Tuesday, December 04, 2007

Judge Friedman's Advice To Pinochet Yourself

Naomi Klein makes available Milton Friedman's 21 April 1975 letter to mass murderer Augusto Pinochet.

17 comments:

Gabriel M. said...

Great advice, that he offered to several other countries and that he would have offered to many more.

I'm not sure what's your (or Klein's) point on this one. Would you have asked of Friedman to overthrow the Pinochet regime with his superhuman hand strength and laser vision? Or maybe you would have preferred that Chile send its young in the Soviet Union rather than Chicago?

Anonymous said...

My reading is, "If you're going to be a murderous thug, at least don't drive your nation deeper into poverty while doing so." I echo Gabriel's question. What advice would you rather have had Friedman give?

-Chris

Anonymous said...

Hey,

I haven't read the Klein book. But it seems to me that the point (or at least a point) is that without Pinochet's coup and the annihilation of the left (the 'disappearances', torture, and/or deaths of thousands and the internment of tens of thousands) a Friedmanite policy would not have been possible.

Friedman's technocratic proposals in the letter show quite a naivete (possibly willful) about capitalist society. Even if you believe in the efficacy of his proposals for the sake of argument, it's clear they would have been impossible without a reign of terror. Note particularly the acknowledgement that the sudden chop of goverment spending will "involve a temporary transitional period of severe difficulty".

Friedman's was the voice of a technocrat - however much he saw himself as an opponent of the state, given the balance of social forces in 1970s Chile, his kind of program required a strong, authoritarian government backed by lethal force. He shows no consciousness of that in the letter; understandably it was easier not to think about it. Of course Friedman was not to blame for Pinochet, but it took the coup to make Friedman's policies implementable - that is the point.

Mike Beggs
scandalum.wordpress.com

Anonymous said...

"Great advice, that he offered to several other countries and that he would have offered to many more."

Hardly great advice, given what happened to the Chilean economy. Unless, of course, you mean "great advice for making the rich richer." Chile was only "an economic miracle" if you were rich. Then, of course, it collapsed in 1982...

Kaldor stated the obvious:

"The rate of growth of the money supply was reduced from 570 per cent in 1973 . . . to 130 per cent in 1977. But this did not succeed in moderating the growth of the money GNP or of the rise in prices, because -- lo and behold! -- no sooner did they succeed in moderating the growth of the money supply down, than the velocity of circulation shot up, and inflation was greater with a lower rate of growth of the money supply . . . they have managed to bring down the rate of growth of prices . . . And how? By the method well tried by Fascist dictatorships. It is a kind of incomes policy. It is a prohibition of wage increases with concentration camps for those who disobey and, of course, the prohibition of trade union activity and so on. And so it was not monetarism that brought the Chilean inflation down . . . [It was based on] methods which by-passed the price mechanism." [The Economic Consequences of Mrs Thatcher, p. 45]

I think that Friedman could have, just perhaps, been somewhat critical of the regime in his letter. Perhaps he could have said that killing trade unionists was not consistent with free market principles? Perhaps he could have said that "I refuse to give advice to a murderous dictator"?

Instead he repeatedly praised the regime's economic policies. For example, he stated in 1982 that Military Junta "has supported a fully free-market economy as a matter of principle. Chile is an economic miracle." Apparently torturing and killing trade unions is compatible with free market principles. The Junta themselves had no illusions about the military-like regime they desired, stating in 1974 its intention of "imposing authority and discipline in production and labour relations."

Of course, Friedman did write of his "disagreement with the authoritarian political system of Chile." Yet, of course, the so-called "economic miracle" did not happen in isolation to that political system. With a population too terrified to speak out you can get the general public to pay the price -- which they, of course, did.

In 1982 Friedman noted in response to the economic problems of the previous year "the opposition to the free-market policies that had been largely silence by success is being given full voice." No mention that the real cause of the "silence" of the opposition was not the "success" of policies which had impoverished the working class and enriched the elite but, rather, the expectation of a visit by the secret police.

