Alt Left: “The Macroeconomics of Economic Populism in Latin America,” by Rudiger Dornbush and Sebastian Edwards

I didn’t actually read the book, but James Schipper did. Below I will quote from an article from NACLA that critiques the book well.

James Schipper: Perón came back from exile, and then won the election with a landslide. Unless the Argentines are complete political idiots, this demonstrates that he tried to accomplish something for the masses. Ordinary voters may not understand much about economics, but they usually sense who is on their side and who is not.

The US, Canada, Great Britain, and Australia are three Anglosphere countries that keep voting for rightwing economics despite themselves. The masses have been harmed by neoliberalism in all of these countries, but every four years, they march off and vote for it again. I think part of the problem is that ordinary people are voting against mass immigration and other leftwing stupidities in all of these countries. They don’t realize that neoliberalism comes as an add-on to anti-immigrant policies in the Anglosphere. Voters in the Anglosphere are political idiots.

You can see why people keep voting for the Chavistas in Venezuela. Sure, the economy is a mess, but no one blames the government. 70% of the population openly state that they are Chavistas. Things may be bad now but they know that the opposition is not their friend! This is why they keep voting for Ortega in Nicaragua, Lukashenko in Belarus, and Putin in Russia. These guys are on their side, and the voters can figure that out.

James Schipper: Many years ago, I read a book called The Macroeconomics of Populism in Latin America, in which it is explained how leftist populists in LA, despite their unquestioned commitment to improving the economic lot of the poorest segment of the population, often fail because they overreach.

Wikipedia has an article called Macroeconomic Populism, which explains briefly how overambitious economic populism can backfire.

I would agree that acting too fast too soon isn’t a great idea and a slower approach might work better. But we don’t see a lot of cases of economic stupidity like this nowadays in Latin America.

Yes, I think that book is not good. One man worked for the World Bank. Their basic attitude is “Don’t rely on government to try to fix economic problems and help the poor. It fails every time.” In other words, it’s hopeless. Massive inequality a problem? Sure. What to do? Nothing! Because everything you do is going to fail. I dunno.

Here is a critique of the book:

The book is referred to in this book review of another book as “an outdated, far-right, academically dishonest book.”

From the article.

Rudiger Dornbush, and Sebastian Edwards, two University of Chicago-trained economists.

See? They were both trained at the University of Chicago. That’s the home of Milton Friedman, neoliberalism, the Chicago Boyz, the neoliberal whiz kids who caused so much destruction all over the world, especially in Latin America. UoC/Friedmanite economics doesn’t work. Period. It causes massive inequality, significant gains for the top 20% and a serious drop in income for the bottom 80%. This is exactly what happened from 1980-1992 under Reagan-Bush. Sure, if you are in the top 20%, I would say neoliberal economics is the way to go. But if you’re not, it’s economic suicide.

They complain about D and E’s portrayal of Chile:

The most astonishing example of the book’s studied ignorance happens to be one of the most indisputable and well-documented examples of U.S. intervention: Chile.

According to Chapter 7 of Dornbush and Edwards’ book, written by Felipe Larraín (currently Chile’s Finance Minister) and Patricio Meller, the “decline and full collapse of the [Allende coalition government] experiment during the years 1972-73 is a clear consequence of the ‘successful’ overexpansive policies implemented in 1971.”

Never mind that Nixon reacted to the 1970 elections determined to “smash Allende,” telling then-CIA director Richard Helms to “make the economy scream.” Pulitzer Prize-winning journalist Seymour Hersh details the earliest destabilization campaigns, carried out even before Allende took office:

Approval was granted for a last-minute increase of the propaganda activities designed to convince the Chilean Congress that an Allende election would mean financial chaos. Within two weeks, twenty-three journalists from at least ten countries were brought into Chile by the CIA, and they combined with CIA propaganda “assets” already in place to produce more than 700 articles and broadcasts both in and out of Chile before the congressional election – a staggering total whose ultimate influence cannot be measured.

By late September, a full-fledged bank panic had broken out in Santiago, and vast amounts of funds were being transferred abroad. Sales of durable goods, such as automobiles and household goods, fell precipitously; industrial production also dropped. Black-market activities soared as citizens sought to sell their valuables at discounted prices.

Ok that’s a case of capital flight. Venezuela had the same problem. All I can say is that it upholds Lenin’s idea that the peaceful road to socialism, while a great idea in theory, simply never works in real life because the capitalists simply sabotage the economy.

Larraín and Meller mention Nixon, Kissinger, Richard Helms, I.T.T., and/or Pepsi precisely zero times in their scholarly analysis. Whereas U.S. Ambassador to Chile Edward Korry threatened that “not a nut or bolt will be allowed to reach Chile under Allende,” doing “all within our power to condemn Chile and the Chileans to utmost deprivation and poverty.”

