Chile in Flames: The Neoliberal Model in Crisis Throughout the Region

Yves here. With 2019 shaping up to be another 1848, it’s hard to provide in-depth commentary on so many protests. Nevertheless, Lambert hopes to provide a high-level piece soon.

In the meantime, this post on Chile will hopefully fill in some of the gaps as well as encourage readers who have insight to provide additional comments and highlight any points that seem inaccurate or incomplete.

It’s also worth noting that Pinochet’s Chicago School experiment ran quickly into the ditch. From ECONNED:

Chile has been widely, and falsely, cited as a successful “free markets” experiment. Even though Chilean dictator Augusto Pinochet’s aggressive implementation of reforms that were devised by followers of the Chicago School of Economics led to speculation and looting followed by a bust, it was touted in the United States as a triumph. Friedman claimed in 1982 that Pinochet “has supported a fully free-market economy as a matter of principle. Chile is an economic miracle.” The State Department deemed Chile to be “a casebook study in sound economic management.”

Those assertions do not stand up to the most cursory examination. Even the temporary gains scored by Chile relied on heavy-handed government intervention….

The “Chicago boys,” a group of thirty Chileans who had become followers of Friedman as students at the University of Chicago, assumed control of most economic policy roles. In 1975, the finance minister announced the new program: opening of trade, deregulation, privatization, and deep cuts in public spending.

The economy initially appeared to respond well to these changes as foreign money flowed in and inflation fell. But this seeming prosperity was largely a speculative bubble and an export boom. The newly liberalized economy went heavily into debt, with the funds going mainly to real estate, business acquisitions, and consumer spending rather than productive investment. Some state assets were sold at huge discounts to insiders. For instance, industrial combines, or grupos, acquired banks at a 40% discount to book value, and then used them to provide loans to the grupos to buy up manufacturers.

In 1979, when the government set a currency peg too high, it set the stage for what Nobel Prize winner George Akerlof and Stanford’s Paul Romer call “looting” (we discuss this syndrome in chapter 7). Entrepreneurs, rather than taking risk in the normal fashion, by gambling on success, instead engage in bankruptcy fraud. They borrow against their companies and find ways to siphon funds to themselves and affiliates, either by overpaying themselves, extracting too much in dividends, or moving funds to related parties.

The bubble worsened as banks gave low-interest-rate foreign currency loans, knowing full when the peso fell. But it permitted them to use the proceeds to seize more assets at preferential prices, thanks to artificially cheap borrowing and the eventual subsidy of default.

And the export boom, the other engine of growth, was, contrary to stateside propaganda, not the result of “free market” reforms either. The Pinochet regime did not reverse the Allende land reforms and return farms to their former owners. Instead, it practiced what amounted to industrial policy and gave the farms to middle-class entrepreneurs, who built fruit and wine businesses that became successful exporters. The other major export was copper, which remained in government hands.

And even in this growth period, the gains were concentrated among the wealthy. Unemployment rose to 16% and the distribution of income became more regressive. The Catholic Church’s soup kitchens became a vital stopgap.

The bust came in late 1981. Banks, on the verge of collapse thanks to dodgy loans, cut lending. GDP contracted sharply in 1982 and 1983. Manufacturing output fell by 28% and unemployment rose to 20%. The neoliberal regime suddenly resorted to Keynesian backpedaling to quell violent protests. The state seized a majority of the banks and implemented tougher banking laws. Pinochet restored the minimum wage, the rights of unions to bargain, and launched a program to create 500,000 jobs.

By DemocraciaAbierta. Cross posted from openDemocracy

Only a week after the huge mobilizations in Ecuador that successfully toppled the controversial ‘paquetazo’, the financial plan imposed on the South American nation by the International Monetary Fund, another Latin American country has risen up against the economic policies of its government.

In a country where the minimum wage of 70% of the population barely reaches $700 USD per month, the news from Chilean president Piñera last week that the fare for a metro ticket in Santiago would rise from 800 Chilean Pesos to 830 ($1.15 USD) hit hard. Chile, a nation with a long history of neoliberalism, has been unable to eradicate poverty with privatisation policies, and it is estimated that around 36% of the urban population live in extreme poverty.

The supposed “economic miracle” of Chile, which received its name from American economist Milton Friedman, was a set of liberalising economic measures put in place during the dictatorship of Pinochet, that imposed a free market in the country with the support from the United States. This economic system, that continues to be implemented today in Chile, has benefitted the economic elites whilst creating inequality and suffering for the majority. It’s hardly surprising that thanks to these neoliberal reforms promoted by Friedman, the 90s became the lost decade of Latin America.

