Can Chile Reform the Neoliberal Model?

Reader Timotheus wrote:

I attach an article that I thought might be of interest to NC readers. It is not particularly unique in its analysis, but Chile (where I lived for many years) is often a social laboratory that gives us an advance view of what is coming down the road. We know that Thatcher (1979) and Reagan (1981) were inspired by Pinochet (1973)–just sayin’. I thought this would be a good corrective to the usual line on Chile, i.e., that everything is just marvy there and the rest of Latin America should imitate them. The context is that the university students (over-borrowed, under-employed) have been in the streets in open revolt for three years, and Bachelet said in her inauguration that she wants free university education. There are also big problems with pensions, wages and regressive taxes.

It’s my translation, and I tinkered with the original here and there for comprehension, but nothing major.

By José Miguel Ahumada and Hassan Akram, economists and researchers at the Chile 21 Foundation. Akram is the author of La Casa que Construyó Hayek: La Historia del Modelo Económico Neoliberal en Chile (The House that Hayek Built: History of the Neoliberal Economic Model in Chile, Ediciones UDP, 2014). Originally published at El Mostrador

No one now denies that Chile has changed. The student mobilization of 2011 unleashed a wave of social unrest. We see a challenge both to the political consensus that has dominated Chile since the transition [from Pinochet] as well as to the institutional framework that has sustained it. The students’ slogan, “We are the generation that’s not afraid!” spread throughout Chilean society and began to undermine the authoritarian structures by which neoliberal ideology has hung on despite the end of the dictatorship.

The future government of Michelle Bachelet promises to reform the neoliberal model. At least that’s what her allies in the New Majority think (especially the CP [communists] but also the progressives of the PS, DC and PRSD [socialists, Christian democrats and radicals—parties of the center-left government coalition]). The 17.41% of voters who opted for left-wing candidates in the first round and then supported Bachelet in the second round probably also believe it. She already has said that she wants to address the country’s appalling inequality that enables some Chileans to enjoy the income level of Norway and others that of Angola. But the big mystery is whether she will put together a program that can solve the problem.

The demands are many: a new constitution, tax reform, a new Labor Code, free education and a revamped retirement system. But the strategy emanating from her New Majority coalition is one of caution. The policy teams, coordinated by Alberto Arenas, have tried to foist their “moderate” vision on us so as to make sure the changes entail the least possible political cost. The problem for the Bachelet team is that it will have to please very diverse groups, from the radicalized university students to the Chamber of Commerce.

The False Security of Moderation

To succeed in this acrobatic game, the Bachelet team is doing a cold-eyed cost-benefit analysis. The costs are the popular demands, policies to reduce inequalities and maintain social peace. The benefits are economic dynamism and growth. The political team’s calculus has to tell them how much cost to sustain in terms of redistributive policies to assure governability and not put the country’s precious high growth rate at risk. According to this vision, if the government gives too much in redistributive terms, it will undermine business confidence and weaken investment.

Pragmatists within the New Majority think that their moderate approach will protect Michelle Bachelet. They think that by reducing the depth of the changes, they will assure macroeconomic stability and therefore the long-term stability and sustainability of her reforms. However, the international situation is telling us precisely the contrary: it is not radicalism but moderation that will make social reforms unsustainable.

Today, the countries that had slightly left-leaning governments during the 1990s and 2000s are in pretty bad shape. Most European countries are suffering from high unemployment and stagnation. (The U.S. is experiencing similar conditions although less drastically). Fiscal austerity imposed after the global financial crisis is destroying the [European] welfare state and increasing inequality and poverty on a continent that was famous for its social pact. However, the collapse of the egalitarian social transformations of Old Europe is not the result of an irresponsible radicalism via high levels of state spending and redistributive policies. Instead, Europe shows us that it was the moderation of the “Third Way” response to the neoliberal legacy that caused the crisis and undermined reform.

In the case of the U.K., the supposedly left-leaning government of Tony Blair made great efforts to cozy up to the financial sector and never revoked the deregulation installed during the Thatcher years. This “pragmatic” moderation planted the time bomb that exploded with the banking crisis. In France it was the Socalist Party itself under François Mitterrand that, in pursuit of “moderation”, promoted financial deregulation that led to the destruction of the social model. Something similar happened in the U.S. where the domination of Wall Street interests and the financial sector during the Clinton presidency brought about the dismantling of the New Deal regulatory structure (most famously the Glass-Stegall Act), which aided in the creation of the financial bubble that continues to weaken the global economy. In all these cases moderation in facing the neoliberal model did not promote but rather destroyed the desired economic stability.

