But to benefit from this opportunity Chile must first surmount a very difficult transitional period. 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. Milton Friedman gave some lectures advocating free market economic policies at the Universidad Católica de Chile. Riots and strikes by a population too hungry and desperate to fear bullets forced Pinochet to reverse course. I believe that the experience of Germany and Japan after World War II, of Brazil more recently, of the post-war readjustment in the U.S. when government spending was slashed drastically and rapidly, all argue for shock treatment. Friedman himself visited Chile in 1975, giving a series of lectures on "free market" economics, meeting personally with Pinochet, and soon after writing the dictator a lengthy letter advocating a "shock program" for the Chilean economy. But that was the work of Salvador Allende – who saved his nation, miraculously, a decade after his death. Such a shock program could end inflation in months, and would set the stage for the solution of your second major problem--promoting an effective social market economy. The Pinochet government was responsible for 3,000 killed or “disappeared” persons (socialists, university students, etc. For definiteness, let me sketch the contents of a specific package proposal. This letter is in response to that request. In 1973, the year General Pinochet brutally seized the government, Chile’s unemployment rate was 4.3%. During our visit with you on Friday, March 21, to discuss the economic situation in Chile, you asked me to convey to you my opnions about Chile’s economic situation and policies after I had completed my visit. 2. Pinochet, who had previously decimated government ranks, authorized a program to create 500,000 jobs. May I close by saying that I am persuaded that Chile has great potential. But indirectly, some of the poorest classes will be affected and whether they are or not, the program will be blamed for their distress. Milton Friedman's economic policy has something to do with it. Some forty years ago Chile, like many another country, including my own, got off on the wrong track--for good reasons, not bad, because of the mistakes of good men not bad. This account says he did not; an excerpt: The claim that General Pinochet begat an economic powerhouse was one of those utterances whose truth rested entirely on its repetition. Reluctantly, the General restored the minimum wage and unions’ collective bargaining rights. In 1983, after ten years of free-market modernization, unemployment reached 22%. The two probems are related--the more effectively you can invigorate the free private market, the lower will be the transitional costs of ending inflation. Excmo Sr. Augusto Pinochet Ugarte / El Presidente / Edificio Diego Portales / Santiago, Chile / Dear Mr. President, / During our visit with you on Friday, March 21, to discuss the It would involve so painful an operation over so long a period that I fear the patient would not survive. In 1982 and 1983, GDP dropped 19%. A flat commitment by the government that after six months it will no longer finance any government spending by creating money. This is a great achievement. Remove the obstacles to establishing new financial enterprises. 8. Pinochet did not destroy Chile’s economy all alone. But they are also distinct: strengthening the free market will not end inflation; ending inflation will not automatically produced a vigorous, innovative free market. If possible, a stabilization loan from abroad for the same purpose. Edificio Diego Portales My knowledge of Chile is too limited to enable me to be either precise or comprehensive, so these measures are to be taken as illustrative. As for Chile, Pinochet appointed a succession of Chicago boys to senior economic posts. Blood and glass littered the laboratory floor. Dear Mr. President, Friedman went to Chile like he did other authoritarian countries (like China) and gave speeches on freedom. In most countries, developed and underdeveloped, the quantity of money is more like 30 per cent of the national income than 3 to 4 per cent. Wage and price controls are not measures to cure inflation. MILTON FRIEDMAN: Well, I wouldn't call it abuse, really. ‘In order to have an economic miracle,’ says Dr. Vasquez, ‘maybe you need a socialist government first to commit agrarian reform.’. However, gradualism should not mean standing still. This also is a legacy of the Allende years. “torture and repression – take a look at the recent book by Naomi Klein – The Shock Doctrine”. El Presidente To ease the transition and facilitate the recovery, I believe that the fiscal and monetary measures should be part of a package including measures to eliminate obstacles to private enterprise and to relieve acute distress. 6. Milton Friedman’s visit in March 1975 forever changed the course of Chile’s history. (Any attempt to be selective is likely to be defeated by the machinations of each agency to have the cut bear on someone else. They are one of the worst parts of the disease. 