Sentences about Chilean inequality, and is Chile overrated?

Chilean inequality has been going down lately, pre-transfer that is, but this is not in every way reassuring news:

“In this case, the fall of inequality would be bad news over the long term,” Mr. de la Torre told me. “We would be specializing in sectors that require less knowledge.”

That is from a very good column on Chile by Eduardo Porter.  In my view, although Chile of course has done very well, it is one of the most overrated countries in the world today, economically speaking that is.  They have not overcome their educational problems or their class problems, the glorious run of copper is over, they will have a hard time continuing to move up the quality ladder, and their policies are moving in a more redistributive but not growth-enhancing direction.

Way back when, Alex and I used to select the most underrated and most overrated countries, in the sense of which country-specific mutual funds you might short or buy.  My pick this year for the most overrated country is, I am afraid to say, a country I love dearly and that is Chile.

What is your pick?



I'd say Finland is already correctly-rated, assuming your prior rating takes into account the decline of Nokia, the sanctions on neighboring Russia, being tied into the Euro, the coming baby boomer retirement, etc.

The question is subjective though. A native Finn will know all this and more; whereas a distant observer might only hear about Finland's excellent school results.

The biggest reason not to underestimate Finland is because they're GDP per capita still significantly lags Denmark and Sweden. Like the rest of the Nordic countries, their quality of governance and culture is equally excellent. Low corruption, very good rule of law, an efficient regulatory regime, high taxes but the receipts are well spent, good education, hard-working honest people, etc. Yes Nokia is screwed, but that's a transient problem. Countries don't rise or fall based on the fortunes of a single company. I'd be wary to bet against Finland, because that'd be an implicit bet against Nordic convergence.

If we really wanted to discuss country-specific mutual fund longs and shorts, the time frame should be defined and a lot would depend on current valuation. If the time frame is not very long, things like Nordic convergence do not really count (and even then it would not count that much).

In my personal opinion, Finland is currently fairly rated/valued in many respects: the stock market valuation, education system, governance, etc. What economists may not have noticed is that Finland has vibrant and dynamic start-up scene. For example, some of the best game development companies are Finnish (Supercell, Rovio, etc.).

The USA.

Not at this blog.

PIIE sponsored an excellent talk on 2 Dec 2014 by the Dep Min and Min Finance of Singapore. He included slides on productivity growth as a share of USA productivity growth, 1950-2013. The LAC region was at the bottom of the barrel still badly stuck at under 40 percent of USA. Sad to say my favorite region is stuck with inequality and poor levels of investment in education drawing on unresolved issues of race and class. Even Chile suffers.

Yep. Too peaceful, too uncrowded, too Chilean and they don't spend enough money. Clearly, Chile is doomed.

Just a thought - perhaps not 'spending enough' may be an advantage! It is the overconsumption in the rest of the world that leads to rapid global warming, polluted rivers, pollution, wastage, environmental destruction! Perhaps Chile has something to offer as another way of life? I long to visit it!

Sad to say, Brazil. Whatever extent to which its future growth has been discounted already, I'd discount it more. The country's policymakers' capacity for shooting themselves in the foot amazes me.

I have an obvious interest on Brazil, and quite a bit of information... But I can't even decide if it's going up or down.

If somehow people force the government to lower taxes, the country will boom. People are getting better in forcing the governemnt doing stuff, but at the same time, the government is getting better at blowing money away.

Most overrated at the moment: Germany and China
Most underrated at the moment: Brazil and Ghana

Give each two to three years and look back and measure change in GDP.

Why Ghana?

A friend of mine travels around the world visiting third world countries as an agricultural economist. Before ebola, he was very high on Ghana relative to other African countries, and also thinks Brazil is getting better, or so he said this summer.

In 1969 Arthur Jensen made perhaps the most accurate, but also most ignored, prediction in social sciences. He said there was little that could be done to boost African American IQ scores. 45 years later, we have precisely nothing that can boost African American IQ scores.

I think Jensen would predict bad outcomes for Ghana and Brazil.

So would I. I think in times of stress countries revert to the norm. Traditional policies are easier to get broader consent for. Trying something radically different is difficult when people are fearful and defensive. So over the next five years Ghana and Brazil will revert to their traditional economic incompetence.

Finland, on the other hand, will do fine.

No doubt there is a more politically correct way to dress that up, but there it is

Germany, for sure. It's not exactly impressive to keep manufacturing employment from declining quite as fast as elsewhere by suppressing wage growth for more than a decade, while using the rest of Europe as a captive market to avoid currency exchange adjustments from your export success. Yet we see Germany dragged out as a country that "kept its manufacturing" in the US - I'd love to see what said promoters' reaction would be if the price for that was flat wages in real terms for years and a major expansion of temp workers.

