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  • The Real Chicago Boys

    Posted by Jonathan on March 1st, 2008 (All posts by )

    From City Journal:

    “Pinochet had no clue about economics,” Lüders recalls, “and our country was in a desperate situation.” But when Pinochet asked Friedman, who had helped mold Chicago’s economics department, to provide solutions for hyperinflation, the great economist proposed just the right cure: monetary control. Harshly criticized in the U.S. for his “collaboration” with the dictator, Friedman responded by asking whether he should have let the patient—the Chilean economy—die instead.
     
    Lüders admits that he and his fellow academics relished the chance to devise a new economic model on a blackboard and observe the results. At first, those results weren’t much to brag about. In the early 1980s, external shocks, capital flight, declining prices for copper (the main Chilean export at the time), and excessive trust in the market’s self-correcting mechanisms caused many glitches—and a severe recession.
     
    Beginning in 1985, however, the more pragmatic Hernán Büchi, who served as finance minister under Pinochet, helped correct the errors through tighter control of capital flows into and out of the country. Though he holds a degree from Harvard, Büchi is still deemed a Chicago boy in a land where that city’s name has become a generic term for free-market economists. “The economic solutions we provided for Chile had nothing extraordinary about them,” Lüders says. “We privatized the companies, which had been nationalized by the Socialist Allende regime. We stabilized the currency. We opened the borders to trade. The strong Chilean tradition of entrepreneurship took over from there.”

    (Thanks to Val Dorta for the link.)