THE MYTHS PERSIST AFTER FIFTY YEARS.

September 11 was a major day for Chileans back in 1973, when the military ended yet another example of This Time We're Going To Get Socialism Right.  It didn't work, but Chileans seem bent on one more try.  This time, it's lithium that's going to be the key, rather than copper, and there have been developments since that post that maybe I'll return to anon.

In Common Dreams, free-agent (as far as I can tell from the short biography) economist Thomas Palley engages several of the popular myths about what went wrong.  I commend the essay in part because of the source: it isn't the usual sort of blame-America-first that site likes to run.

The “Pinochet economic miracle” narrative is profoundly misleading. Worse yet, it is a political menace for two reasons. First, it risks tacitly promoting the notion that dictatorship may be legitimate to the extent it offers a road to prosperity. Second, the Pinochet regime embraced Neoliberalism which promotes anti-democratic tendencies by fracturing society. The claim of a Pinochet economic miracle lends support to Neoliberalism, thereby encouraging acceptance of Neoliberalism despite its anti-democratic proclivities.

For those reasons, debate over Pinochet’s economic policy remains of vital importance. The 50th anniversary of Pinochet’s coup is an opportunity to challenge the pernicious miracle myth which is increasingly part of the conventional wisdom.

Sometimes, writers from a left perspective and libertarian writers can find areas of agreement.  Whether your embrace of dictatorship is of a piece with Thomas Friedman's China envy, or whether it's the self-styled progressives and their embrace of executive orders or legislative abdication to rule-makers, either way it's counter to basic notions of popular sovereignty, as well as a bet against emergence that is likely to fail.  The "Neoliberalism" part, though, less so.  I was around for that coup, and at the time The Washington Monthly was attempting to sell "neoliberalism" as pragmatic policy making, in opposition to the tangle of process that the Nanny State was becoming at the time.  (I have seen little over the past fifty years to make me think that "Washington" and "pragmatic" ever belong anywhere near each other in a thought.)

It's possible that policy makers in Washington saw Chilean socialism as having sufficient promise to require extreme measures.  Let the record show, though, that "economic calculation" didn't have the purchase in economics departments or policy shops then that it now does.

Tackling the Pinochet myth is difficult. First, advocates of Neoliberalism seek to turn the debate into one about the socialist policies of President Salvador Allende, thereby changing topic. Second, economies are complex, so that a true measure of the Pinochet effect requires subtracting gains from other sources.

By way of beginning, it is worth noting that President Allende’s economic program was subject to extraordinary economic sabotage sponsored by Chile’s elites and the US. The 1972 Chilean trucker strike was assisted by the CIA, paralyzed the economy, and caused inflation to soar. U.S. multinational corporations went on an investment strike (with U.S. government approval), and there was also a stop on buying Chilean copper which crushed Chile’s foreign exchange earnings. Allende’s government was beset by internal disorder and its program might have failed anyway. However, it is doubtful any developing economy could succeed in the face of such a concerted economic assault.

In those days, there were no social media influencers to suggest that the middle-class homemakers banging their empty cooking pots were "astroturfed" protesters.  That the United States might have encouraged "buy American" provisions for copper (there were large mines in Utah and Montana, and legacy producers in Michigan) and that might have had an effect, but irrespective of the country's economic model, a resource-based export economy is going to have problems.

In the 1990s other factors kicked in. Chile is one of the world’s leading copper exporters, and the last 25 years have been a boom period for copper. Additionally, Chile is a major exporter of lithium, which has become another boom commodity over the past decade. The implication is much of Chile’s macroeconomic success is due to its unique resource endowment which matched the times, rather than Pinochet’s turn to Neoliberalism.

That said, there was a macroeconomic gain from the Chicago Boys’ policies which transformed Chile into the posterchild of Neoliberalism. That gain came from making Chile a haven for international capital and then inserting Neoliberalized Chile into the emerging Neoliberal globalized economy in the 1990s. However, the macroeconomic gain came at the cost of a suppressed wage share and a high capital share, so that Chile had the highest income inequality in the OECD in the late 2000s.

Since 2010, there has been some reduction in inequality. However, it can be reasonably argued that improvement is because of Chile’s natural resource base and and not because the economic model is good. That explains the apparent paradox whereby ordinary Chileans have vigorously protested the model despite its surface macroeconomic success.

Whether Chileans have figured out how to work around the challenges of the resource curse remains to be seen.  Whether the copper and the lithium will sustain a Chilean welfare state is also to be seen.