Story Of Obama

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The Remarkable Story of Chile's Economic Renaissance
by Daniel J. Mitchell and Julia Morriss

Thirty years ago, Chile was a basket case. A socialist government in the 1970s had crippled the economy and destabilized society, leading to civil unrest and a military coup. Given the dismal situation, it's no surprise that Chile's economy was moribund and other Latin American countries, such as Mexico, Venezuela, and Argentina, had about twice as much per-capita economic output.

Today, by contrast, Chile has passed Argentina to become the richest nation in all of Latin America. For three decades, it has been the fastest-growing economy in the region. Poverty has fallen dramatically, and living standards have soared.

Let's look at how Chile became the Latin Tiger.

Pension reform is the best-known economic reform in Chile. Ever since the early 1980s, workers have been allowed to put 10 percent of their income into a personal retirement account. This system, implemented by José Piñera, has been remarkably successful, reducing the burden of taxes and spending and increasing saving and investment, while also producing a 50-100 percent increase in retirement benefits. Chile is now a nation of capitalists.

But it takes a lot more than entitlement reform, however impressive, to turn a nation into an economic success story. What made Chile special was across-the-board economic liberalization. This chart, based on the five key variables in the Fraser Institute's Economic Freedom of the World (EFW) report, shows how Chile moved in the right direction over time.



Regarding business taxation, retained profits used to be taxed at almost 50 percent, but the tax rate was dropped to 10 percent in 1984. It hasn't stayed at that low level, but the rate has remained below 20 percent, so the tax system isn't a big barrier to production and businesses have freedom to invest more. Chile's score for size of government shows significant improvement since 1975. The pension reform presumably helped, as did reforms that lowered the top income tax rate from 58 percent in 1980 to 40 percent in 2005. But even that 40 percent rate doesn't capture the full benefits of reform. Personal income tax brackets were widened, helping many people protect more of their income from the government, and investors and entrepreneurs can benefit from lower tax rates by setting up businesses.

Not surprisingly, lower tax rates generated many benefits. Chile cut out many of the loopholes that favored certain interest groups and encouraged inefficient economic choices. Tax evasion dropped significantly because businesses didn't have to pay as much and their taxes became less complicated. Indeed, the government collected more total revenue because of the lower tax evasion. According to Friedrich Schneider's data on shadow economies (measuring "market-based legal production of goods and services that are deliberately concealed from public authorities"), Chile has the smallest underground economy in the region, with a country average score of 20.3. In comparison, Colombia scores a 41, Mexico a 30.2, El Salvador a 47.4, Ecuador a 36.6, and Brazil a 40.5.

Chile's former finance minister, Hernán Büchi, wrote a book about Chile's transformation, and he outlines the massive privatization plan that generated substantial benefits. Some of the major sales included the fuel distributor Copec, the main electric company Endesa, telephone and steel companies, and some of the banks, which took on private investors. The newly privatized companies had much more opportunity for development and expansion, exports increased, and new enterprises began to grow.

Helped by the privatization of these companies, Chile maintains a fairly good score for property rights. This has been especially evident in the mining sector. Büchi mentions how private investors entered the scene and production costs fell while production went up. This was seen around the country as markets were deregulated and private property rights were protected.

The access to sound money score improved dramatically between 1980 and 2010 as inflation decreased to less than five percent and freedom to have foreign bank accounts increased.

Along with expanding foreign currency freedom, Chile also improved its score in freedom to trade internationally. Export taxes, previously a crippling barrier, were almost eliminated, allowing foreign competition into the market. According to Büchi, domestic saving has risen to 18 percent and the average tariff dropped from 105 to 57 percent. In 1979, a 10 percent uniform tariff was put in place.

Büchi notes that as a result of these reforms, Chile's exports went from $3.8 billion to $8.1 billion from 1985 to 1989.

The regulatory burden also was decreased. The World Bank reports that it used to take up to 27 days to begin a new business in Chile; it now takes seven. Büchi mentions that investment rose from 11.3 percent of the GDP in 1982 to 20.3 percent in 1989. Domestic saving also rose during that time, from 2.1 percent of the GDP to 17.2 percent. As businesses experienced greater freedom to expand and develop, Chile saw more innovation with higher profits and savings.

So what does all this mean? Let's take a look at per-capita economic output in the major Latin American nations. As you can see, Chile was near the bottom in 1980 and now leads the pack.



This has meant good things for all segments of the population. The number of people below the poverty line dropped from 40 percent to 20 percent between 1985 and 1997 and then to 15.1 percent in 2009. Public debt is now under 10 percent of GDP and after 1983 GDP grew an average of 4.6 percent per year. But growth isn't a random event. Chile has prospered because the burden of government has declined. Chile is now ranked number one for freedom in its region and number seven in the world, even ahead of the United States.

