#133 South America Turns Socialist

By D. Arnott | August 5, 2022
the christian economist dave arnott

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#133 South America Turns Socialist

 

As South American countries turn Socialist, the US should prepare to bail them out just as President Clinton did in 1995.

 

Caring for our Neighbors 

One of the bravest political economic decisions in American history does not get enough attention.  In 1995, President Bill Clinton was provided details of the upcoming default of the Mexican government.  They needed a $20 billion bail-out.  When President Clinton could not get Congress to act, he made the loan through Executive power.  He bravely, and without hesitation, clearly stated that the US would pay what was needed to stabilize his neighboring country.  The Mexican government repaid the loan early, with interest.  The Biblical command to “Love your neighbor” usually means your individual neighbor, but President Clinton showed it could also mean the country next door. 

Here’s how President Clinton stated the case in his State of the Union speech, “If we want to secure American jobs, preserve American exports, safeguard America’s borders, then we must pass the stabilization program and help to put Mexico back on track.”  Actually, if you’re looking for self-interest – as economists often are – you’re welcome to notice that if President Clinton had NOT acted, there would have been 2-5 million hungry Mexicans at the southern border of his country.  At the time, that would have been considered a crisis.  During the Biden administration, it’s seen as a way to gain votes.  But in those years, America at least made an attempt to keep the law. 

That bail-out will be news soon, as the US considers whether to bail-out numerous Central and South American countries who are traveling what that guy would call The Road to Serfdom.  It is happening at an astounding rate. 

 

Who

Colombia just elected Gustavo Petro: A leader who many fear will align the once-prosperous country with its Venezuelan neighbor.  Colombia joins Argentina, Chile, Peru, Mexico and some smaller countries that have elected Socialist-leaning leaders in the last four years whose policies will harm the poor in their countries. 

Cuba is a Socialist disaster for the ages.  According to Thomas Sowell, “Forty years after Cuban refugees arrived in the United States, the total revenue of a few million Cuban American businesses was greater than the total revenue of the entire nation of Cuba.”

Venezuela has found that “You can only vote Socialist once.”  They made their mistake, and it looks like they may never recover. 

Marching right behind the worst economies in the region is Peru, who elected Pedro Castillo, a rural school teacher and union activist.  He won an election a year ago and has faced two impeachment votes, changed his prime minister four times and is facing a criminal investigation for corruption, an allegation that he denies. 

Mexico is headed in the wrong direction, again.  Recently, their state-owned oil company, Pemex, ended a joint venture with an American firm that operated their exploration activities.  The national police has been disbanded, and regulatory measures are increasing. 

Chile was the shining star of free market capitalism after the great Milton Friedman gave influential free market lectures there in 1975.  When Ms. Arnott and I visited in 2015, the Socialist Michelle Bachellet was serving her second term as President, and was attempting to pull the country left.  She succeeded.

The country used to be admired in the region for its sophisticated and consensus-seeking political class.  But recently, a leftist former student protest leader won the presidential election over a conservative lawyer.

El Salvador has been a dangerous place for years, now it’s moving even further left toward Socialism.  In 2019, El Salvador elected President Nayib Bukele, a former marketing executive who created his own political party.  He has been criticized by the U.S. government for a power grab that included the removal of judges and stacking the courts with his supporters

Argentina is growing accustomed to 60% annual inflation that is increasing the poverty level.  As we’re learning in America, inflation is not Biblical for three reasons: 1. It destroys sound money as called for honest weights in Leviticus 19:35.  2. It encourages borrowing instead of saving because you can pay off the loan with cheaper dollars in the future.  3. It encourages spending instead of saving, as the Brazilians learned during the decades of the 1980’s and 90’s. 

Once free-market leader, Colombia, seems to be leading the lurch to the left.  Gustavo Petro was elected President of Colombia in mid June.    According to Mary Anastasia O’Grady, in the Wall Street Journal, The 62-year-old president-elect is a hard-left populist. He has promised to raise taxes on entrepreneurs, impose new import duties, expand entitlements, and end permitting for oil exploration. In his view, the state, not the market, should run the economy. Colombia’s central bank is supposed to be independent, but Mr. Petro is expected to pressure it to print pesos recklessly, à la Argentina. Capital is fleeing the country.