Canada. Similar reasons to Chile with the resource boom having run it's course. It's largest province has financials worse than California and it trying desperately to make the 70's economic policies to work. About to elect a vacuous son of a former popular-in-some-circles prime minister whose accomplishments to date are winning a boxing match with another politician and falling down stairs. Seriously. Resource development is being stalled or stopped by environmentalists, with great success. The branch plant economy that served us well for decades has shrunk; US production goes elsewhere.

I agree with this, for all the same reasons. I know Canadians who agree but are deluded in thinking the praries will save them. When I here Regina: City of the Future, it means I will be spending a lot less time in Canada.

I would also say that Mexico is one of the most underrated, at least in US/Canada, Iactually think the political will is finally arriving to solve some major problems, especially narcoterror, but also some regulation and transparency issues. It is finally time to start looking for the light there.

"I would also say that Mexico is one of the most underrated,"

There certainly is a lot of promise in Mexico and they've made some progress in the past few decades.

All I know is that Americans were having this same discussion about Mexico in the late 19th century.

Most underrated:

Most overrated:
South Africa

Wild cards:
Dominican Republic

Is it really fair to say Chile is underrated or overrated? There will certainly be a slowdown as the great copper run is over but we will see if they continue to improve. The true measure of the quality of their economy comes in reaction to downturns versus the strong run 2003 - 2011 years. (After 2004 Chile was the Joe Rudi of economies. Bill James noted that so many people called Joe Rudi "Underrated" that he was really overrated.") Note this is not a measure of investment choices but economies.

Anyway, the overrated country was the USA from 2002 - 2007 while the most underrated country was the USA in 2010 - Today. If you measured how much the private jobs have come back the current growth looks a lot better.

Also underrated: China Today...Most overrated....China in ~5 years

USA in 2010 – Today underrated? Crazy. We keep looking at the unemployment rate instead of the employment rate.
The later is more important and does not look good.

Maybe the true bubble of the 1994 - 2007 was the labor participation ratio that it was too high. I remember those days in which two income families working 50 hours a week to try to pay for a higher cost house while still maintaining a family life. That model broke in 2008 and people have moved on. Since 2010, the US growth has had little to do with housing (very different from other post-WW2 recessions) and the public payrolls are down -500K.

Since 2010, name country outside of the US, where the primary growth engine was not housing like China or Canada.


Also, labor participation rates are very tied to demographics...we would expect them to fall as the Boomers age out.

the nordic countries. lots of debt and no is talking about it

Sweden: Low national debt but my feeling is there's considerable private debt. Zero interest rates from the Riksbank is a dismaying signal. And isn't there a housing bubble? Not to mention a determined stoking of their bonfire of human capital.

Germany. It's all time high trade surplus continues as a drag on European recovery (and unity) and it's declining per unit labor costs will eventually hurt its own economy. Any more "good news" in Germany and Merkel will be appointed chancellor for life.

I usually don't pay attention to arguments of the type "most of the growth has gone to the top...%ile" but in the case of developing countries that matters. Developing countries are so much more unequal than most rich countries, that GDP/capita growth gives you misleading information about growth below the top quintile or even decile. Here is a site arguing that even though GDP/capita is higher in Chile than Uruguay, averages incomes at every quintile over than the top are about the same and most of the difference is in the top quintile. Unfortunately it's in Spanish but the point is obvious enough in the charts

Russia, obviously. Going full on totalitarian, full on cold war, possibly even hot war with the United States of America within a decade. It's a zero.

All true, but does this make her overrated?

For some sad reason, I think we all knew, deep down inside, that Mother Russia would somehow find her way back to the cold comforts of authoritarianism.

Full on totalitarian is obviously much worse than just authoritarian.

Cold plus small covert wars with US allies means more sanctions and probable regime targeting of US and allied investors.

Medium to hot war means economy goes to zero, all western investors forced out.

I'm not saying it's overvalued, I'm saying there's nothing but hope value, no long-term value at all, zip, nado, nothing. If you're holding a Russian asset, you need to sell it while you still can.

The market cap of Russia's entire stock market is less than that of Apple. The P/E ratio of the Russian stock market is 5. That's insanely cheap and it shows how little faith investors have in Russia's private sector.

Then you look at the demographics and it's scary. Total population is in free fall and the only growing population is the Muslims of the Caucuses who are openly hostile to the Russian state. The only saving grace is that life expectancy at age 65 is lousy. That puts a limit on the pension burden. Not much of a silver lining.

