Chile has been a economic standout in South America, tripling its real income in three decades and providing the greatest social mobility on the continent.
That sounds like a good reason to maintain policies of low taxes. But reason and progressives don’t mix, so the emphasis now is on inequality. Get this:
Mary Anastasia O’Grady in the WSJ
It’s nonsense to suggest that a free society can guarantee equal opportunity or equal economic outcomes. But that doesn’t stop elected politicians in modern democracies from promising both.
That’s why an A for honesty is in order for Chile’s education minister, Nicolás Eyzaguirre, who admitted in June that Socialist President Michelle Bachelet ’s campaign pledge to rid Chilean education of “inequality” requires withdrawing the freedom parents now have to choose their child’s school.
“What we have now is one competitor . . . with skates going at a high speed and the other barefoot,” he said. “The barefoot one is public education. I have been asked why not provide better training and more food to the one going barefoot? First, I have to take away the skates of the other.” (Emphasis added)
Kurt Vonnegut satirized this thinking in his short story, Harrison Bergeron.
Welcome to Ms. Bachelet’s Chile, where freedom is a problem because it upends the Socialists’ brave new world of equality. Learning more now, or earning more later, are symptoms of unfairness in the eyes of la presidenta and her party militants.
To understand why the outlook for the Chilean “miracle” is so grim and investment is plummeting, look no further than this government’s obsession with holding back those who would skate ahead of the pack.
Ms. Bachelet has increased tax rates on everything from capital to consumption. One objective is to soak the investor class, making it poorer so that income inequality goes down. But it is more likely that income disparities will go up since the rich have ways to shelter income while the poor depend on job creation from investment to earn their daily bread and build wealth.
When policies are capital-friendly, as they have been in Chile since the 1980s, life on the lower economic rungs improves in absolute terms. Writing in the Chilean daily El Mercurio on Oct. 19, former finance minister Hernán Büchi noted that Chile tripled its real income in three decades “and as a consequence generated an enormous social transformation especially for the poorest.” A 2013 World Bank study showed that between 1992 and 2009 Chile was “the country with the greatest social mobility on the continent,” Mr. Büchi wrote.
This impressive performance is unlikely to continue now that Chile is becoming another high-tax jurisdiction. According to the most recent figures available from Chile’s central bank, investment dropped 12.3% in the last quarter of 2013, 5.5% in the first quarter of this year and 8.1% in the second quarter. Last year around this time, the forecast for 2014 GDP growth was 4.5%. Now it hovers around 2%, thanks to falling commodity prices and the rising uncertainty produced by Ms. Bachelet’s hostility toward competition and profits.
The higher tax rates are supposed to generate higher revenue which the government says will be spent to improve public schools. Yet in the unlikely event that tax revenues increase while investors are running for the exits, there is no correlation between spending increases in union-controlled classrooms and academic results. The intellectual authors of the plan seem to recognize this, and it’s why they want to destroy private-school competition.