Paul Krugman on Chile

by on March 3, 2010 at 9:51 am in Economics, History | Permalink

He writes (and check out the graph):

Actually, as you can see from the chart above, what happened was this: Chile had a huge economic crisis in the early 70s, which was, yes, partly due to Allende and the accompanying turmoil. Then the country experienced a recovery driven in large part by massive capital inflows, which mostly consisted of making up the lost ground. Then there was a huge crisis again in the early 1980s – part of the broader Latin debt crisis, but Chile was hit much worse than other major players. It wasn’t until the late 1980s, by which time the hard-line free-market policies had been considerably softened, that Chile finally moved definitively ahead of where it had been in the early 70s.

Krugman views this analysis as taking away some credit from Milton Friedman and the Chicago School.  Given his recent writings on the Euro, it is odd what he doesn't mention, namely that the Chilean catastrophe of 1982-3 stemmed in large part from a Chilean overvaluation of the currency, rooted in a peg to the rising U.S. dollar.  Milton Friedman, of course, recommended floating exchange rates.

It's also incorrect to argue that the boom starting in the late 1980s stemmed from the considerable softening of hard-line free-market policies.  More accurately, Chile increased its international credibility by becoming democratic, while showing that elections would likely leave the core economic reforms intact.

You would do better to read my post on the economic legacy of Pinochet.  There are significant qualifications to the story of Chile as "free market miracle," but they're not the ones Krugman makes.

1 imind March 3, 2010 at 10:17 am

is Krugman that ridiculous that he doesn’t realize the immediate legacy of policies even if they’ve “softened”??

2 Danny March 3, 2010 at 10:38 am

I have seen this debate before. It always centers around privatization and government spending and social welfare etc. The reason why it centers on those topics: Because those are topics of debate for policy in the United States.

Unfortunately for all the polemicists, the real reason for Chile’s amazing economic growth had nothing to do with domestic economic policy, but rather international economic policy. Specifically trade.

You know, it is pretty amazing that a government can go from control by socialists to free market fundamentalists and back and forth for a while…all the while maintaining strong and consistent economic growth. Trade doesn’t care much whether you grew up reading Marx or Rand…it will still bring the growth. And trade is the one thing both the left AND the right have in common in Chile.

It is unfortunate that Krugman gets caught up in the politics of economics as opposed to actual economics. Not only is it sad, but it hurts our nation when someone as talented as him uses his economic knowledge to support talking points instead of sound economic policy recommendations.

3 Jim B. March 3, 2010 at 10:42 am

“It’s also incorrect to argue that the boom starting in the late 1980s stemmed from the considerable softening of hard-line free-market policies.”
It *would* be incorrect to argue that. Thankfully, Krugman does *not* argue that. All he says is that by the time the economy recovered, the hard-line free-market approach had been softened. Thus, he is only saying it would be incorrect to argue that it was the hard-line freemarket approach that led to the “Chilean Miracle.”

4 Aaron March 3, 2010 at 10:55 am

Millian, in general it seems to me that these types of Krugman blog posts are written somewhat in the spirit of Samuel Johnson’s response to George Berkeley – an overly simplistic analysis of what he considers an overly simplistic argument, essentially for laugh value. I think it’s unreasonable to accuse Krugman of “shrill-shilling” (whatever that means) in this case because the original WSJ argument that “Thanks largely to [Friedman], the country has endured a tragedy that elsewhere would have been an apocalypse.” is so strained and tendentious itself.

One of the things I like about Cowen’s blog (though politically I agree far more with Krugman) is that his tone is more even-handed and usually has more links to further information. I wish Krugman had tried to actually educate his readers rather than just say “look how dumb this guy is!!!”

5 Millian March 3, 2010 at 11:12 am

I have one problem with Prof. Krugman’s writing for laugh value: he is too smart for it. There are plenty of talentless hacks who can do what he does nowadays – most magazine blogs are full of people who turn out partisan pieces as frequently or more so than Krugman. We need greater division of labour.

