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How a small, poor country became the top economy in Latin America

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One way to learn about whether specific economic policies work or not is to look at different countries that have tried them. Believe it or not, patterns do emerge about what works and what doesn’t work, as you look across different times and places. I’ve been reading a book called “Money, Greed and God” with my friend Carla, which talks about what has worked to reduce poverty.

The author basically outlined two approaches. In the first approach, the government 1) confiscates the wealth of the most productive workers, 2) nationalizes (takes control of) the businesses of the most successful entrepreneurs, 3) restricts trading between citizens and with other countries, with minimum wage, price controls and tariffs. In the second approach, the government does the opposite: 1) lowers taxes on the most productive workers, and 2) lets entrepreneurs compete to provide goods and services to consumers, and 3) lowers restrictions on internal trading and trading with other countries, e.g. – eliminating minimum wage, tariffs and price controls.

Let’s take a look at two Latin American countries that went in opposite directions. Venezuela and Chile. Then we can finally find out which policies actually achieve results for the people.

Here is how Chile started out in 1973.

PROBLEM: Price controls and tariffs:

Prices for the majority of basic goods were fixed by the government in 1973. Even though Chile was and still is a small economy, the level of protection­ism was high. By the end of 1973, the nominal average tariff for imports was 105 percent, with a maximum of 750 percent. Non-tariff barriers also impeded the import of more than 3,000 out of 5,125 registered goods. Just as economic theory predicts, large queues in front of stores were usual in Santiago and other cities in Chile as a result of the scarcity caused by price controls.

PROBLEM: Government taking over private businesses:

The decline in GDP during 1973 reflected a shrinking productive sector in which the main assets were gradually falling under government control or ownership through expropriations and other government interventions in the economy.

PROBLEM: Deficit spending and government printing money:

The fiscal situation was chaotic. The deficit reached 55 percent of expenditures and 20 percent of GDP and was the main cause of inflation because the Central Bank was issuing money to finance the government deficit.

SOLUTION: lower or eliminate restrictions on trade:

The most important economic reform in Chile was to open trade, primarily through a flat, low tar­iff on imports. Much of the credit for Chilean eco­nomic reforms in the following 30 years should be given to the decision to open our economy to the rest of the world. The strength of Chilean firms, productive sectors, and institutions grew up thanks to that fundamental change.

SOLUTION: let competing entrepreneurs in the private sector provide goods and services to consumers:

A second fundamental reform was to allow the private sector to recover, adding dynamism to the economy. In fact, important sectors such as elec­tricity generation and distribution and telecommu­nications were still managed by state companies. After we implemented a massive privatization plan that included more than 50,000 new direct share­holders and several million indirect (through pen­sion funds) shareholders, these companies were managed by private entrepreneurs that carried out important expansion plans.

SOLUTION: let people take responsibility for their own lives instead of depending on government:

The 1981 reform of the Chilean pension fund system deserves special mention. Under the leader­ship of Minister José Piñera, an individual capitali­zation account program was designed with specific contributions, administered by private institutions selected by the workers. The Chilean Administra­doras de Fondos de Pension (Pension Fund Administrators or AFP) has been replicated in more than 20 countries, and more than 100 million workers in different parts of the world use these accounts to save for retirement.

SOLUTION: allow parents to choose the school that fits their needs from competing education providers, and push school administration down from the federal government to the municipal level, where it would be more responsive to voter’s needs:

In 1981, Chile introduced a universal educational voucher system for students in both its elementary and secondary schools. At the same time, the central government transferred the administration of public schools to municipal governments…  The financial value of the voucher did not depend on family income.

RESULTS: And I was able to find a nice short, description of how all that worked out for them on the far-left Wikipedia, of all places:

The economy of Chile is a high-income economy as ranked by the World Bank, and is considered one of South America’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.

In 2006, Chile became the country with the highest nominal GDP per capita in Latin America. In May 2010 Chile became the first South American country to join the OECD. Tax revenues, all together 20.2% of GDP in 2013, were the second lowest among the 34 OECD countries, and the lowest in 2010. In 2017, only 0.7% of the population lived on less than US$1.90 a day.

According to the Heritage Foundation, Chile is ranked as the 18th freest economy in the world. The World Bank ranked Chile as the 50th highest GDP per capita for 2018, just below Hungary and above Poland.

Now, you can contrast those results with Venezuela. I have been blogging about Venezuela for years on this blog, and documenting how they raised taxes, banned guns, nationalized private sector companies, raised tariffs, and increased regulations. They are now ranked JUST ABOVE NORTH KOREA for economic freedom – #179 out of 180 countries measured. Basically, they did the opposite of everything that Chile did – transferring power away from parents, workers, business owners, churches and municipal governments to the powerful centralized federal government.

Wikipedia explains how Hugo Chavez took over in 1999 and enacted a communist revolution.

More:

Since the Bolivarian Revolution half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital and imposed stringent currency controls in 2003 in an attempt to prevent capital flight, there has been a steady decline in oil production and exports. Further yet, price controls, expropriation of numerous farmlands and various industries, among other government authoritarian policies… have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers.

