good evening everyone and welcome to this very special event hosted by the Becker Freedman Institute of economic or B5 I am Fernando Alber a professor of the in economics and the kic griefin department of Economics at the University of Chicago I'm also the director of the bf5 Latin America which is a unique research project dedicated to the deepening of the understanding of Latin American economics and to produce new insights on the most critical policy in ch first in the region so given my role and also my interest in research on the region it's a distinct pleasure to welcome you all to this excitement presentation and to the discussion that will follow after which I'm sure that it will follow so so even though our topic tonight concerns Affairs that starting more than 50 years ago uh the subject is still the very much alive of the University of Chicago today in the story of the so-called Chicago boys and their role in the economic transformation in Chile today we'll focus a lot in a book written by Sebastian uh this is a fantastic book in my opinion the story started before the involvement in the book in the Chicago Bo during uh the Chicago Bo and the during the dictatorship then after and it goes all up to basically the revolts uh that happened few years ago so tonight we will hear then from Sebastian which is the author of the Chile project the story of the Chicago boys and the downfall of new liberalism that's a title followed by the discussion of Sebastian by our very own Jin Hegman and also moderated by The Washington Post editor Eduardo Porter well I should say Eduardo Porter but anyway I'll try my best English so more on Jim and Eduardo later but for now I would like to offer a brief introduction of Sebastian so Sebastian is the Henry Ford second chair in International Management at UCLA answer uccl Anderson School of Management Sebastian is was formerly the chief of Economist for the Latin American Caribbean region of the world Bank he's the past president of the Latin American Caribbean economic Association we call it laa he is and has been a member of many research organizations and serve as a consultant on projects around the world including throughout the entire Latin America as well as Middle East Korea and New Zealand he has written extensively in popular press novels also publishing many academic articles and serve as editor in several prominent journals finally he was born in Santiago Santiago the Chile educated in the Catholic University of Chile and most importantly received an Ma and PhD in economics from the University of Chicago please welcome Sebastian to the podium thank you so much uh uh Fernando a thank you to the Becker fredman Institute to Jim Heckman uh to the Department to everyone uh it's a great uh uh pleasure and an honor to be here and um I arrived in Chicago in 1977 and there are a few people here that uh I coincided with and of course I'm very happy to see them so I'm going to tell an anecdote that has to do with that time that I think will put things uh into perspective and it has to do with the Midway uh during those years we didn't quite cross the Midway that often um and and I'm happy to see that now it's done at least to some part and uh we did play soccer here in the Midway and uh we played as soon as it was allowed the snow went away and we played soccer and the soccer games were very interesting but they became and these are the Latin students they became a little boring and one day we at we were at jimm drinking year after the game when um someone had the idea why don't we make it more interesting let's have a game democracies against dictatorships that followed a very deep s Soul surging uh exercise because apparently the democracies was an empty set of course the Mexicans said we are a democracy and we said well maybe yes maybe not and there was a game democracies against dictatorships and that was Mexico against the rest of the Latin American student so on our side there were the argentinians the uruguayans the Brazilians maybe one or two Chileans and we beat the Mexicans like 220 so that is was the atmosphere when I started here so uh let me um but thanks God now every country in the region uh but one is I think uh full-fledged uh democracy and the one country uh is is Cuba so this book is um it's many books at the same time and um it is a history book and as Fernando said I tell the history of the Chile project the program between the University of Chicago and the Catholic University in Chile that produced the Chicago boys and the Chicago boys of course uh became very influential and got power um after the Keta in 1973 and they transformed Chile and there was um and I have no problems in saying that there was an economic Miracle an economic miracle that I say in the book fizzled but it was a miracle nonetheless so it's a history book in that regard it's a story of neoliberalism and I take head on the notion of what is neoliberalism I have a long discussion and I try to narrow the term and in order not uh not to uh water down it because if everyone is a neoliberal then the term uh is not a useful one it's a story about The Chicago School about the second Chicago school and I make the point that um there was a lot of granularity in the second Chicago school and in particular I spent a lot of time talking or writing about Al Harbor and Al was not like Milton and Al was not like the other ones and everyone had his or her own very few women at the time personalities um and and and and it was a a distinct place um but there were different people so it's a story about The Chicago School it's also a story of the book about the new left as Fernando said it talks about the protest in Chile the Revolt of 2019 the attempt to change the Constitution and and bring neoliberalism or or or or the market orientation to a final end it's a story about the war of ideas it's a story about Milton it's about hubis and arrogance by the economics profession it's a story about neglect it's about everything it or you one can tell it in many in many different ways so let me summarize uh briefly what I do and then I will show a few pictures here and it's a little bit random the and I want to to uh um uh emphasize aspects uh that have to do with the University of of Chicago the program the Chile project started in 1955 and it was initiated by tww Schulz a great uh faculty member here who got the Nobel Prize uh I think in 78 and uh uh tww SCH Schulz was a great agricultural Economist and after World War II he started advising the US government after the point4 um uh program by President Truman on um agricultural issues in Latin America and he came to the conclusion that it didn't matter how much he talked and taught um uh Farmers or people in the a sector in different countries about uh crop rotation and fertilizer use and this or that that things were not going to improve if there was not an overall high quality Economic Policy which for him meant of course Market oriented and pro competition and he realized that there were no Economist or or or or or traditional uh train economies in Latin America there were structuralist after um Ro prish there were canans there were lots of marxists and he said well or he thought we have to form train economists um uh and we can train them at Chicago they can be trained anywhere and once they are trained they can train other uh in the respective countries and he found someone who worked for the predecessor of usaid at the I uh a guy called albian uh Pat Patterson a Princeton graduate um a patrician uh who decided um after the he finished college instead of joining CIA joining the international Aid uh arm of the state department and they decided oh Patterson was in Paraguay but then he was transferred to Chile and that's why they picked Chile and they sign a contract with