6 Philip Walker March 3, 2010 at 11:28 am

Millian: given the recent bio in the NYT, it’s entirely possible his wife wrote that line.

7 charlie March 3, 2010 at 11:31 am

+1 to aaron. I find Tyler’s politics to be gross. However, he usually is honest enough that you can see through his BS and find an interesting point. Krugman doesn’t do that, at least not anymore. Perhaps the difference is being a columnist and being a blogger?

also +1 to danny

8 BKarn March 3, 2010 at 11:44 am

— I wish Krugman had tried to actually educate his readers rather than just say “look how dumb this guy is!!!” —

Most of Krugman’s readers don’t wish to be educated. They are there specifically to hear how dumb their ideological opposition is, and Krugman is there to give them what they want.

— The polemics reign in the U.S. because we like to attribute out post-WWII success mostly to American ingenuity and partly to infrastructure destruction elsewhere. And of course both are wrong. —

Polemics reign in the U.S. for the same reason they do elsewhere, which is to say almost everywhere. It has nothing to do with success or failure, though it is good to know that the U.S. stumbled into its success, and that “ingenuity” had little to do with it.

9 Ryan Vann March 3, 2010 at 12:31 pm

“Free market policies do not cause success like magic. Capital inflows however, they happen like magic.”

FDI is definitely transformative, in an immediate sense.

10 DanC March 3, 2010 at 1:06 pm

I don’t understand the hatred that Krugman has for Friedman. Hatred that distorts Krugman’s value as an economist.

11 E. Barandiaran March 3, 2010 at 1:19 pm

SECOND PART.

3. Period July 1979 – December 1981. This was a period of high growth. In 1981, GDP per capita was at least 15% higher than in 1970, unemployment was below 10%, and inflation was at the US level. In this period, the government undertook large reforms of labor markets, pensions, education, health, mining, and others. The reforms accelerated after the 1980 Constitution was approved (actually, two constitutions were approved, one for the period March 1981 to March 1997 in which Pinochet would be president for two consecutive 8-year periods, and the one that would be fully implemented after March 1997). It was the period in which the economy changed radically because the private sector emerged as the driving force of the economy while the public sector was limited to well-defined activities and was properly financed (there were large fiscal surpluses to finance the pension reform). It was a period in which domestic private banks grew sharply, funded by both domestic deposits and foreign borrowing (domestic banks intermediated most of the inflow of foreign capital) that fueled the expectation of declining interest rates, at least until March 1981. Most of the banks’ funds were invested in new productions because mining was pending on the approval of a new code based on the special provisions of the 1980 Constitution. There were large changes in relative prices but inflation was at the US level (a high level by today’s standards). In particular, the high growth of domestic demand did not create inflationary pressures because of the new openness of the economy (in addition, Chile benefited from the large increase in the price of copper during the 1980 oil crisis). There was no “atraso cambiario† as in Argentina.