Even worse, another result of this moderation is that today the European electorates blame the left parties (that were in government when the crisis blew up) for their economic problems even though these problems are the result of neoliberal deregulation. Similarly, in the U.S. there is a lot of discontent with the Democratic Party because its closeness with the finance sector blocks Keynesian policies that (as Paul Krugman explains) would end the crisis. In this context of a weakened left (caused by its moderation and association with neoliberal approaches), the right has been able to promote its discourse about how irresponsible government spending caused the crisis.

There is now a fiscal crisis because states have had to rescue deregulated banks, but the blame, according to the now hegemonic discourse, is due to the welfare state, not lack of regulation. No matter that Spain, the country most often accused of fiscal irresponsibility, had a surplus before the bank rescue—the facts are irrelevant. Thus moderation by the left not only permitted the deregulation crisis but also strengthened the neoliberal discourse through its negligence.

Could something similar happen in Chile?

The Economic Crisis and the Tax and Education Reforms

“What if the copper bonanza is transitory?” asks Cambridge economist José Gabriel Palma. Despite the export boom and the high price of copper, Chile today is starting to experience a current account deficit of 4% of GDP. Palma has called this situation the “Trojan horse” that [outgoing president Sebastián] Piñera is leaving for Bachelet. The export boom depends mostly on speculation in copper prices and the radical increase of imports concentrated mostly in consumer goods, which have more than quadrupled since 2003, instead of capital goods that could boost national production. So we have a boom without building the material basis that could sustain it Asian-style. Financial speculation and unproductive imports have generated the current account deficit, which lays the groundwork for a future crisis. Don’t we remember the pre-crisis conditions of 1982: the financialization of the entire economy, unproductive imports, a current account deficit along with a climate of euphoria and optimism?

As we have seen, those who construct the crisis are almost never those who end up paying for it. The dangerous present economic scenario in Chile is the result of almost four decades of neoliberal policies, but if the bubble bursts in the next few years, it will be the New Majority that will have to come up with answers to exit from the crisis while dealing with the right attacking the reformist program of Bachelet for causing it.

The economic impact of a crisis can lead to a consolidation of the regime and block progressive reforms despite the defeat of the hegemonic [neoliberal] model. Even worse, the crisis could not only impede reforms but also paradoxically strengthen the model politically.

It would be the perfect opportunity for the right to rearm itself politically. Only think of what they will say: “Piñera left office with a GDP per capita of almost US$20,000 and 6% growth anchored in a stable, orderly structural framework while the current government, because of its failed policies (constitutional change, educational and tax reforms), has generated institutional instability that has worsened the crisis.”

What to Do?

Progressive social policies are only sustainable over time with an economic regime that includes industrialization rather than the precarious and short-term approach of today. There’s a reason why development literature speaks of the need to link the welfare state with a development state. In Chile, social policy must be accompanied by an industrial policy.

Today we have the chance to begin down this road. Recovering copper production is a key objective if we are talking about a transformation in production. Together with a strong tax reform, earnings from copper will make it possible not only to implement solid social reforms but also for to elaborate new projects for a productive transformation that can bring new comparative advantages beyond the static current situation based on natural resources. The state, just as in the U.S. and Asia, has played an essential role in innovating business investment in new sectors. A strong state with a determined political bloc behind it and the necessary resources can open up new and dynamic comparative advantages.

We’re not talking just about increasing the state’s mining royalties. We need a state that isn’t afraid of utilizing its own tools. It should activate commercial and tariff policies that can temporariliy protect new sectors, and the political base for doing this is beginning to form. Let’s learn from what the developed countries themselves have done, not what they say we should do.

Only a state with access to important resources, without fear of its own capacities and instruments, and with the political will to create new dynamic sectors can generate a productive scenario that can “protect” the Chilean economy from speculation and dependence and construct the material basis for a welfare state.

The New Majority can only carry out its social reforms in a sustained way if it extends its policies to the productive sector. It has to be capable of linking social development with economic development and have the will to recognize that in the current economic scenario, radicalizing its policies by intervening in the arenas where economic power is concentrated, is a necessary condition to keep its reforms alive. The only way to stand still is to move forward.

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  1. psychohistorian

    I wish Chile lots of luck. I say luck because linking social development to economic development is not going to be easy in our current world.

    Chile can more easily define the social development they need then they can execute economic development that will insure their success within the world economy as currently instantiated.

    I believe we have a world wide problem that will take world wide effort to change. If that change is not forthcoming, Chile will be punished for its humanistic efforts by the social sickness that envelops the rest of the class based world ruled by plutocrats. It will only be a matter of time.