it's a very long story I going to the ark signed a contract with a Catholic University and the Catholic University um um uh uh is the counterpart and they send in 56 eight students to Chicago one woman and nine uh men and the contract had something that was very interesting which was that the cath univers committed itself to hiring back four students as as full-time members of the faculty and they were the ones that were going to train others who then would train others and so on and so forth so in 1958 the Catholic University in Chile hires these four young uh people with Mas from Chicago from here and they go there start teaching and the first year they flunk everyone everyone everyone and then the chancellor the president of the University who was mon senior Silva Santiago he was the Archbishop of conception a city in the south of Chile calls them in and says you cannot do this and they said of course we can in fact we already did it we flanked everyone and he said you don't the Bor says you don't understand our students are the children of the wealthy and they are going to give us the church their property at the end of their lives but if you flank the students we're not going to get any properties so there was this issue of it had consequences but they still flanked them and little by little they were able to train all of these economy once the dictatorship came in 1973 they got uh the the military listened to them and they started the reform program which was very unusual at the time Latin America was very closed in substitution protectionism regulation and so on and so forth and um they start moving forward and that's when Milton fredman goes to Santiago and that was a very very controversial period so let me show you a few things so this is the miracle the the the the heavy line is Chile and as you can see in the um just uh in the n in the early 1980s Chile was like Equador and Costa Rica and Colombia and then it becomes number one in 2001 by and then by a wide margin and then in 2019 2020 Panama surpasses Chile that's why I say it's the miracle that is fizzling um and Uruguay is about to surpass Chile in the next couple of years and if mle is successful which is a big if Argentina will surpass Chile and Chile will become number four okay so here is the poverty headcount Chile went part of the miracle from 60% poverty to six 6% poverty uh people below the poverty line This is the riots I took these pictures there's nothing particular except that I took them uh in 2019 and what it says there is chiao Chicago boys and here it says neoliberalism was born in Chile and it will die in Chile okay the one on the red on the red wall okay and this is the book this is President aende and his economic team they produce a collapse in the Chilean economy what is very important is that initial conditions matter and you have to remember that when you think about mes so the Chicago boys take over when Chile is a wreck uh uh these are the Chicago boys okay so this is the chief Chicago boys Sergio de Castro with Al harburger okay I don't know if this works and that's that's Al and these are the other Chicago Bo those are the main the main senior Chicago boys and this is Milton when he goes to Chile um and he's giving us he's having a good time right that's when he gave this uh press uh this press conference and he's wearing the Adam Smith uh uh neckti as you can as you can see okay so um and uh very controversial is the shock treatment that Milton suggested to Pino 1975 that generates uh unemployment of 25% and tries to bring down inflation from about 400% to single digits and very controversial as well which I talk spent quite a bit of time in the book is this attempt to this is the exchange rate pesos per dollar and this is the attempt to keep the to to to bring inflation to an end by fix fixing the exchange rate and that straight line is a fixed exchange rate and then you can see the big crisis and the devaluation Fernando has spent a lot of time working on devaluation crisis and we we come from a part of the world where there are a lot of a lot of Crisis so um the the the the book goes through this story and uh it it shows and I I'm going to say three or more or four things and then I'm going to stop it's I I show things that people don't know for instance that uh there was very little growth during the dictatorship when Chile goes back to democratic rule in 1990 uh income per capita is very the Improvement since 1973 it's very small okay and the actual Miracle takes place during the first decade of democratic rule but it's built on the basis that that have been built by the Chicago boys so it doesn't happen during the Chicago boys period it happens on the basis of what they built and this is something that people should have known but most people did not know the second point that I make is that when the uh Democratic uh rule comes back the new government and the new authorities maintain the policies of the Chicago Bo and I are that neoliberalism continues and I say that neoliberalism as the character of any good model evolves through time it's not the same and we have and I I distinguish between four phases in the Chilean case first it's a timid neoliberalism almost no neolis sort of basic trying to fix things and bring inflation down then it's Orthodox neoliberalism which starts in 1979 with a famous speech that ped gives called the seven modernizations and that's when he says or implies that we're going to bring markets to seven areas that where markets have not operated normally Education Health culture administrative water rights and so on and that's where the markets become very generous and that's what I call neoliberalism it's the use of markets to solve not all problems that what Michael sandel does when he criticizes Gary because Gary is not around right but he Michael sandel says neoliberalism is a marketization of everything not everything I say almost everything but almost is one word but it's a very important one right and then I say when democracy comes back there is no after 1982 when there is the big crisis this jump in the value of the dollar then a new a new generation of Chicago boys takes over we have Christan La rouette here who was one of the second generation Chicago boys and there I say there is pragmatic neoliberalism they maintain markets everywhere but they there is one difference with the original Chicago boys they don't want to bring inflation down to one digit overnight and they say we can live with 20% inflation going down very slowly as long as the economy grows very fast and the economy starts to grow at four five six 7 7 s s seven for several years including into the Democratic Rule and then I talk I say once the Democracy comes back and the new economic team is made up of people of economists all of them with phds who had been persecuted tortured put in prison by pined instead of changing the policy they adapt them they add a few things they add more social a social a social uh uh safety net but they not only maintain the policies they further them and the first minister of uh Finance in the what I call the pragmatic neoliberalism is a man called Alejandro foxley a very prominent Economist who has made his career very courageous criticizing the Chicago boys during the dictatorship putting his own safety at risk the first thing he does is that he says the is a problem with the Chicago Bo policy we're going to change that 10% uniform tariff it's too high we're going to lower it to 6% and then to 3% so they start opening up the economy further and I say that is a great reflection that the war of ideas Was Won by the Chicago boys there are several ways of seeing who wins the war and ideas right and then at the end the the the the the the the the model starts to break down in some sense and what we have is