Tired of the economic policies of the government, students and citizens took to the streets of Chile to protest against the rise in price of the metro ticket, but in reality this was just the tip of the iceberg. They are in fact protesting against many other social issues such as high tariffs for electricity and gas, low pensions, and a completely unaffordable health and education system. Protesters burnt metro stations and public busses, and they looted supermarkets and public buildings.

When Piñera spoke to the nation on Saturday evening to declare the suspension of the increase in metro fare, it was already too late to contain the fury that had been unleashed. Students and young people kept marching and demanding justice, whilst the government declared a State of Emergency and sent the army to the streets.

That’s why we explain to you everything you need to know about the current protests in Chile and why this explosion of violence is so important in the region.

Police Violence and Democracy in Chile

It’s not the first time that police use violence against their own citizens in Chile, a country which has a long history of repression of the mapuche indigenous communities when they rise up against the lack of government recognition of their territorial rights.

In fact, police violence against mapuche communities resulted in the murder of community leader of only 24 years of age, Camilo Catrillanca, last year when he was passing through an area in which a police operation was being carried out and suddenly found himself in the middle of a shoot out. A stray bullet hit him in the head and murdered him instantly.

The protests that began in Santiago but that have now extended themselves across the country, have so far caused around 11 deaths, mostly due to violence at the hands of the police and the Chilean army. This display of state violence against citizens comes only 30 years after the dictatorship of Pinochet murdered and disappeared over 40,000 Chileans during its reign of terror. What’s more, according to the National Institute for Human Rights in Chile, there have been 84 firearm casualties and over 1420 people detained since the protests began last week.

The reaction from Piñera has focussed on only the violent acts of the protesters, contributing to the criminalisation of the right to protest in the country. “We have invoked the Law of State Security, not against citizens, but against a handful of delinquents that have destroyed property and dreams with violence and wickedness”.

He justified police repression of protests by declaring that “democracy has a right to defend itself”, however, he also expressed his intentions to reach agreements to improve the standard of living for the lower and middle classes of Chile. The actions of the police and the army over the past week has shocked one of the most democratic countries in the world, and the second most democratic of Latin America according to Freedom House.

Chile’s high score for freedom of assembly and protest may be affected by the actions of the state against its citizens this week, which seriously affect the right to protest by criminalising all individuals involved.

Neoliberal Malaise Throughout the Region

Economic malaise in Chile is part of a regional trend that follows recent protests in Ecuador, that also began as a product of frustration regarding the economic policies of president Lenín Moreno.

Protests in Ecuador began as a reaction against a set of economic policies referred to as the ‘paquetazo’, which were a series of austerity measures imposed on the country by the International Monetary Fund in order to cut public spending and repay debts faster. This included the elimination of fuel subsidies, public salary cuts, and huge holiday reductions for public employees.

Civil society, but mainly indigenous groups led by the Confederation of Indigenous Groups of Ecuador, took to the streets for weeks to protest against the measures, until president Moreno declared that the ‘paquetazo’ would no longer be implemented.

Chileans, no doubt empowered by the recent protests in Ecuador, have also taken to the streets with the same hopes: that they will achieve with their protests real change regarding how their government manages the economy. They also make it clear that the poor management of the economy and imposition of neoliberal policies have devastating and very human consequences for the most disadvantaged of Latin America.

It’s not only Chile and Ecuador that are facing massive citizen unrest in the region. Haití is also rising up against the corrupt government of Jovenal Moïse and demanding not only an explanation for what happened with millions of dollars received from Venezuela, but also an end to neoliberal austerity policies backed by their northern neighbour, the US.

The neoliberal model is in crisis, and these protests have clearly demonstrated this. Now, what happens in Chile will depend on Piñera’s capacity to negotiate real change, but if he fails at doing so, it will be impossible to contain the rage that has already been unleashed in a country where citizens are tired of injustice and inequality.