4. Period January 1982 – December 1984. This was a period of crisis, a huge crisis precipitated by the sharp increases in interest rates in world markets (a result in turn of the new US monetary and fiscal policies). Over 90% of the foreign debt had been contracted by the private sector—intermediated through the banks—and invested in activities with a long period of maturation (think in apples and timber). The new enterprises didn’t have the capacity to service their debts that had been contracted at floating interest rates (the rates were adjusted every 6 months) and to make things worse the FLOW of domestic deposits into banks had been declining sharply since late 1980 (in my view this was due to the recovery of the housing market that provided an alternative investment for household savings). Unfortunately, many economists argued that the problem was the fixed exchange rate and started to recommend a devaluation of the dollar value of the peso. Their arguments were based on the wrong idea that the borrowing (and therefore the deficits) of private enterprises was similar to the borrowing (and the deficits) of governments. The debate about what to do took several months and finally on June 14, 1982, the government made the mistake of devaluing the peso. Apples didn’t mature faster, but dollar-denominated debts increased sharply. To make things worse, the devaluation unleashed a debate about the “right† exchange rate. After three months of large uncertainty, a new exchange rate policy became credible because it acknowledged a large devaluation of the peso (from 39 to 66 pesos per dollar) and the restoration of the indexation of the nominal exchange rate. In late September, the government focused its attention on the financial crisis that was already paralyzing the economy. The weaknesses of the political institutions of the “temporary† constitution were evident in early 1982 when the owners of heavily indebted enterprises started to ask Pinochet for bailouts. Most owners had agreed with the political strategy underlying the approval of the two constitutions, but now they wanted Pinochet to bail them out. There was a large bailout that took more than a year to define and implement but that was enough to prevent the bankruptcy of most enterprises. It succeeded because the government had been running surpluses and could finance the bailout by issuing bonds that were placed with the new Pension Funds (at the beginning of the new pension systems, the investment of the funds was limited to banks’ time deposits and government bonds). The economy collapsed in 1982-83 and unemployment was back to 25-30% as in the 1975 crisis. By early 1984 the economy was ready to start growing again but there were still some political groups close to Pinochet that were pressing for new economic policies (apparently they persuaded Pinochet that he would not be able to continue as president after March 1989 because of the economic crisis and that he needed to change to populist policies). The new policies introduced in April 1984 lasted only a few months because quickly it became evident that they were affecting the incipient recovery and generating inflation (one of the main fears of the Chilean population at that time).

TO BE CONTINUED.

12 Badger March 3, 2010 at 2:24 pm

Has Krugman explained why other Latin-American countries that didn’t follow Friedman’s advices and preferred instead to use some kind of highly regulated, quasi-socialist, semi-fascist, CEPAL-style centrally-planned, social welfare based economic model have by far not performed as well as Chile during the same decades?
Krugman personal history serves as a warning to the rest of us: even the brightest economist can have his or her entire human capital depreciated to the point of no value (and credibility) left.

13 Barkley Rosser March 3, 2010 at 2:31 pm

Given that I have poked at him at times here, let me say that I appreciate E. Barandian’s detailed account of the events on the ground in Chile.

One item that nobody has commented on so far, not Tyler in this or his linked post, not anybody commenting here or on the linked post, and not Krugman, although perhaps EB is about to, is the matter of the imposition of FDI “speed bumps” to slow inflows of short-term financial capital. These have since been removed, but were in place for quite some time, and at a minimum cannot be said to have seriously slowed the subsequent recovery. Indeed, in the 90s during the East Asian crisis and others, many pointed to the “success” of the Chilean policy, and certainly such countries as China, India, and Malaysia, have all done better in these crises than others who opened up their capital markets to full flexibility.

Over the longer run such speed bumps can lead to corruption. Also, it must be kept in mind that such policies can coexist with free trade, and such economists as Jagdish Bhagwati have long simultaneously supported full free trade with such limitations on short-run capital movements.

14 E. Barandiaran March 3, 2010 at 4:17 pm

THIRD AND FINAL PART.

5. Period January 1985 – March 1990. This period was marked by the fast recovery of the economy and the political developments that led to a newly elected government in March 11, 1990. Apple trees finally started to bear fruit—and we are talking about a lot of trees. In addition, and despite low prices of copper, the Mininig Code favored large private investments in new low-cost copper mines—investments that also take years to mature. Despite the challenge that a new bold opposition to Pinochet posed to the constitutional calendar for Pinochet to continue for a second period —in October 1988 the NO won the referendum to vote on a second term followed by a long period of uncertainty until March 11, 1990, when P. Alwyin assumed as the newly elected president— the reforms of the earlier periods were strengthened and their benefits appreciated. It’s not clear whether the good performance pressed the opposition to accept the reforms or the opposition’s acceptance of the reforms facilitated the good performance, but before Alwyin assumed the presidency there was a clear majority supporting the new economic policies.