They confiscated private property, took over private sector businesses, implemented tariffs and price controls, redistributed wealth via massive welfare programs, and pushed all decision-making out of families and municipal governments up to the federal government. By depriving the producers of their earnings, the country caused massive shortages of goods and services, to the point where people are fleeing the country, consuming zoo animals, and selling their bodies as prostitutes in order to get food and water.

Application

In the next election, we are not picking a tribe because of how they make us feel about ourselves. We are not choosing in order to see ourselves as “nice” and “not nice”. We need to look at specific policies being proposed, and see what works and what doesn’t work. The examples of Chile (rags-to-riches) and Venezuela (riches-to-rags) are helpful for voters who want to get RESULTS instead of FEELINGS.

I’ll leave you with a list of links from previous posts so you can see how communism worked out for Venezuela.

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New study: Biden’s tax hikes hit 80% of Americans, $6,500 less median household income

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These people are all voting for Joe Biden - are you?
These people are all voting for Joe Biden – are you?

This study actually appeared in the Wall Street Journal, but since they have a paywall, I am linking to The Federalist instead. This new study comes from the Hoover Institute at Stanford University. The Biden campaign is claiming that middle-class households won’t feel any effects from these tax increases. But the study is clear. Not only will 80% of Americans pay more, but many jobs will also be lost.

The Federalist reports on the study, which has some very prestigious authors:

A new study shows that Democratic Presidential Nominee Joe Biden’s proposed economic plan would significantly hurt the long-term American economy if implemented.

While many mainstream media outlets claim Biden’s plan will target the wealthy and save the middle-class money, the 50-page study released by the Hoover Institution shows different results.

“Economists have paid too little attention to the economic effects of the Biden plan,” said Casey B. Mulligan, professor of economics at the University of Chicago. “Our report, which focuses on taxation, health insurance, regulation, and energy policy, suggests that these effects are potentially very large indeed.”

The study conducted by a group of financial and economic experts including Mulligan, former Chief Economist of the White House Council of Economic Advisers, and Kevin Hassett, Chairman of the Council of Economic Advisers since 2017, demonstrates how Biden’s plan will hurt everyone.

This is the bottom line: higher unemployment, lower household income for the average household:

“We conclude that, in the long run, Vice President Biden’s full agenda reduces full-time equivalent employment per person by about 3 percent, the capital stock per person by about 15 percent, real GDP per capita by more than 8 percent, and real consumption per household by about 7 percent,” the report stated.

If Biden’s proposed changes are implemented, the economists warn that, according to the Congressional Budget Office’s projections, 2030 may yield “4.9 million fewer employed individuals, $2.6 trillion less GDP, and $1.5 trillion less consumption in that year alone.” The economists also note that the median household income in 2030 would fall by $6,500 despite Biden’s promises to prioritize the middle class.

You’re not going to be immune to this, even if you’re poor:

While Biden and his VP Nominee Kamala Harris previously promised that they will not “raise taxes on anyone who makes less than $400,000,” they have also promised to repeal the tax cuts made by President Trump, which gave 80.4 percent of all taxpayers a cut and 91 percent of the middle quintile a cut.

I don’t like numbers like this. It’s not just that I have to work the same amount for less take-home pay, which reduces my freedom. It’s also that the pressure on “the rich”, i.e. – MY EMPLOYER, causes companies to ship jobs overseas where labor costs are lower. Did you know that higher taxes causes outsourcing of jobs? The more that business owners have to pay, the more likely they are to pick up and move somewhere else – taking their jobs with them.

I don’t like this. It’s hard enough for me to make a living without the government taking more of what I earn. I’ll have to work longer in order to make up the difference – assuming I can even keep my job.

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What Americans don’t know about Canada’s single-payer health care system

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Price of healthcare per Canadian household (Source: Fraser Institute)
Price of healthcare per Canadian household (Source: Fraser Institute)

I post a lot of research from Canada’s Fraser Institute, but they are not the only think tank that publishes research on the efficiency and costs of single payer health care in Canada. This time, I found a report from the Heritage Foundation, where they go over quality of care, taxes, out of pocket costs, coverage, rationing, waiting lists, staff shortages, substandard equipment, and outdated drugs.

Here’s the report from the Heritage Foundation. I’ll focus on the differences.

Canadians pay slightly less in out of pocket costs:

The OECD calculates that Canadians spend 1.6 percent of GDP on out-of-pocket health spending, compared to 1.9 percent in the U.S.

[…]While these numbers are very close, they are actually getting closer. Since 1970, U.S. out-of-pocket spending as a percentage of total medical spending has been falling steadily, from 33 percent in 1970 to about 10 percent in 2017.19

Meanwhile, Canadian out-of-pocket spending has been falling much slower, so that by 2016 it totaled 15 percent of total medical spending—a higher proportion than in the U.S.20

 As a result, Statistics Canada warned in early 2020 that the percentage of Canadians experiencing large out-of-pocket burdens is growing, writing that “[b]etween 1998 and 2009…the percentage of households spending more than 10% of their total after-tax income on health care rose by 56%.”