the decline in in growth and I'll finish with that you can see here the yellow line as you can see them how growth was around 6% during the first decade of democracy then it went to 4 four and a half% and then it went to three and a half percent and now it's 2% okay and that is and now of course Panama is ahead of so key question is what's going to happen going forward and my prediction is that um there's no coming back to the old original Chicago boys um uh uh way of thinking uh and and and seeing things let me give you two examples one is uh University uh tuition in Chile until a few years back every University public or private charged the same tuition it was market-based tuition okay there was no there was for all practical person there were no public universities now now there are University is free for everyone below the 60% poverty line and the project is that everyone will have free University free University of Education right that's against the idea that preschool is the most important thing because you either there's a budget constraint right and that is the the a change from the the neoliberal or the or the more Market oriented uh uh uh perspective and the second one is that until very recent L not very until a few years ago uh the only system for pensions was individual savings accounts now we have a very robust public provided Universal guaranteed pension right again a change from markets only to a more pragmatic and I my my prediction is that we're not going to get into um a totally crazy 1960 style economy but we are going to move moves probably towards mild uh social uh Democratic rule but it's still it's it's in the air and we'll have to see uh where it goes um let me uh um one more thing that that I I I spent a lot of time in the book talking about um Al harburger as I said and he was the chairman of the econ Department here for I forget if it's 12 or 16 years for a very very long time and he hired a number of very important I think Jim did did did hired you when he was he the chairman you were yes yeah so he hired Jim Hegman Johns Gail okay har came in okay so so harberger was here for a a long long time and harburger um came to Chicago in 1946 when he finished his military service he was trained as a linguist during the end of World War I and he was proficient in both German and Spanish so he was was trained as an Spanish speaking linguist and he was going to go into Spain in case the invasion or part of invasion would come through Spain which was one of the Plan D or F or G or I don't know which one but that was but when that didn't happen and the war was over or was about to he was moved to the German uh group and he became a a um a guard in a prisoners camp for German soldiers here in Illinois so Herberger was guarding German prisoners one day one of the prisoners run away and it was a big issue and he was made a military police and they went around small villages here in Illinois looking for him and they found him playing the drums in a rock band in a small village here in Illinois this German Soldier so he was a professional drum player and harburger tells all these these stories he came to Chicago to start industrial relations and he took one class in economics and he loved it and then moved in 46 to the econ or um econ department so he arrived as a student here the same year at Milton fredman came back so um let me stop here and I think we're going to have a little bit of a conversation and thank you very much for listening so thanks a lot for the very informative interesting presentation Sebastian um you know I'm quite sure that the rest will be also stimulating and there will be lot of discussion so um anyway so leading our discussion is Ardo Porter a columnist and editorial board member of The Washington Post Eduardo spent the bulk of his career at the New York Times where he was also a member of the editorial board and wrote the popular economic scene column Eduardo began his career in journalism in 1991 as a financial reporter in Mexico City followed by STS in Tokyo London and sa Paulo before returning State Side to join the W Journal Eduardo received his undergraduate degree in physics from the I'll TR in English the national autonomous University of Mexico and a master degree in Quantum fields and fundamental forces from the Imperial College after all that scientific training he decided to become an economic journalist and we are glad that he did Eduardo is the author of The book's American poison about how racial hostility undermine American social contract and the price of everything an exploration the cost benefit analysis that underp human behavior and institutions Jin Eduardo and Sebastian in an par is Jin Hegman a man who needs no introduction for most of you but I will Begin by saying that there are few economies alive today or have been work over the past Century who have contributed to so much to the field of Economics as Jin Hegman Jim received the Nobel Prize in 2000 for economics he has received also the CL clar bakes medal and he has received essentially any distinction and an economics could receive Jim is uh incredibly prolific and it's hard to measure that but just to give an idea depending on how you count his Publications citations it could be like 50,000 200,000 depending on the Criterion that you use these are numbers that are unheard of uh just to make Eduardo sort of um his former physics background jealous malda is the most cited physicist with 50,000 15,000 so anyway so so so his work in literally changing the world in which we you live Jan was born in Chicago studied mathematics in Colorado Springs and earned his PhD economics from Princeton and we are proud to say that he has spent most of his amazing career here in Chicago and with that I will turn things over to Eduardo with a reminder to everybody that question and answer session will follow after the panel discussion hello um I'm Eduardo Jim Sebastian we've met um so I'm going to be moderating this and it's amazing to have this power that I get to ask the first question and kind of like set the conversation in a direction and because you guys brought a journalist rather than an economist to do this well I probably you're going to start it in a way that you don't like um but so I the the the Arc of the the tale that you tell ends in uh um it's it's a story that ends in Failure your the title has the downfall of neoliberalism in it and I wanted to see if you could talk to us a little bit more about what caused that that downfall downfall there is this broad point that you make in the book of kind of like overstepping in assuming that markets can in fact solve all of society's needs and aspirations but I wonder if you could go a little bit under the hood of that and and and tell us where the blinkers specifically were where the more important blinkers were and you know I'm sure the Chicago boys had heard of market failure so you know there could be some more more attention have been paid to that um I also as reading your book I was I was thinking of stigler's proposition that you know to make the distribution of income a subject of policy made no sense and yet it seems to me that the explosion of of of males malist that you say in 2019 that that kind of like brought Chilean politics into turmoil was a lot about the distribution of income about the extreme inequality that was associated with these graphs uh um um of enormous Prosperity at the at the mean um so I I just wondered if if you could talk about well what went wrong what what's the failure of neoliberalism here thanks a that's a great question I'm going to try to be brief because I of course want to hear um Jim uh oh no this is your show so um let me let me give you um I don't think that neoliberalism or the or the model let's talk about the model has failed