For School Choice, in Chile and Elsewhere!


In her second term as president of Chile Michelle Bachelet is set to impose significant educational reforms to further her socialist agenda. An estimated increase of 1.5-2 percent of GDP on top of existing spending is supposed to improve the quality of and access to (higher) education and thereby reduce the problems of inequality and segregation.

Bachelet’s plan to provide “free” college education to all Chileans exposes her ignorance of the effect of such policies in other countries. It is a statist’s’ knee-jerk reaction: once we’ve identified a problem naturally all we need to do is throw a bunch of money at it and have the government point guns at people, and the rest will take care of itself! After all, the Danish taxpayer is forced to pay for everyone’s college tuition, and they are prospering!

Chile_EducationThis sort of simplistic stance on education completely ignores historical and empirical evidence that shows that the voluntary system in existence before the dawn of compulsory schooling already met the existing needs for education, or that modern public schooling is a lot more likely to increase social segregation. The latter is confirmed by Chilean figures correlating people’s addresses, incomes and test scores. Besides, we already know that putting more power into the hands of bureaucrats in faraway government buildings, where we can be sure their views and policies will be heavily influenced by special interest groups, will invariably reduce transparency, accountability and quality.

In the United States, for instance, this has lead to a ballooning student loan debt that now stands at $1.2 trillion or some $30,000 per student. In three decades tuition fees have risen by 1,120 percent, meaning that the same college degree today costs 12 times as much as in 1978. The total bill ranked up on behalf of the American taxpayer stands at $22 billion per year, much of which can be traced back to the government programs championed by Lyndon B. Johnson in the sixties as part of his “Great Society”.

The modern school system is largely based on a foundation laid by Iron Chancellor Otto von Bismarck in the late 19th century, with the aim of supplying his military with soldiers willing to follow orders unquestioningly. Should we be surprised, then, that our schools don’t produce critical thinkers and enterprising individuals? Is it any wonder how pervasive statism is in our society? If we were all forced to go to universities funded and run by Coca-Cola could we reasonably expect anyone to be critical of Coca-Cola?

In recent debates about education here in Chile we have heard some shockingly uneducated (pun intended) statements from officials, stating “we don’t know if for-profit education, selection or shared finance of schools and universities actually affect quality” and that “there is no recipe for quality”. The fact that these people are not only engaged in the debate but likely to exert If an objectively written book was ever published on the State’s involvement in schooling our children it might be titled “Government schooling: making every student equally miserable since the 1870s”. Should the Bachelet administration succeed in stripping away school choice the educational system will likely go down that very path.

As Murray Rothbard pointed out: “It is clear that the suppression of free instruction should be regarded with even greater horror than suppression of free press, since here the unformed minds of children are involved.” Chilean libertarians have their work cut out for them.

Who Will Be Hurt Most By Chile’s Carbon Tax?


As part of the tax reform put into law last month, Chile now has the “honor” of calling itself the first South American country to impose a carbon tax. Starting in 2018 Michelle Bachelet’s center-left government will attach a price tag of $5 to every ton of carbon emissions produced by the country’s large electricity generators. The law will apply to any thermal generators with a capacity of at least 50 megawatts – though biomass plants are exempt – and will reportedly extract $160 million out of the economy.

Coincidentally the year the new carbon tax takes effect is the same year Chile is expected to officially become the first developed nation on the continent. The adoption of free market policies in recent decades – the Fraser Institute now ranks the Chilean economy as the 10th freest in the world – has made Chile a model for other South American nations to emulate. Squarely in line with her socialist philosophy, though, Bachelet aims to mold Chilean society according to her wishes. Unfortunately for Chilean citizens, especially the poor whose lots Bachelet claims to want to improve, this includes taxing electricity.KONICA MINOLTA DIGITAL CAMERA

Considering that some 30 percent of the country’s energy production stands to be affected, the carbon tax will likely have a serious impact on prices. Naturally those hit hardest by such price hikes are those spending the highest share of their income on energy, i.e. the poor. Enter the schizophrenia of left-environmentalism: advocating for forced wealth transfers to help the needy while simultaneously adopting policies that raise the prices those same people pay for some of the most basic necessities.

Besides the obvious truth that a tax levied on any product or service raises its price, there is empirical evidence on environmental taxes we can point to and learn lessons from. Studies estimate that the carbon tax burden may be as high as 3.5% for low-income households compared to less than 1 percent for the highest income range. In the UK, for instance, a carbon price floor introduced last year added $8 to household bills, and official estimates predict that surcharge rising to as much as $80 by 2020. More uplifting news comes from Australia, where the recent repeal of the carbon tax is estimated to save households on average between $175 and $230.

