

 
At 3/02/2010 12:23 PM, Anonymous Anonymous said...

Benny, the "genius" says:

But why? Due to free enterprise? Or government-enforced building codes?

You can write all the building codes you like, but it takes the wealth created by a dynamic, free market economy to pay to have them implemented on a national scale.

 
At 3/02/2010 12:27 PM, Blogger Colin said...

Poor countries can't afford rigorous building codes.

 
At 3/02/2010 12:41 PM, Blogger Shawn said...

Rich countries demand vigorous building codes.

Apart from them being forcibly provided by the state (and provided terribly, imo, having worked w/ building/zoning codes for 8 years in the development profession), they would be provided privately.

See Klein, "The Demand for and Supply Of Assurance," here. Sorry for the gated version...not sure where an ungated is...

 
At 3/02/2010 12:41 PM, Blogger Shawn said...

whoops. rigorous, not vigorous.

 
At 3/02/2010 1:19 PM, Anonymous Benny The Genius Man said...

Free markets are notoriously weak, when it comes to ensuring that even legitimate community costs are reimbursed.
For example, pollution. Without government regs or taxes, there is no free market mechanism to reduce pollution. To this day, pollution wafts across my Los Angeles property, reducing property values, and possibly harming my health, Tell me about my free market solution, or my property rights.
So it is with building codes. The firetrap you build and sell and walk away from may burn down and take several "innocent" buildings with it--so what, if when you sold it you released yourself from all liability, or had it built through a corporation, which shields you from personal liability and limits recourse to assets of the corporation ("piercing the corporate shield" is nearly impossible in the US).
So, we have building codes.
We are lucky that, in general, we are not a corrupt society, and that such building codes are roughly enforced.
I agree, having worked with architects for the last two years, that code enforcement is slow and cumbersome.
Still, architects are sometimes under pressure from developers to skirt codes where possible.
In general, free markets are best--but there are times when private incentive and legitimate public needs do not line up, ala Adam Smith.

 
At 3/02/2010 1:33 PM, Anonymous DrTorch said...

Benny snipes about "pollution" affecting his health, while he ignores the obvious that life expectancy has increased dramatically w/ mass production and technical innovation.

Please tell us more how healthy we'd be w/o electricity and plactics polluting the planet.

 
At 3/02/2010 2:08 PM, Blogger juandos said...

"Pinochet was no doubt a bastard, but unlike the left's hero - Castro - he ultimately brought democracy back to Chile"...

Hmmm, maybe Pinochet was a bit of a bastard but the commie coalition under Allende was hardly saintly in its own way...

 
At 3/02/2010 2:19 PM, Anonymous Anonymous said...

Free markets are notoriously weak, when it comes to ensuring that even legitimate community costs are reimbursed.

Unlike marxist economies where the "community" has no legitimacy which the state is required to recognize.

Without government regs or taxes, there is no free market mechanism to reduce pollution.

Wrong. Businesses are extremely sensitive to the demands and concerns of their customers. If consumers are reluctant or refuse to do business with a company that pollutes that company will change it's behavior. See this Carpe Diem post.

 
At 3/02/2010 2:53 PM, Anonymous Benny The Genius Man said...

Anon-
You post is laughable.
I buy the cheapest and best products I can. If workers met their death making them, or clean waters become carcinogenic sewers, I have no idea.

Milton Firedman said that corporations hould not be expected to honor any ethics of their own volition--they should be expected to generate maximize profits, period. Ther are not nannies.

Moreover, capitalism is an amoral (not immoral) system. A company makes the most money it can. Period.

Given these realities, some regs, such as building codes and pollution controls, are necessary.

 
At 3/02/2010 2:56 PM, Anonymous Benny BND Cole said...

DrTorch;
I am sniping about property rights, usually regarded as sacrosanct in right-wing circles.

Ifr you come to my house and dump some polluted water onto my land, is that right?

No, you have violated my property rights.

But gush some carcinogens into the air, and it comes over my land and reduces property values and my health...my property rights are violated, and I have no recourse (generally speaking).

It is to protect proeprty rights that we must limit pollution.

 
At 3/02/2010 3:11 PM, Blogger sethstorm said...


Wrong. Businesses are extremely sensitive to the demands and concerns of their customers.

Sensitive only in the aggregate. Beyond a certain level, they can afford to lose them.

 
At 3/02/2010 5:16 PM, Anonymous Anonymous said...

Sensitive only in the aggregate. Beyond a certain level, they can afford to lose them.

I'm sure that Tiger Woods will be glad to hear it.

 
At 3/02/2010 7:59 PM, Anonymous Rapid said...

As I enjoy fresh berries from Chile, I think that my willingness to eat non-local food benefits both myself and Chileans. Way to go Milton!

 
At 3/02/2010 8:45 PM, Anonymous geoih said...

Quote from Benny The Genius Man : "But gush some carcinogens into the air, and it comes over my land and reduces property values and my health...my property rights are violated, and I have no recourse (generally speaking)."

You can thank your wonderful government for this. Prior to government intervention, it was quite common for individuals to sue corporations for polluting, including air pollution. But the wonderful Progressives introduced the idea of the greater common good into the legal system.

Look it up.

 
At 10/26/2010 2:57 AM, Blogger Viridis Lumen said...

The building codes were implemented in 1972 under the Allende socialist government. It is nonsense to suggest that Friedman had anything to do with it - any form of regulation was something he was inherently opposed to. As for his economic reforms, your graph shows a huge reduction in growth during the mid 1970s, when his influence was at its peak. That changes in the early 1980s - precisely the time (1982) that Pinochet fired Friedmand and his "Chicago Boys" and changed to a more relationary econimic policy.

 

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