Pinochet

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Op zondag 28 maart 2010 04:35 schreef Illiberal het volgende:
Ik heb aan de dinertafel laten vallen dat ik denk dat Milton Friedman wel goede ideeën had.

Prompt kreeg ik het verwijt dat ik een voorstander ben van Pinochet. Friedman was namelijk helemaal niet zo'n beste kerel zo schijnt in de linkse mythologie:

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Zover ik weet hadden enkele Chileense studenten les gekregen van Friedman, en hebben zijn ideeën meegenomen naar Chilli om vervolgens het land te hervormen.

Verzoek aan de fokkers: Onderwijs mij in de wandaden van de "Chicago Boys".

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Op zondag 28 maart 2010 09:48 schreef dramatiek het volgende:

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Tja het is eigenlijk een beetje alsof je een Hitler van economisch advies gaat voorzien en er dan ook nog van geniet wanneer je in zo'n laboratorium aan de gang kunt met je ideeen. Toppers die Chicago Boys.

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Op zondag 28 maart 2010 09:55 schreef Ribbenburg het volgende:

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Friedman's eigen kijk op de zaak:

"Chilean economy did very well, but more important, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society."
bron

Friedman gelooft dat hij de wegbereider is geweest van een vrijere maatschappij.

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2.2 The second source of ‘de-industrialisation’: a declining relationship between income per capita and manufacturing employment

[...]

This continuous decline over time in the relationship between manufacturing
employment and income per capita is the second source of de-industrialisation
identified in this work. In essence, for middle- and high-income countries, whether or
not they had reached the turning point of the regression, there was a declining level of
manufacturing employment associated with each level of income per capita. The
reasons for this steady decline, in particular the big drop during the 1980s for
industrialised countries, still need to be properly understood. Evidence so far
indicates that it is the result of a combination of factors, including, at least in part,
three of the hypotheses mentioned above: the ‘statistical illusion’ hypothesis; (in an
indirect way) the propagation of the new technological paradigm (micro-electronics);
and the increasingly important process of breaking-down of the ‘value chain’ by multiproduct
Transnational Corporations (TNCs), leading to the relocation to DCs of the
labour-intensive assembly-end part of the value chain. However, at least of equal
(possibly of more) importance are the consequences of the new politics and
economics of the 1980s – especially the sharp slowdown of economic growth that
followed those policies – and the massive institutional and financial transformations
that characterised the world economy in this period.

Although a detailed analysis of the role that each of these factors played in deindustrialisation during this period is outside the scope of this paper, it is important at
least to emphasise that the existing literature does not pay sufficient attention to the
latter phenomenon: the role that the 1980s’ switch in ‘policy regime’ in OECD
countries had on manufacturing employment – from post-war Keynesianism (broadly
speaking) to monetarism. As is clear from Figure 3, the combined effect that ‘neoliberal’
politics and (demand-constraining) monetarist economics had on
manufacturing employment was devastating, in particular the stagflation that followed
the (barking-up-the-wrong-tree) monetarist response to the second oil shock.

Chicago’s (repackaged) monetarist policies ‘came of age’ (again) in their new
incarnation with the Swedish Central Bank giving their economic prize in honour of
Alfred Nobel to Milton Friedman in the mid-1970s. Soon afterwards, their big break
came with the failure of the Carter administration’s attempt at stimulate aggregate
demand in the US between 1977-1978; these expansionary policies resulted in the US
trade deficits reaching one-quarter of exports just at a time when the rest of the
OECD was no longer willing to absorb ‘excess’ dollars. The resulting dollar
weakness, in tandem with rising inflation, set the stage for the FED radical monetarist
era following the appointment of Paul Volker and his trebling of interest rates
between 1979 and 1981. In turn, the election of Mrs. Thatcher in 1979 was the icing
on the cake for the new neo-liberal-cum-monetarist policies. Her election also marked
the arrival of the new policies in Europe, and the emergence of the ‘Chicago-Boys’ in
Pinochet’s Chile their (not very democratic) appearance in the Third World.