And, of course, the protests which did erupt as a result of the collapse were brutally put down.

As for "maybe you would have preferred that Chile send its young in the Soviet Union rather than Chicago?" Yes, of course, Stalinism was the only alternative! If in doubt, raise the "commie" bogey man!

Perhaps there could have been at least one other alternative, maybe not working with authoritarian regimes in order to impose your vision of what "economic science" says people need? But, then, state power is always needed to impose "free market" capitalism...

For more on Chile, there are two sections in "An Anarchist FAQ" which may be worth reading:

http://anarchism.ws/faq/secC11.html

and

http://anarchism.ws/faq/secD11.html

Iain
An Anarchist FAQ

YouNotSneaky! said...

This is one of those recurring debates where often both sides end up completely blinded by their ideologies.

Stepping back - the effect of the Chicago Boys' reform in Chile was not as great of a success as some of its proponents claim but neither was it the capitalist nightmare that some make it out to be.

First, Kaldor is either wrong or being misquoted. While income policy or what have you may or may not be effective when trying to reduce inflation from, say, 20% down to 10%, once you're talking hyperinflation of 500+%, at some point you gotta turn off the money printing press, there's just no way around that. Only crazy people think otherwise.

The reforms did not "impoverish the working class", at least not anymore than Allende's policies did. Throughout the 70's and up to mid 80's Chile's (absolute) poverty rate stayed about the same. Under Allende there might have been some benefits to the very poor from social programs and the like but those benefits were pretty much fully offset by the fact that the whole economy was crashing, by the skyrocketing rises in cost of living (inflation) and rising (real) unemployment (the Leftists here like to blame the rise in unemployment during 1970-1973 on 'reactionary' capitalists who were unwilling to hire workers at the wage rates mandated by Allende's government. Whatever). On the other hand, Pinochet didn't do much for the poor either. The fact that post-Pinochet Chile halved its poverty rate from 40% to about 20% in about five years suggests that he could have had he wanted.

What about overall income? Well, economy was in full nose dive in 1973. Reforms didn't really get implemented till 1975 and then came the Latin American debt crisis in 1982. And income growth was very volatile during this period. This basically means that you can argue for 'success' or 'disaster' just by picking the right starting and ending points.

As far as the debt crisis - I haven't read Winn's book that Ian quotes extensively on his page. But there does seem to be some sleight of hand going on. For example, stating that in 1982 Chile's GDP fell by 13% while rest of LA's fell only by 3.somethin % is pretty much misinformation. First, it seems like Winn's talking about agg. GDP not per capita. Second the crisis had a different timing in different countries. So again, you can 'prove' whatever you want by picking the right time period. In this case that would be the trough for Chile and only the beginning or end for other countries. Between 1980-1985 average per capita incomes in Latin America fell by about 10%, on average, regardless of what kind of economic system it had. Combing the above 13% with pop growth and so on basically means that Chile's per capita drop during the debt crisis was ... average.

This basically mean that while some of the reforms (yes, like turning off the money printing press) were pretty much essential in order to turn the economy around from a complete crash, others were unnecessary and yet still others were never undertaken. Which means that Chile's economy was left vulnerable to external shocks (like spikes in US interest rates) pretty much like every other country in the region. I'm not sure though if any other government, whatever its ideology would have done better wrt to this.

Finally, as to the politics, murder and protests. First, they should've hung Pinochet when they had the chance, old age or no. The man was scum and he deserved it. On the other hand the veneration that some of the folks on the left have for Allende is only somewhat less weird and less annoying that some have for Che Guevera. Protests - yes, by workers - started under Allende. Lots of the workers and 'trade unionists' wanted just that - trade unions. Not full blown Cuban-style socialism (and if you don't think that that was where Allende was heading consider the fact that even Soviet advisors to Allende were telling him to slow down - they didn't want another Cuba they'd have to support on their hands). Of course Pinochet was worse in this respect, but it's not like there haven't always been plenty leftists who had no qualms about 'purging' their less radical brethren. Then there's always that adjective 'democratically elected' that's slapped in front of Allende's name. So? There's been other, um, 'leaders' that have been 'democratically elected' but did not 'govern democratically'. By 1973 Allende had lost most of the support he had, including the leftist Catholic party and the moderate socialists who also wanted him out - just not in the way it happened. As a result he was relying more and more on extra-legal means to hold on and expand his power. This, to put it mildly, casts quite a shadow on his democratic credentials.