The lesson from Chile is that free markets and small government are a recipe for prosperity. The key for other developing nations is to figure out how to achieve these benefits without first suffering through a period of socialist tyranny and military dictatorship.

 

Romney's Chance to Embrace Outsourcing
by Michael D. Tanner

There is a story, perhaps apocryphal, that Milton Friedman was touring the Chinese countryside when he came upon a government project where workers were digging a canal. Friedman was surprised that instead of bulldozers and modern earth-moving equipment, the workers were using shovels and wheelbarrows. Thinking this was remarkably inefficient, he asked the bureaucrat in charge of the project why this was so. “You don’t understand,” the bureaucrat responded. “This is a jobs program.” “Oh,” Friedman replied, “I thought you were trying to build a canal. If jobs are all you care about, take away their shovels and give them spoons.”

One wishes that Mitt Romney would display a bit of Friedman’s common sense in responding to the silly controversy over outsourcing at Bain Capital companies. Instead of defensive technical explanations about when he left the active management of Bain Capital, Romney should point out the central fallacy of Obama’s argument. Contrary to the president’s complaints, outsourcing is generally good for America.

As Friedman pointed out, economic policy is not about preserving every single job that currently exists at any cost. Rather, it should be about creating general prosperity. The United States once had a thriving buggy-whip industry. Would we be better off if we had blocked development of the automobile in order to preserve those jobs?

That’s not so farfetched. After all, President Obama has already blamed ATMs and self-service gas stations for unemployment.

Outsourcing is based on an unpleasant truth: Certain types of operations, such as call centers, for example, or unskilled product assembly, are simply too costly for companies to do in the United States. By having those jobs performed overseas, companies are able to preserve their resources for the things those companies do best, their “core competencies.”

There is a reason, after all, why LeBron James doesn’t mow his own lawn. Even if he were the world’s best lawn mower, his talents are much more valuable directed elsewhere. It is what David Ricardo referred to as “comparative advantage.”

Additionally, having some jobs done overseas makes it easier for U.S. companies to serve foreign markets, by shortening shipping distances, avoiding foreign trade barriers, and creating an on-the-ground presence in emerging markets. If Ford is going to sell cars in China, it makes sense for them to build those cars in China rather than build them here and ship them across the Pacific. Far more outsourcing occurs because of the need to serve foreign markets than because of a search for cheaper labor. In fact, studies suggest that more than 90 percent of outsourcing jobs involves foreign-market considerations rather than labor costs.

All of this makes U.S. companies that outsource more competitive in a world market, allowing them to hire more workers here at home. And generally the jobs created here are better paying than those unskilled jobs that have been forgone. Reduced production costs also mean lower prices for Americans, especially on basic goods such as clothing. One would think that a president who was concerned about the plight of the poor would favor policies that helped low-income Americans to stretch their dollars. And, finally, lower production costs increase profits and stock prices. And who benefits when stock values go up? Everyone who owns stocks, including all Americans with a 401(k), as well as institutional investors such as universities and charities. Bain Capital was managing funds for precisely these types of institutions.

But for some reason, on this issue as on so many others, Romney has been unwilling to make a full-throated defense of capitalism. Over the weekend, Romney and his surrogates were repeatedly asked whether outsourcing was a legitimate business strategy. They declined to answer. Worse, Romney has indulged in his own demagoguery, attacking the president for being “the real outsourcer-in-chief.”

The American people are rightly concerned about jobs. But our nearly jobless recovery has nothing to do with outsourcing. To pretend that it does is to ignore the real job-destroyers — debt, taxes, regulation, and the burden of government.

It’s time for Mitt Romney to stand up and say so.

 

That's always been a fun and misleading story. I think it was (the late) Stephen Covey who said, "efficiency is for things, not people."

 

Yes she is, even by ET standards. Now THAT'S CRAZY.

 

Having worked in the field for years, I assure you that you need both, efficiency of organization/process/operations, as well as the latest technology in the hands of your workers/administrators. Better yet, you need the whole enterprise to be effective, accomplish its goals, which can be achieved more easily if you've become efficient.

 

What's crazy is to elect an inexperienced, incompetent socialist because he's black (sort of) to run the greatest country with the most complex economy in the world.

 

Yes, that's where the (supposed) Friedman story falls down. The Chinese needed a canal AND jobs.

 

Obama Repeals Wealfare Reform

I can't believe Bill still talks to Barack...

http://www.dickmorris.com/obama-rep...s&utm_medium=dmreports&utm_campaign=dmreports

 

It is well understood by now that efficiency creates both good products AND more jobs in the economy. That's how Toyota et al took down GM et al, etc etc.