6. Period March 1989 – Late 1997. This was the best period since 1973. High growth was the result of important domestic forces —including a new government interested in deepening the reforms of the previous periods and in strengthening democracy, and the maturation of investments, in particular in copper— and the easy access to world capital markets after the end of Latin America debt crisis (controls in capital inflows were introduced but were not significantly different from those before the 1982-83 crisis). Perhaps the two most important differences in the new investments of this period were the acceptance of private capital for building infrastructure for public services and the expansion of foreign interests in the economy. Since the new government was looking forward to ensure growth and to overcome the tragedy that Chile had suffered between September 4, 1970 (when Allende assumed the presidency) and March 11, 1990, expectations of Chile becoming a developed country became common among businesspeople.

7. Period Late 1997 – March 2000. The Asian crisis put an end to high growth. It was not because the crisis itself affected Chile. It was because Chile failed to implement good policies. Regardless of the particular fears that the government could have had about the possible negative effects of the crisis, the decision to increase interest rates had a large negative effect on the many medium and small enterprises that relied heavily on the banking system to finance. Growth quickly slowed down and unemployment increased to close to 10%. Rather than introducing corrections to monetary policy, the government started to look backward, perhaps urged by the lefty parties in the government coalition (this was the time when Pinochet was arrested in London). This change precipitated calls for government intervention in labor markets at the same time when businesspeople were asking for further liberalization of these markets. Finally the government coalition turned to the left and elected Ricardo Lagos as president, although he was no longer the socialist that he had been during Allende’s government.

8. Period March 2000 – March 2010. This period has put an end to the Chilean miracle. Although most reforms have survived, there have few new reforms that could have given Chile a strong private economy. In the last ten years, we have seen a sort of crony capitalism emerge —one in which the government works together (not too closely) with big enterprises in regulated industries (including banks, or perhaps specially banks) that allows government to obtain benefits from these industries for their main constituencies and the enterprises to do business with government protection. Medium and small enterprises have been the losers of this crony capitalism because they have to comply with many regulations that impose large costs to their businesses and have no government protection. Despite the extraordinary high price of copper in the past 6 years, Chile has grown not more than 15% in the last 12 years (GDP per capita) and unemployment is still close to 10%. Although at least half of the Treasury’s windfall of the past 6 years has been saved, over 40% has been spent, partly on social programs that have benefited low income people but not as much as one would have expected from the large amounts, partly on programs that have turned out to be very expensive (in particular Transantiago), partly on providing better services. Today a large part of the population expect the government to provide all sorts of social assistance, although the effective value of the assistance to the beneficiaries is quite low (the inefficiencies of assistance programs are already clear in the relief programs undertaken today).

15 Barkley Rosser March 3, 2010 at 5:50 pm

E. Barandian,

Any comments on the “speed bumps”? Of course there were not restrictions on long-term
capital inflows, and you point out that those were an important part of the growth story
in the late 1980s.

16 E. Barandiaran March 3, 2010 at 7:42 pm

Barkley Rosser,
There were only two periods in which there were significant inflows of foreign capital: 1980-81 and 1991-97. First, in 1980-81, the restrictions were reduced but not eliminated and the only mechanism available to access foreign capital was through domestic banks (they borrowed from international banks). The remaining restrictions implied a higher cost for short-term borrowing (other than trade credit), and most borrowing from international banks were medium and long-term loans at floating interest rates (adjustable every 6 months). Second, in 1991-97, the new restrictions amounted to a tax on short-term inflows (other than trade credit) but most of the inflow was in the form of FDI for infrastructure and mining. The main differences between the two experiences were the final users of the foreign capital–in 1980-81, Chilean enterprises that borrowed from domestic banks, and in 1991-97, foreign-owned enterprises and a few large Chilean enterprises. In 1980-81, there were not foreign banks operating in Chile. In 1991-97, some foreign banks were operating.

In other years, the inflows were low because of domestic conditions (including restrictions) and world market conditions.