In the EU there was an immediate collapse of growth rates: during Mrs. Thatcher’s
first two years in office (1979-81), for example, the growth-rate of output in the UK
fell from 3.7% to -2.2% (in fact, output declined by no less than 17% in just 6
quarters); in Germany it dropped from 4.2% (1979) to –0.6% (1982); in France from
3.2% (1979) to 0.8% (1983); and in Italy from 6% (1979) to 0.3% (1983). This sharp
slowdown had a major impact on unemployment – in the UK, it grew from 5%
(1979) to 12.4% (1982); in Germany from 3.2% (1979) to 8% (1983); and in France
from 5.9% (1979) to 10.2% (1985).

Manufacturing was particularly badly hit by these events. In the UK, for example, net
manufacturing investment became highly negative in 1981 and 1982. The
combination of these factors – massive reductions in private consumption (this fell
from an annualised growth rate of 8.5% in the second quarter of 1979 to –3.7% in the
same quarter of the following year), high interest rates, low levels of investment and a
sharp revaluation of the pound – meant that manufacturing employment fell by 20%
in the first three years of Mrs. Thatcher’s reign alone (without experiencing any major
recovery thereafter). Therefore, there is little doubt that the remarkable decline in the
relationship between income per capita and manufacturing employment in
industrialised countries during the 1980s (clearly evident in Figure 3 above) had as
much to do with ‘policy’ as with other factors, such as the need for industrial
restructuring, technological change, mere accounting issues, or the trend towards
“financialisation”.

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How Milton Friedman Saved Chile
Milton Friedman gave Chileans the intellectual wherewithal first to survive the quake, and now to build their lives anew.

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.


Chile's presidential palace survived the quake intact. Haiti's did not.

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. They have the continent's lowest level of corruption, the lowest infant-mortality rate, and the lowest number of people living below the poverty line.

Chile also has some of the world's strictest building codes. That makes sense for a country that straddles two massive tectonic plates. But having codes is one thing, enforcing them is another. The quality and consistency of enforcement is typically correlated to the wealth of nations. The poorer the country, the likelier people are to scrimp on rebar, or use poor quality concrete, or lie about compliance. In the Sichuan earthquake of 2008, thousands of children were buried under schools also built according to code.

In "The Shock Doctrine," Ms. Klein titles one of her sub-chapters "The Myth of the Chilean Miracle." In her reading, the only thing Friedman and the Chicago Boys accomplished was to "hoover wealth up to the top and shock much of the middle class out of existence." Actual Chileans of all classes—living in the aftermath of an actual shock—may take a different view of Friedman, who helped give them the wherewithal first to survive the quake, and now to build their lives anew.

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[...]

There is one rather large problem with this theory: Chile's modern seismic building code, drafted to resist earthquakes, was adopted in 1972. That year is enormously significant because it was one year before Pinochet seized power in a bloody US-backed coup. That means that if one person deserves credit for the law, it is not Friedman, or Pinochet, but Salvador Allende, Chile's democratically elected socialist President. (In truth many Chileans deserve credit, since the laws were a response to a history of quakes, and the first law was adopted in the 1930s).

It does seem significant, however, that the law was enacted even in the midst of a crippling economic embargo ("make the economy scream" Richard Nixon famously growled after Allende won the 1970 elections). The code was later updated in the nineties, well after Pinochet and the Chicago Boys were finally out of power and democracy was restored. Little wonder: As Paul Krugman points out, Friedman was ambivalent about building codes, seeing them as yet another infringement on capitalist freedom.

As for the argument that Friedmanite policies are the reason Chileans live in "houses of brick" instead of "straw," it's clear that Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the best health and education systems on the continent, as well as a vibrant industrial sector and rapidly expanding middle class. Chileans believed in their state, which is why they elected Allende to take the project even further.

[...]

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Op zondag 28 maart 2010 09:55 schreef Ribbenburg het volgende:

[..]

Friedman's eigen kijk op de zaak:

"Chilean economy did very well, but more important, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society."
bron

Friedman gelooft dat hij de wegbereider is geweest van een vrijere maatschappij.

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Op zondag 28 maart 2010 13:04 schreef Weltschmerz het volgende:
Dat gebeurt in elke society.

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Op zondag 28 maart 2010 12:23 schreef Weltschmerz het volgende:

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De Chileense samenleving was al vrij, en had in alle vrijheid Allende gekozen. Alleen zag onder andere AT&T de nationalisatie van de kopermijnen niet zo zitten, en werd het verkozen staatshoofd samen met nog 3000 anderen vermoord, en werden daarna nog eens het tienvoudige aantal burgers gemarteld en vermoord.