    1. Dirk77

      If you have an example of a “world wide effort” that actually came to pass, I’d like to hear about it. Barring that, I like Chile’s would-be-reformers thinking about strategy. The country to succeed just needs to be that last one standing really.

  2. Ruben

    Just one point to make to a generally good article on Chile’s prospects for development.

    It is about Spain having a surplus before the bank rescue. This is apparently right but factually wrong. The debt that the Spanish State took to rescue the financial sector was allocated to the former ‘cajas’ (such as Bankia) as those ‘cajas’ were financial institutions controlled by political party operatives and served the needs of politicians in gov’t as well as construction businessmen linked to those politicians. So what passed as private debt before the bank rescue was in fact public debt, debt incurred by the ‘cajas’ to serve the needs of politicians and their projects, ostensibly projects for the public good.

  3. D. Mathews

    I think this is the money quote: “elaborate new projects for a productive transformation that can bring new comparative advantages beyond the static current situation based on natural resources.” It is an old recipe that has yet to be implemented on the southern american continent. In that sense, Chile’s dependence on copper reflects the wider Latin American dependency on commodities which has been reinforced by China’s demand. On the issue of neoliberalism, Brazil experienced a degree of success with its neoliberal policies. The surplus, however, which was generated by the sale of government corporations and other entities was invested in the fight against poverty, to the credit of Lula’s administration.

  4. Marco Craveiro

    Hi guys,

    Does anyone know where one can buy the book mentioned above from the UK? La Casa que Construyó Hayek: La Historia del Modelo Económico Neoliberal en Chile. Ideally in Spanish. Did a couple of quick Googles but nothing obvious came up – any tips are greatly appreciated.



    1. timotheus

      The book is not yet published, but will be issued by Ediciones UDP (Universidad Diego Portales).

  5. Jim Haygood

    ‘The dangerous present economic scenario in Chile is the result of almost four decades of neoliberal policies.

    Dangerous? Perhaps, since copper prices remain elevated and their inevitable drop is going to cause pain in Chile.

    But ‘four decades of neoliberal policies’ have brought Chile the highest bond rating in Latin America and membership in the OECD developed countries club. Unlike next-door Argentina, which looted private pensions a few years ago, Chile’s private pensions replace 87% of salaries.

    Sure, there’s a downside to Chile. Its culture is Catholic conservative, which may not suit everyone’s tastes. Chile isn’t going to legalize cannabis anytime soon, as Uruguay just did. But its economic achievements are the standout success story of LatAm.

    U.S. seniors surviving on Soc Sec’s niggardly payouts can only dream of being Chilean:

    ‘Chile’s private pensions over three decades have yielded returns six times higher than what workers got under Chile’s old social security system — which, by the way, was similar to ours. Returns on Social Security in the U.S. for those currently retiring are zero.’

    1. D. Mathews

      I guess one could argue that Chile shares a healthcare debacle with the US:
      Chile’s demographic transition is similar to other relatively wealthy nations, with low fertility rates and decreasing yearly mortality rates. However, Chile is extremely high in economic inequality, and lacks systematic approaches to the health and social needs of older adults. Much of this is due to the legacy of the dictatorship of Augusto Pinochet. This military dictatorship, which took power in a violent coup in 1973 and ruled until 1990, dissembled the existing National Health Service in favor of an unregulated health market that allowed extreme health inequalities.

      1. Gonzalo Lira

        You quoted a piece that said in part, “[the Chilean healthcare system] lacks systematic approaches to the health and social needs of older adults. Much of this is due to the legacy of the dictatorship of Augusto Pinochet. This military dictatorship, which took power in a violent coup in 1973 and ruled until 1990, dissembled the existing National Health Service in favor of an unregulated health market that allowed extreme health inequalities.”

        This is flat-out not true. In fact, it is almost the complete opposite of the truth.

        I live in Chile. FONASA, the Fondo Nacional de Salud, is the single payer fund that guarantees universal health care in Chile, including (as if it should need mentioning) to the elderly.

        FONASA was created by the dictatorship in 1979 precisely because the previous system did not cover the elderly completely. The previous system created conditions whereby the elderly could go bankrupt from end-of-life medical care—sound familiar?

        FONASA is a mandatory 7% of all salaries, and it covers 100% of medical expenses at all state hospitals, and fluctuating percentages at private hospitals, excepting life-threatening emergency care at private hospitals, which is covered 100%.