17 DanC March 4, 2010 at 1:13 am

BTW The Chilean government also makes the following comments about FDI

During the 1990s, FDI represented an annual average 6.4% of Chile’s GDP, rising to an annual average of 8% between 1995 and 2000. After this surge, the amounts entering Chile dropped significantly. However, this did not reflect a change in Chile’s competitiveness but was the consequence of a sharp downturn in international economic conditions, which affected FDI in almost all countries, with the exception of China.

Between 2001 and 2003, the mergers and acquisitions (M&A) market – previously the driving force of FDI around the world and in Chile – collapsed globally while a drop in share prices and weaker corporate earnings led many multinational companies to suspend or cut back expansion plans. To some extent, this trend represented a return to more sustainable and realistic FDI levels, after the so-called “investment bubble† of the 1990s during which global capital flows reached record levels.

Moreover, FDI flows into Latin America were also heavily affected by instability in some of the region’s countries and the heavy losses sustained by a number of investors. As a result, risk aversion – accentuated by shareholder pressure in firms that experienced difficulties – also helped to explain weak FDI in the region.

In the case of Chile, FDI figures were also distorted by a trend towards greater use of the local capital market by foreign investors. Encouraged by the high liquidity and dynamism of the country’s financial sector and historically low interest rates, ever more overseas companies sidestepped exchange rate risk by raising finance locally, either by borrowing in local currency or placing bonds on the local market. This trend, although very positive for Chile’s financial market, was reflected negatively in figures for incoming FDI.

In 2004, FDI inflows into Chile again began to show an increase that reflected a fresh surge in M&A activity as well as the development of new projects in mining, telecoms and infrastructure. However, in 2005, these sectors were less successful in attracting new investments and saw mainly a continuation of projects that had already been initiated.

Between 2006 and 2008, the M&A market recovered its dynamism in Chile in line with an international trend.
It should be noted that, as from 2002, there was a marked increase in reinvestment of profits by foreign investors in Chile and, according to figures published by the Central Bank of Chile, this became the single most important component of FDI. In 2002, it represented 53.6% of FDI and then showed a sustained increase through to 2006, when the figure reached almost 98%, before dropping back to 81% in 2007. In 2008, it then fell to 44%, due mainly to the impact of lower copper prices on the earnings of mining companies.

18 Michael G. Heller March 4, 2010 at 6:43 am

Thanks E. Barandiaran (man of ‘tablita’ fame) and DanC for incentive to revisit fascinating story (cough gasp cloud of dust expelled by tomes retrieved from long-neglected bookshelf invisibly labeled Latin American economic history). The malevolent semi(in)formed cold-warriorish Friedman-fetished revisionism of Krugman, eagerly seized on by Naomi Klein in yesterday’s London Guardian, really distorts the story and does not merit serious attention.

General lessons to draw from this story if one abstracts from the twists and turns?? State activism and populism do decay they do, they boil and they erupt and they cause severe illness (1973), subsequent to which neoliberal experimentation is gravely undertaken in effort to cure the sickness. A sequenced policy process ensues interspersed by neoliberal crises (boomlets and bustlets). Uniquely Chile’s neoliberalism wavers but does not reverse.

Roughly-speaking (please make allowances for the imperfections of pesky historical facts) the sequence is — markets to law, law to public administration, public administration to democracy.

What distinguishes Chile from so many of its neighbors in LA & Caribbean?? Combined intensity of markets, law & order, civil service, and competitive political representation. Throw in pragmatic and preemptive leadership qualities. Simmer for 10 years. Moment finally arrives when anyone can predictably buy their delicious pastel de choclo **frozen** off-the-supermarket-shelf! Now that’s progress!!

Qualitative and profound social change despite periodic setbacks and ongoing problems (what country doesn’t have them). Friedman, however imperfect (who isn’t) played an important ideological role. But it were Chileans what done it. They are responsible for their success. Suerte Chile.