in a big way it fizzled and it's going to be changed so it's not going to stay the way it was and maybe that that's the way it should be and the way everything uh happens or or or the way life and history is but let me tell you how the book ends the book ends by saying in the last chapter and I'm going to paraphrase it says the story that you have heard the main conclusions or or the or or maybe summarized with two words success and neglect the success part is very simple I showed you the picture when I was growing up I was standing Fernando at lunch um it was Unthinkable for us that we in Chile would surpass Argentina on anything absolutely on anything they had the most handsome guys the most the most beautiful women the best restaurants the best discotics the best uh uh boutiques the best beef and the best soccer players and it was Unthinkable in 2001 Chile surpassed Argentina in income per capita and a few years later Chile won the Copa America and then for the second time Chile won the cop America and we were in heaven right so success had to do with all of that poverty coming down from 60% to uh to 6% okay so that success now neglect and I'm going to get to that that's related to Eduardo's question I think there were two types of neglect the first one was the policy makers in Chicago was neglected income distribution by focusing on eliminating or reducing or eliminating poverty targeted social programs and targeting was very important tww should play a very important role there and I think that from a political point of view if you completely neglect or neglect income distribution there is a problem and the genie if you look at the genie you can look at anything else it went down but very very slow I also tell the story that the four years I was here I didn't take Jim's class my wife did and she told me you should have taken it but I I I that's the summary for your [Laughter] book but but so I the reason I'm telling that I didn't take I I didn't take there was one one lecture in the 4 years I was here that had to do with income distribution that I remember one lecture and it was Al harer criticizing using distributional weights in Project evaluation and he had the theory that you had to use basic needs and it also it was another application of the focusing and targeting poverty uh reduction so I think there was a neglect on income distribution and I think that that created a political problems and so on and the second neglect was that the Chicago boys declared victory in the war of ideas and I think that the war of ideas is never ever ever over and they declared Victory and they said now we won and they went and joined corporate boards and did other things and became Rich which is of course something good What did the what did the other side do they went back to school they leaked their wounds went back to school R gry and Judith Butler and the Frankfurt School and understood that whoever dominates The Narrative is very close to dominating power and the narrative was one that this is a failure this is very unjust very unfair income distribution is not right look at this look at that and that was compounded Ardo by abuse there was abuse and there were issues of abuse and there were three cases of abuse that illustrate as I talk in the book about them there was collusion in the chicken industry and in a as you probably know in a middle- income Country Chicken is the number one source of protein for people collusion which was discovered and they were fined and so on there was collusion in the toilet paper Market the two big producers of toilet paper colluded and there was a collusion in Pharmacy chains they colluded and people said look we eat collusion then we go to the bathroom and we uh collusion and then you get sick out of that and you go to the pharmacy and you take a medicine which is collusion right so that created a sense of abuse that with the narrative that was taken over by the left created the sense that everything was wrong so there's I think that it was Nar The Narrative was very important and neglecting the war of ideas I think was a big mistake yeah Jim what do you think do you think there's you know there's a there's something wrong with the model proposed by Chicago and CH well I I I would make a distinction I don't know if Sebastian and the others in the room would would agree with this but I don't know if it's a failure of a set of ideas so much as the implementation of those ideas I mean we know that the pension reform was a real problem they didn't consider this whole issue of the informal sector uh the withdrawal rates were very limited and so it turned out now I guess right that the that right now I think in Chile you're getting like pensions that are like 25% of your main income which is a real source of dissatisfaction but I don't know if that really takes away from the idea of a privatization or at least putting incentives into the into the system so that's what I'm a little bit uncertain about I mean you use the word failure of an idea and I just wonder if it's failure of a set of policies and you know this is even true in your discussion in the book he talks about exchange rate policy and there was this question about how should you follow the flexible exchange rate policy Freeman was always big on flexible exchange rates but there was a big discussion right about whether or not these exchange rates should apply to a country like Chile in this intermediate stage and you know so there's a big debate and I there was a certain amount of dogmatism right and it wasn't just all fredman it was like Mundell and many other people and so I I just wonder if there wasn't a little less uh flexibility than there might have been uh in terms of implementing ideas and so I I'm really reluctant to say that these ideas have are dead but I do think you rais another question which I think is a separate issue and that is this question about the diffusion of ideas grami you mentioned this whole group of Scholars this ideas floating around and I think it's important to to really understand that there really is kind of a transmission of males around the world there's General dissatisfaction it was no accident that in the election the least most recent election you had people like and stiglets and others coming in transmitting a set of ideas that are very much in Western Europe and in the United States creating a sense of dissatisfaction but the sense was and you discuss this and I'd really be curious about your your response to this question or this idea how much of this rly represents reality and how much of it represents just a perception of reality the idea that somehow we should be dissatisfied and so forth I mean you mentioned the point you know we go down from like those huge rates of extreme poverty to a small level then we know a lot of philosophers and political science toille and others have talked about when when a policy gets to do when when a policy is so successful that poverty now becomes like 10% then that someh s out like a sore thumb and somehow looks much worse than it actually is so I don't know to what extent some of this represents a true phenomenon of of failure or of inequality as opposed to just kind of a perceived sense of inequality and dissatisfaction the B A government was a mess right I mean you would agree that the latest government that was tossed out B A and by her own admission I think had made a lot of mistakes in her second term yeah so that that's why I'd be a little more guarded maybe in your so let let me if I may Edwardo react to that I don't use the word fader I say downall which is not quite the same right and I I think that that that the model uh moved in certain direction which was markets use markets for all to solve almost problem and that is there's a retreat from that position