        In addition, apart from FONASA, there is the ISAPRE system, which is the private but highly-regulated insurance system. If you buy an ISAPRE health-insurance plan, you can go to the private hospital of your choice. Depending on the type of plan you purchase is your deductible and copay. For my family of four, we pay $3,600 a year, and have 90% coverage for hospital stay, 100% for emergencies, 60% for everything else; to put it in perspective, under our plan, having a baby by c-section, staying five nights in a large private suite, with all the trimmings, cost us $1,800 out-of-pocket.

        But if you have no insurance of any sort save the state system, FONASA covers 100% of your healthcare costs.

        It should be noted too that all doctors have to work a set number of hours at a state hospital, so there is no difference in care between state and private hospitals, only differences in the cosmetics—nicer rooms that are private, more efficient admin, less waiting. However, mortality rates across all demographics are identical between private and state hospitals, proving their is no substantive difference.

        Pinochet implemented a very good healthcare system. The fact that he was a dictator—which he was—shouldn’t be the excuse to warp the truth.


          1. Gonzalo Lira

            Ad hominem attacks don’t change the truth.

            I am neither in favor or against Pinochet—I am in favor of accuracy, and against inaccuracies.

            It would be nice if all the good and useful things in this world were created by morally spotless men and women. But that is unfortunately not the case.

            And by the way, if the Chilean health care system were in such dire straights because of Pinochet—whose dictatorship ended 24 years ago, and who was succeeded by several Christian Democrat and Socialist presidents, including Michelle Bachelet, who is a doctor—then why hasn’t it been fixed during all these years?

            Maybe because . . . it was not broken as D. Matthews claims it was?

            Just a thought.


            1. Me

              Wonderful logic there. I guess the same is true about our health care system then. We haven’t fixed the horribly inefficient health care system we have, so obviously nothing is fundamentally wrong. Same goes with education in Chile, yes? The recent protests had strong support from a large percentage of the public. A very large percentage of the public wants the state to handle pensions too. Getting there is complex and difficult though, which is really why nothing has changed.

        1. Ruben

          Gonzalo, but the FONASA single-payer public option seems to be underfunded, judging from the frequent strikes and protests by workers of public hospitals that I saw when I lived in your country some years back. The banners read “better funding for the public hospitals” and things like that.

          Also, the differences between the public and the private systems seemed to me more than cosmetics. You should quote references for your assertions about similar quantitative results between the two systems, your word is not enough I’m afraid.

          I actually know that a large fraction of the lower end of the income distribution would move from the private insurance system to the public option if the public option were properly funded, which looks like a very good reason why the public option is underfunded.

          Finally, the mouth-dropping margins of profit that health insurance companies are making is hard to reconcile with, as you say, “a highly-regulated” insurance system, unless it is highly regulated to make them superbly profitable.

          Sorry, a final note. Physicians are another factor in the equation of the private system. They have incentives to charge unnecessary procedures on the unlucky patient. so in the end it looks like both the private insurance system and the physicians are preying upon the unlucky.

          But maybe you are right and the rosy picture you paint is accurate.

    2. timotheus

      Very curious that you find Chile’s AFP (privatized pension) system such a success on the same day El Mercurio (the slavishly pro-Pinochet daily) carries a long interview with one AFP president recognizing that the system is deeply discredited and does not provide a livable income for the lowest strata of earners. This is hardly surprising given that it is based on savings built up over a lifetime and is directly tied to income. With an absurdly skewed income distribution, individualized accounts managed by the financiers lock in current class structures. President Bachelet just called the pensions that the system pays to the poorest “insulting”, and the interview notes that the AFPs continue to earn succulent profits (from which they pay succulent salaries to themselves) even when people’s individualized accounts show a net loss. Ask the average Chilean whether they would prefer a Social Security-style guaranteed payment system or a continuation of the AFPs. The wealthy will say the current system is great, but average earners hate it when they realize that after a lifetime of work, they get peanuts for their old age.

      1. Jim Haygood

        U.S. Social Security incorporates an income redistribution component, such that low earners receive a subsidy from high earners.

        A redistribution component, or a minimum guaranteed pension, could (and arguably should) be incorporated into the Chilean AFP system.

        If their AFP plan incorporates an equity component, Chilean average earners will receive higher payouts than if their payouts were tied solely to the returns on government bonds, as in the antiquated U.S. scheme designed in 1935. Politically frozen in time (except for tax increases), Soc Sec has never been updated to reflect advances in portfolio theory in the 1950s and 1960s confirming that stocks earn higher (but riskier) returns than bonds.