In addition, it is worth asking ourselves where this $5 number comes from. The same ton of carbon dioxide is taxed at some $9 in British Columbia, $15 in Britain, nearly $20 in Australia, and as much as $150 in Sweden. Such a wide range seems hardly scientific, and it begs the question if perhaps politicians are just making it up as they go along, hoping to strike the right balance between satisfying special interests while keeping their cushy government jobs. In the Chilean context it is worth noting that the mining industry, a vital part of the Chilean economy, represents approximately one third of the nation’s energy consumption.

Whether one subscribes to the theory of anthropogenic global warming or not, climate policies’ impact on our daily lives is undeniable. As with any kind of government intervention it is imperative for us honest skeptics of centralized power to represent the voices of reason, especially in a highly politicized debate. Chilean households have yet to see the likely devastating effects of such (over)ambitious policies, but there are still a few years left to stop it in its tracks.

Keynesianism in Chile


Last week Chilean president Michelle Bachelet announced an “especially anti-cyclical” government budget for 2015. Utilizing the usual rhetoric of creating jobs and stimulating the economy, the first budget in her second term is set to increase by a whopping 9.8 percent. The new budget’s “historical increase in public investment” – mind you, these are the words of a Socialist Party president – will be directed mostly toward social reforms.

La_MonedaThe increase in spending is supposedly covered by a landmark tax reform passed last month raising corporate taxes and closing tax exemptions. These funds, confiscated from those who could make actual investments to meet market needs, will be used to ramp up spending on health care by 85 percent and education by 10.2 percent. In addition, Bachelet pledged to pump more money into developing certain remote regions and consolidate social welfare schemes, stating her administration’s goal to have 1,700 of the poorest families on the dole by next year.

The latter, of course, is typical of the redistributionist ideology; the fundamental difference between giving a man a fish to feed him once and teaching him how to fish so that he may become more self-reliant. As always the irony of striving first and foremost to make the poor and destitute more dependent on others for their sustenance seems to be lost on most people. Growing up, children are expected to become better able to take care of themselves and take on more responsibility as they get older – I personally recall a story or two about my older sister looking after me when we were kids. Yet when government takes this inherent human instinct and turns it on its head, nobody bats an eye.

In her press conference president Bachelet administration claims the stimulus will create 139,000 jobs. What she left out, however, is how many jobs will be destroyed or never created because of the tax hikes. After all, there is no way of knowing how many more or fewer jobs would have been created if the government had not decided to extract more resources from the voluntary sector. Nor does Bachelet specify what types of jobs will be created. Since jobs created by an institution that does not have to make a profit are not subject to the discipline of the market, the creation of these jobs might actually harm the economy and the people rather than help them. And all of this is assuming the tax hikes will even create enough revenue to cover the increased spending.

Rather than help sustainably grow the Chilean economy, the new budget represents the State’s clenching fist on an economy that is already struggling. The slowdown in the Chinese economy and the Finance Minister’s announcement that there will be no stimulus has lowered demand for copper, Chile’s main export product. With Chinese demand for copper dropping the commodity’s price has fallen by over 6 percent in recent weeks. If the U.S. dollar keeps strengthening the way it has for the last 12 weeks the price of copper is expected to fall further.

The good news for the Chinese is that it seems their economy will be allowed to run its (semi-) natural course rather than get a temporary monetary fix, which is inevitably followed by a correction. Unfortunately the Bachelet administration either does not understand that or is simply doing what is politically expedient. Either way it is telling to witness a socialist president in Chile implement more interventionist policies than the so-called communist Chinese. The difference will be that when the Chinese economy bounces back, it just might be a more sustainable recovery.

What’s Really Growing in Argentina?


Traveling through Argentina recently I was taken aback by the abject depression that seems to have taken the country and the people in its grip. Even after spending barely two days in the country I left with a negative taste in my mouth. More than the many buildings, modes of transport, streets and sidewalks in severe states of disrepair the overall feel of the place really stood out in my mind. And it is not that I was expecting to see a prosperous, bustling country either.

Moneda_ArgentinaFor some time now it has been clear that the Argentine economy is rapidly disintegrating. The people are struggling to cope with an estimated inflation rate of over 50 percent, a rate the Kirchner administration has been stubbornly underreporting to the point to where international authorities have openly questioned the numbers. Other persistent problems include seemingly permanent fiscal deficits, international reserves drying up, and the ongoing devaluation of the peso. Government spending as a percentage of GDP now hovers around 50 percent, contributing to last month’s second sovereign debt default in a mere 13 years. Meanwhile the previous one is still haunting the state budget.

In late 2001 the Argentinian government declared the world’s largest sovereign default, triggering the worst economic recession in history. Unemployment spiked to 20 percent causing widespread riots and looting, not to mention political instability– five different presidents held office in a mere two weeks. Eventually the debt was restructured and most bondholders agreed to a debt swap even if the new bonds were worth only 35 cents on the dollar. A small minority holding some 9 percent of Argentine debt did not take the deal. Consequently these hedge fund “holdouts”, in Argentina less affectionately referred to as “vultures”, have been involved in a legal battle with the government that has gone all the way to the U.S. Supreme Court.