but not failure right okay so I don't think that that there is failure and that's why I think that the changes are not going to go much too much further than what we have seen already and we have seen quite a lot already um and I I I now the the issue of perception versus reality I think is a very important one and it's very current right now in Chile regarding um uh crime and safety and the government now the the the the the the opposition which is the Chicago boys and so on now says crime is going up and the government which is very leftwing now says oh it's a perception of crime and then they show you statistic that said crime is actually or some kind of crime is going now it seems to me that what matters is perception for policy right and you need then to so what there J MOSI who was uh my economics 300 professor here uh what she says when I when we talked about the book she said well this grunchy thing is key and what we have to do is preach preach and preach and if you stop preaching and the other side amplifies its preaching then you're going to retrogress so I think that what what you were saying Jim of uh uh transmitting ideas and and and keeping that alive and being curious and being truthful and and and looking looking at the evidence and and this is something that I learned from harburger looking very hard you have a theory you have a model but you look at the evidence and if the evidence says that things are not the way you perceive them you change your perception but harberger is actually the hero of your book is the hero of my book because the multiple phases of of of of the of the Chicago boys he's the one who really takes it to a point where it's really successful right yes and he's practical he's really down to before there was a lot of dogmatism and exchange rate should be this or that or but here he was just down to earth very practical very applied without following a dogmatic line which is the way he was when he was on The Faculty here at Chicago so I think definitely Al harriger is the hero the book and there's no villain though so it's a book that only has a hero but it doesn't have a real villain or maybe yes I don't know well maybe neoliberalism I'm not sure well I I'd like to uh if you would uh situate your book within the broader uh Global context so the Chile project it lays out in detail the Arc of the neoliberal project in in one instance where was perhaps most most ruthlessly implemented uh I don't I don't know if I like the word ruthlessly but well a military dictatorship is kind of Ruthless yes um um but you do end with some more Universal observations you uh you end with a quote from fukuyama which seems to set this this Arc within a broader uh um Global Dynamic you know and and the story of the the the downfall I won't use failure um I he kind of like puts it in a in a broader worldwide context as in you know over trust in markets uh that led to revolts around the world and so that leads that tempts me to think is there something here to understand the kind of dissatisfaction and the revolts against the same more broadly put post-war order that we're seeing not just in Chile but we're seeing in Brazil who gave us bolsonaro we're seeing it in in the United States that gave us Donald Trump we're seeing in fact a very heterogeneous bunch of countries with a very heterogeneous bunch of people because you've got you know uh uh I was thinking erdogan in Turkey Orban in Hungary Trump in the US m in Argentina um is there could you can we connect this and does this have to do with with the dynamic that you I I I I think that I mean uh there are people in the room that know more about this than I do but uh it has to do with a combination of factors including technology and globalization and uh it's at the center of the current conversation and what is AI going to do to us and and what's going I mean um I have a permanent discussion with my colleague and your friend Jim our friend Ed lemur about this and and he is very pessimistic and he thinks that the 10% higher income is going to get 99% of total of the total pie and I tell him no but but I think that technology um Edward has a lot to do with it um inflation now has a lot to do with it um but I think that that that that coming down to to to Chile and and and and and the neighborhood I think that initial conditions matter as we know from Dynamic equ from from differential equations and so on um the initial conditions in Chile was after the socialist government which was produced an economic collapse inflation almost of 2,000% and I think the initial conditions in Argentina explain melee right and it's the country that was number one at some point for almost everything in the world including Opera that has one of the best Opera Houses in the world and now all they have left is soccer plays right it went from everything to Messi an an [Laughter] economist they have soccer players and Economist right so initial conditions matter and and um and and the the the the pendulum of course maybe moves too much on one way and then so but what we're seeing in Argentina is people tell me how do you some people tell me how do you write about the downfall of neoliberalism with mle being like he's like the Chicago boys to the nth power right uh and and and so but without much power well we we don't know I mean I I wouldn't write him off fully yet he has a small fraction of the of the legislature he doesn't really control that's that's right but uh things are moving some things are moving they moving but but but I um I we were talking earlier Edward about uh Joe stiglets um I don't think I mean he released his book yesterday I took I took I took uh the best thing about Joe's book is a title which is which is what I the title the title the title I I forget the complete title but it ends with the good society which was the title of the 1937 book by Walter liman yeah which generated the Libman colloquium which resulted in the birth of neoliberalism so I thought oh stiglet finally is turning is becoming a neoliberal but but no wait a minute that's not quite accurate I mean l well that's completely irrelevant to Chile but I mean Litman had a very different view about authorities really running the government oh yeah and I don't think that's a neoliberal view I think the more it's much more of a spontaneous you want to talk about Hayak versus Litman they would be an enormous kind no but they got but they were together in the liman collum and they got into a big fight I bet they did yeah because we we now we now have the minutes of the liban colloquium all right and when they this is in Paris in 38 and they decide to reconvene in 39 but the war starts and they don't and then a subgroup reconvened in 47 in Davos but Hayek does not invite Lipman and when someone tells liman oh they didn't invite you and he said even if they had invited me I would not have gone with those crazies which was Ms and haek Milton was there George and and and Aaron um director director were there the three Chicago that Chicago faculty that were in the W Allen Wallace too don't forget was he found one of the founders of the M yeah okay so so yeah so Lipman had you're you're totally right had a completely different view on authoritarianism but it was in the Libman collum that the term neoliberal was coined by interesting by the the French philosopher Lis rier right it's probably appropriate that we're doing this on the 80th anniversary of the road to Surf them yeah um is it literally I think it's this month it is this month um uh anyway uh but actually your your reference to to to Joe stiglet he actually makes the point that um oh you've read his book already I've read bits um oh you're a journalist I understand yeah you got first access that in fact in societies that were more where the government