        Owing to feeble investment earnings, current U.S. workers will receive almost no return on their lifetime of FICA ‘contributions,’ though low earners may eek out a small return owing to their implicit subsidy. Share the cat food, comrade!

        1. afisher

          The same one note neoliberalism is your answer – which sounds really good on paper – it just sucks in reality. Remember that the current neo-liberal system that was spun by the Chicago Boys in Chile is exactly what the neo-liberals in DC want for the USA. It only takes a single question: if one is a low income wage earner who has been siloed into physical labor with no higher education and then told to make informed stock market decisions and expect success – is just bs to expect them to succeed. The neo-liberal free-marketers response – it is the low income, poorly educated folks own fault for making uniformed decisions – logic need not apply when talking points are the speciality -blame the victim.

            1. Ben Johannson

              If this is such a bad idea, why does every pension fund (other than Soc Sec) have an equity allocation? Has Calpers (which has an astonishing two-thirds of its assets in equities) been hijacked by evil neolibtards?

              Roosevelt was well aware conservatives like yourself would scream for Social Security’s dismantlement if it ever took a loss, a standard to which you seem not to hold CalPERS which took a $100 billion loss in 2009 thanks to its heavy weighting toward equities.

              I notice also you’ve neglected to mention equity-dominated 401K’s, which have been an utter disaster for retiring Americans.

            2. Calgacus

              Soc Sec has never been updated to reflect advances in portfolio theory in the 1950s and 1960s Thank God, These are irrelevant to governments. The 50s, 60s &70s were decades of degeneration of economic understanding in academia, and worse, outside it.
              If this is such a bad idea, why does every pension fund (other than Soc Sec) have an equity allocation? That’s like saying in ancient Rome, if slavery is such a bad idea, why are most people slaves and not emperors? SS is a government program: it is an emperor. Other pension funds are slaves. The US government doesn’t need to, and fundamentally, can’t get its money from anyone else.
              This degeneration of economics from the days when SS was designed and administered by smart Keynesian & Institutionalist economists, massive propaganda & political betrayal led to baby boomers grossly overpaying SS taxes for decades to build up a totally unnecessary giant trust fund, instead of keeping the “pay as you go” system that could have worked forever.

        2. F. Beard

          Soc Sec has never been updated to reflect advances in portfolio theory in the 1950s and 1960s confirming that stocks earn higher (but riskier) returns than bonds. Jim Haygood

          The nerve! You want government to SUBSIDIZE the stock market? That’s fascism*, friend.

          The monetary sovereign is the IDEAL provider of Social Security, not the uncertain, cyclical stock market.

          “Here a scam,
          there a scam,
          everywhere a scam-scam.

          Ole Jim Haygood
          has a scam
          and it’s
          centuries old”

          *Government for the rich and special interests.

    3. Ruben

      Jim, it’s too early to call the salary-confiscation pension scheme in Chile a success because nobody of those that were forced to adopt to AFP system has retired having spent their entire working life under the system. Even if it does provide better pensions than a common pool system it bugs the free spirit that the system violates the principle of private property under which every free market economy is supposed to work. Other pension schemes also confiscate but the worker, the community, and the employer all contribute to the pool whereas in the Chilean neoliberal scheme the worker is the sole victim of the confiscation.

      1. Jim Haygood

        ‘nobody of those that were forced to adopt to AFP system has retired having spent their entire working life under the system.’

        Under this demanding criterion, which you just now made up, nobody could form any opinion about Social Security until 1975 or so, forty years after it began.

        In practice, using the accrual accounting stipulated in the ERISA Act of 1974, one can easily monitor pension earnings and funding status for current workers.

        Our own SSA enviously admits that ‘a [Chilean] worker with average earnings who has contributed regularly since 1981 has earned an average 6.8 percent gross annual real rate of return over the last 10 years (Marcel Commission 2006).’

        How much are SSA beneficiaries earning? One can approximate SSA’s earnings using the total return of 5-year T-notes, which was slightly negative in 2013. By contrast, if SSA had held an equal mix of stocks and T-notes in 2013, it would have earned 14 percent! And the trust fund’s meltdown might have been postponed by a couple of years …

        1. Ruben

          The problem is that the there are risks in the portfolio that AFPs use to play with the fractions of salaries that they confiscate with support of the law by the State. So any possible earnings so far gotten may revert into losses later on, that’s why it is necessary to wait until people start to retire having lived fully under the system. Fantastic financial schemes may look good until they don’t, don’t you think we have ample proof of that?

