Wednesday, March 10, 2010

Well, an issue certainly

Sebastian Piñera becomes President of Chile this Thursday.

Chile is, by nature, a centre-of-right country. The energy sector and the waterworks are within the private sector and the law makes the existence of wide-scale deficit-financing basically verboten.

So, after the years of Bachelet, who was in all accounts a terrific president, pushing constantly for the social aspect of liberty, Piñera's reign was bound to be pleasant and straightforward.

He would overturn slowly but surely many of Bachelet's economic decisions and steer the country gently back towards the path that has shown to lead to immense progress.

But the earth was shaken from beneath him.


So now, Piñera's first years of economic progress will instead be dedicated to a large-scale project for the restoration of Chile.

When disaster strikes, the reply "Let the markets take care of it" sounds callous, evil yet. Even if it
works (PDF link).

Now, Piñera, who must fight to keep afloat above Bachelet's exiting 80+% exit approval rate, will no doubt invest heavily in government solutions to the earthquake crisis.

I'm not saying this is right or wrong. In the face of strong adversity, it is even inhumane to stand back and wait for the market to take care of things, even if it will necessarily do so.

Politically though, this means that Piñera's honey-moon year will be spent on rebuilding. With deficit-capping legislation, the Piñera administration might even have to raise taxation percentages to fund the restoration.

Within the realm of palatable politics, the Piñera administration should help eagerly in the rebuilding of Chile, even if it means reshifting its planned budget to fund mainly infrastructure projects.

Parallel to this, however, he should also press for market solutions, viz. (i) enforcing property rights to prevent looting; (ii) avoiding price controls which would force already destroyed businesses out of, well, business; and (iii) cutting government expenses across the board (except in infrastructure brackets) so that the private sector can rapidly fund itself back to its feet.

If this path is taken, and the expenditures and results are carefully monitored, Piñera will come out with a strong case for market forces and will have earned sufficient approval to carry out system-wide free market reforms.

Reforms which, after all, got Chile to its current superior economic position.


  1. This comment has been removed by the author.

  2. ery interesting article, it kept me thinking.

    I agree completely in the part where you claim he should press for market solutions, all three of them.

    However, I do have a disagreement.Although, I do acknowledge that when there's a catastrophe help is needed and is needed fast. We need not to forget that it should only last for a rather small span of time.

    Infrastructure work can be done privately, government could "grant" concessions
    You know it is not "the market" taking care of. Even at the face of eminent disaster the particular individuals going through it would surely have way better solutions than any governmental entity could. Just think about the time it'll take for government to decide what to do...
    If Piñera really gets it, he'll know it unwise to increase taxes. The little that many small businesses had left should go to increase production or whatever urgent restoration is needed.
    BTW: did you learn there was a strong aftershock shortly before inauguration!!! Nuts!

  3. I didn't. What's up with Planet Earth? Chile, Japan, Taiwan, Turkey and Costa Rica so far. It's crazy.

    I do agree that individuals are much more capable than the government at solving any number of issues, including catastrophe resolution scenarios.

    However, I do think that the politically expedient thing to do (as opposed to the economically expedient thing to do) would be for the Piñera administration to participate actively in the restoration.

    In light of economics, this would actually be a negative course of action, as it would crowd out private solutions and hinder the reconstruction.

    However, the people of Chile, as rightist as their zeitgeist might be, would object very loudly to their new President if he merely replied with a resolute "Je vais vous laisser faire."