played a larger role where the social safety net was bigger where there were more government supports have resisted the the say the temptation of populism better than the more Market oriented countries so that you're getting Trump in the US and you're getting you know bsar and Brazil which are places where you know the much more Frid uh uh um safety nets um and like say the Scandinavian countries where wait what does he do with Juan Peron I no I think was a bit ago I think he's referring to the current the current but Argentina was a pretty Market oriented Society iara in Ecuador hulio Vargas in in Brazil as jimes says per uh ianas Del Campo in Chile Alan Garcia in in in Peru Alan Garcia won Alan Garcia too was well behaved so you go through the list and and it's so I I I don't want to talk about Joan anymore you you brought him up man but you when you go back to Ed lemur I would tell him to recorrect correct the statistics about income distribution because this claim that you were stating about you know the the growing inequality there's a lot of debate and some of it's done working on here in the University of Chicago a lot of Scholars pointing that the factual evidence for this is not as strong as many people say it is the kind of peaky kinds of conclusions when you really look at transfer programs and things like that inequality has a very different dimension the way it's portrayed by stiglets I know Joe he's very nice guy yeah he's a nice guy but once he gets up on a Podium he's unbelievable and uh honestly he's very political speaks too too long about things he doesn't know very much it's a risk the economists have I let me let me go back Jim going back to what you said I the the gene coefficient in Chile goes down very slowly right uh but no one yet uh except I think one of your students has done an indepth study once you take into account in kind transfers what happen yeah I know and that's really important it is very important I think shown to be hugely important in the the one study that I saw reduces the Gen by I think 12 points yeah from 42 to 30 or something like that if you if you monetize and give a monetary value to those in Chile which there were lot there are still lots of transfers right in kind so they if you if you were to believe what pkt says that would bring the genie up by 10 points and then you would do the the adjustment for transfer in C it would go down even more than what it went up exactly but but but yeah so more work has to be done and and but again we have to transmit those ideas that's the part that's very difficult the war on ideas is crucial but there is a Mala I agree with you on that and there's a Mala that's that's Universal I we were talking privately before this meeting about a very famous University of Chicago sociologist named ed schills back in the 60s he was worried about what seemed to be like a universal cultural transmission of this same kind of males you know the the revolutions that were occurring in Europe the red gard and China and what was going on in the US and so there really is a cultural phenomenon he was trying to explain it he found out a whole journal to explain it I don't think he ever really explained it that well but it is transmitted there's a sense that well you know the avanguard notion is that we're now in a much more unequal State capitalism is bad and on and on and on and part of that is you know some people will say that's due to the education the changing this this gromi kind of argument about building up it it is complicated because some of my Chicago boys friends I'm a Chicago graduate I Define but not a Chicago boy right no you clearly distinguish yourself and some of my Chicago boyfriends say it's true that there were all these abuses this collusion from what you eat to what you you know right and the medicines you take for that and so but they say the fact that we know about about them is that we found them the regulatory system worked and these people were either fined or were sent to jail or both right and so then you have to I mean with the counterfactual it's it's we need more work on this right can I can I ask a question sure just and this is something you raise in your book and it's a separate topic but it is relevant to the US context you talk about the Indian the group of mat matuch mapuches and this represents and you have a story by over a 50-year period really pointing out that there really is not a lot of social progress there was a kind of class stratification and I'm wondering how the the Chicago boy Revolution really dealt with that question about exclusion and social exclusion but also this indigenous exclusion that seemed to be an issue in the election and yes um Chile yeah I think there there there it's still very stratified but less so than before for the the harburger story for the public he tells a story that first or second time he goes to Chile in the late 50s he's invited to a gentleman's club called the union club and there are captains of industry and then he asks in a very naive way how many what percentage of the members of this club are come from um uh from peasant families they they they they come they are descendants of and the gentlemen at the in the in the room don't understand the question and then they realize when the question and the answer is zero and he asked that question in the same Gentleman's Club 50 years later and the answer still zero Al tells this story at the M Mount pan society meeting at Hoover a few years ago the last meeting that he attended um and uh and and it's and he say he was shocked that in 50 years but but there is more Mobility one of our graduates I think he he may have been a student of yours Jim um clao sapelli yeah I know sapel yeah clao has been uh estimating uh uh genic Co efficienc by cohorts yeah and he has shown that there is more uh Mobility um now the indigenous population it's very very few of them have made it I think and uh not zero but very very few yeah how similar is the discussion of that population say to the population issues here with minorities in the in the United States do you have a sense of that where that carries over the kind of lessons well I I I think it's it's very different because uh uh Chile abolished slavery very early on and there were very few the reason why he did it very early on because there were very few slaves okay as opposed to Uruguay and Argentina and Chile until recently recently being 5 years ago there were almost no black people now there are lots of Asians and uh Mig migrants and Colombians and so on so um the the indigenous population it's different uh in the sense that they were they were resisting the Spanish first and then the Chilean Republic from getting their land and there was um so it's a it's a it's not the same put that way yeah I think I have time to squeeze in right one more before the Q&A so just about your point about what comes next and you seem to favor a kind of a drift towards some more Social Democratic model with some more government intervention in a basic Market scheme but I'm wondering because it doesn't look if you look at Chile right now I'm not sure that that's where it's going I mean I see the bardage government which came out of the 2019 uh protests did has been pushing in that direction and you mentioned a couple of initiatives but it doesn't look like his government is going to do is doing very well I mean there was a tax increase that he wanted to put together to to to fund some of his agenda and that got shot down in Congress um it doesn't look very likely that his ideological side of the spectrum is going to survive the next election um there's a lot of belief that even extreme right could take over so I'm not sure that social democracy is a passo could you you know yeah so there are three very very quickly so that