Paul Krugman just can't stand the praise being given to Chile's liberal economic reforms of the last 30-40 years, so he is denigrating them. Why would he do that? He claims the economic liberalization in Chile is nearly mythical, and uses the following chart as his key piece of evidence. It's scandalously misleading.
That chart does not jibe with my own experience following Chile's development, especially in contrast to other Latin American economies. And note the source: Total Economy Database. Why not use the Penn World Tables, or World Bank data? Paul's data says Chileans are just 15 percent wealthier than they were in 1970. The PWT Mark 6.3 indicates they are 161 percent wealthier. So who do you trust: the global standard for cross-country economic comparisons or the Nobel prize-winning NYTimes blogger?
Even my kids know the answer. Just look at the wikipedia entry on Chile's economy, and you'll find this chart:
For the record, anyone who travels in Latin America can attest that little Chile's role as a model is not what you might expect. Neighboring nations still like to think of Chile as their poor sibling, and pretend that its economic success does not exist. It's time to take off the rose-colored glasses.
UPDATE: The chart Krugman uses cuts off in 1991, so it's not the data source that's misleading. It's chart trickery with the X axis, a Tufte favorite.
The second chart was Krugman's last point. The first chart shows the Pinochet's period 1973-1989 and this is the period Krugman is talking about. Most of the growth in Chile has happened after the country recovered it's democracy and the government's economic policies started to move to the center left. One telling statistic is that in 1989 about 40% of the population lived under the poverty line, currently this figure is about 13%.
Posted by: Cristian Rojas | March 05, 2010 at 02:19 PM
Of course there also was a precipitous decrease in Chilean GDP from 1970-1973 during a period of democracy...
Some people argue that even without Pinochet, Chile would have still become the most economically free Latin American country today, despite its brief non-majority democratic election of a hard-core Socialist. But we'll never know.
I think we will have to see how Chavez ends up to see whether democracy in Latin America can truly suffer a hard-core socialist. Will he still be in power 10 years from now, or will he be democratically defeated?
Posted by: Mr. Econotarian | March 21, 2010 at 01:32 AM
The battle of ideas is not won or lost in Congress, or even in elections, but in the long assessment of history. Just ask Qeng Ho.
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Most of the advance in Chile has happened afterwards the country recovered it's capitalism and the government's bread-and-butter behavior started to move to the centermost left.
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Posted by: ugg bailey button | August 10, 2010 at 07:28 PM
well if we look back in the economy history of Chile, we will notice a common pattern, their economy is not that constant, they have had lows and ups throughout history, so what is happening now it's normal!
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