While this year’s default differs from 2001 in many ways it is impossible to truly grasp the former without understanding the far-reaching ramifications of the latter. Former Economy Minister Roque Fernández even goes so far as to argue the government has effectively been in default since 2001 as it never resolved that situation. Whatever the case may be, the common denominator is the victim: the Argentinian people. Historical evidence of its many defaults suggests they typically result in at least a 10 percent drop in GDP.

Nonetheless, the Kirchner administration has had the audacity to place signs at sites of taxpayer-funded projects proclaiming “Aquí tambien la nación crece” (here too the nation is growing). The sad truth is the only indices indicating growth in Argentina are the ones that should show the opposite; think government spending, the money supply, and the fiscal deficit. Unfortunately the Kirchner administration has been too busy childishly denying reality and trying to shift the blame for the economic malaise on the “vultures” to do anything constructive for the people they claim to represent.

But there is hope. In the midst of all the chaos Bitcoin is making headway as an inflation hedge. A Subway franchisee in Buenos Aires recently decided to start taking Bitcoin, and the country’s first Bitcoin ATM is now a reality. The old adage holds true in Argentina today: you can fool some people sometimes, but you can’t fool all the people all the time. Especially in the information age.

Saving the Amazon from Socialism


As reported by the BBC last week, Brazilian authorities have dismantled a criminal organization believed to be the “biggest destroyer” of the Amazon rainforest. The gang stands accused of invading, logging and burning large areas of public land to put up for sale for farming and grazing. Their crimes, said to be worth more than $220 million, could land them up to 50 years of jail time if found guilty on all charges of invading public land, theft, environmental crimes, forgery, conspiracy, tax evasion and money laundering.

AmazonRepresenting more than half of the world’s rainforests the Amazon is the largest and most biologically diverse tropical rainforest on the planet. Its millions of square miles are home to the largest collection of living plants and animal species in the world. While the Amazon is largely contained within Brazil, its 2.1 million miles span a total of nine countries from Peru on the Pacific side of the continent to French Guiana on the east coast. Given the vast size of the area it is little wonder that some (illicit) activity goes unnoticed. In the case of the Amazon, however, there is a major contributing factor.

One of the aforementioned charges likely to catch a libertarian’s eye is invasion of public land. The real underlying problem, then, becomes readily apparent: no one owns the Amazon! Even the BBC’s correspondent in Brazil is quick to point out that political and police corruption coupled with the federal government’s ineptitude allows loggers and illegal miners “to operate with impunity”. So here we have a situation in which a lack of real ownership of land predictably leads to poor conservation of the area and its natural beauty. The solution, then, should be equally obvious. And it is.

Contrary to mainstream environmentalist thinking examples of successful private management of nature reserves abound. A recent National Geographic article for instance, details how the Lapa Rios private reserve in Costa Rica plays a critical role in sustaining a connected and healthy population of large cats. Funded by low-impact ecotourism these reserves are not dependent on the whims of politicians and offer more reliable protection from illegal hunting and forest degradation.

Much closer to the Amazon region is an area known as the Pantanal, the world’s largest tropical wetland area. Located mostly in the Brazilian state of Mato Grosso do Sul it is almost entirely in private hands, namely those of indigenous cattle herders. Though much less famous than the Amazon the Pantanal is known as a must for any and all who like to see wildlife up close – better than the Amazon according to many a traveler. The same sort of ecotourism commonly seen in Costa Rica enables the highly successful preservation of natural flora and fauna.

The objections commonly voiced against the private ownership of parks and reserves can be easily refuted using basic economic laws of supply and demand and the profit motive. In addition we can point to plenty of successful real-world examples to build a convincing pro-liberty case. Besides, if everyone is so worried about preserving the environment and maintaining biodiversity, how much more successful will voluntary action aimed at doing just those things be?

The key to proper management and preservation of our beautiful planet is nothing more or less than good old-fashioned property rights. Absent the recognition of those rights and the incentives inherent therein we can only expect environmental degradation.

Brazil: Time For a Property Rights Revolution!


During the Language of Liberty Institute’s Liberty Seminars in the south of Brazil last May, the attendees were treated to a talk about freedom and human prosperity. Using the Economic Freedom of the World report CATO’s Latin America expert Juan Carlos Hidalgo made a convincing case for (economic) freedom as a prerequisite for human progress. One of the points he made about underdeveloped countries relates to how poor protection of property rights stifles economic growth.