Did I mention they should've hung Pinochet from the nearest lamppost as soon as they had the chance?

Mike said...

Hey YNS,

You seem to share Friedman's technocratic view of the state and economic policy - that policy is an exogenous factor in an economic system whose machinery is immutable. So you have "Allende's policies" and then you have "the junta's policies" which are supposedly acting on the same raw material.

What happened in Chile prior to the coup was a social upheaval in which the Allende government was a strategic actor, not an exogenous force - even within the state. After all, Congress was controlled by the opposition, and it was that Congress in 1972 whose spending widened the deficit.

The crisis of 1972-73 had many causes. Not least, that world conditions were chaotic. Chile's terms of trade were at a 30-year low because of the copper price. The US led an effort to "condemn the Chileans to utmost poverty" as its ambassador is quoted in Iain's FAQ. Besides the plotting with the opposition, that was materially reflected in the credit blockade that cut off foreign funds just when the country was most in need thanks to the trade deficit.

That heightened the internal chaos, where the Allende government was caught between class forces - those whose hopes were raised were pushing forward while those who were threatened pushed back. There's nothing like a capital strike to remind of the limits of state power.

It's hardly meaningful to argue from the perspective of decades that in the long run living standards rose. That happens in every stable industrial society, and no doubt would have happened under Allende had things stabilised differently. What was being decided was the terms of stability, and in the end force made the decision.

Your argument 'love the policies, pity about the murderous dictator who just happened to be the one implementing them' is silly. People have to take historical conditions as they find them; in 1970s Chile, it took a reign of terror to make Chicago policies possible.

Mike Beggs
scandalum.wordpress.com

Mike said...

On the Kaldor question... I haven't read that particular book but I'm familiar with his general views on money and inflation and his debate with Friedman.

Kaldor is a monetary endogenist - he recognises that the state does not control the quantity of money, especially not in a modern banking/financial system. Partly that's because the financial system can economise on liquidity, thus raising velocity, and partly because monetary authorities are often forced to accommodate money supply growth to maintain a target interest rate. Of course he doesn't argue that states can run large deficits indefinitely without consequence, but he does recognise that it's anachronistic to talk about money in terms of 'printing presses' when the vast bulk of the money supply is private bank liabilities.

Going by the Kaldor quote in Iain's FAQ, it seems that Friedman was quite wrong that reducing the rate of growth of the money supply would slow inflation quickly. Everywhere in the world reducing inflation required a reduction in workers' bargaining power, through some combination of unemployment, repression and incomes accords.

Mike Beggs
scandalum.wordpress.com

Mike said...

Sorry, obviously in that last comment I meant that Kaldor recognises both that the state doesn't control the quantity of money, and that the quantity of money has an ambiguous relationship with the price level because of the variability of demand for money balances.

Mike

Robert Vienneau said...

Thanks for my comment.

My point in the original post was only to note the existence of some primary evidence. I deliberately neither offered a verdict on Friedman nor even the case for an indictment.

I'm not surprise my commentators are smarter than me. I think there is a book or pamphlet called something like The Chicago Boys in Chile that is uncited by the Anarchism FAQ and that I haven't read. Looking at Amazon, I cannot tell if what I am dimly remembering seeing cited is Garcia H. Alvaro (1983), Phil O'Brien and Jackie Roddick, Dudley Seers (1978), or Valdeis.

Robert Vienneau said...

I meant, "Thanks for the comments."

Anonymous said...

"First, Kaldor is either wrong or being misquoted . . . at some point you gotta turn off the money printing press, there's just no way around that. Only crazy people think otherwise."