          You seem to be a freedom-loving commentator, so what do you make of the fact that workers are forced to transfer a fraction of the salaries to these private pension companies? Why are workers not given the chance to keep their property and save for the future as they see fit?

          1. hunkerdown

            Private property is a social consensus, not a suicide pact, not a physical phenomenon, and certainly not revealed wisdom no matter how much play they got in Moses’ Rules of Acquisition. If the community as a whole chooses not to honor or enforce them, claims of proprietary exclusion are no different than any other two-year-old’s petulant whining.

            1. Ruben

              I understand your communist point of view but Chile is supposed to be neoliberal, Chileans have private property enshrined in their constitution.

    4. Me

      The conservative, right wing, president of Chile Sebastián Piñera admitted when he ran against Bachelet the first time that about 40% of the public has nothing for retirement. Nothing. He wanted to expand the state’s roll in the pension system. About half of those that do don’t have enough to survive on. A poll by Latinobarrometro (a non partisan and well respected Chilean polling firm) a few years ago found that about 80% of the people wanted the state to handle pensions. 80% Jim. Why would 80% of those polled want the state to handle pensions if the system worked so well? Why would Sebastián Piñera say what he said if the system ran so well? The answer is it doesn’t run well and the people there want something much closer to our public pension system.

      1. Jim Haygood

        The U.S. SSA’s post on Chile’s system includes this:

        ‘Even though the Chilean government has provided a guaranteed minimum pension (MPG) to account holders aged 65 or older (men) and aged 60 or older (women) with 20 years of contributions, a large percentage of current workers would not have been eligible for this guarantee.’

        In the U.S., it takes 40 quarters (10 years) of contributions to qualify for SocSec benefit. Chile’s 20-year threshold is twice as long, and fails to cover many workers in the informal sector.

        The U.S. system does a better job than Chile’s in providing universal coverage. But unlike Chile’s fully-funded AFP system, SocSec is insolvent. Its trust fund is expected to decline to one year’s worth of benefits in 2026, at which point benefits must be cut by 25%.

        As Janis Joplin used to urge, ‘Get it while you can!

  6. Reify

    Chile’s private pensions over three decades have yielded returns six times higher than what workers got under Chile’s old social security system — which, by the way, was similar to ours. Returns on Social Security in the U.S. for those currently retiring are zero.’
    And as I understand it, the company which has had a near monopoly in administering Chile’s
    Pension funds has been substantially sold (51%) to a US insurance company, Met Life.
    More rent extraction.

      1. Jim Haygood

        Selectively quote much? Here’s the omitted preface:

        ‘[With] Social Security benefit worth $1,750 a month at full retirement age. Assuming annual cost-of-living adjustments of 2% a year and a life expectancy of 90 …’

        According to the SSA, the average Social Security benefit is $1,269, not $1,750. According to the CDC, the average conditional life expectancy at age 65 is 83.5 years, not 90 years.

        So the actuarial values cited are wildly exaggerated by using a benefit that’s 38% too high, amplified by a life expectancy that’s 35% too long. Why should FDL use real numbers, when they can just make up better ones?

        Secondly, corrected present values must be compared to the present value of contributions to determine the rate of return. That’s the point Reify was making, and it’s not addressed in the FDL post.

        1. Yves Smith Post author

          Your issue is comparison to private pensions, ie., for workers. Social Security, in case you missed it, also includes payments for wives of workers (as in never worked, like my mother, and she gets SS even though her husband died, albeit at a lower rate. The SS payments show separate amounts for each partner, after one dies, the survivor gets to pick which one continues).

          So the comparison to someone retiring with full benefits (a worker, not a supported spouse) is apples to apples.

          As for 90, the life expectancy of someone who is now 70 is 86, and someone who is now 65 is 85, per the SSA:

          Life expectancies are rising, albeit modestly. Dean Baker projected that average lifespans at retirement would increase 3 years over the coming decades. More important, there is already considerable disparity among retirees based on income levels. This paper includes a chart that showed that in 1975, the life expectancy at average retirement age for the top half of earners was over 24, years, which gets you to 90. And as indicated life expectancy has risen since then. So 90 is hardly unreasonable, given the comparison to private pensions, which by nature are restricted to workers with middle to upper incomes (they are a pathetic joke for low wage workers).

      2. Reify

        Apologies for my previous incoherent post, part of which was a quote. The more I delve into this, the more I feel I have to learn. I’ll study up. Pensions reforms started under Pinochet, influenced by the Chicago Boys, got a tweak in 2008, now allow derivatives as investments.