3. Hyehudi.org Aggregated Articles About Judaism. A less clear question is how rapidly inflation should be ended. What looked like financial colonialism was sold as the cure-all tested in Chile with miraculous results. viva Pinochet…….i was born 11. september:))), Did Pinochet, Following Milton Friedman, Really Create an “Economic Miracle” in Chile? In 2006, Hendry said that Friedman was guilty of "serious errors" of misunderstanding that meant "the t-rati… Here, especially, my ignorance of the present situation and arrangements in Chile makes it impossible for me to be specific. Note that the measures taken will not of themselves harm this group. You would be singing a different song if a marxist terrorist points a gun at you for being a “counter revolutionary” a “capitalist”. The film, with its stark images of ECT, excerpts from CIA torture manuals, footage of Nobel economist and shock-doctrine promoter Milton Friedman glad-handing Pinochet… Pinochet did not destroy Chile’s economy all alone. You know the list: fire-sale privatizations, flexible labor markets (i.e. Sincerely yours, We were made to feel very much at home. Econometrician David Hendrycriticized part of Friedman's and Anna Schwartz's 1982 Monetary Trends. A continuation of your present policy of an exchange rate designed to approximate a free-market rate. While most of these businesses were eventually re-privatized, the state retained ownership of one industry: copper. It was, indeed, a visit with unanticipated and cumbersome consequences for Milton Friedman. Forces Abroad (1798-1993), On American Jurisdiction In the Western Hemisphere, First Declaration from the Lacandon Jungle, The State-Corporate Complex: A Threat to Freedom and Survival, Chapter 23: The Clinton Presidency and the Crisis of Democracy, Attack of American Free Enterprise System, Memorandum Of Understanding Between The National Security Agency And The Israeli Signal National Unit Pertaining To The Protection of U.S. 591-4). The only thing I would call abuse was in connection with the Chilean episode, when Allende was thrown out in Chile, and a new government came in that was headed by Pinochet. The Vial and Cruzat ‘Grupos’ defaulted. Persons, Crisis of Democracy - United States (Part II), Crisis Of Democracy - United States (Part I), Overthrow of Premier Mossadeq of Iran (TPAJAX), CIA Assassination Proposals (Operation PBSUCCESS, Guatemala), CIA Assassination Proposals (Operation PBFORTUNE, Guatemala), Second Declaration from the Lacandon Jungle. For nearly a century, copper has meant Chile and Chile copper. The end of inflation will lead to a rapid expansion of the capital market, which will greatly facilitate the transfer of enterprises and activities still in the hands of the government to the private sector. This is post is not a defense of Pinochet as a man or as leader. I recognize also that in this area, a strong case can be made for gradualism in order to give Chilean producers an opportunity to adjust to the new conditions. In 1970, 20% of Chile’s population lived in poverty. More exactly, Chile was a showcase of de-regulation gone berserk. The economic plan now being carried out in Chile realizes an historic aspiration of a group of Chilean economists, most of them trained at Chicago University by Milton Friedman … That is why the base is so narrow. But that miracle was in fact a hoax, a fraud, a fairy tale in which everyone did not live happily ever after. September 4, 2007. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman’s trainees, the Chicago Boys. Within the faith of the Reaganauts and Thatcherites, Chile provides the necessary genesis fable, the ersatz Eden from which laissez-faire dogma sprang successful and shining. The Chicago Boys ... and a new government came in that was headed by Pinochet. 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. But for Chile, where inflation is raging at 10 to 20 per cent a month, I believe gradualism is not feasible. Friedman later sent Pinochet a letter in which he outlined this and other policies (Friedman and Friedman, 1998, p. 399 and for the letter, see pp. 4. There is only one way to end the inflation: by reducing drastically the rate of increase in the quantity of money. So there we have it. It will therefore involve the least transitional unemployment. Industry shut down, private pensions were worthless, the currency swooned. Pinochet handed over power to Aylwin in March 1990 but remained army commander for eight more years and then was a senator-for-life, a position guaranteed under the constitution written by his regime. A monetary reform replacing the escudo by the peso, with 1 peso = 10,000 escudos (or, perhaps, 1,000). Yet, with remarkable chutzpah, the mad scientists of Chicago declared success. But the myth of the free-market Miracle persists because it serves a quasi-religious function. Milton Friedman, Jeane Kirkpatrick, and Augusto Pinochet may not have met in the same room, but together they helped construct the architecture of hemispheric relations that has endured well into the current Bush government. 