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38 comments

  1. Ignacio

    Piñera promised economic growth neolib style that has failed miserably. Southamerica in general is suffering from reduced revenues on raw materials as predicted by some economists. The former president, Bachelet had some success by increasing corps taxes and using the proceeds to invest primarily in public education but her social policies fell short on expectations. Whether MMT could have been applied to widen the scope of her social policies to health care and other essential public services is something that should be discussed. Back to Piñera, the very first days of protests, that were basically dominated by students (workers joined later) Piñera accused them for being “intransigent and violent” but has had to change his stance and protests widened and got ample support. I think his change is cosmetic and he really doesn’t have any idea in his agenda that would help to ameliorate the problems. His message for students was simple: “in life, nothing is for free” when he was defending his privatization plans for education. Piñera is himself a billionaire.

  2. RabidGandhi

    The main slogan in the protests has been “it’s not 30 pesos, it’s 30 years”. This is not because the Chileans have their maths wrong (in spite of their abominably privatised education system), but rather because those in the street are most immediately outraged at the neoliberalism imposed since Pinochet’s departure in 1990.

    Yet, as usual, most of the commentary in the Anglophone left has predictably opted to focus on 1973, because CIA meddling is so much more sexy and less threatening than questioning the accepted economic orthodoxy imposed alternately by Piñera and Bachelet’s Concertación coalition. That said, the pictures of tanks in the street of Santiago are bone-chillingly evocative of South America Past.

    Viewed comfortably from the other side of the Andes, the Chileans have always seemed to me– for various reasons including a truly brutal police apparatus– much less effective at rising up against their oppressive governments than their immediate neighbours, and they have the privatised education, healthcare and pensions, and rampant inequality to show for it. So I personally am more sceptical that ” it will be impossible to contain the rage that has already been unleashed”. I’ll believe it, and rejoice, when I see it.

    And one last bit of cold water on the celebratory bonfire: Ecuador’s Lenín Moreno immediately announced that he will be reformulating his hated IMF reforms package, so the victory dance there is highly premature.

  3. Martin

    It’s worth noting that the government and the parliament are quite lost as to why this protests came about. This is not just about economic abuse, but rather widespread abuse which can be seen in everything regarding the elite. Collusion, fraud and corruption in the parliament, the judges, the national prosecution office, the army, the local police force, the church, several industries, universities, and many more has been unveiled throughout the last couple of years. And the outcome has been always the same: if it involves someone rich or powerful, they are given a handslap and told not to do it again (and I mean it quite literally: there are rich businessmen who have been forced to assist ethics classes as punishment).

    To top it off, the public education and healthcare system has degraded severely. And the pension system has been unable to deliver for the average citizen, with half of the retired people receiving less than USD $200 monthly on a country where prices for products and basic services are on par with those on some European countries.

    There are many important issues I’m leaving out, but for me that’s the gist of it.

      1. Martin

        Not quite. If caught, USA courts will punish the elite. In Chile, Bernie Madoff would have been off the hook just for the fact that he was rich and well connected.

  4. The Rev Kev

    Pepe Escobar has come out with an article laying the blame for all these troubles as being due to neoliberalism and he makes an interesting case. He postulates that it will not be long until Brazil is next and you wonder if these riots will confine themselves only to the South American continent. Those in power always seem to forget a fundamental law – never cheat a person that has nothing to lose!

    https://www.strategic-culture.org/news/2019/10/23/burn-neoliberalism-burn/

    1. Anon

      Everybody look – what’s going down?

      (From, For What it’s Worth, Buffalo Springfield (1967, Top Ten hit.)

  5. fdr-fan

    Meanwhile, Bolivia shows what happens when a competent leader breaks out of the neoliberal model. Prosperity for the nation, health and education for the poor. Evo talks like a Gaian but rules like FDR. He’s not afraid to exploit natural resources for the benefit of the people.

    Needless to say, we’re working on regime change already, preparing to declare the opposition leader Mesa as the “real president” of Bolivia, and then invading to enforce our declared and defined reality. We can’t allow competent leaders to survive anywhere.

    1. Ander Pierce

      Regardless of malevolent US intentions I forsee Evo Morales enjoying this next 5 year term alongside the Bolivian people. US soft power (if you can call sanctions, diplomatic isolation, and arming insurgents soft power) failed to unseat Maduro, and Morales is arguably more popular than Maduro.

      I’m an optimist by nature (foolish though that may be) and I think The Empire’s grasp on the global south is faltering.

  6. Mattski

    When you have to cut off people’s hands and torture them to inaugurate your ‘experiment,’ it always tends to have a dubious character. . .