Like I said, they failed badly to include the US massive economic war it waged against Chile. The same exact program was used against Venezuela, with the same results. The sanctions on Zimbabwe and Nicaragua also caused hyperinflation.

The only hyperinflation I’ve seen lately was caused by capitalists waging economic war against the state or by US sanctions. Usually both are going on at the same time. In Venezuela, the capitalists won’t stop raising prices. They love the hyperinflation because they’ve used it to play the currency black market to make a bundle. And they deliberately created it by shutting down production and hoarding goods.

At one point, Maduro put the army in charge of enforcing price controls, and the inflation stabilized for a while, but then they were withdrawn and they went back up again. However, after floating the currency along with a drop in the value of real wages and a reduction of most people’s savings, inflation was subdued. I’d hate to see these guys’ analysis of Venezuela. In fact, Krugman is already saying that Venezuela and Argentina are modern cases of this macroeconomic populism.

The authors argue instead that all state efforts to create a decent economy will fail and the only thing that will work is neoliberalism.

The authors explain that “the message emerging from the papers in this book is clear: the use of macroeconomic policy to achieve distributive goals has historically led to failure, sorrow, and frustration.” That’s why they helpfully disabuse Latin America of its “naive confidence in the ability of governments to cure all social and economic ills.”

However, neoliberalism doesn’t work either:

Second, it is worth noting that Cambridge development economist Ha-Joon Chang has analyzed the effects of these supposedly self-defeating macro policies. He finds on the contrary that “developing countries did not do badly at all during the ‘bad old days’ of protectionism and state intervention in the 1960s and 70s. In fact, their economic growth performance during the period was far superior [3.1% in per capita GDP a year for Latin America] to that achieved since the 1980s under greater opening and deregulation [1.1% a year from 1980-2009].

…And even that rate was partly due to the rapid growth of countries in the region that had explicitly rejected neoliberal policies sometime earlier in the 2000s  – Argentina, Ecuador, Uruguay and Venezuela.” In fact, when Dornbush and Edwards published their book in 1991 denouncing “overly expansive” macro policies, Latin America and the Caribbean – largely compliant to IMF diktats at that point – had already averaged an entire decade of negative 0.3% growth rate per capita (1980-1990).

If you are going to read books about economics, I recommend Ha-Joon Chang. As you can see, neoliberalism in Latin America failed completely. Even its proponents admitted that it failed, but their attitude was the usual, “We didn’t give it time enough. Give it some more time and it will start working.” Yeah, right.

Larraín and Meller focus their attention exclusively on the macroeconomic policy errors of Allende’s Unidad Popular (UP) government. Its efforts to “increase real wages and to improve Chilean income distribution failed completely,” they contend, dryly adding that it “took eight years, up to 1981 (during the ‘peak of the boom’), for real wages to recover the level they had held in 1970 before the UP government.”

Larraín and Meller omit from this account Pinochet’s post-1973 reign of terror in which tens of thousands were imprisoned and killed and an economic policy during the dictatorship that led to virtually no growth in per capita income by 1986, 13 years after the coup.

See? Neoliberalism didn’t work either. It took until 11 years after Allende for real wages to reach the level they were under Allende. Then there was an economic crash. I believe it took until 1989 for wages to reach the level they were under Allende again. That’s just a complete failure of neoliberalism over 20 years.

Perhaps the paper’s most artful flourish is the cynical use of the impersonal, passive voice. Nixon directed a comprehensive program of economic sabotage literally bearing Secretary of State Kissinger’s signature. The U.S. funded all major anti-government strikes, the CIA penetrated all of Chile’s political parties, and it courted the military to foment a putsch.

From D and E:

Real wages dropped spectacularly, by -11.3% in 1972 and -38.6% in 1973. This last figure includes a 30% cut induced in the fourth quarter of 1973, after the military coup…[B]y the end of 1971 the signals of disequilibrium were clear for a dispassionate observer. Bottlenecks appeared in strength during 1972, and 1973 witnessed the collapse of the whole experiment. Political instability mounted, and a coup ultimately replaced the UP Government with a military junta [emphases mine].

It was all Allende’s fault. All of the economic sabotage and the economic war the US waged to make the economy scream? That did nothing at all! Seems like a very bad analysis.

Guys like D and E are still writing today:

Today, U.S. scholars carry on the dubious tradition of lambasting Latin American populism, whatever its prevailing definition. Due to South America’s general drift to the left in recent years, academics make increasingly strained attempts to “recognize” and discredit it. In an October 2011 paper entitled Decreasing Inequality Under Latin America’s ‘Social Democratic’ and ‘Populist’ Governments: Is the Difference Real?,”Juan Montecino of the Center for Economic and Policy Research highlights the “arbitrary and ill-defined nature” of this endeavor.