In Brazil this lack of recognition of property rights is most pronounced in the infamous favelas. In the years and months leading up to the World Cup the evictions generated some press, but now that the international spotlight has shifted elsewhere it is business as usual. While major sporting events in third world countries have become somewhat notorious for leading to these practices, they certainly are not a requirement.ForcedEvictions

One state over from Rio de Janeiro is Minas Gerais, epicenter of Brazilian coffee and milk production. Its capital and largest city Belo Horizonte boasts the third largest metropolitan area in the country after Rio and São Paulo and is a major financial hub in South America. Consequently it has attracted swaths of lower-class jobseekers who, lacking the financial resources necessary to buy a home in the city, opted to build their own communities on the outskirts of town. Now, local authorities are threatening to forcibly evict the 8,000 families who have taken up residence there.

Leaflets spread over the region announced military police would – absent a court decision – follow their orders to repossess the land “in accordance with the constitution and the fundamental principles of human rights”. Residents of the three communities, however, have unanimously decided to stay in their homes after the state government pulled the plug on negotiations with them. The land is said to be wanted for development and projected to be worth $6.5 billion, providing plenty of incentive to evict the locals even if it means rendering them homeless. Without any legal recourse they are left with two choices: leave, or face the jackboot of the state.

Reports from human rights organizations confirm the situation in Belo Horizonte is hardly the exception. Since the 1970s many people from Brazil’s poorer north have been migrating to the south and southeast in search of opportunity. Needless to say, the majority ended up in much the same situation as the aforementioned 8,000 families. For decades the issue was of no importance but as we know, multi-billion dollar deals have the power to make politicians dance to a completely different beat. The poor they always profess to care so much about cannot be allowed to obstruct lucrative projects that can be used to one’s political advantage.

Ending the current situation of legal ambiguity with regard to property rights is paramount both to the lot of the poorest in society and to the cause of liberty. Left-leaning critics of libertarian thinking often accuse proponents of the free market of being mere shills for corporate interests. While many Brazilians are still unfamiliar with libertarianism injecting issues like these into the public debate can do a lot to take the wind out of the sails of those detractors. After all, if there is one thing that makes our attitude towards the poor unique it is our focus on empowerment rather than dependence. If the most down-trodden can be reached with that message real change can be made.

Privatize Water!


In recent days reports have been coming out about authorities’ struggle to battle a water shortage in Brazil’s two major cities of Rio de Janeiro and São Paulo. Ostensibly caused by a severe drought, the crisis has even sparked fears of an impending “water war”. Measures taken earlier this month to reduce the water flow at a major dam were unsuccessful to say the least, cutting off running water to families in some neighborhoods for as long as 12 hours a day.

Unsurprisingly, the vast majority of the water system is government-run without much debate. After all, for all its ubiquity, government incompetence does not always overtly affect people’s daily lives. Now that it does, it might bOLYMPUS DIGITAL CAMERAe an opportune time for Brazilian freedom advocates to voice their opinions.

While some market reform has taken place in recent years, the process has been severely stifled by jurisdictional conflicts fueled by Constitutional as well as other regulations. Besides establishing a national system of water resources management the Constitution also defines criteria for granting rights of use, and it regards surface water and groundwater as property of the states. The National Water Resources Policy even specifies many uses of water that require government permission.

A World Bank publication analyzing market reform in urban water supplies in Santiago de Chile found “surprisingly large” net benefits in economic welfare despite significant price hikes. After years of losses largely imposed by regulatory obstacles the Santiago Metropolitan Works Enterprise had become so underfunded it could no longer perform basic maintenance on its systems. Some of the positive results included almost 100 percent coverage of expanding demand, better water pressure, fewer interruptions of service and higher wages for employees. The outcomes were so positive, in fact, that full privatization of the entire urban water supply and sanitation sector was eventually implemented.

Studies on market reform of the water sector in other South American countries have also found positive results. In Argentina the privatization of local water companies – covering approximately 30 percent of the country’s municipalities – reduced child mortality on average 5 to 7 percent, preventing 375 child deaths per year. It is worth noting also that the effect was most pronounced (24 percent) in the poorest areas, offering empirical evidence that runs contrary to oft-heard claims about increased inequality. Overall the number of households connected to the water network increased by nearly 12 percent.

In Bolivia privatization was shown to increase water access relative to both the existing trend and the non-privatized areas. The results also concurred with the aforementioned that the relative benefits of were larger for the poorest segments of the population, who gained from the largest increases in access. Some of the same findings have been reported in Brazil, if only on a small scale.

Notwithstanding those positive results generated by market reform, the current legal framework is a severe impediment. These obstacles will have to be dealt with if Brazilians are to reap the full benefits of voluntary – rather than compulsory – human action in the provision of such a basic need as water. Empirical evidence clearly confirms it can be done, giving liberals and libertarians plenty of arrows in their quiver to build a convincing case for liberty and against statists’ fear mongering. If successful that could be a big step toward a freer Brazil.

 

 

 

 

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