  7. Ted

    I think it is a mistake to see these as a South America thing in isolation. The neoliberal program of accumulation by dispossession (David Harvey via Escobar) has infected every economy in the world, regardless of the particulars of the organization of the state. These protests are of a package with the Gilets Jaunes, Brexiteers, and Trump’s supporters in Chris Arnade’s backrow America. When the ponzi really begins to deflate in the tech sector and information/entertainment economy where the business model is burn baby burn … expect more of the same in suburban USA and in China’s mega cities — although the EU is in worse shape, apparently — They are now coming after pension funds with negative interest rates there (dispossessing the pensioners of their future income).I expect the EU’s days are numbered as a result.

  8. Iapetus

    “Entrepreneurs, rather than taking risk in the normal fashion, by gambling on success, instead engage in bankruptcy fraud. They borrow against their companies and find ways to siphon funds to themselves and affiliates, either by overpaying themselves, extracting too much in dividends, or moving funds to related parties.”

    This sounds like a fairly precise description of the Private Equity business model.

  9. Pat

    During the recent attempts to “correct” Venezuela, the now adult child of Venezuelan refugees from the Chavez years not only tried to tell me that Venezuelans were demanding our help but used Chile as an example of successful countries who blessed our economic reforms. They have found a home literally and figuratively with the Baptista Cuban community in Miami. Suffice it to say my minor research into Chile didn’t really mesh with her version. I am willing to admit I am far from neutral on American economic policy and innovations, but have yet to find any example from the last century where our preferred policies have not led to looting, corruption and severe societal disruption. We rarely introduce inequality but never make it better and often make it worse.

    We being America not all of us mooks who live here.

    1. Massinissa

      “Venezuelans were demanding our help”

      If she hasn’t been to Venezuela in years, if ever, how the hell can she even pretend to know what’s currently happening on the ground there?

      1. Pat

        Never having been there myself I can’t say they weren’t. Nor can I say they had no communication with people still in Venezuela.

        But as our media proves daily, listening to only one side of a complex issue leaves you ignorant about much of it.

  10. Oregoncharles

    ” 11 deaths, mostly due to violence at the hands of the police and the Chilean army”
    This is contrary to the reporting we’ve seen, which is that most of the deaths were the result of arson fires. That doesn’t mean it’s true – we’ve seen fictionalized reporting before; but it does mean that claim needs backup.

    1. M.H.

      There was a video posted on Twitter where a TV news reporter was trying to interview a common ordinary citizen off the street, and he very politely (truly), was explaining his position and why he had felt compelled to take to the streets, but the minute it started to get hairy by him getting vocal about what people were protesting about, she cut him off and blatantly started mouthing off what appeared to be a scripted bunch of sound bites favorable to the government; when he persists in, by that point, in a desperate attempt to try to get a word in edgewise, she just turned away from him and called for backup among the crew, clearly silencing any opinion that wouldn’t be the officially accepted one. That to me sounds like the people’s complaints about the “real” news not getting out are justified.

  11. Sound of the Suburbs

    I put this in to follow my other comment but it’s gone.

    Who would know the most about Japanification?
    The country that has been like this for thirty years, they’ve had a long time to study it.

    They are still paying back the debt from their 1980s excesses.
    This is the future they impoverished in the 1980s.

    Richard Koo had studied what had happened in Japan and knew the same would happen in the West after 2008. He explains the processes at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy.

    https://www.youtube.com/watch?v=8YTyJzmiHGk

    Debt repayments to banks destroy money, this is the problem.

    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

    The worst thing you can do in a balance sheet recession is austerity and QE can’t get into the real economy due to a lack of borrowers.

    We saved the banks, but left the debt in place.
    The banks are ready to lend, but there aren’t enough borrowers as they are still loaded up with debt.

  12. Roy G

    Please forgive my dumb question, but what would happen if Chile (or any other country) were to willfully default on their IMF loans?

  13. barrisj

    Interestingly enough, the Macri neoliberal experiment in Argentina has largely failed, and voting on October 27th is expected to end Macri’s reign in favour of a centre-left/Peronista ticket, bringing back Sra. Kirschner yet again. Despite horrific inflation, the rise in poverty and unemployment, etc., etc., there seems to be little in the way of mass demos as in other So. American countries, as the public still appears to view voting and resultant govt. changes as de facto “democratic responsiveness” to current discontent. Naturally, if the new govt. fails in righting societal and economic wrongs, direct action in the streets may well ensue, with the police and militares taking the usual side of the governing elites…we shall see.

  14. Susan the Other

    Neoliberals have an imaginary friend. Money. They love it because they think it has intrinsic value. They think it is elemental. Fundamental. But it isn’t. I wonder how much they will like it when they realize they’ve been had. When Neoliberals become disillusioned what do they do next?

    1. Massinissa

      Maybe they can make like the old soviet bureaucracy and just give up power?

      Even the optimist in me thinks that ain’t going to happen, our elites have so much more to lose, but hope springs eternal I suppose

    2. Sound of the Suburbs

      Zimababwe has too much money and it’s not doing them any favours.

      It causes hyper-inflation.

      You can just print money, the real wealth in the economy lies somewhere else.

      Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is no need to save for pensions.

      https://www.youtube.com/watch?v=DNCZHAQnfGU

      What matters is whether the goods and services are there for them to buy with that money.

      That’s where the real wealth in the economy lies.

      Money has no intrinsic value; its value comes from what it can buy.

      Zimbabwe has too much money in the economy relative to the goods and services available in that economy.

      You need wheelbarrows full of money to buy anything.

  15. Joe Well

    There may very well be an international contagion effect regarding anti-austerity protests. I find myself in Buenos Aires atm and the violence in Ecuador, Bolivia, and especially Chile has definitely spooked people about the elections on this coming Sunday. The top two candidates for president are Macri, a mostly neoliberal, and Alberto Fernandez with the previous president Cristina Fernandez de Kirchner actually running as his vice president. The Fernandez de Kirchener government spent much more on social programs than Macri, though it is debatable whether they could be called leftists, and it is commonly said that there was enormous corruption during that administration.

    Whoever wins, a lot of people are going to be enraged, and I have heard over and over again that the likelihood of a Fernandez win is why the currency is falling against the dollar and will supposedly plummet like a rock on Monday in the event of a Fernandez win. There is a far left party that is not doing at all well in the polls, which baffles me considering how bad the top two candidates seem to be.

    Btw, I’m wondering if anyone else is in this town and wants to do a mini-NC meetup? Not sure how to go about that.

  16. ObjectiveFunction

    Great stuff, thanks again. I’ve long been fascinated by Chile, a country that seems to have so much going for it, and especially its intimate relationship with “Dr Copper”, although I’ve never been there. I also clearly need to read Econned.

    I found this snip (paraphased for brevity) especially thought provoking.

    1. State assets were sold at huge discounts to insiders: industrial combines, or grupos. Banks gave low-interest-rate foreign currency loans, permitting them to use the proceeds to seize more assets at preferential prices when the peso fell.

    2. But the Pinochet regime did not reverse the Allende land reforms and return farms to their former owners. Instead, it practiced what amounted to industrial policy and gave the farms to middle-class entrepreneurs, who built fruit and wine businesses that became successful exporters.

    3. The other major export was copper, which remained in government hands.

    To try to broaden the context, may I try to take this story back in time a bit? All amendments are friendly (I freely admit my ignorance, and it’s very hard not to be reductionist in this medium)

    1. 19th century Chile is a post-colonial Spanish society, whose agrarian feudal oligarchs bring in large numbers of European immigrants (Italians, French and German-speakers?).

    2. The steam era (ships and trains) enables rapid opening of the Andean mines (mainly native labor). Limited industrialization follows (mainly European labor). These sectors in turn foster a diverse (Caucasian) urban bourgeoisie and technocracy.

    3. After 1900, a well-funded state sector also arises, but is more corporatist than socialist, owing to the need to keep the nonwhite indigenes (‘indios’) from asserting their rights (the giant llama in the national room). For much the same reason, unionization is kept within strict bounds (with military force if needed).
    Interesting parallel to today’s America? where 20 percenter liberals use racial divisions and fears to checkmate class consciousness and moves to lift the disregarded ‘other’ out of penury.

    … So long as copper royalties are coming in, dissent (and deep social reform) can be kept at bay, and comfortable order maintained under the benevolent administration of the 20 percent (serving the .01, who in this case are mostly offshore?)

    4. The copper sector, whether or not nominally state controlled, remains de facto under the thumb of foreign industrials, shippers and trading houses, the original “Metal Men”, who provide capital and innovation, and effectively set prices. But the two world wars take nearly all the European industrial konzerns (as well as the great merchant houses of Antwerp and Amsterdam) out of the picture.

