How Chile Got Rich

[Stephen Eisel]

http://www.investors.com/NewsAndAnalysi ... ?id=514426

Wealth: Chile is expected to win entry to OECD's club of developed countries by Dec. 15 — a great affirmation for a once-poor nation that pulled itself up by trusting markets. One thing that stands out here is free trade.

At a summit of Latin American countries last week in Portugal, Chilean President Michelle Bachelet suddenly became the center of attention — and rightly so. She announced that her country was expected to win membership in the Organization of Economic Cooperation and Development, an exclusive club of the richest and most economically credible nations.

Chile is the first country in South America to win the honor, and in a symbolic way its OECD membership card seals its exit from the ranks of the Third World to the First.

For the rest of us, it's a stunning example of how embracing free markets and free trade brings prosperity.

It's not like Chile was born lucky. Only 30 years ago, it was an impoverished country with per capita GDP of $1,300. Its distant geography, irresponsible neighbors and tiny population were significant obstacles to investment and growth. And its economy, dominated by labor unions, wasn't just closed, but sealed tight.

In the Cato Institute's 1975 Economic Freedom of the World Report it ranked a wretched 71 out of 72 countries evaluated.

Today it's a different country altogether. Embracing markets has made it one of the most open economies in the world, ranking third on Cato's index, just behind Hong Kong and Singapore. Per capita GDP has soared to $15,000.

Besides its embrace of free trade, other reforms — including pension privatization, tax cuts, respect for property rights and cutting of red tape helped the country grow not only richer but more democratic, says Cato Institute trade expert Daniel Griswold.

But the main thing, Griswold says, is that the country didn't shift course. "Chile's economy is set apart from its neighbors, because they have pursued market policies consistently over a long period," he said. "Free trade has been a central part of Chile's success."

Chile has signed no fewer than 20 trade pacts with 56 countries, giving its 19 million citizens access to more than 3 billion customers worldwide. When no pact was in force, Griswold notes, Chile unilaterally dropped tariffs. This paid off handsomely.

You've heard of flat taxes? Chile has a flat tariff — only 5% on any item not exempted by a free-trade treaty, Griswold points out. But almost nobody has signed off on free-trade treaties like Chile.

[ryan costa]

Chile is a commodity exporting country. The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution. Then buy their commodities.

Pinochet had been in power for six years by 1979. why was Chile so poor in 1979?

Why were the Nixon Boys so hard on Allende? Allende's Chile was way more pro-market than China. Nixon was bending over backwards to make cozy with China. Somebody has to be the bitch: economic sanctions for Allende Chile.

Support for Pinochet, execution for Saddam Hussein. 3 trillion dollars occupying Iraq.

over 75 percent of Chiles exports are commodities. sort of like Iraqs used to be, and our strong allies in Saudi Arabia and Kuwait.
exports are 40 percent of Chile's GDP. Copper exports provide 1/3rd of Government Revenue.

GDP per-capita is 77th out of 229 nations counted on CIA world FACT Book.


Their GDP growth rate averages about 4.2 percent for the last 4 years, despite their central banks having extremely high lending interest rates and their commercial lending banks also having double digit interest rates. 4.2 percent is much less than what the U.S. experienced in the eras of tariffs, lower trade, and progressive income taxes.

Trade does not prevent war. Trade has never prevented war. our colonial ancestors revolted against britain despite over 80 percent of trade being with them. less then 30 years after independence, most of our trade was still with Britain, and we warred with them. The Civil War: lots of interstate trade, the same language, religion, history.

Britain's series of wars against China in the 1800s: trade before and After.

Pre-World War I: Norman Angell publishes The Great Illusion. He argues there is so much trade, communication, and travel between european nations that war would never really happen. but something always comes up. and it probably always will. Angell has extra-conservative-street-credibility: he was a pioneer, cowboy, ranchhand, and homesteader in the American west before going back to england.

World War I: Germany and France had been important trade partners right up until the start.

Interwar years: Nazi Germany number one export market of hollywood films. Bob Hope, "There won't be a war". a few weeks later, WAR.

World War II: Soviet Union is Germany's most important trade partner. but germans get antsy over oil and make a beeline for oil fields in southeast europe. I guess that was good for America. Imagine D-Day with 5 million more German Soldiers waiting for us.

post-world war II: Bretton Woods. southern white democrats lobby hard for free trade. like all previous arguments for free trade, it was justified by including progressive income taxes. They also wanted foreign currencies pegged to the U.S. Dollar. there was language about the dollar being pegged to gold, but the dollar was really pegged to U.S.Manufacturing and banks being the most intact after two world wars.

[Stephen Eisel]

Chile is a commodity exporting country. The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution. Then buy their commodities.

No, Chile has been exporting commodities for decades(copper). The change happened because of economic reform.

[Charlie Page]

The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution.

Wealth redistribution is taking from those that earn and giving it to those that didn't earn it. In the case of a nation, it's taking from the right pocket and putting it in the left pocket.

How do nations become wealthy through wealth redistribution?

[ryan costa]

The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution.

Wealth redistribution is taking from those that earn and giving it to those that didn't earn it. In the case of a nation, it's taking from the right pocket and putting it in the left pocket.

How do nations become wealthy through wealth redistribution?

Wealth is resources and the ability to use resources.

No nation redistributed as much wealth as the United States.

All nations that were colonies of Spain are poor compared to the U.S. for most of U.S. history, because the Conquistadors were feudal aristocrats.

Chile's economy is growing much more slowly than America's was when America was as developed as Chile or as poor as Chile.

Only America's big slave states outdid latin American states in poverty. America's Southern States were poor because the embraced slavery, free trade, and unregulated banking. The further south of virginia and west of the Atlantic Coast, the more they did this and the poorer those states grew to be.

The New Deal was a redistribution of Northern State Money to Southern States. The New Deal would not have been a reality without Southern White Voters. The New Deal funneled an enormous amount of government spending, programs, and finance infrastructure to the South. Southern Whites eventually became rich enough to become the new Republicans. Cold War spending continued the progressive income taxes of the New Deal, and continued sending northern tax revenue to Southern States.

If you want our military, CIA, NASA, FBI, NIA, and other cool federal programs to be even half as active as they are today, you are going to have to embrace progressive income taxes. or federal bonds/notes/T-Bills with interest rates high enough to warrant America's own rich, middle class, and working class investing in them.

[Roy Pitchford]

The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution.

Wealth redistribution is taking from those that earn and giving it to those that didn't earn it. In the case of a nation, it's taking from the right pocket and putting it in the left pocket.

How do nations become wealthy through wealth redistribution?

The New Deal was a redistribution of Northern State Money to Southern States. The New Deal would not have been a reality without Southern White Voters. The New Deal funneled an enormous amount of government spending, programs, and finance infrastructure to the South. Southern Whites eventually became rich enough to become the new Republicans. Cold War spending continued the progressive income taxes of the New Deal, and continued sending northern tax revenue to Southern States.

The New Deal did not make the United States wealthy.

The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution.

Wealth redistribution is taking from those that earn and giving it to those that didn't earn it. In the case of a nation, it's taking from the right pocket and putting it in the left pocket.

How do nations become wealthy through wealth redistribution?

Wealth redistribution is, at best, financially neutral (as Charlie said, money from one pocket going into another). An X=Y situation.

However, when you take from the rich and give to the poor, eventually, the rich will find a way to remove themselves from the equation and your result is a loss.

Ryan's own signature is a prime example of this. Why does Warren Buffett pay a smaller percentage in taxes than his secretary? Its because he's set himself up to make all his "income" through dividends and capital gains, which are taxed at a lower rate.

Another example would be that of any corporation that has moved out of California. CA ranks number 48th out of the 50 states in terms of "Business Tax Climate" by the Tax Foundation.

[ryan costa]

Chile is a commodity exporting country. The reason their commodities have such high value, is because much larger and more populated nations became wealthy through protectionism plus well-regulated economies or wealth redistribution. Then buy their commodities.

No, Chile has been exporting commodities for decades(copper). The change happened because of economic reform.

The price of Copper is 4 to 5 times what it was 7 years ago. Chile produces nearly 40 percent of the worlds copper.

How are Chile's taxes and trade policies different than they were 10 years ago or 20 years ago or 30 years ago? I can only imagine them becoming more "liberal" after Pinochet left the picture.

One of the Economists who won a Nobel Prize for fancy mathematical models hypothesizing that "free" trade was beneficial - or at least not harmful - had some interesting conditions necessary for his math to make sense. one of them was that Capital doesn't chase cheap labor across national borders.

[Stephen Eisel]

The price of Copper is 4 to 5 times what it was 7 years ago. Chile produces nearly 40 percent of the worlds copper

The rise in copper is not the reason for their economic turn around.

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[ryan costa]

Hello Stephen. Your graph of copper prices ends at 2004.
Chile attracts foreign investment as capital follows cheap labor.
foreign investment is for undeveloped countries and declining countries.
America should not be in a position of requiring or pursuing foreign investment: in this crazy post-industrial global freakshow we are though.

The New Deal did not make the United States wealthy.

The New Deal made Southern States much wealthier. Cold War spending continued the New Deal. It continued making the Southern States much wealthier.

Wealth redistribution is, at best, financially neutral (as Charlie said, money from one pocket going into another). An X=Y situation.


However, when you take from the rich and give to the poor, eventually, the rich will find a way to remove themselves from the equation and your result is a loss.

Ryan's own signature is a prime example of this. Why does Warren Buffett pay a smaller percentage in taxes than his secretary? Its because he's set himself up to make all his "income" through dividends and capital gains, which are taxed at a lower rate.

Another example would be that of any corporation that has moved out of California. CA ranks number 48th out of the 50 states in terms of "Business Tax Climate" by the Tax Foundation.

wealth redistribution is a component of increased productivity and consumption.
Fiat Currency is integral to economic growth.

The New Deal made Southern States much more modern, prosperous, and wealthy.
Sam Walton was careful to build his early stores near military bases, other federal operations, and outside college and university towns loaded with federal funding and people.

When Henry Ford got Americans motoring in great numbers, it took enormous transfers of wealth to build the roads and infrastructure. through the new deal and through most of the 20th century, "wealth redistribution"(taxes) built up the infrastructure that allowed the right americans and immigrants to become real estate moguls and developer moguls. many of them went on to own professional sports teams.

Henry Ford practically "taxed" himself to pay his employees more. so they could afford to buy cars. his company grew the fastest. he became richer faster.

when you lower capital gains and top tier income taxes drastically, it induces employers to cut wages and jobs, and to take money out of the company.

All economic growth requires fiat currency and expanding money supplies. (That is what Banking is). this can be mitigated from getting completely crazy through regulation. regulations not enforced for most of the last 12 years. economic growth is ultimately tied to the interest rates of government notes. whether Americans are investing in them or foreigners is a matter of trade policy. The hypothetical rational free market continually outsmarts itself into catastrophic failure: the long depression of 1873. the bad wildcat banknotes after Andrew Jackson defeated the National Bank. and our ongoing banking collapses.

The point of my signature quote is that Warren Buffett believes it would be good and appropriate for taxes on his income to be higher, and for overseas tax shelters to be closed.

Correct me if I am wrong; is your primary benchmark for economic growth how many people are becoming enormously rich?:

Wealth redistribution allowed Andrew Carnegie to become one of the richest guys. he sold steel to the railroads. The railroads were subsidized with landgrants totalling twice the size of Texas, and often financed with arrays of government issued bonds/cash.

Wealth redistribution allowed Bill Gates to become one of the richest guys. most of these computers in schools, libraries, government agencies, etc were paid for with government money/tax money. including many of their software licenses. and the salaries of the employees or contractors who install them or keep them running.

the contractors who built our interstate highway system became rich through wealth redistribution. the gas station moguls who built gas stations so folks could buy gas to drive on the interstate highways got rich via the wealth redistribution that created the interstate highway system.

mortgage interest rates are ultimately tied to federal interest rates, federal insurances, and Federal Tax deduction policies. Dan Gilbert made enough money off government sponsorship to make the Forbes 400 list. He owns the Cavs, but the TAX Payers built the arena for him. in return he has a sweetheart operators contract and rent agreement. He was recently granted a state monopoly to operate casinos. I remember Quicken Loans: they kept trying to loan me more money than i was qualified for.

our Fast Food tycoons rely on our government's vast subsidies for big agriculture. the qualifications for receiving the subsidies have been catastrophic on the family farm. the big meatpacking plants rely on illegal immigrants. the vegetable and fruit fields rely on illegal immigrants. the Fast Food and chain restaurant tycoons have generally profited from wealth distribution. some of them even have enough money to own big chunks of professional sports teams. Our Fast Food and Chain Restaurant Tycoons rely on government wealth transfer policies. Regressive income taxes(FICA, self-employment,wealth redistribution) put sole proprietorships at a disadvantage and corporate franchises at an advantage.

[ryan costa]

part 2:

At the end of the Schindler's List movie, it mentioned a number of the survivors moving to America and making fortunes as real estate developers. Yes, their customers relied on wealth redistribution to afford the real estate and drive to and from the real estate and to and from the shopping centers.

The guy at the top of Blackwater made a lot of money through wealth redistribution.
Some of my relatives made a lot of money through blackwater.
The invasion of Iraq fits the criticism of "big government": enormously expensive, counter-productive, and unnecessary. I remember Conservatives promoting the invasion of Iraq much more intensely than a portion of Democrats.

Henry Kaiser became very rich through wealth redistribution. roads, schools, civic centers, the Hoover Dam, the World War II Liberty ships. After World War II some Greeks and Italians bought many Liberty Ships and became very wealthy. they benefited greatly from wealth redistribution.

wealth "redistribution" is a component of economic growth, and of prosperity.

A condition of the Nobel Prize Winning Economics mathematics that supports"free trade" is that "winners" compensate "losers". progressive income taxes. Our taxes are currently ultra-regressive.

Corporations leave states to chase tax abatements and subsidies. which means they are subsidized by the folks who don't get the tax abatements and subsidies.

Maybe when Florida is underwater our seniors will flock to Chile. Chile is much higher than sea level.

California has always been a model of what to do wrong in this country. their sprawl was the template for our oil addiction and expanding rotting urban cores. Gangsta Rap coalesced into existence in the older suburbs of los angeles. California is the model for "free trade". the home of ports receiving freight from around the world. California grew wealthy enough to produce more lawyers, faster. the external costs of the industries and settlement patterns of california are modern california. Complain of "liberal" hollywood all you want: the hollywood culture floats on money from collecting the markups from imports and investing it in television and movies.

[Stephen Eisel]

here ya go

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