There are few legitimate internationally competitive companies. Most of the big employers are heavily subsidized by the state which in turn is funded largely by oil rents.

Russia's population did decline by about 4.5% during the period running from 1992 to 2009. It has picked up some since. It was never in free fall. The country has had a rapid improvement in total fertility rates the last 15 years, and is at this time at 1.59, no worse than average for Europe as a whole. Were improvements to continue, they might reach replacement rates in a 20 years or so. The fertility deficit in Russia dates from 1989, whereas the German deficit dates from 1970, is more severe, and shows no signs of abating.

Chile is still a small country - just 17 million people. It's spread out. And it has large land barriers to its trade partners, so it's practically an island.
It will never be able to have great economies of scale. So once those basic constraints are acknowledged, it doesn't seem overrated. It just has greater limitations on it than say another country with a similar population - the Netherlands. Because the Netherlands is plugged into western Europe while Chile is an "island" at the far ends of the earth. And has much better scenery...although there is only so much eco-tourism you can do.
To a certain extent, I'd say China is overrated; they've already plucked a lot of low-hanging fruit and are going to need to start going through the second-stage post-material development soon - upgrades to water treatment, expensive pollution controls, remediation of brown-sites...think if China had an EPA superfund designation, how many superfund sites there would be, and how much it would cost to fix them? That is their next challenge.

So is Chile similar to New Zealand in this regard?

Similar geographically as the commenter puts it but NZ has better living conditions, less poverty and better literacy rates.

Chile will slowly make those up over time, it is not like NZ is going anywhere.

Chile is at least closer by air to places that will eventually be important. New Zealand has basically nothing over Chile other than speaking English properly while many Chileans barely speak intelligible Spanish

Good question.. From the back of The Economist, these markets are world leaders in 2014 as of November 26th: Argentina, +43.7%, India, +34%, Egypt +32%, and Pakistan, +28.7%... Chile is down 7% so some of the bad news is already baked in...

As of 2013, Chile looks pretty good to me:

My bet is that they are all rated fairly.

It would have been nice to use an article that had some depth about Chile and not just passing references to the educational reforms here (which are far broader, more complicated, and unfortunately aimed at limiting access to quality secondary education for poorer citizens) than this piece looking at mostly at declining inequality in places like Argentina, which has declining inequality for reasons I assume no economist would reasonably defend.

Specifically regarding Chile though, how can any country which has had historically strong cultural biases in favor of a stable currency, free trade, and private property (which any Chilean will admit they do regardless of their political stripes) and be called "overrated" from a development perspective. Additionally polls of Chileans also consistently show strong support for individual responsibilty and concern for mercantilist government policies. Those strike me as a providing a strong basis in favor of stability and continued progress, albeit at a slower pace.

Sure, Chile will suffer as China slows and the price of copper declines. That is hardly a brave prediction. And 100 years worth of economic and political revolution in a 24 year time span is bound to lead to distortions. But seriously when you look at Latin America, Brazil, Argentina, Venezuela, how can you say Chile is overrated? I mean I know Tyler likes being contrarian, but if you argue that Bolivia is on a good track than how can you say you want to short Chile?

Most overrated, both in the past and in the present - the Baltic countries, especially Estonia.

Why do they attract so much attention? Their "spectacular" GDP growth is comparable to that of Russia, Belarus, Poland or Slovakia - all of which are bigger economies than all 3 Baltic countries combined. Same for wages. Life expectancy is abysmal. Huge portions of population emigrated. Really, what's so great about them?

GDP per capita compounded growth rate for 1992-2013 (according to Google):

Belarus: 7.5%
Russia: 7.6%
Poland 8.5%
Slovakia: 9.4%
Lithuania: 9.5%
Estonia: 9.7%
Latvia: 10.6%!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&idim=country:POL:RUS:UKR:EST:BLR&ifdim=region&hl=en_US&dl=en&ind=false

Couple of adjustments to make here.

1. Population growth during the period
2. Working age population growth (decline?)
3. Terms of trade adjustment and baseline development level. It should be easier for poor resource rich countries to grow than resource poor countries with high legacy costs.

Might be worth noting that Ukraine's growth record has been awful over the past 20 years.

The right series to use here is the GDP per capita, PPP (constant 2005 international $). By that series, Belarus's growth looks more impressive than Russia's.

Most overrated third world country: India. It gets lumped in with China despite lackluster performance and little international competitiveness. It also gets the benefit of the doubt since most Indians in the West are high-caste. Unlike with China, this is most definitely not representative of the broader, Dalit-filled, population. Regionally India's very heterogenous, and its unlikely that the poor and corrupt regions will ever outpace the worst countries. Plus broader Hindu culture is nearly as backwards as Islamic culture.