we can open up uh um number One never in Chile never underestimate the right and the conservatives ability to commit suicide okay they may be right now the government may have 28% support and maybe they will win because the right will do the wrong thing the conservatives I all so that's something that we have to keep in mind number two already there have been changes to the original model that move it into the Social Democratic the fact that there is an guaranteed Universal pension it doesn't matter if you have worked one day and you're going to get right now it's one half of the minimum wage for not working everyone just the fact that you are it's age driven after a certain age 65 you get the the that's a huge change the fact that you don't pay for college zero doesn't matter where you go right and those things um yesterday no next week is going to be the first day of the beginning of the 40h Hour Week in Chile the working week was 45 hours and this government passed the reduction to 40 okay so there are little things that are they're not making they're going to get something on the tax end something not the pkt type of crazy thing but something they're going to get something on pensions so they're moving a little bit and I'm not I'm not saying we're going to go back to the 1960s we just provided um uh uh the government just gave the steel producer the one steel producing company in Chile um sear charge on import duties of around 35% steel protection um very similar to the US but it said I mean the Chicago boys would never have done that would have said if you cannot compete with Chinese tough luck mucho Malo right now so so it's moving it's slowly it's not going to happen like transforming Chile in a multiethnic country no as as the Constitutional uh yeah proposal had had said yeah so guys I think it's time for Q&A uh anybody we have a mic I think we have a mic there yeah us yeah don't be shy so you're going to run and then if you guys could just introduce yourselves as well before you ask your question yeah I guess they're going to defect it oh let's see uh good afternoon thank you so much for being here uh when you were listing the potential causes of the downfall uh you mentioned uh income distribution collusions pensions education among others uh and I'm surprised that you did not mention the decrease in GDP growth um when Chile was growing Genie was decreasing everyone was better off so I think that GDP growth should be number one on that list and that is basically people's feeling that they are not better than what they were themselves like five years ago and uh not compared to the top 1% let's say so why didn't you start the list with that thank you no I I I think that you that's a very valid point I think that in part I mean it's an endogenous variable growth it's not that God said one day now Chile is going to grow at 2% so it's the outcome of all these other things but I think that you are absolutely right there is an uh um frustration of aspirations people were aspiring at more and that was frustra so I agree with that I I have no problem with that it's totally true yeah here there's a mic over there um this is chanta I'm a faculty member here so I my question is I wonder what whether we are asking too much from Economic Policy uh and I wonder whether if if you think that's what whether there's something else that needs to get done that's not about about Economic Policy but it's about other things so let me just suggest one thing maybe it was 10 years ago 20 20 years ago I was reading an interview with a prominent Chilean Economist who teaches at the UN of Chile I'm not going to mention the name it's easy to figure out who he is and he tells a story about how he grew up in a small town in the Chilean South uh in uh in in the the south of Chile and then he came to Santiago for college and then he describes how then he went to college you know in in sanago then he got a PhD in the US and he came back but then he describes his life that and the the the that that nobody in his life in San Diego understands where he comes from and he can't talk about his life in Santiago with all his friends and his family and there was a particular phrase that he used which really jumped out at me he and I'll was saying in Spanish ES like like you know like like he lives there but it's like he has no history so I I I I I wonder whether sort of the dissatisfaction is coming from you know I mean essentially I think I interpret him saying is that there are these old social structures that you implement these economic reforms but these social structures are still there right no I I I think that's to perfectly right and I was going to make the point you made so well when Jim asked about mobility and and brought out with harburger said um it's a very uh Chile it's a small count 20 18 million people right now and it's still the uh old school tie it's still very important there are studies that x% X being very high 65 70 uh% of CEOs uh come from three private schools you think let me mention three of the most around in my generation better known Economist Chilean Economist in the US Andres Velasco who is now a Dean at the LSC and who was at Harvard Eduardo Angel who went to Yale and I'm sorry myself we all went to the same we all went to the same prep school one prep school that has 400 students so this gives you an example of how and and I think it's true and it's reflected I think in the fact that the during the Revolt during the the riots in 2019 the protesters renamed the main Square where these the big things were were happening as dignity Square PLA dignidad and it had and I talk in the book about what I call horizontal inequality the way you treat people the way you relate to people the way people you talk to other people and and and it transmits a structure social structure that is very rigid and you can make a lot of money still which and I think I know who you're talking about you can make a lot of money and still they don't want you in the country club they leted you in the difference between when I was growing up is that you could not get in the country now you can get in but they really don't want to play tennis with you right and and and and they don't you really don't and and yeah there is that and I I agree with you yeah so I'm agreeing with everyone uh I have a question hey yeah I'm reading this book called uh why Nations fail by Darren asogo and he claims that you know nations are poor because of politics not economics and I was wondering to what extent do you agree with that um our Nations poor because of politics and if so what can we do to help these poor Nations yeah so I I I think so two things about that the book by Darren and I think it's by Darren and Jim Robinson uh they very clear is why Nations fail it's much easier to write that book than to write a book why Nations succeed right um and I think that they have a point but I think that at the end is like the old SAT uh question it's all of the above so its policies its culture its institutions its geography um my my former colleague uh Ken sov who passed had this uh with Stanley engerman a whole view about geography and endowments it's all of the above now what can we do Chile has right now 21 political parties represented in Congress the house of the lower house has 155 members and the Senate has 50 members and 21 or 22 political parties with 15 that are in the process of being created and they will have members of Congress and they have a proportional system which each district elects between I think it's four and eight representatives and there's a small group of us who are pushing a system like the UK or here which is districts with one representative and there a very simple assumption that the median voter theorem would work and you would have people that are