Tinker Bell, Pinochet And The Fairy Tale Miracle Of Chile

From ZNet, my favorite muckraker Greg Palast on the "market" reforms brought down to Chile by the so-called "Chicago Boys," students of Milton Friedman at the University of Chicago, that ruined the nation's economy:

The Chicago Boys persuaded the junta that removing restrictions on the nation's banks would free them to attract foreign capital to fund industrial expansion.

Pinochet sold off the state banks - at a 40% discount from book value - and they quickly fell into the hands of two conglomerate empires controlled by speculators Javier Vial and Manuel Cruzat. From their captive banks, Vial and Cruzat siphoned cash to buy up manufacturers - then leveraged these assets with loans from foreign investors panting to get their piece of the state giveaways.

The bank's reserves filled with hollow securities from connected enterprises. Pinochet let the good times roll for the speculators. He was persuaded that Governments should not hinder the logic of the market.

By 1982, the pyramid finance game was up. The Vial and Cruzat 'Grupos' defaulted. Industry shut down, private pensions were worthless, the currency swooned. Riots and strikes by a population too hungry and desperate to fear bullets forced Pinochet to reverse course. He booted his beloved Chicago experimentalists. Reluctantly, the General restored the minimum wage and unions' collective bargaining rights. Pinochet, who had previously decimated government ranks, authorized a program to create 500,000 jobs. In other words, Chile was pulled from depression by dull old Keynesian remedies, all Franklin Roosevelt, zero Reagan/Thatcher. New Deal tactics rescued Chile from the Panic of 1983, but the nation's long-term recovery and growth since then is the result of - cover the children's ears - a large dose of socialism.

Click here for the rest.

Upon the occasion of his recent death, much has been written about the brutality of Augusto Pinochet's bloody reign, and America's complicity in the coup that installed him, and these writers are absolutely right to trash as many of the involved parties as possible. Far less has been written, however, about the failed economic experiment under him that casts great doubt on the philosophy of free market fundamentalism that so captures the US establishment's mind today. In short, as Palast observes in his article, laissez faire capitalism in Chile was a total disaster, and the nation's economy had to be bailed out by further reforms that would make the free trade set shudder.

Amazingly, the failed market reforms in Chile are understood in the US these days as a success, somehow supporting the idea that we need to deregulate here even more. I'm strongly reminded of President Reagan's false reputation as the great tax cutter: rarely do politicians and pundits acknowledge that after the Gipper had successfully cut taxes more than any of his predecessors had ever done, he then was forced to raise taxes more than any of his predecessors had ever done. That is, his tax-cutting legacy is a lie, as are all of the economic gains they supposedly stimulated. Like the Chile myth, however, free market fundamentalists get teary-eyed discussing how great his example was in this area, and use it as support for doing more of the same today.

All of this leads me to believe more strongly that the whole neoliberal, supply side, free market thing simply doesn't work in the real world: supporters are forced to fabricate historical "evidence" to support their views. And most Americans swallow it. Pretty sad if you ask me.

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