Most overrated first world country: Belgium. This is a Southern European state masquerading as a Northern one. Brussels is an ugly, decaying, dangerous dump that rivals Naples. After the PIIGS, they're definitely the biggest credit risk in the Eurozone. The French minority are lazy, entitled, combative welfare sponges. In any serious crisis the country would most certainly fracture. They've still not yet fully recovered from their occupation in World War I.

Most underrated third world country: Rwanda. The name's still synonymous with horrific genocide, so it will probably be at least a generation until it has any alternative connotation. But Kagame is quickly establishing himself as the Lee Kuan Yew of Africa. The country is clean, safe, orderly and functional in a way that nearly every other Sub-Saharran country, besides Botswana, is not. The Tutsis are an intelligent, hardworking, stoic people. As long as they remain in charge the country will get rich quick, as it has been doing for the past decade.

Most underrated first world country: South Korea. I don't care what the official GDP numbers say. There's no way someone could spend time in the gleaming, modern metropolis of Seoul and believe that Koreans are only half as wealthy as Western Europeans.

Most overrated third world country: India. It gets lumped in with China despite lackluster performance and little international competitiveness.

IMF historical data on gdp per capita (calculated according to purchasing power parity) is readily available for 136 countries. You can calculate the ratio of a country's per capita domestic product to that of the United States with this data. The country whose ratio improved the most over the period running from 1980 to 2012 was China. India ranked 8th, and one of the seven ahead of India was gifted with major oil discoveries during the intervening decades. I'd say rates of relative improvement which put you in 7th or 8th place out of 136 competitors amounts to somewhat better than 'lackluster' performance.

Thanks for the criticism, it's an interesting counter-point. I'd make a couple of retorts. First India started at a very low 1980 base, so it should have grown faster. When you're very poor, and the world's going through a massive globalization, simply not being totally dysfunctional should produce fast growth. Even Vietnam, a Marxist country with a legacy of massive conflict, grew at about the same rate from an equivalent or lower base. Second, I'll touch on the fact that your stat is relying on PPP, not nominal GDP. All third world countries have high PPP relative to nominal, but India has one of the largest gaps. About 3.5X higher, versus 1.8X for China, 2.1 for Vietnam, 1.35X for Brazil and 1.9X for Nigeria.

This tells me that most of India's growth came from selling more cheap things to other Indians, rather than making things that people outside India would want to buy. Intuitively that seems like pretty low-quality growth. Nearly every developing country that's converged to developed status has done so by becoming internationally competitive. Convergence is usually a function of integrating into the global economy and India's doing a very poor job at it.

Keep on spinning.

Plus broader Hindu culture is nearly as backwards as Islamic culture.

When Hindu militants start blowing up bars in Djakarta or Beirut, get back to me.

Hindu extremism is not really visible outside South Asia. Islam is probably the most universal major religion, whereas Hinduism is probably the least (unlike even Judaism, there's no acceptable way for someone not born a Hindu to convert). Outside Hindustan, the devout really don't care what the heathens do. But in India religious motivated is definitely not unknown. (See links at bottom). Beyond that there's many facets to Hinduism that are as incompatible to modern development as dogmatic Islam, from medieval gender roles to maniacal caste separation. In the West, Hinduism gets a pass for being benign because its lumped in with Buddhism and new age mysticism.

Slightly off-topic but well-worth the read:

Brussels is an ugly, decaying, dangerous dump that rivals Naples.

I think the homicide rate in Naples is about 3.3 per 100,000, and similar to Glasgow's. It's not that dangerous. Sao Paulo is dangerous.

The danger in Naples is assault and street robbery not getting murdered.

I don’t care what the official GDP numbers say. There’s no way someone could spend time in the gleaming, modern metropolis of Seoul and believe that Koreans are only half as wealthy as Western Europeans.

The actual number says 37% lower than the United States, 17% lower than France, and on a par with New Zealand. Unlike the U.s. and France, Korea is a demographic death spiral from chronic low fertility.

In 2013, South Korea grew by 170,198 through natural increase, while in 2012 White Americans had a natural decrease of 12,400.

You're getting your demographic data out of Cracker Jack boxes. The total fertility rate in Korea has been below replacement levels for over 30 years and the median figure over that time has been 1.47 births per woman per lifetime (and it is currently lower). The country does not have an elastic conception of nation-hood which would allow for the supply of the deficit through immigration. The median figure for the United States has been 2.0 over that time period and the size of American birth cohorts has fluctuated around a set point of 4 million for more than six decades (with the largest cohort registered in 2007). The total fertility rate for non-hispanic caucasians in the United States is 1.8 births per woman per lifetime. South Korea has not seen rates that high since 1984.