  7. Eureka Springs

    Neoliberal reform? Is that like, parasite reform, Cancer reform, war crimes/ torture reform, sociopathic reform, looting reform?

  8. FederalismForever

    It’s amazing how Chile’s problems are still blamed on Pinochet, even though he has been out of power now for over twenty years. The Left still loves to lionize Allende, even though he was elected with only 36% of the vote and even though his policies had resulted in the country being at risk of a severe famine just before he died (mass famines being a common feature of the command economies Allende championed).

    There is a lot of propaganda on both sides. Paul Craig Roberts offers a pro-Pinochet view:

    1. susan the other

      Well that was a surprise. PCR is so against Bush (W) that he makes Pinochet sound like a true statesman. Written in 2010 even. Truth be told neither “leader” knew what they were doing. If Allende was colluding with the dreaded communists to overthrow a quasi capitalist government and then he himself was overthrown in 1973 it was because the most ruthless party won. The consensus on Pinochet has always been that he was a blood thirsty butcher in the name of fascism, not populism. PCR doesn’t elaborate enough, but that article was really disappointing. Here’s a question: Could the “communists” possibly have ever done a worse job creating a viable egalitarian society than Pinochet?

    2. American Slave

      “mass famines being a common feature of the command economies Allende championed”

      From the former Soviet Union to Chile especially under Allende there was a lot going on with foreign agents and even companies bribing factory managers to sabotage production and for anyone paying attention Venezuela now has video proof of it happening there.

      And we already live in a private sector command economy anyway. Its not like GM has to ask its workers or the community to shut down a factory and move it overseas they just do it anyway. The difference is that a state owned enterprise usually keeps its industry in the country.

      1. FederalismForever

        Even so, no “private sector command economy” has ever had a mass famine. By contrast, nearly every Marxist economy that has existed thus far has had at least one mass famine – e.g., 1932-33 in the Soviet Union, at least two mass famines in China during the Mao era, famines in 1944-45 in Bulgaria and Romania during agricultural collectivization efforts, in Cambodia under the Khmer Rouge, in Ethiopia during the Red Terror, and at least twice (so far) in North Korea. No way all of this can be reduced to factory sabotage. The fundamental problem is that Marxist-style command economies can’t even feed their populations, which in turn is an indication that Marxism itself is fundamentally flawed.

        During Allende’s brief reign, the food situation grew increasingly dire – exactly as one would expect of a Marxist/planned economy. Whatever other errors committed by the Pinochet regime, its “neoliberal reforms” at least succeeded in avoiding any mass famines.

        1. American Slave

          China’s population went from 400 million at the end of the civil war to over a billion at the end of Mao’s rule so it was difficult for them to keep up with population growth because everyone had access to food from the iron rice bowl programs which is why Xiaoping put in population control, and the Soviet Union had a high population growth rate in its early days too.

          In all the former Soviet countries food and industrial production is down compared to before and they make up for it with imports.

          And North Korea is in a bad part of the world to grow food in (near Siberia) and is under an economic blockade so I don’t know what people expect, its actually amazing that they can feed there people at all but from satellite photos we can see that they do.

          And what about Vietnam who is a major rice exporter and still has a mostly collective economy. Im sorry but what they teach in high school is wrong.

          1. American Slave

            There are a lot of craptastic free market economy countries that have no trade restrictions out there from Haiti to Thailand to India to Indonesia, Somalia, Guatemala so good luck trying to find the kind of shanty towns in Vietnam vs Thailand or Indonesia or the slums of India vs China.

        2. Ruben

          “Even so, no “private sector command economy” has ever had a mass famine.”

          The Irish potato famine of the late mid 19th century (1 million dead) and the Indian famines under British administration (several million dead) are famines that happened under “private sector command economy”.

  9. timotheus

    Yes, and while we’re being all even-handed about it, let’s discuss how many government opponents were thrown out of helicopters into the Pacific under Allende v/s how many during Pinochet, how many people were tortured in secret prisons during each (0 v/s 40,000 according to the Valech commission estimates) and how many disappeared forever. Perhaps the lopsidedness of those numbers is why people often fail soberly and judiciously to consider the merits of the dictatorship and continue to “blame” Pinochet for the country’s problems. Of course, when you can terrorize a population so thoroughly, it makes imposing a neoliberal regime quite a bit easier. No doubt Thatcher was green with envy although with the collaboration of their successors in both cases, the measures have stuck.