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. By 1982, the pyramid finance game was up. For example, suspend, with respect to newly employed persons, the present law against discharged employees. To stop inflation, Friedman proposed reduction of government deficits that had increased in th… It certainly was. He booted his beloved Chicago experimentalists. It was the ‘Chicago Boys’, a group of Chilean graduate students who were invited to study at University of Chicago in the 1950s directly under neoliberal mastermind Milton Friedman and his protege, Arnold Harberger, that crafted Pinochet’s economic policies, exacerbating inequality like … The major error, in my opinion, was to envision government as the solver of all problems, to believe that it is possible to do good with other people’s money. The recent passing of Chilean dictator Augusto Pinochet and the Nobel laureate economist Milton Friedman provokes economist Pranab Bardhan to reflect on the connections that these two individuals represented: political control and economic freedom. Chile could boast some economic success. Under the spell of their theories, the General abolished the minimum wage, outlawed trade union bargaining rights, privatized the pension system, abolished all taxes on wealth and on business profits, slashed public employment, privatized 212 state industries and 66 banks and ran a fiscal surplus. The key economic problems of Chile are clearly twofold: inflation, and the promotion of a healthy social market economy. I enjoyed it. Who is the worst person of the Twentieth Century?" Hence it would be well to make some provision of this kind in the program. Additionally, Pinochet implemented neoliberal economic reforms promoted by Milton Friedman of the Uni­versity of Chicago. When asked about it during an interview with Icelandic TV in 1984, Friedman said that the criticism referred to a different problem from that which he and Schwartz had tackled, and hence was irrelevant, and pointed out the lack of consequential peer review amongst econometricians on Hendry's work. This is the hard currency which has built today’s Chile, the proceeds from the mines seized from Anaconda and Kennecott in 1973 – Allende’s posthumous gift to his nation. No obstacles, no subsidies should be the rule.) I am glad to be educated. Eliminate as many controls over prices and wages as possible. Aquí está el texto completo de la carta que le envió Milton Friedman al Presidente Pinochet el 21 de Abril de 1975, despues de una visita de una semana a Chile. This will not only improve the well-being of the ordinary Chilean by enabling him to obtain all items at the lowest cost; it will also lessen the dependence of Chile on a single major export, copper. Complete free trade is the desirable final goal, even if it cannot be achieved in the very near future. But unfortunately, Chile only faces a choice between evils: a brief period of high unemployment or a long period of high--though slightly less high--unemployment. Agribusiness is the second locomotive of Chile’s economic growth. Provide for the relief of any cases of real hardship and severe distress among the poorest classes. The outcry and clamor that his first visit to Chile generated, has been much discussed and debated. The idea that Milton Friedman actively supported and advised the Pinochet government is completely false. After nine years of economics Chicago style, Chile’s industry keeled over and died. Freed of the dead hand of bureaucracy, taxes and union rules, the country took a giant leap forward – into bankruptcy and depression. Perhaps the greatest gain in this area would be obtained by the freeing of the importation of motor vehicles. A national stabilization loan from the public to supplement the reduction of spending during the first six months in order to permit a faster reduction in money creation than in spending. Santiago, Chile All suggest that the period of severe transitional difficulties would be brief--measured in months--and that subsequent recovery would be rapid. Keynes and Marx, not Friedman, saved Chile. You have been extremely wise in adopting the many measures you have already taken to reverse this trend. For a country like the U.S., where inflation is around 10 per cent a year, I favor a gradual policy of ending it in two or three years. It has an able, literate, inventive, and energetic people; it has a long history and tradition of an orderly, peaceful society. Home; About; Contact; Daily Newsletter; Popular Posts; Our Authors; Full Archives Oh, Lordy, the nuts with a shaky knowledge of history, but the talismanic word "Pinochet" have crawled out of the woodwork to assert that Milton Friedman did, too, cause a … Milton Friedman is usually associated with Chile, since he advised the chilean government in the 1980's on how to implement economic reforms, during Pinochet's dictatorship. At that time, for an accidental reason, the only economists in Chile who were not tainted with the A commitment by the government to reduce government spending by 25 per cent within six months, the reduction to take the form of an across-the-board reduction of every separate budget by 25 per cent, the personnel separations to take place as soon as possible, but the spending reductions to be spread over a six-month period to allow for the payment of generous separation allowances. The terms should include provision for inflation readjustment to give the public confidence in the government’s determination to end inflation. Ella aparece, por cierto en inglés, en el libro de memorias de Milton y Rose Friedman titulado "Two Lucky People" (The University of Chicago Press, 1998). In Sao Paulo, the public was assured these cruel measures would ultimately benefit the average Brazilian. Milton Friedman, CIA Propaganda Commentary: Our National Character, CIA Propaganda Commentary: Mossadeq’s Spy Service, Instances of Use of U.S. Socialist bullshit and you know it, a weak apology for Allende`s terrorism and crimes. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman’s trainees, the Chicago Boys. University of Montana metals expert Dr. Janet Finn notes, ‘Its absurd to describe a nation as a miracle of free enterprise when the engine of the economy remains in government hands.’ Copper has provided 30% to 70% of the nation’s export earnings. 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. This problem is not of recent origin. This inflation tax does enormous harm by inducing people to devote great effrot to hold down their cash. The 1980 constitution was largely written by Pinochet advisor Jaime Guzmán and enshrined into law the neoliberal ideas of American economist Milton Friedman and his team of “Chicago Boy” economists who dictated the country’s economic policy for decades, leading to a volatile society and rapidly increasing wealth inequality. In the US, President Ronald Reagan’s State Department issued a report concluding, ‘Chile is a casebook study in sound economic management.’ Milton Friedman himself coined the phrase, ‘The Miracle of Chile.’ Friedman’s sidekick, economist Art Laffer, preened that Pinochet’s Chile was, ‘a showcase of what supply-side economics can do.’. In Chile’s situation the only way to reduce the rate of increase in the quantity of money is to reduce the fiscal deficit. The free- market experiment was kaput, the test tubes shattered. 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. union demolition) and deficit reduction through savage cuts in government services and social security. If this shock approach were adopted, I believe that it should be announced publicly in great detail, to take effect at a very close date. That law causes unemployment. In 1998, the international finance Gang of Four – the World Bank, the IMF, the Inter-American Development Bank and the International Bank for Settlements – offered a $41.5 billion line of credit to Brazil. (As economic recovery occurs, the desired quantity of money in real terms, i.e., the quantity consistent with stable prices, will rise, but this increase should serve as the base for the expansion of a private capital market rather than be used to finance government spending.) Private enterprise is entitled to receive the rewards of success only if it also bears the penalties of failure. It is desirable first to cut across the board, then redirect the lower total.) The General expropriated at will, offering little or no compensation. The source of inflation in Chile is crystal clear: government spending is roughly 40 percent of the national income; roughly one-quarter of this spending is not matched by explicit taxes; it must therefore be financed by creating new money, with is to say, by the hidden tax of inflation. It arises for trends toward socialism that started forty years ago, and reached their logical--and terrible--climax in the Allende regime. Pinochet let the good times roll for the speculators. He was a brutal dictator, period. With the death of Milton Friedman a couple of weeks ago and the overdue death of Augusto Pinochet somewhat appropriately on International Human Rights Day last Sunday, the debate over Friedman’s and Pinochet’s economic policies in Chile during the 1970s and 1980s has been a prominent topic this week. Herewith the sample proposal: Unsealed Documents Show Pinochet 'Directly' Involved in Capitol Hill Assassinations ... the most difficult question to be resolved will be "Did Milton Friedman or Adolf Hitler cause more senseless and unnecessary death and human suffering? The more fully the public is informed, the more will its reactions facilitate the adjustment. I should be curious to hear from knowledgeable, non-anonymous readers about whether this analysis of the economic trajectory in Chile is sound. You also failed to mention that the chilean GDP doubled in under 10 years thanks to the free market reforms of Buchi. 