Where Did Paul Ryan Find Inspiration for 'Reforming' Social Security? A Brutal Military Dictatorship, Naturally
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In 1975, Milton Friedman went to Chile to advise the Pinochet government on "shock treatment" to right the Chilean economy and, as NYU Latin American History professor Greg Grandin, author of Empire's Workshop: Latin America, the United States, and the Rise of the New Imperialism, describes,
"A month after Friedman's visit, the Chilean junta announced that inflation would be stopped "at any cost." The regime cut government spending twenty-seven percent, practically shuttered the national mint, and set fire to bundles of escudos. The state divested from the banking system and deregulated finance, including interest rates. It slashed import tariffs, freed prices on over 2000 products, and removed restrictions against foreign investments. Pinochet pulled Chile out of a number of alliances with neighboring countries intended to promote regional industrialization, turning his country into a gateway for the introduction of cheap goods into Latin America. Tens of thousands of public workers lost their jobs as the government auctioned off, in what amounted to a spectacular transfer of wealth to the private sector, over four hundred state industries. Multinationals were not only granted the right to repatriate one hundred percent of their profits, but were given guaranteed exchange rates to help them do so. In order to build investor confidence, the escudo was fixed to the dollar. Within four years, nearly thirty percent of all property expropriated not just under Allende but under a previous Alliance for Progress land reform was returned to previous owners. New laws treated labor like any other "free" commodity, sweeping away four decades of progressive union legislation. Health care was privatized, as was the public pension fund."
At first, the results of this "shock treatment" were disastrous - "GNP plummeted thirteen percent, industrial production fell 28 percent, and purchasing power collapsed to forty percent of its 1970 level. One national business after another went bankrupt. Unemployment soared", recounts Grandin.
In 1978, the economy had begun to grow again, in a three-year bubble fueled by by foreign investment. At the height of the bubble in 1981, Chile adopted Jose Piñera's new pension reform scheme that, according to Barbara Dreyfuss:
"[R]equired all new workers to sign up for private pension accounts and offered financial incentives for those in the public retirement system to switch.
The transition was expensive and funded by slashing government programs, selling off state-owned industries, selling bonds to the new pension funds, and raising taxes."
Driving the new growth was a speculative bubble, especially in the newly-deregulated banking sector, driven by massive influx of foreign investment. In 1982, the economy collapsed again. As Greg Grandin describes:
"The crisis forced the state, dusting off laws still on the books from the Allende period, to take over nearly seventy percent of the banking system and reimpose controls on finance, industry, prices and wages. Turning to the IMF for a bailout, Pinochet extended a public guarantee to repay foreign creditors and banks. "
Milton Friedman was far from the only libertarian-leaning economist smitten by the "Chilean model". As Greg Grandin details, the arch-libertarian economist Friedrich Von Hayek, whose 1944 book Road To Serfdom claimed that government central planning led to tyranny and enslavement of the common man, was impressed by Pinochet's methods:
[Hayek] visited Pinochet's Chile a number of times. He was so impressed that he held a meeting of his famed Société Mont Pélérin there. He even recommended Chile to Thatcher as a model to complete her free-market revolution. The Prime Minister, at the nadir of Chile's 1982 financial collapse, agreed that Chile represented a "remarkable success" but believed that Britain's "democratic institutions and the need for a high degree of consent" make "some of the measures" taken by Pinochet "quite unacceptable." "
Despite the Chilean economic collapse, rich libertarian American social engineers, apparently untroubled by the admiration evinced by top libertarian thinkers such as Hayek for savage autocratic regimes, were laying policy groundwork to bring Jose Piñera's Chilean "miracle" to the United States.
Paul Ryan's social security ideas have followed a strategy put forth in 1983 by the Cato Institute (originally founded in 1974 as the Charles Koch Foundation) which advised those who wanted to eliminate social security to think like communist revolutionaries, and neutralize the political opposition; social security privatization schemes would only be politically viable if they grandfathered in retirees already receiving benefits and working adults close to retirement age.