Canadians pay more in federal and state taxes:

Federal taxation excluding social security contributions, then, comes to 28 percent of GDP in Canada, compared to just 19 percent in the U.S.—meaning 51 percent more.

[…]This excess taxation is largely a result of health spending, which has bloated provincial budgets to nearly three times the taxes of U.S. states.

Provincial taxes have grown to nearly the same level as federal taxation. Meanwhile, provincial health costs have risen to fully 37 percent of provincial budgets in 2016—up from 33 percent in 1993 – —and range as high as 42 percent.

Canada’s Fraser Institute has estimated this excess tax burden from public health costs at roughly $9,000 for a household of two adults with or without children or $750 per month in additional taxes.

When I wanted an MRI I was scheduled the same week
When I wanted an MRI I was scheduled the same week

Canadians wait far longer for treatment than Americans:

Medical waiting times have become a national crisis in Canada, and continue to worsen. The average wait time for medically necessary treatment between referral from a general practitioner and a consultation with a specialist was 8.7 weeks in 2018, 136 percent longer than in 1993. Patients then have to wait again between seeing the specialist and the actual treatment, another 11 weeks on average, 97 percent longer than in 1993.

From referral to treatment, then, it takes an average of 19.8 weeks (see Chart 2) to be treated, in addition to the original wait to see the family doctor in the first place—this for “medically necessary” treatment, not cosmetic surgery.

In contrast, nearly 77 percent of Americans are treated within four weeks of referral, and only 6 percent of Americans report waiting more than two months to see a specialist.

As for appointments, a 2017 survey of American physicians in the 15 largest U.S. cities found that it took just 24 days on average to schedule a new-patient physician appointment, including 11 days for an orthopedic surgeon and 21 days for a cardiologist.

As a result of these long waits, by one recent estimate, at any given moment, over one million Canadians—3 percent of the entire population—are waiting for a medical treatment.

These lists can average six months, and often much longer in rural areas, which tend to suffer from doctor shortages so severe that many do not even have a family doctor. Overall, 15 percent of Canadians did not have a regular health care provider in 2017.

The shortages ripple through the system; one doctor in Ontario called in a referral to the local hospital, only to be told there was a four-and-a-half year wait to see a neurologist.

In Canada, people die or become inoperable on waiting lists:

A Montreal man was finally called for his long-delayed urgent surgery two months after he had died. One 16-year-old boy in British Columbia waited three years for an “urgent” surgery, during which time his condition deteriorated so much that he became a paraplegic.

Canadians have to travel abroad to countries with functioning health care systems in order to be treated:

These cases are, unfortunately, not isolated; a survey of specialists found that average wait times exceed what is deemed clinically “reasonable” for fully 72 percent of conditions in Canada. The situation continues to worsen every year: In 1994, the average gap between clinically reasonable delay and actual delay was only four days, and by 2018 had grown to 23 days.

[…]With one million waiting, many Canadians turn in desperation to U.S. health care—the very system some U.S. policymakers propose to transform. In 2017 alone, Canadians made 217,500 trips to other countries for health care, of which 52,500 were to the U.S., paying out of pocket to skip the waiting.

Outdated equipment, outdated drugs, staff shortages:

 While the average employer-sponsored private insurance plan in Canada covers between 10,000 and 12,000 drugs, most public plans in Canada only cover 4,000. Canada has 35 percent fewer acute care beds than the U.S., and only one-fourth as many magnetic resonance imaging (MRI) units per capita—indeed, it has fewer MRI units per capita than Turkey, Chile, or Latvia.

[…]Some common treatments are simply unavailable to Canadians. For new pharmaceuticals, for example, Canada’s policy of forcing down prices so that American consumers essentially pay for Canada’s research and development has led to years-long delays for Canadian patients.

[…]Cutting corners on facilities and using outdated drugs show up in Canadian mortality rates. Thirty-day in-hospital mortality rates in Canada are 20 percent higher than in the U.S. for heart attacks, and nearly three times the U.S. level for strokes. Cancer age-standardized mortality is 10 percent higher in Canada than in the U.S.—despite far healthier lifestyles.

[…]When it comes to personnel, Canada underspends on medical staff and doctors, ranking 29th out of 33 among high-income countries for doctors per 1,000 population, accounting for a large part of those wait times. Canada has half as many specialist physicians per capita as the U.S.

[…]With such shortages and waiting lists, Canadian emergency rooms are packed. So packed that Canadians sometimes just give up and go home. Of Canadian ER visitors who are seen, 29 percent report wait times of over four hours, three times the U.S. level.

[…]Canadian seniors are 65 percent more likely to have visited the emergency room (ER) four or more times in the past year than American seniors.

Ultimately, nearly 5 percent of Canadian ER visitors end up leaving without ever being treated, giving up on a medical system that is perennially “free” but out of stock at the moment. In one study at two ERs in Alberta, 14 of the 498 walkaways were subsequently hospitalized, and one died within the week.

And keep in mind how things work in a single payer system. You pay up front through your taxes. The harder you work, the more you pay into the system. When you want treatment, you just get in line behind people who never paid one dime into the system – like all those low-skill refugees that Canada imports from Middle Eastern countries to build up the socialist voting bloc.