Only crazy people think that the state controls the money supply, like Friedman did (for example). I would point to the utter failure of both Thatcher and Reagan to control the money supply as proof of this. The only reason why inflation fell during the 1980s was that the working class was broken by high unemployment and state attacks.

In that, Kaldor was proved correct. Friedman ended up admitting that controlling the money supply was not as easy as simply "turning off the printing press." Sadly, being right does not count for much in economics and so Friedman is remembered while Kaldor is not.

That Kaldor refuted both Friedman and Hayek is, of course, worthy of remembrance but he did not advocate policies which favoured the rich, so I doubt he will be remembered as much as he should be.

"The reforms did not "impoverish the working class", at least not anymore than Allende's policies did . . ."

The FAQ section goes into this, so I will not do so here. Suffice to say, inequality exploded in Chile under Pinochet and the bottom half did much worse. by a strange coincidence, it did the same under Thatcher and Reagan. I wonder whether they tried to implement Monetarism was just a coincidence?

"On the other hand, Pinochet didn't do much for the poor either."

You are being unfair. Pinochet did not ignore the working class. He broke the unions, repressed strikes, tortured and killed activists and so on. He did not exactly ignore them.

"I'm not sure though if any other government, whatever its ideology would have done better wrt to this."

Perhaps any other government would not have tortured and killed its opponents? Perhaps another government would not have repressed the unions and protests? Perhaps some other government would have not used torture as a means of controlling price increases?

"Finally, as to the politics, murder and protests. First, they should've hung Pinochet when they had the chance, old age or no. The man was scum and he deserved it."

Yes, around 1972. And perhaps given this Friedman should not have sent him such a polite letter...

"On the other hand the veneration that some of the folks on the left have for Allende is only somewhat less weird and less annoying that some have for Che Guevera."

Which is relevant in what way? I do not support Allende. Nor do I support that Stalinist Guevera.

"Protests - yes, by workers - started under Allende. Lots of the workers and 'trade unionists' wanted just that - trade unions."

And, of course, many workers were also seizing their workplaces and land, and many were protesting the economic conditions created by US intervention and capitalist activities.

"Not full blown Cuban-style socialism"

Actually, there was the possibility of a genuine socialism based on workers' control which, I am sure, Allende would have opposed just as much as Lenin did.

"Of course Pinochet was worse in this respect, but it's not like there haven't always been plenty leftists who had no qualms about 'purging' their less radical brethren."

And the logic of that statement is, what, exactly? Yes, Stalinist regimes repress just as much as capitalist dictatorships. That is irrelevant, really, as anarchists support neither.

"Then there's always that adjective 'democratically elected' that's slapped in front of Allende's name. So? There's been other, um, 'leaders' that have been 'democratically elected' but did not 'govern democratically'."

Ah, and so it is the duty of the army to step in and kill as many people as possible to restore "order"? Or would that be "the rule of law"? And, again, anarchists are well aware that states practice repression. We just fail to see that a military dictatorship is the best way to stop said regimes...

"Did I mention they should've hung Pinochet from the nearest lamppost as soon as they had the chance?"

I fail to understand your argument. Are you suggesting that Pinochet was required in the short term to "save" Chile from Allende? That seems to be the implication, but I hope I am wrong.

Iain
An Anarchist FAQ

YouNotSneaky! said...

I might have more to say later, but just wanted to note;

People! We're not talking 10% or 20% or even 30% inflation here. We're talking 600% inflation. There's nothing anachronistic about talking about "turning off the printing presses" in this instance. That's exactly what was happening and what always happens in these instances. Government runs a deficit and finances by printing, literally, oodles of money. You're not arguing that the "government doesn't control the money supply", you're arguing that the amount of money the government prints has no influence on money supply and prices. Even when it prints oodles and oodles of it. I don't care whether you're into endogenous money or what, that's just crazy talk.

YouNotSneaky! said...

And some of you's inability to read is particularly annoying:

""I'm not sure though if any other government, whatever its ideology would have done better wrt to this."