5. But before the agencies handed the drowning nation a life preserver, they demanded Brazil commit to swallow the economic medicine that nearly killed Chile. Could you briefly explain? In principle, the fiscal deficit can be reduced by cutting government spending, by raising taxes, or by borrowing at home or abroad. in terms of total spending, which is a multiple of income, the money in Chile amounts to only about three days’ spending, which forces hand-to-mouth operation on the business system and strangles the capital market. ), and the torture of thousands more. By itself, this measure accomplishes nothing substantive; but does have a valuable psychological role. The discharge of present government employees will not reduce output but simply eliminate waste--their discharge will not mean the production of one fewer pair of shoes, or one fewer loaf of bread. May I first say how grateful my wife and I are for the warm hospitality that was showered on us by so many Chileans during our brief visit. By 1990, the year ‘President’ Pinochet left office, the number of destitute had doubled to 40%. I know that your administration has already taken important steps and plans further ones to reduce trade barriers and to liberalize trade, and that as a result Chile’s true competitive advantage is better reflected in its trade today than for decades past. The inflation tax which is currently called on to raise an amount equal to 10 percent of the national income is therefore extremely heavy--a tax rate of 300 to 400 per cent (i.e., the rate of inflation)--levied on a narrow tax base--3 to 4 per cent of the national income (i.e., the value of the quantity of money in Chile in the form of currency and demand deposits). Friedman, Pinochet and Chile Lewis Brown, Digital Communications Manager at the CPS, writes on Professor Niall Ferguson's response to a tricky question about the involvement of economist Milton Friedman in General Pinochet's Chile at the ' Friedman at 100 ' event held this week. Friedman himself visited Chile and met with Pinochet in 1975, where he praised the economic measures taken by the Chicago Boys and Pinochet’s government. The removal of as many obstacles as possible that now hinder the private market. A cut in the fiscal deficit is the indispensable prerequisite for ending inflation. The play, performed to commemorate the 40th anniversary of the Chilean coup, dramatizes a historic meeting between Milton Friedman and the dictator Augusto Pinochet. Every businessman believes in free enterprise for everyone else, but for special favors for himself. Milton Friedman did not support Pinochet. As usual, comments may take awhile to appear, so please post only once. 7. Posted by Brian Leiter on December 14, 2006 at 09:17 AM in Of Cultural Interest | Permalink, You’ve missed the crucial ingredient for all of this change to take place – torture and repression – take a look at the recent book by Naomi Klein – The Shock Doctrine. The bank’s reserves filled with hollow securities from connected enterprises. He was persuaded that Governments should not hinder the logic of the market. Excmo Sr. Augusto Pinochet Ugarte Real wages declined by 40% under military rule. Dont keep only with what jokes like Klein tell you, go search in the history books and the newspapers. To save the nation’s pension system, Pinochet nationalized banks and industry on a scale unimagined by Communist Allende. In practice, cutting government spending is by far and away the most desirable way to reduce fiscal deficit because it simultaneously contributes to strengthening the private sector and thereby laying the foundation for healthy economic growth. (Remove obstacles, but do not substitute subsidies. Except for borrowing abroad, the other three methods will have the same temporary effects on employment, though affecting different people--cutting government spending will initially affect government employees; raising taxes will initially affect persons employed by taxpayers; raising borrowing will initially affect persons employed by the lenders of the persons who would otherwise have borrowed the funds. The Chileans we met were all aware of the serious problems your country faces; all realized that the immedaite future was going to be difficult; but all displayed a determination to surmount those difficulites and a dedication to work for a happier future. There is no way to end the inflation that will not involve a temporary transitional period of severe difficulty, including unemployment. Quite a miracle. Milton Friedman Professor Emeritus, University of Chicago. In addition, the most important step is to free international trade so as to provide effective competition to Chilean enterprises and to promote the expansion of both exports and imports. (Leiter), http://leiterreports.typepad.com/blog/2006/12/did_pinochet_fo_1.html. According to Stephens, the radical free-market policies prescribed to Chilean dictator Augusto Pinochet by Milton Friedman and his infamous "Chicago Boys" are the reason Chile is a … If Chile now takes the right track, I believe it can achieve another economic miracle, that it can take off into sustained economic growth that will provide a widely shared prosperity. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did. In other words, Chile was pulled from depression by dull old Keynesian remedies, all Franklin Roosevelt, zero Reagan/Thatcher. Personally, I believe Chile would be well advised to move toward liberalization of trade more rapidly and to a far greater extent than has so far been proposed. 1. According to Professor Arturo Vasquez of Georgetown University, Washington DC, Allende’s land reform, the break-up of feudal estates (which Pinochet could not fully reverse), created a new class of productive tiller-owners, along with corporate and cooperative operators, who now bring in a stream of export earnings to rival copper.
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