19 E. Barandiaran March 4, 2010 at 7:33 am

DanC, you’re right that there was an increase in the inflow of foreign capital in 2005-2009 in relation to 1999-2004. But this higher inflow did not prevent a poor performance. My posts pointed that there were only two periods in which the inflows of foreign capital were part of a booming economy. What matters is that in the last 12 years, GDP per capita increased at most 15%, whereas in the high growth period of 1985-97 (13 years), GDP per capita increased at least 60%. In particular, the performance of the past 6 years has been surprisingly weak given that the world price of copper has been at least 3 times higher than the average for 1950-2000. In other words, the Chilean miracle ended in 1997.

20 DanC March 4, 2010 at 10:54 am

BTW
Their is currently a scandal in Chicago about a politically connected builder who evaded building codes to build substandard housing. I wonder if Krugman will find a way to blame Friedman instead of the political structure in Chicago?

21 E. Barandiaran March 4, 2010 at 12:24 pm

DanC, I don’t want to go into details of what happened in Chile during the early years of the military government (read my previous comment about the first period), but I can tell you that Milton Friedman’s visit had no direct influence on what the government did in those years. The only influence was through the few economists, in particular Sergio de Castro and Sergio de la Cuadra, that were part of the Chicago boys because they had attended Friedman’s courses in Chicago. Friedman, however, had no direct influence on Jorge Cauas, the Minister of Finance between July 1974 and June 1976. Jorge, an engineer, did some graduate studies at Columbia and his view of inflation was quite different from Friedman’s. Anyway, the foundation of all the reforms was Cauas plan to reform public finances and restore fiscal discipline, and as far as I remember neither the introduction of the VAT nor the nonpayment of some old government bonds–both critical parts of Cauas plan–were part of any Friedman’s recommendation. The success of Cauas plan was due to its good design and strict implementation. All other reforms were possible once fiscal discipline was restored.

22 DanC March 4, 2010 at 2:13 pm

The bottom line on the WSJ piece. As people get wealthier one of the things they buy is more secure housing. What is extreme about that?

Free market reforms helped Chile grow economically.

To E. Barandian

Milton Friedman was the leading advocate in the world for free market reforms. Look at the changes in Eastern Europe and Asia. Do you deny that his views, which were considered radical at one point, helped shape the debate on a global scale? Friedman did not take control of the Chilean government. The Chilean government do not fully adopt Friedman’s views. So what? Who argues that Chile was the perfect experiment for free market economics.

But what if Chile had taken the leftist path, the Venezuelan path or the Cuban path? Do you thing Chile would be better off?

I don’t know why you want to deny Friedman’s influence on the world or Chile.

23 Barkley Rosser March 4, 2010 at 3:18 pm

E. Barandian,

On your final point I shall disagree. Do you think that Allende was going to end the
democratic tradition in Chile and seize dictatorial power so that he could not have been
voted out? That is what would have been required for anything remotely approaching a
Cuban outcome to happen. While there were vague rumors of it, I have not seen credible
evidence that he was planning to do so, or could have pulled it off if he had. Keep in
mind that Cuba had a long tradition of dictatorshiop prior to Castro, in sharp contrast
with Chile. Chile may well have performed worse economically if Allende had not been
overthrown, but claims that it would be like Cuba are the sort of thing one expects to
hear from full-bore Pinochet apologists on all fronts.

24 Gannon March 4, 2010 at 4:57 pm

It amazes me how naive and uninformed some people are about Allende. Losing elections wasn’t aconcern for Allende, because his rule fastly turned ilegal after he got elected. A true democracy has divisions of powers, executive, legislative and judicial. The executive under Allende soon started to ignore all court rulings and gave orders to the police (under the executive’s power) to ignore a lot of court rulings which interfered with his policies, henc making his regime completely ilegal. In fact, a few months before the military coup the CHILEAN CONGRESS destituted Allende, but he refused to give up his presidency and continued to rule aided by the paramilitary group MIR. Hundreds of cuban fighters had come into Chile to train that paramilitary. The military had to seize power to avoid a long and bloody civil war. Communists only pretend to respect the rules of democracy while it is useful for them, but they have no real attachment to them and only see democratic elections as a way to power. Once in power, they will slowly and steadily hollow out any democracy until turning it into real socialism. Allende was not a socialdemocrat, but instead a real socialist, a communist who tried to hold on to power by force. I repeat, after his destitution by congress he didn’t leave, so armed conflict was inevitable. And obvously communists died…