Perhaps any other government would not have tortured and killed its opponents? "

'wrt to this'!!!!!!!!!!! With respect to the freakin' debt crisis!!!!!!

If you're gonna argue with people, please do so honestly! Or do you want me to bring up Stalin every time any left of center issue is under discussion?

Nu said...

i thought Naomi Klein's book was about shock therapies and that the thesis was something like "they squeeze unpopular reforms in places that are in trouble" etc..

i don't know how this letter fits in there. I mean Friedman is opposing gradualism and recommending shock policies but then again like YNS said, with 600% inflation, there may not be another choice. And he's advocating gradualism and transparency for the other reforms.

As far as Allende's "democratically-elected" credentials. C'mon people. The guy was elected, sure, but badly elected. No clear majority and he had to sign a compromise with congress. And that same congress actually issued a document damn near calling for a coup a few weeks before the actual coup.
Now that doesn't mean Pinochet's dictatorship was justified. I mean it's one thing for the army to seize power temporarly to resolve a constitutional crisis and it's another to seize power, keep it indefinetly and go on an ambitious reform program.

now the issue for the Friedman and his defenders is that they claim Pinochet's Chile as a success. Then they should own up to it and say outloud that the murder of any opponents was justified too.
but of course then, they'll have a hard(er) time posing as defenders of freedom. (and no, i'm not talking about majority rule, i'm talking about something as simple as freedom of association and freedom of speech)

YouNotSneaky! said...

"You seem to share Friedman's technocratic view of the state and economic policy - that policy is an exogenous factor in an economic system whose machinery is immutable."

No I don't and neither do I think you're presenting Friedman's position accurately here. But there have been oppressive murderous regimes which have implemented 'pro-market' reforms, and there have been murderous oppressive regimes which have implemented 'socialist' reforms, and there have been non-oppressive, non-murderous regimes which have implemented 'pro-market' reforms. Which means that yes, one can look at the effects of given economic policies separately from political issues. OBVIOUSLY this doesn't imply that the economic effects are the only criteria by which a given society should be judged by.
BTW, Friedman gave more or less the same advice to the Chinese government, which, if anything, was more oppressive and murderous than Pinochet's, but no one seems to mind this one. Which does suggest that for most arguing this topic what is at stake is a blind devotion to their ideology rather than any kind of consideration of facts.

""Your argument 'love the policies, pity about the murderous dictator who just happened to be the one implementing them' is silly.""

This is not my argument and I am particularly annoyed that you would put words in my mind (to the point that originally I wasn't going to bother responding). The argument is this; there's a 100 mL glass sitting on a table that has 50 mL of water in it (well maybe more like 60 mL, whatever). The folks who see it as half full (those who defend the economic policies of Pinochet and Friedman's advice) keep insisting that there is in fact 100 mL of water in (the "miracle of Chile"). The folks who see it as half empty or who do not like the way it has been filled (those babbling about 'impoverishment of the working class' when statistics just don't bear this out) keep insisting that the glass is empty.
All I'm saying is that the glass in fact has 50 mL of water in it. The effect of economic reforms on various economic indicators after the reforms was mixed. Cutting inflation was most probably a success and it avoided a complete further crash. On the other hand, growth was uneven and the reforms didn't save Chile from the debt-crisis. On the other side, while it's true inequality rose (not 'exploded') it is not true that poverty rose (Ian, you might want to familiarize yourself with the difference between inequality and poverty) under Pinochet - it just stayed at the level it reached under Allende.

I know that by this point I'm just repeating myself but apparently people didn't actually read what I wrote before and skipped right to the 'oh, you support Pinochet then'.

Anonymous said...

"People! We're not talking 10% or 20% or even 30% inflation here. We're talking 600% inflation. There's nothing anachronistic about talking about "turning off the printing presses" in this instance."

And how does that affect the creation of credit by banks? How does that stop the velocity of circulation increasing? As Kaldor noted, it did not. State repression, not the impossible "state control of money", was what counted.

"You're not arguing that the "government doesn't control the money supply", you're arguing that the amount of money the government prints has no influence on money supply and prices."