The TFR for Whites is artificially high because there is a difference between births by White mothers and births of White children because of all that race mixing you love so much.

I do not bother with Wikipedia. I get my demographic data from the World Bank and the U.S. Census Bureau.

My but this Clover guy is a real prick.

Rather like the chap in Dr. Strangelove worrying about precious bodily fluids.

It's a fair point. But right now Korea's low fertility is recent enough, and its prior baby boom strong enough, that it's still boosting the working age population percentage. (See link below). Korea will still be collecting demographic dividends for another ten years. Contrast their age pyramid with Japan, which is much more top heavy. Low fertility will be eventually be a problem, but not in the medium term.

No, it's not recent. This has been a chronic problem for thirty years and no countervaling trend has emerged.

I agree. I lived in South Africa and Botswana a few years back, and the afrikaaners were eagerly investing in Rwanda. The stories you hear about Botswana are true...low crime, democratic, low corruption compared to all its neighbors.

Over-rated by whom? Using what criteria?

If you're talking about the international bien-pensants brigade, the most under-rated (nay calumniated) country is Israel. No other place on the globe is even close.

My pick for the most underrated country is Russia. Like Japan, another underrated country, it defies liberal/neocon policies, and so the media tries to portray it in the worst possible light. But from the low point in the late nineties to today Russia's per capita GDP rate has grown by a factor of eleven, at PPP more than four. Plotted against the example of China you can see that it's growth is every bit as dramatic:

And like China, despite massive corruption, most of this growth has benefited the working and middle class, unlike in America where most of the economic growth has been captured by immigrants and the rich, with the incomes of workers stagnating.

Most overrated country from America's point of view is America. Sure, we all hear a lot about the "recession" but most of the chattering class is convinced that it will be temporary and all over once their favored party is elected and their favored policies can be enacted.(And whether they are liberal or neocon most believe or say they believe their candidate will win the next election cycle, and certainly the one after that) Tyler Cowen is one of the few "mainstream" intellectuals who have the appropriate amount of pessimism.

My pick for the most underrated country is Russia.

The alt-right fancies rough trade. Slobodan Milosevic had a constituency there too.

Oil. The party's over (for now).

Compare Chile to Spain:!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&idim=country:ESP:CHL&ifdim=region&hl=en_US&dl=en&ind=false

Spain has some geographic advantages that Chile does not. Also being part of the EU has improved trade and tourism substantially.

It's much harder for Chile to attract the same level of FDI given its isolation. It's hard to build an industrial cluster without industrious neighbors.

They're stuck with the Euro, which is an aspect of European integration you don't want.

Most of the Spanish-Chilean difference seems attributable to the upheaval of the 1970s. (This is clearer if you use a log scale). In 1970 Chilean GDP per capita was 80% of Spanish levels. By 1980 it had fallen to 40%. Since then its experienced a moderate convergence to 54% of Spanish levels. (Which isn't too shabby considering that Spain had very robust growth from European integration over the period).

You do not want Spanish labor markets, which have been the most sclerotic in the occidental world for at least a generation.

Geographically, Chile is like the west coast of North American turned upside down. Santiago looks a lot like Los Angeles, for instance. That's a pretty nice piece of real estate, although Chile suffers relative to North America because the Andes are harder to get over and the rest of South America is poorer than the rest of North America.

Railroads completely solved that issue for California with the building of the Southern Pacific and route 66, I can see no comparison to Chile's isolation.

New Zealand's economy has performed adequately even though they're isolated out there in the Antipodes. The geography of Chile might prevent them from assuming a front rank position among the world's economies, but the 2d rank can be pleasant enough.

Another difference is that most of North America lives in places that are significantly colder than LA, while most of South America is hotter than Santiago. While less seasonal fluctuation is always desirable, avoiding hot summers is worth a lot less than cold winters. That's why you don't see many people moving retiring from Florida to California. I believe in that paper about factors determining real estate prices, that Tyler linked to a few months ago, HDD over 65 degrees only had half the coefficient of HDD under that.

avoiding hot summers is worth a lot less than cold winters.

To whom? A chap in my office on why he returned to Central New York after some years resident in Georgia: "you can always put stuff on".

Sure there are a few people who like to avoid hot climates. But look at the flow of US population, away from the frigid zones to the hot zones. Some people vacation in New England in winter to enjoy snow sports. They are vastly outnumbered by people in New England who vacation in Florida, Puerto Rico, etc.

The price of generating electricity is Chile should be going down. This may not seem like a big deal given that electricity generation is such a small part of the economy, but it doesn't hurt.

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