Thursday, February 21, 2013

Milton Friedman, The Champion of Chile

Milton Friedman was an influential fellow, the propagator of the Chicago School of economics, and probably the most prevalent and successful economist of the last 50 years. 

My first inkling of his work was in watching the commanding heights when I saw he informally aided Chile in dealing with macroeconomic monetary woes that were crippling its already underdeveloped economy. After a military cou, the newest dictator of Chile gave his economic staff an ultimatum, fix the economy or die. Luckily for them many of them were graduates of the Chicago School and they immediately asked Milton for a personal visit to Chile to give them some pointers.

During his visit, he saw many things. He was openly opposed to the military junta (dictatorship), but he felt that it was a direct symptom of the floundering economy beset with rampant inflation and a dysfunctional redistribution system. What he proposed in a letter to the chilean president (dictator) was a series of shock measures. These included such things as:

- Reducing inflation by drastically cutting government spending, thus the government would not have to print more money to pay its debts.

- Removing several government institutions that regulated trade, to cut spending and promote a free market

- Cutting several redistribution programs to promote a free market and reduce government expenditure.

The result was that Chile eventually tamed its inflation, and the concurrent economic growth and freedom lead to a peaceful transference to a democratic government several years later in 1990. Even though the measures were carried out by the Chilean government, many of them were graduates of the Chicago School of Economics and were members of its local chapters allowing the reforms to be implemented across the board. He may have only visited and wrote a letter but the impact is measured in the brilliant economic success of Chile and its transition to democracy.

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