25 DanC March 4, 2010 at 6:08 pm

I do not defend Pinochet. Nor did Friedman.

I agree and disagree with E Barandlaran. It is silly to claim that Friedman went to Chile for five days, delivered speeches that he had given in many other locations, and changed the direction of a country. Friedman was not that directly involved. However I also think it is silly to deny Friedman’s influence on economic thought, especially with regard to free markets.

So critics who want to blast Friedman for his role in Chile, they too often give him too large a central role. But I think he was a voice that told world leaders that their was another path to economic growth that did not involve greater power to the government. I think the power of his ideas did change policies.

When Friedman advised the Chilean government on monetary policy was he doing something radical? If Friedman had been an expert on infectious diseases and he had advised the Chilean government on ways to prevent disease would the left still paint him as a villain?

In contrast to Krugman I see the greatest spurt in growth from Pinochet leaving office combined with changes in exchange rates. Not a rejection of free market ideas.

BTW In 1971 Castro did visit Chile and the line between the policies of Castro and Allende do some blurred. How Allende could pull off his collectivist goals while maintaing democracy going forward is a debate I don’t want to have.

26 Michael G. Heller March 4, 2010 at 7:12 pm

The country was torn asunder by 1972, utterly polarized, armed groups both sides, very dangerous future looming. Note note (ojo ojo) — it was first Allende’s UP government itself that requested the military to take over responsibility for law and order in mid-1972, declaring a partial state of emergency.

Then to hammer the message home let’s draw on some relatively reliable history of the circumstances in 1973 on the eve of the coup (Brian Loveman’s ‘Chile: The Legacy of Hispanic Capitalism’ page 306):

Quote — “Violence in the streets of Santiago, political terrorism by leftists and rightists, and an imminent state of political of political chaos elicited a call by the majority opposition in the Chilean Congress for the military to intervene to guarantee institutional stability, civil peace, security, and development”.

Allende’s UP coalition was deemed by the majority in Congress to have been violating the constitution and (repeat) called on the military to intervene. Not ridiculously unlike Honduras in 2009. Not ridiculously unlike Indonesia in 1965. (Not even ridiculously unlike Iraq in 2003 if you use the WMD analogy).

Latin American Studies has been torn asunder ever since by the emotional need to either condemn or condone. Life is not black & white. More useful to **understand instead** the historical and often authoritarian equivalences to quasi-constitutional checks and balances in 20th Century Latin America.

At some stage you have to get away from the detail and look at the *patterns* that justify the universalistic theoretical abstractions of cycles and sequences in order to see how, to paraphrase Max Weber, imperfectly-informed ideologues and political leaders “like switchmen have determined the tracks along which action has pushed”.

At the critical turning points the key issue, more often than not,was the decay phase of an activist, socialist, corporatist, or populist policy regime, and the socio-psychological sensation of a society and polity being ripped apart.

27 Barkley Rosser March 5, 2010 at 11:30 am

Craig,

Actually, there was not much change in the share of GDP in the US being collected in
federal taxes. What did happen was a sharp tilt away from the progressive income tax
(with its progressivity being reduced as well) and towards the regressive fica tax. It
was mostly an income distribution change.

28 pll fm transmitter August 4, 2010 at 11:21 pm

Also, it must be kept in mind that such policies can coexist with free trade, and such economists as Jagdish Bhagwati have long simultaneously supported full free trade with such limitations on short-run capital movements.

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