in the middle and you would get aoc's there are districts that like AOC and that's why she was elected and she is a very important member of Congress but but I think that the the the the way um my former colleague Guido tabini with tors and person wrote a book on constitutions and political systems and how they are related to outcomes in in in in economics so I think that that it's true and we have to work with that Jim Buchanan did beautiful work about that one of the criticisms Jim that the book has had is that I don't talk about Jim Buchanan's visit to Chile so um and I don't no one noticed that he went there that's he that's the truth but the yeah hi I'm Alejandro from Mexico regarding the neglection of income distribution H could you share what is your perspective on how should Latin American countries tackle the income distribution problem which is predominant in most Latin American countries yeah um I I I'm I'm not sure if I can say anything that is not a cliche and um or uh or or something that has been I mean Jim has worked a lot on this right and he has buil a whole policy uh uh proposal I think uh if when simp I you correct me Jim if one simplifies uh Jim heckman's views is preschool is extremely important family family preschool and if we went to say Ecuador and we or Costa Rica any I mean Costa Costa Rica country that everyone loves right and we say we're going to do this then we would see the fruits of applying your system 25 years from now and then they they're going to say no no no we don't want to wait 25 years we want to what Alejandro asked we want to deal with the income distribution now what do we do now and then there are crazy proposals like pkt and so on so uh I I mean besides education and I I'm not sure now one thing I I must tell you is that in Chile because we're talk Chile but this is true all over the Amer in Chile the Gen before taxes and transfers is the same as after transfers and taxes in the UK it's like 15 points lower after the tax so the Chilean tax system and transfer system and this goes back to what Jame was saying transfers in kind and so we're not measuring right but the that is is one of the problems and we have to deal with it in a way that we don't kill the in incentives going back to the earlier requests but that's partly the informal sector too right there's a good way to evade a lot of the taxes and transfers that and and that's what's going on partly in a lot of countries not just Chile but a lot of even European countries Italy for example yeah Italy Italy has been like that for a long time and Chile the the the the new measurement says that the informal sector has grown from 27% to around 33% of the economy but of course being yeah I being the informal sector it's very hard to measure it right that's that's growing with the tax rate I assume right right so okay we had other other questions a question there originally from Santiago graduated from the law school um my question is about this idea of self correction um what do you think about um the new appointments that the president president Bard has uh made in Chile um from what I understand uh the treasury secretary um the Secretary of um Foreign Affairs and actually the vice president um were all members of the previous covenants and previous administrations um how do you how do you feel about that in terms of um the change of narrative yeah so the the president is very smart and I think that he learns quickly he is an accident Dental president and he's the he's a representative of what I call in the book the far left because the left was the um bash and Lagos and so on and uh they he was the far-left candidate because he was the only one who was older than 35 in that group and the requirement for becoming president is being 35 so he's totally accident he's very smart and he realized very quickly that it's much easier to protest and to be an activist a student leader than to run a country so indeed he did ask the concertation the old sort adults left to join in and he has a few members of the cabinet who are doing well uh but every time the president moves in the right direction the next day he goes back right um and and uh he's very much into identity politics and he is very anti-israel for instance um and uh he doesn't want he didn't want to uh receive the Israeli Ambassador and when he came he left him waiting for three hours and then said I cannot see you uh so it's uh but yes the he is learning moving in the has moved in the right direction uh the Minister of Finance is a good Economist uh no uh didn't come to Chicago but he's a good Economist so the Israel position is that just because he wants to fit in with the group no he he he is very Pro human rights he's a he's he's into h a a do good gooders he wants and he wants to protect stateless people he always has had that view I see so it's it's uh uh but but uh that has resulted even even before Gaza in an anti-israel position okay which is very problematic because Chile relies on Israel for desalinization Chile the main input into Chile's future economic future is water and the only way to get water in chil to desalinized the Pacific Ocean and the only way of doing that is really taking the Israeli technology and adapting it for the Pacific the South Pacific as a South East Pacific as opposed to the the Mediterranean and if you cut off the Israelis where you going to get that technology from and and also defense Chile depends on so anyway it's it's a big disaster yes this is going to be the last question by the way last question okay uh Greg Kaplan I'm also a faculty member here in the department so uh I I found the discussion about the role of winning the war and ideas really fascinating and I'm curious what you think um what we think needs to be done today in our context for you know moving that position in the US or and well all over and what is the role of Institutions like the University of Chicago today as opposed to 50 or 70 years ago in in in that process say yeah so um let me let me I I I will I think that's a very important question it's great that that's is the last question because I I I end the book with that right so I I'm going to answer it from the Chilean perspective and uh in Chile there is no TV commentator or Ancor person who strongly defends markets and market economy and that's not god-given it's not that God got up one morning and said in Chile all the TV commentators are going to be left Wingers it's because someone is not paying attention right and uh their think tanks are being pro market think tanks have the the the one of them was run by Christan red who is right here which was when when Christian ran it it was a proom market system Christian was here in Chicago when I was here and they set the pace of the discussion and now it's very diminished and and and and I think that you have to strengthen those institutions now I'm not going to answer about the University of Chicago necessarily but the Catholic University in Chile today is completely removed from the policy discussion and they are publishing papers in uh I isi journals that's but of course not in the A or B journals these are like the D journals right and all they and they are good economists but they and and when I brought this up to them they said that's not our role our role is to publish papers in the better journals supposed to do research now it turns out that Chile has some of the best data sets for this they have this administrative data sets where you can you have the tax number of every person you know everything about every person every firm the the the life career everything so they can do that so I think that we I go back to Dear dloski preach preach and preach and we need the right type of Institutions and and setup for preaching um and uh we need more Miltons [Applause]