Dus ik zie het heilzame van de dictatoriale tussenfase niet. Ja, heilzaam voor de VS en GB, en het rijkste deel van de Chilenen. Maar niet in de zin van een 'free society'.

Bring democracy heet het voor buitenlands gebruik, binnenlands heet het al democracy and free market, alsof mensen niet democratisch voor iets anders dan een vrije markteconomie zouden kunnen kiezen. Laat democracy eruit, en je hebt de realiteit. Met die aantekening dat free market slaat op de vrijheid van grote bedrijven om van de situatie van politieke en economische onderdrukking misbruik te maken om het land in kwestie zo snel mogelijk leeg te trekken.

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Op zondag 28 maart 2010 13:04 schreef Bolkesteijn het volgende:

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Niet in wat ik een vrije samenleving noem.

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Op zondag 28 maart 2010 13:03 schreef Bolkesteijn het volgende:
Een 'free society' waarin nationalisaties plaats vinden.

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Op zondag 28 maart 2010 15:19 schreef Illiberal het volgende:

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Nouja, het begon over dit boek:
[ afbeelding ]


Ik: "Mwoah, redelijk, misschien wat meer klassiek-liberaal. "
Ma: "Zijn die lui ook tegen de marrokanen?"

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Op zondag 28 maart 2010 18:34 schreef Schadenfreude het volgende:
In dit licht is The End of History and the Last Man van Francis Fukuyama ook erg interessant. Hij betoogt dat kapitalisme automatisch een mechanisme in gang zet waarbij door de accumulatie van kapitaal leidt tot de opkomst van een middenklasse die haar echten opeist en zodoende een democratie creëert.

Hij noemt onder andere Chili als voorbeeld van een land dat door economische vrijheid (opheffen van handelsbarrieres) zich kon ontwikkelen tot een welvarend en democratisch land, itt omringende landen die een socialistisch (en vaak ook dictatoriaal) regime hadden. Ik had tijdens het lezen de indruk dat hij vaak wat vergoelijkend deed over rechtse (fascistisch in zijn woorden) regimes tov linkse (totalitaire, FF), omdat rechtse regimes ondanks alle moorden tenminste voor economische vrijheid zorgden.

Feit is dat Chili het rijkste en meest ontwikkelde land in Zuid-Amerika is, maar ik zou niet durven beweren dat Pinochet minder fout was dan andere dictators.

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Op zondag 28 maart 2010 13:04 schreef Bolkesteijn het volgende:

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Niet in wat ik een vrije samenleving noem.

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Op zondag 28 maart 2010 15:19 schreef Illiberal het volgende:

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"Wat pinochet allemaal gedaan heeft weet ik verder niet."

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[...]
In his 1965 review of Friedman and Schwartz's Monetary History, the late Yale economist and Nobel laureate James Tobin gently chided the authors for going too far. "Consider the following three propositions," he wrote. "Money does not matter. It does too matter. Money is all that matters. It is all too easy to slip from the second proposition to the third." And he added that "in their zeal and exuberance" Friedman and his followers had too often done just that.

A similar sequence seems to have happened in Milton Friedman's advocacy of laissez-faire. In the aftermath of the Great Depression, there were many people saying that markets can never work. Friedman had the intellectual courage to say that markets can too work, and his showman's flair combined with his ability to marshal evidence made him the best spokesman for the virtues of free markets since Adam Smith. But he slipped all too easily into claiming both that markets always work and that only markets work. It's extremely hard to find cases in which Friedman acknowledged the possibility that markets could go wrong, or that government intervention could serve a useful purpose.

Friedman's laissez-faire absolutism contributed to an intellectual climate in which faith in markets and disdain for government often trumps the evidence. Developing countries rushed to open up their capital markets, despite warnings that this might expose them to financial crises; then, when the crises duly arrived, many observers blamed the countries' governments, not the instability of international capital flows. Electricity deregulation proceeded despite clear warnings that monopoly power might be a problem; in fact, even as the California electricity crisis was happening, most commentators dismissed concerns about price-rigging as wild conspiracy theories. Conservatives continue to insist that the free market is the answer to the health care crisis, in the teeth of overwhelming evidence to the contrary.

What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality—but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation.