*The Chile Project*

An excellent book, the author is Sebastian Edwards, and the subtitle is The Story of the Chicago Boys and the Downfall of Neoliberalism.  This is the only book on this topic where I feel I am finally getting to the bottom of what happened.  Here are a few points:

1. The Chicago School ties to Chile go as far back as 1955, when Theodore Schultz, Earl Hamilton, Arnold Harberger, and Simon Rottenberg visited to strike up an agreement with Catholic University in Santiago.

2. The same year Chilean students started arriving at U. Chicago for graduate study.

3. Edwards himself, at the age of 19, worked on price controls under the Allende regime.

4. Paul Rosenstein-Rodan, the (left-wing) Austrian economist, was critical of the Allende regime for deviating from true socialism.

5. The Allende regime was a disaster, with for instance real wages falling by almost 40 percent (this one I knew).

6. Pinochet’s much-heralded private pension reform really did not work (I may do a whole post on this).

7. Milton Friedman’s famed visit really was quite modest, contrary to what you sometimes hear.  Nonetheless he was so persuasive he really did convince Pinochet to proceed with the shock therapy version of reform.  He had mixed feelings about this for the rest of his life, and did not like to talk about it: “But deep inside, Friedman was bothered by the Chilean episode.”

8. You may know that pegging the exchange rate was one of the major Chilean mistakes during the reform era.  Friedman, although usually a strict advocate of floating exchange rates, did not take the opportunity to criticize that decision, and in fact made some remarks that suggested a possible willingness to tolerate a moving peg regime for the Chilean exchange rate.

9. Friedman underestimated how long Chilean unemployment would last, following shock therapy.

10. Arnold Harberger “…prided himself in not being doctrinaire and not being a Milton Friedman clone.”

11. Much more recently, Chile turned to the Left, in part because Chilean market-oriented economists retreated from public debates.

Strongly recommended, one of the must-reads of the year.  You can buy it here.