    1. Gonzalo Lira

      During Allende, there were roving death squads tacitly approved of by Allende himself, vocally supported by the leadership of his Unidad Popular coalition, who killed anyone in the city or the countryside they considered “momio”—rich and conservative. These roving death squads looted stores and factories, forcibly took over farms (specifically targetting farms where the workers were treated justly), and killed hundreds of hard-working, innocent people, up to and including the previous Vice-President of Chile, Edmundo Pérez Zujovic.

      During Allende, only those affiliated with or friendly to the Popular Unity received JAP cards. The JAP—Juntas de Abastecimiento y Control de Precio—controlled the food distribution and eventual rationing. If you did not have a card, you did not get food for you and your family—and the only way to get a card was to swear fealty to the Unidad Popular.

      During Allende, all the opposition newspapers were censored, with UP bullies destroying printing presses and targetting opposition journos for “conversations” which usually ended with the journo in the hospital.

      During Allende, both Salvador Allende and his coalition of parties, the Unidad Popular, deliberately and systematically tried imposing a Maoist collectivization of the land, which resulted in the decrease of agricultural production by some 37% in less than three years.

      During Allende, Salvador Allende himself fomented a guerrilla army under his personal control, the so-called Grupo de Amigos Personales. These were thugs who “protected” Allende by carrying out random acts of terror agains the Army and the national police-force, up to and including targetted assassinations.

      During the coup that overthrew Allende, he urged the people to take up arms and revolt against everyone and anyone whom they considered better than they—which essentially meant the middle-class of Chile. As he said during the coup that finally toppled this Maoist Stalin-wannabe, “We have the weapons! Take them and fight against the oligarchy!”

      You want to talk about being even-handed? Fine—but don’t whitewash Salvador Allende, who was one of the most evil men to ever lead any nation. Even his own followers thought he was a cruel, despotic man. It’s only because he was overthrown that he’s venerated. But had he survived the ’73 coup, he would have built concentration camps and rounded up all those who opposed him.

      After all, that was why he was overthrown. Or what, you thought he was overthrown because it was a dull day with nothing better to do?


      1. El Guapo

        This post is full of total nonsense and mangles history quite severely which is not surprising at all.

        1. Gonzalo Lira

          If anyone feels I am mangling history, do feel free to carry out an internet search for the terms JAP (Juntas de Abastecimiento y Control de Precios), Edmundo Pérez Zujovic, GAP (Grupo de Amigos Personales), and the other items and issues enumerated in my comment. Do look up the term “MIR” as well, very important, you’ll see.

          Allende was not the saint that people—especially non-Chileans—wish him to be. He was a great orator, charismatic, and by committing suicide, he made of himself a martyr, like his hero Balmaceda.

          But he was a man hell-bent on becoming a Socialist despot, no different from Mao or Pol Pot. That was his avowed intention.

          Don’t believe me? Look it up for yourself.


          1. Ruben

            You seem to have a lot of time since you go on at length making fantastic assertions but you need to back them up with proper references if you want to look credible.

            In your first paragraph you make pretty serious accusations about Marxist death squads that went on killing anyone in cities and rural areas that was rich or conservative. I never heard that when I was in Chile and believe me I talked to people that seemed even more fanatical than yourself. Granted, the rhetoric of some UP leaders was incendiary but nothing much really happened in terms of killings.

            Please provide some links to news reports about the Chilean Marxist death squads “who killed anyone in the city or the countryside they considered “momio”—rich and conservative.”

          2. D. Mathews

            Very interesting that you mention Christian Democrat Party politician Edmundo Pérez Zujovic. I urge readers to look up the watershed Massacre of Puerto Montt which took place in March of 1969: At dawn, 250 policemen launched an assault on the squatters, following direct orders from Interior Minister Edmundo Pérez Zujovic. The final result was that all newly built homes were burned to the ground and 8 squatters were shot dead. On the economic difficulties faced by Chile around the time of Allende (1971-1972), it is fairly well documented by historians that there existed a blockade by international capital at the time. Although this was denied by his opponents, the intrigue which existed behind the scenes is no secret any more (we have famed US columnist Jack Anderson to thank for that!). Add to that the unfavorable evolution of the terms of trade. According to the Comité Interamericano de la Alianza para el Progreso (CIAP # 541, April 21, 1972, page 9), due to the unfavorable evolution of the terms of trade, although the physical increase in exports exceeded the imports and the real growth of the latter declined markedly in relation to the average observed in 1966 – 1970, the balance of payments fell into deficit.

  10. digi_owl

    i would say that the people that went on to advice Reagan and Thatcher used Chile as a petri dish for their policies. Chile was Chicago monetarism 1.0, while the latter policies were 1.1.

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