The Chicago Boys

Free market economy - IN ACTION!

Bored.

So here's a rainy day topic - a discussion of how the "Chicago Boys" southside brand of free market economic theory, which originated in the University of Chicago lecture halls near the corner of 58th and Woodlawn during the 1970s, had an affect on global markets.

So, below, is a brief overview:

Beginning in 1973, a group of 30 Chilean economists educated at U of C were provided with the unusual opportunity to apply their market theories to an entire country. Using Chile as a laboratory experiment, the hypothesis was to build a nation through free market economic prosperity. The experiment was based on the economists broad theories of decentralization, privatized, and deregulation, amongst many others. The Chicago Boys were followers of U of C prof and Nobel Laurate Milton Friedman (1972, Economics) and his theory of "free market" economy, which they took from the lecture halls of Chicago's southside to South America's Pacific Coast.

Chile's political climate in 1973 provide the ideal opportunity the economists were seeking to put their ideas into action. With the backing of Dictator-General Augusto Pinochet, and without any major opposition, (and with the support of the IMF and World Bank) the Chicago Boys embarked on this new approach to doing business in banana republics. Pinochet's only real role was the active - very active - suppression of opposition to the fallout of the application of these theories from lower working classes. This included, but was not limited to, union busting, death squads, and a general lack of freedom associated with democracy.

From 1978 to 1981, Chile experienced a so-called "economic miracle" as the economy grew an average of 6.6% per year. This number is deceiving, however, as the Chilean economy had been in such bad shape previously, that much of that growth was simply displaced workers returning to their old jobs as high-interest loans pumped life back into non-productive sectors of the economy. During this period of growth, data also suggests that the disparity of wealth among Chileans grew, and the quality of life for most dropped. Meanwhile, by 1981, Chile's mad rush into the world market left it over exposed to market forces. So when the global recession occurred in 1982, Chile was hit especially hard.

Additionally, the reckless implementation of this free market theory and pursuit of trade to foreign markets resulted in increased pollution and caused massive environmental damage to Chile; native forests disappeared, fish stocks declined, and Santigo's pollution became among the worst in the world, increasing infant mortality rates.

While Pinochet's reign of terror ended in 1989, the legacy of this experiment is still being felt today. Chile has one of the highest debts in the world and poverty remains overwhelming. On the positive side, Pinochet may finally be brought to justice for the crimes he committed during this dark era.

For more on this topic, check out the book Pinochet's Economists; The Chicago School of Economics in Chile by Juan Gabriel Valdes (ISBN # 0521451469).

We now return you to your regularly scheduled programming.