Montecino politely dismantles the findings of economists Darryl McLeod and Nora Lustig, who purport to show that “social democratic” regimes did better than “left-populist” ones in reducing inequality in recent years. He shows that their empirical results are reversed when one runs the same regressions using data from the Economic Commission for Latin America. The paper raises questions as to whether their categories capture “anything more than a general antipathy toward one group of governments.”

In other words, they faked the data.

Unsurprisingly, this antipathy is directed toward three of the four countries Ha-Joon Chang highlights for experiencing growth after rejecting neoliberal policies: Argentina, Ecuador, and Venezuela.

Their enemies now are those three countries. Simon Johnson attacks Latin American populism in the case of Argentina:

Johnson has referred to Argentina as “a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises.”

In the case of Argentina’s last gut-wrenching crisis in 2001, however, the “IMF’s fingerprints” were all over it, wrote macroeconomist Mark Weisbrot, CEPR’s co-director and Argentina expert, in late 2001. “It arranged massive amounts of loans – including $40 billion [in 2000] – to support the [overvalued] Argentine peso,” writes Weisbrot. Then it “made its loans conditional on a ‘zero-deficit’ policy for Argentine government.”

By doing so, the IMF was able to “convince most of the press that Argentina’s ‘profligate’ spending habits [were] the source of its troubles.” Finally, the IMF – an organization Tim Geithner recently considered essential for promoting U.S. foreign policy – implausibly claimed it had always been against the overvalued peso and that the loans were made in order to placate the Argentine government.

The IMF caused the problem with orthodox neoliberalism and then blamed the government for “profligate spending” because they ordered it to read zero-deficit, a goal which itself caused the crisis.

See? They’re making it up.

Second, Johnson seems to portray the country as wracked by serious, ongoing difficulties. But Weisbrot et al. demonstrate that since defaulting and devaluing, Argentina – widely considered ‘populist’ – expanded 94% from 2002–11 (the fastest growth in the hemisphere), reaching its pre-recession level of GDP in three years, tripling real social spending over seven years, reducing poverty and extreme poverty by two-thirds (using independent estimates of inflation), and achieving record levels of employment.

Their paper also demolishes the myth repeated by many economists – including McLeod and Lustig – that Argentina’s success was largely the effect of a serendipitous commodities boom.

See? Populism worked great in Argentina. It also worked great in Venezuela (before the economic war combined with the collapse in oil prices killed the economy), Ecuador, and Bolivia.

The devastating policies of the past in Latin America, as well as the more successful policies of vastly more independent governments over the past decade, are intimately tied up with Washington’s control over the hemisphere and the recent collapse of its influence – especially in South America. Roger Morris, a staffer at the National Security Council until mid-1970, clarified such considerations for Seymour Hersh:

“I don’t think anybody ever fully grasped that Henry [Kissinger] saw Allende as being a far more serious threat than Castro. If Latin America ever became unraveled, it never would happen with a Castro. Allende was a living example of democratic social reform in Latin America…Chile scared him.”

The devastating economics of the past in Latin America were caused by the US waging economic war on countries that practiced populist economics. This same populism has worked much better now because the influence of the US has greatly fallen in the continent.

The U.S. government has long imposed double standards on the permissibility of social reforms. While instrumental to Allende’s overthrow abroad, the Nixon administration could boast progressive domestic achievements, including the creation of the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Earned Income Tax Credit, widely considered one of the most important anti-poverty programs in U.S. history.

Similarly, Lyndon Johnson enacted Great Society programs at home but sent thousands of troops to the Dominican Republic in 1965 to quell an uprising demanding the restitution of the deposed social democratic president, Juan Bosch. A liberal wishing to implement land reforms, Bosch was the subject of an FBI espionage and interception operation authorized by J. Edgar Hoover in the months preceding the rebellion, as Bosch sat exiled in Puerto Rico.

See? Liberalism at home. Fascism abroad. That’s the policy prescription of the US under Democrats and liberal Republicans. Also note the FBI overthrew him. The FBI was deeply involved in the lawfare against Brazil that resulted in the false charges being filed against Lula that put him in prison. See? The FBI literally overthrew Lula in Brazil. The FBI are not just pigs; they’re the worst pigs of them all – feds. And it is a deeply political and always reactionary organization. Fuck the FBI.

Perhaps unknowingly, Johnson is simply keeping within the permissible framework of an intellectual culture that has always accommodated and justified Washington’s hypocrisy. To my knowledge, Johnson has yet to apply his support for “standing up to the banks…proposing a more responsible course of action than that preferred by the banking elite,” and “greater transparency in financial transactions” to the IMF, which has conducted most of its deliberations, meetings, and consultations in secret.

Simon Johnson is pro-IMF, like the authors of that book.