    After 1945, they are succeeded by the ‘Anglo-Saxon’ cartels (Anglo-American, Philipp Bros, Hunt, etc. forbears of Marc Rich and Glencore) who ruthlessly arbitrage and game global logistics in the wake of decolonization, and also financialize every commodity known to man. Even the Soviet and Chinese resource ministries must dance to this tune, although that isn’t widely understood at the time.

    5. But by the 1960s, oil is displacing metals, including “Dr Copper”, as the life blood of global capitalism. That last bit is critical for Chile, and for Latin America in general.

    6. From 1967 or so, up to the present, the story is likely well understood by readers here and I won’t presume/dare to try to summarize it

    …But the way forward from today isn’t clear to me at all. Can Chile unplug itself from the global cartel? Are there lessons to learn from Russia? From Venezuela?

  17. Sound of the Suburbs

    Free trade and free markets will bring us all prosperity.

    After ten years of austerity, they are still trying to peddle this old twaddle to us in the UK.

    We all know what it is now and that it doesn’t work.

    Everyone in the US was hoping for “hope and change” with Obama, but he bailed out Wall Street and maintained the status quo. It was just what the Republicans needed.

    The house of Representatives was lost in 2010, the Senate in 2014 and the Presidency in 2016.

    Full house for the Republicans and the populist Trump is in power.

    Everyone in France was sick to death of the status quo and Macron appeared to offer something new, but he was just a neoliberal Trojan horse.

    The French aren’t happy.

    South America has been suffering this longer than anyone else and they know it just doesn’t work.

    They can be tricked into voting for neoliberals, but they aren’t going to be happy about it.

  18. Knute Rife

    Even Paul Kegstand is admitting maybe that whole globalization thing wasn’t quite the unmitigated good thing he’s been claiming the last 30 years.

  19. Sound of the Suburbs

    Ben Bernanke, what is debt deflation?
    He couldn’t work it out when he studied the Great Depression as he thought banks were financial intermediaries.

    This is what all policymakers think and this creates a perfect storm with debt blind neoclassical economics. This is why they say “Debt doesn’t matter”.

    Ben Bernanke is famous for his study of the Great Depression and here it is discussed in the Wall Street Journal.

    https://www.wsj.com/articles/SB113392265577715881

    “Theoretically, neither deflation nor inflation ought to affect long-run growth or employment. After a while, people and businesses get used to changing prices. If prices fall, eventually so will wages, and the impact on profits, employment and purchasing power will be neutral. Borrowers suffer during deflation because their debts are fixed in value, but creditors benefit because the dollars they get back will buy more. For the economy as a whole, deflation ought to be a wash.”

    What has Ben Bernanke got wrong?
    He thinks banks are financial intermediaries.

    Our knowledge of privately created money has been going backwards since 1856.

    Credit creation theory -> fractional reserve theory -> financial intermediation theory

    “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner
    http://www.sciencedirect.com/science/article/pii/S1057521915001477

  20. Sound of the Suburbs

    The neoliberals don’t stand a chance.

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.

    https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s

    He thinks we have been on the wrong path for one hundred years.

    The Mont Pelerin society never stood a chance, they were always going to develop a parallel economic universe from neoclassical economics.

    They called it neoliberalism.

    The Classical Economists could observe the world of small state, unregulated capitalism in the world around them as this is where it all started.

    It’s very different to the parallel universe of neoliberalism.

    In Ricardo’s world there were three classes, and there still are.

    Ricardo was part of the new capitalist class and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.

    Ricardo looked at how the pie got divided between the three groups.

    From Ricardo:
    The labourers had before 25
    The landlords 25
    And the capitalists 50
    ……….. 100

    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist

    Disposable income = wages – (taxes + the cost of living)

    Employees get their money from wages and the employer pays via wages.

    Employees get less disposable income after the landlords rent has gone.
    Employers have to cover the landlord’s rents in wages reducing profit.

    Ricardo is just talking about housing costs, employees all rented in those days.

    Low housing costs and a low cost of living work best for employers and employees.

    Where will the neoliberals go wrong?

    Disposable income = wages – (taxes + the cost of living)

    They cut taxes, but let the cost of living soar, so people got worse off.

    They then created artificially low inflations stats. so people didn’t realise wages and benefits weren’t keeping pace with inflation.

    https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf
    Part 4 : Loaded Dice

    This is a time bomb waiting to explode.

    It’s just gone off in France and Chile.

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