Economy: President Obama had nothing but praise for Chile’s democracy and economic miracle, declaring it a model “for the region and world.” So why is he obstructing the same reforms in the U.S. that gave Chile its success?

Arriving Monday in Santiago on the second leg of his Latin American tour, the president told El Mercurio he picked Chile as one of his three stops because: “The Chilean experience, and more particularly its successful democratic transition and sustained economic growth, is a model for the region and the world. … It is also a powerful example of how the opportunities of today can and must be seized.”

He’s right on that. But if he isn’t just uttering vague platitudes, why doesn’t he make it a model for U.S. economic growth, too?

Chile’s reforms not only enabled it to emerge from military regime in 1990, but to become the success story much of the world seeks to imitate.

In 30 years, Chile has gone from being a Third World country to a developed one, raising per capita income to $17,000, achieving 6% to 7% GDP growth most years, and attracting billions in foreign investment.

It didn’t happen in a vacuum.

The country was the first nation to try free-market reforms as articulated by the great economist Milton Friedman, whose ideas were still new in 1974.

When Gen. Augusto Pinochet was asked by Chile’s legislature to take over in September 1973, he created a MacArthur-style caretakership and turned the job of cleaning up a ravaged economy over to a group of University of Chicago-trained economists.

Known as “Chicago Boys,” they found a nation that was a mess after the short Marxist dictatorship of Salvador Allende and four decades of bad policy, including state-owned industries, heavy protectionism and massive bureaucracy. Special interests — unions and corporate monopolies — controlled major parts of the economy. Property rights were battered.

The Chicago Boys rescued their country with three critical economic reforms: fiscal control, privatization of social security and free trade. It not only worked, it quietly freed the nation from even the military regime and created the vibrant democracy Chile is now.

First, Finance Minister Sergio De Castro made the central bank independent. He ended subsidies and cut government spending. He slashed bureaucrats from 700,000 to 550,000. It was a painful austerity in the absence of a big private sector.

In the first four years of the new government, Chile’s economy surged 32%.

Next, economist Jose Pinera, Chile’s Labor and Social Security Minister, privatized social security. The plan helped the government balance its books and let workers choose between personal retirement accounts or the bankrupt state-run pension system. Workers could keep their own money, invest it, decide when to retire, and, best of all, owned their pensions as property they could leave to heirs. Some 97% of Chileans switched.

Pinera’s privatized accounts not only outperformed the state system by a factor of 10, but the savings they created provided capital to rebuild the country.

The last step came as Chile slashed tariffs and opened itself to the world. It signed more free-trade pacts than any nation, 58 at last count, which gave it access to 2 billion customers, an outsize market to swim in for a relatively small nation.

That enabled the country to specialize in what it did best — seafood, fruit, wine and its traditional mining exports. Its citizens got rich.

All three pillars upon which Chile’s stunning transformation rests can be duplicated in any country, which is why so many imitate these reforms.

But oddly enough, not the U.S. Under Obama’s leadership, the U.S. continues to put its head in the sand on runaway federal spending, dismisses privatizing Social Security without discussion and ices free trade.

One thing that should come of the trip to Latin America is for Obama to take his own advice on Chile and look closer at its economic lessons.

And if he doesn’t, the rest of us should.

Source: Investors.com