Friday, December 23, 2016

Economic Freedom in Latin America

The Heritage Foundation just published an economic analysis of Latin America. I'd say most people would agree with a big chunk of it--for example, Latin America suffers from corruption and government interference in the financial system. Being the Heritage Foundation, however, it comes back to a single factor, "economic freedom," as the cure of all ills.

I know, I know, this is what the Heritage Foundation does. But especially at a time when the Trump administration will likely be looking there for appointees, it's worth pointing out the drawbacks to this approach.

The irony, of course, is that this "cure" is exactly what led to many past ills. We went down this road of economic freedom in the 1980s and into the 1990s, and the backlash led to Hugo Chávez and regional efforts at populism.

After many Latin American countries rejected the economic models of authoritarian dictatorships in the 20th century, they too often lurched to the opposite extreme and embraced socialist and populist varieties of authoritarianism and even totalitarianism marked by the same fatal flaws in the 21st century.

Actually, no. They rushed into market solutions that ultimately led to revolts, hence the "lurch."

The report does not mention inequality at all, and just barely mentions dependence on commodity exports. If you focus almost entirely on GDP as they do, then you ignore both the human reality and the structural constraints that exist. You can have all the economic freedom you want, but if you rely on commodities, then when prices drop you're screwed.


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