He was a close adviser to Hugo Chávez in the early 2000s, as the Venezuelan strongman was consolidating power. 

 

Loss of Freedom

As I explained in an interview with Real News anchor Jeff Crilley, Free Market Capitalism contains in its philosophy, its own demise: Freedom to encourage Socialism.  The Cubans and Venezuelans know that Socialism does not suffer from that malady.  That insight comes from Niall Ferguson of the Hoover Institution at Stanford.  

People should be Free is the first of the ten Biblical Commandments of economics that Sergiy Saydometov and I described in our book Biblical Economic Policy.  It’s quite clear that the Bible encourages us to be as free as possible.  Seeing our neighboring Central and South American countries voluntarily giving up their freedom is difficult to watch. 

Ginger and I noticed a bust of South American freedom fighter Simon Bolivar on the Avenue de Liberdade in Lisbon last month.  He is commemorated for leading Colombia, Venezuela, Ecuador, Peru, and Bolivia to independence from the Spanish Empire in the early part of the 19th Century.  A few steps away, was a bust of Bernardo O’Higgins, the independence leader who freed Chile from Spanish rule about the same time.  It was hard to look at the memorials to those who fought for freedom, realizing that, halfway around the world, their successors were giving away that freedom at the ballot box.  Here’s a prediction: None of the current South American leaders will be honored by statues in the Avenue de Liberdade in the future. 

I unpack the Biblical support for this idea in more detail in podcast #113 People Should be Free.

Central and South American voters reportedly are frustrated that governments have been unable to address three key issues: low economic growth, income inequality and poor public services.

Let’s see if I understand this correctly: They intend to cure low economic growth, income inequality and poor public services by lurching to the left.  Have any of these voters visited Cuba?  Winston Churchill famously said, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”  These countries are headed in the wrong direction. 

The political turmoil has spread across Latin America as governments deal with corruption scandals, high crime, and sluggish economies. Annual economic growth from 2013 through 2019 was 1.2% on average for the region, World Bank data shows.  Phil Gramm and Mike Solon explain that we have averaged 3% growth in the US for at least the modern era, and probably the entire history of our country.

Other answers to the “why?” question include two of the Ten Commandments given to Moses that Sergiy and I adapted for our list of ten Biblical Commandments of Economics in our book Biblical Economic Policy: Don’t steal and Don’t covet.  Socialism steals goods from its country’s citizens.  And at the heart of Socialism is covetousness, because people want the goods of others redistributed to them. 

 

Caring for the Poor

I deliver more details in podcast #105 titled The Free Market Feeds the Poor.  For today, I will summarize that free markets have pulled millions out of poverty in developing countries, including the Central and South American countries I’m speaking about today.  As they slip into Socialism, they will become poorer.  And, my prediction is that they will be knocking on the door of the US President in a few years, just as Mexico did in 1995.

In 2021, extreme poverty in the region reached a 27-year high of 13.8%, worse than the global average of 8.6%.  Fast-rising inflation and high unemployment in the wake of the pandemic have hit the region’s vulnerable middle class, according to economists who study the region. 

Mr. Petro’s win in Colombia this month leaves Brazil as the region’s sole big country to be governed by the right.   For now.  It looks like former leftist President Luiz da Silva will defeat incumbent Jair Bolsonaro in October’s vote.

 

We’re Not Ready

I commented to a family member this week, that the US is not ready to fight a recession, war, nor another pandemic.  The government has spent its resources on loose fiscal policy, the Fed has increased the money supply and kept interest rates too low, for too long.  We are not prepared to be a good neighbor to 500 million Central and South Americans as President Bill Clinton did in 1995.  

It’s usually hard to predict when economic strife will come, but this one is easy to predict.  Socialism always produces poverty, and it will in Central and South America.  Expect around 500 million refugees on the Southern border in about five years. 

 

FEAR GOD,
TELL THE TRUTH,
EARN A PROFIT.

 

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