On the The New York Times website, he offhandedly dismisses Latin American populism with a reference to an outdated, far-right, academically dishonest book – all in an article that challenges the U.S. elite by praising populism. This is a compelling example of the imperial double standard that keeps “pro-populist” commentators from seeing what is going on in developing countries.

The book you are praising is referred to an “outdated, far-right, academically dishonest book.” I believe that is correct.

But even if the Times’ readers never learn of Latin America’s protracted struggle for self-determination against U.S. power, the region is now a breeding ground for the most constructive values associated with populism. More than a decade of successful revolts has allowed for the elections of independent left governments in most of South America and has brought enormous gains to the poor majority through greater economic sovereignty and democratic social reform. Or as Kissinger might put it, Latin America has unraveled.

See? For the last 20 years, excellent populist economic policies in Latin America have brought enormous gains for the poor majority. According to E and D, it should have been catastrophic.

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9 thoughts on “Alt Left: “The Macroeconomics of Economic Populism in Latin America,” by Rudiger Dornbush and Sebastian Edwards”

  1. Thanks for the info. I didn’t know that Rüdiger Dornbusch was a Chicago Boy. He has been dead for many years, but he used to go to Brazil about once a month to give a lecture. He was constantly interviewed by the Brazilian media. That’s where I came across his name.

    1. Nowadays what these guys are talking about would be considered “economic retardation.” Even Leftwing governments try to avoid such stupidities. I read an interview with a Cuban economist a while back and someone noted that the average wage in Cuba is $25/month. Sure, that’s true, but average rent was $1.50/month (6% of income) and you can buy a scoop of ice cream in a state shop for one penny! So wages are low but so are prices. He said he would love to be able raise wages up 2/3X, but it would set off some very bad inflation, so they couldn’t do it.

      Keep in mind that these neoliberals hate rising wages because they’re inflationary. Only the rich care about inflation. Most of their money is in land and rents and it just sits there for the most part in savings, bonds, and stocks. With 10% inflation, that money of yours is literally losing 10% of its value every single year. It’s a catastrophe.

      In contrast, for your average worker, it’s not that big of a deal. I read a book by John Kenneth Galbraith years ago and he said we shouldn’t worry so much about inflation. He said if wages are going to go up, there is going to be inflation but it’s worth it as long as wages are rising. Of course he did not approve of excessive inflation or hyperinflation.

      1. Agreed! Low inflation isn’t much of a problem for most people. Rich people aren’t necessarily hurt by inflation. It all depends on how much financial wealth they have. The more net financial wealth they have, the more likely that they will suffer losses from inflation since inflation usually has adverse consequences for savers and lenders and beneficial consequences for borrowers. Some rich people, however, are net borrowers and have mainly real assets.

        It is possible to protect savers and lenders from inflation. During many years in Brazil there was correção monetária, through which all wages, rents, bank deposits, bank loans, debts and fines were increased at the end of every month depending on the rate of inflation of the previous month. This protected savers because their deposits were indexed. It also protected lenders.

        Before correção monetária, many rich Brazilians would delay paying their taxes even though they were fined. In the end, they would pay their taxes in much eroded currency and thereby in effect evade taxes. Correção monetária took the fun out of that game.

        1. That article is not that great. Did you notice that everyone in the comments is a reactionary or a fascist? Unz’ site is nothing but fascist dogs.

          1. I think it was a good article about Colombia. Not all of the commenters were reactionary though but I agree most were typical conservative reactionaries. The commenter E Perez you cited did make a valid point about the Latin American culture being a breeding ground for much of the failure in Latin America. I have posted articles about that on here; though this doesn’t take away from what the US has done to cooperate with the Latin American right to suppress any meaningful land reform.

          2. He was one of the worst ones of all! The article was ok but he really bashed the armed Left, and I do not agree with that.

  2. When evaluating the economic performance of a country, we shouldn’t look only at aggregate and average figures, but also at distribution. It isn’t only the size of the pie or the size of the average slice that matters, but also the size of the individual slices. An average is always a pure statistic. The average Canadian woman has 1.6 children. Have you ever met a woman who has 1.6 children?

    Suppose that we have 2 groups of 10 individuals. In group A, 9 individuals have an income of 25,000. The 10th has an income of 75,000. That yields an aggregate of 300,000 and an average of 30,000. In group B, 9 individuals have an income of 20,000. The 10th has an income of 180,000. That gives an aggregate of 360,000 and an average of 36,000. Which group is better off? If you say group B, then you qualify for membership in the Republican Party.

    In country X, per capita income is increasing at 5% per year, but all the growth goes to the richest 20%. In country Y, per capita income is increasing at 2% per year, and all classes are seeing their income rise by 2%. Which country has the best economic performance? If you answer country X, then, again, you qualify for membership in the Republican Party.

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