Ruminations of a Rundown Replicant

Chile

I have a family interest in Chile these days.

In 1973, the US orchestrated the violent overthrow of the leftist Allende government. Two years later, they engineered the overthrow of our leftist Whitlam government.

50 years on, Chile has another reforming leftist in power. We have ScoMo.

Chile's new President-elect, Gabriel Boric has, to my mind, made a fundamental error in relation to the economy.

He understands what neoliberalism is, but I'm not sure he understands how the economy works. He doesn't have an economics background as far as I can tell.

My committed readers know that orthodox economists (and the sheeple) don't understand how modern economies work. It's one of the sad realities of our time, and the sheeple suffer for their ignorance.

Boric is under great pressure not to spook the opposition horses.

That means balancing the budget.

That means appointing the right people in order to keep the rich elites happy, and the economy rolling along, with inflation under control.

Balancing the budget means that, for any given period, the government doesn't spend more than the tax collected. Bear in mind that the rich elites are adept at avoiding tax. Government has to live within its financial means like households and businesses. This is incorrect but universally accepted as correct.

A good government doesn't need any tax (or to borrow) in order to spend. It creates money out of thin air. When tax is paid, it's immediately destroyed in accounting terms.

A good government spends to employ all available resources (labour, machines) having regard for inflation.

For any given period, that amount of spending is not an amount equal to the tax collection except by coincidence. In other words, every neoliberal government usually leaves machines and labour idle because they're not spending enough. When they do spend, it's on the defence of assets and their value. They erroneously believe that unemployment regulates inflation, that great enemy of the asset owning classes (In Chile, 1% own 25%). What chance do the indebted sheeple have?

Boric, from his victory speech:

"On this night of triumph I repeat the commitment we made throughout the campaign: we will expand social rights and we will do so with fiscal responsibility, we will do so while taking care of our macro-economy. We will do it well and that will allow us to improve pensions and health care without having to go backwards in the future."

He subsequently appointed Mario Marcel, the Governor of the Central Bank of Chile, to the position of finance minister. Marcel held the position of Budget Director for 6 years, where he played a key role in the design of the structural surplus rule.

Marcel is acceptable to both sides but he's an orthodox economist by the look of it. He's played a key role attempting to run surpluses, that is, keeping spending less than tax.

Healthy economies need to run deficits (not surpluses) and they need to control growth in private debt (households, businesses). Neither concepts are accepted by neoclassical economists and their ideological neoliberal mates.

This is the trap. Boric gets into government but it's infested with enemies who've been running the country for half a century.

Newbies get white anted unless they play the game, and then they're out.

We saw that with Allende and, in Australia, with Whitlam.

If you want to better understand Boric's misjudgment, read this post.

- 3 toasts