Er, no. I'm arguing that the amount of money the government prints is driven by the demands of the economy. Attempts to control the money supply failed under Pinochet, Thatcher and Reagan. What they had to do was control the demand for money, not its supply. All three did so by means of high interest rates and making worse a recession. Pinochet added dictatorship to that mix, although Thatcher and Reagan used state repression to break strikes.

I will also note you failed to provide facts to refute, who was both knowledgeable on the Chilean economy and successfully predicted the failure of Monetarism to control the money supply. I think I will stick with Kaldor's expert opinion on this matter, unless you have something more substantial to back up your assertions.

Which, after all, is what they are -- calling an opinion "crazy talk" is not refuting it. Particularly when the position is held by one of the greatest economists of the 20th century and who, significantly, successfully predicted the failures of Monetarism.

"Even when it prints oodles and oodles of it. I don't care whether you're into endogenous money or what, that's just crazy talk."

If you bothered to understand the position being argued and the facts of the matter under Monetarist regimes, you would discover that thinking the state controls the money supply is "crazy talk."

"'wrt to this'!!!!!!!!!!! With respect to the freakin' debt crisis!!!!!!"

And how did Pinochet respond to the protests produced by the crisis in the 1980s? Well, by repressing them and killing quite a few people. I'm sure that other regimes faced with the same problems may not have done so. In other words, other regimes did respond better to the crisis -- in human terms.

"If you're gonna argue with people, please do so honestly!"

Pinochet's regime did respond to the 1980s crisis by using lots of state repression. That is a fact. Less dictatorial regimes may have responded better in the sense of not killing people.

"Or do you want me to bring up Stalin every time any left of center issue is under discussion?"

Sorry, but bringing up Stalinism seemed to have started from the first post. Not by you, though -- you brought up Che Guevera. So I not need to ask you to bring up Stalinism, you do not unasked.

YouNotSneaky! said...

Well, if you think that shifts in the demand for money, or the banking system, can "endogenously" create 600% inflation and that it has nothing to do with money supply creation (or ending it with a decrease in this creation) then there is probably not much I can say to convince you otherwise. And I don't think that Kaldor though that either. Like I said before, my suspicion here is that he's being quoted out of context.

Yes, 'monetarism' failed in the US because of shifts in money demand in the late 70's and early 80's. But we're talking about a country with, once again, an inflation rate of 10% or so and the 'failure' means that a good portion of that 10%, say 5%, was due to money demand factors (that's not exactly it but I'm simplifying it to make a point). In the case of the Chilean economy this would still leave something like 595% of inflation due to money creation.

The whole 'endogenous' money thing doesn't mean that it works in the same way in situations with hyperinflation. Again, I'm not arguing the monetarist position here! That inflation is 'always and everywhere a monetary phenomenon'. I'm just arguing that sometimes, in some places, particularly when you're talking hyperinflation, it is a monetary phenomenon. You're denying the antecedent here. Or affirming the consequent. Or monkeying up the bananas. Just because it's not true that inflation is ALWAYS a monetary (Bad Monetarism! Bad!) phenomenon, does not mean it's NEVER one.

If Kaldor did believe that, then, yeah, I'm sorry but he was wrong.

And, again to repeat myself, in regard to the 'debt crisis'. The quote from your webpage implied that the ECONOMIC effects of the debt crisis in Chile were more severe and worse than in other Latin American countries:
"Chile's GDP fell by 13% while rest of LA's fell only by 3"

I noted that this was a result of cherry picking your time periods and that in fact the effect in Chile was about average for the region. And yes, I speculated that since there was a variety of responses throughout the region and yet all of these countries suffered more or less to the same degree, the Chilean ECONOMIC reforms probably weren't to blame for the severity of the crisis, at least not anymore than any of the other policies pursed in the other crisis-afflicted countries at the same time. To which you implied that I meant to say something positive about repression under Pinochet. This is what makes your arguments dishonest and despicable.

Oh, and glad to see that we're on the same page with regard to the parallels between Stalin and Che.