Poverty is Down in Chile thanks to Job-Creation and Subsidies paid for by those Newly Created Jobs

Posted by PITHOCRATES - July 29th, 2012

Week in Review

Job-creation reduces poverty in Chile.  And it goes back to the Seventies.  But you wouldn’t know it by reading this (see Poverty indicators decline posted 7/25/2012 on Economist Intelligence Unit).

Improvements in Chile’s poverty indicators in the past two decades are back on track after a setback in 2009. The proportion of the population living in poverty fell from 15.1% in 2009 to 14.4% in 2011, according to the latest Caracterización Socioeconómica Nacional (Casen) household survey. There was also a substantial drop in the proportion of people living in extreme poverty, from 3.7% in 2009 to 2.8% in 2011. The main factor explaining these trends was the strong level of job-creation recorded in Chile in the past two years, but well-targeted government subsidies also played an important role…

Within the IEF programme, the monthly bonuses under the “dignity” component, worth Ps6,000 (US$12.5) per person in the household, plus Ps13,000 per household, are targeted at those in extreme poverty, and will be unconditional. Beyond that, if the children in the household attend their mandatory healthcare check-ups and achieve a school attendance rate of at least 85%, the household will receive a monthly bonus of Ps8,000 per child. This yields Ps53,000 per month to a household with two adults and two children satisfying these conditions, or US$97 per month for one with one adult and two children.

Yes, job-creation was a strong factor.  Targeted government subsidies?  Not really.  First of all, you can’t do targeted subsidies if you don’t have a lot of jobs creating a lot of tax revenue.  You can have jobs without subsidies but you can’t have subsidies without jobs.  Because jobs pay for subsidies.

Paying people to have children?  Where have I heard this before?  Oh, yes.  LBJ’s Great Society.  That gave us AFDC.  Aid to Families with Dependent Children.  That destroyed poor families by encouraging single mothers to have more babies to collect more benefits.  Allowing men to father as many children as they pleased with as many women as they pleased because they don’t have to pay to raise their children.  The state became the father to these children (and husband to these women).  Raised them in crime-infested housing projects.  And sent them to broken, substandard schools.  Which these kids dropped out of and joined gangs.  Yeah, AFDC worked so well that Bill Clinton, a Democrat, reformed welfare to fix this ill-conceived policy.  Because even he knew you can’t fix problems by simply throwing money at them.  Jobs were better.  And families.  Where a child grew up with a mother and a father to nurture and discipline the child.  To put them on the right path.  Something the state just couldn’t do.

Missing from this piece is any mention of Milton Friedman.  The Chicago Boys.  El Ladrillo.  The economic plan put together by the Chilean economists who studied at the University of Chicago.  In the Chicago school of economics.  It was so thick they called it The Brick.  Or El Ladrillo.  Milton Friedman and these great Chilean economists, the Chicago Boys, turned the Chilean economy around.  The dictator Augusto Pinochet even invited Milton Friedman down to Chile to help.  Friedman went.  Gave some advice.  And Pinochet followed it.  Turning their horrible economy around (see Monetarism, Laissez-Faire Capitalism, Augusto Pinochet, Chile, Hyperinflation, El Ladrillo, Chicago Boys, Milton Friedman and Miracle of Chile).

He ditched the mercantilist policies.  Embraced laissez-faire capitalism.  Privatized the state industries.  Established free trade.  Cut government spending.  And stopped printing money.  Ending the hyperinflation.  Replacing it with a strict monetary policy… Friedman’s monetarism turned the Chilean economy around.  Creating a prosperous market economy.  With a growing middle class.  The strong economic growth led to some healthy tax revenue.  Which in later years funded antipoverty programs.  The Miracle of Chile even replaced the military junta with a democratic government.  Chile now has one of the healthiest and freest economies in the world.

It was these sound economic policies that created the Miracle of Chile in the Eighties.  Not targeted subsidies.  Real economic growth provides prosperity.  People with jobs.  Who earn money to spend in the economy.  And pay taxes.  That’s the way it always works.  Jobs first.  Then prosperity.  And then the tax revenue that funds government spending.  It just doesn’t work the other way around.  If it did Greece wouldn’t be in the trouble it’s in.  The United States wouldn’t still be lingering in the Great Recession.  And President Clinton wouldn’t have reformed welfare to end the family killer AFDC.  No.  Excessive government spending only creates great debt.  High inflation.  And a permanently impoverished underclass.  At least this is what history has shown us.



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