In 1970, the people of Chile voted in the first Marxist president in Latin America by popular vote, Salvador Allende. This delusional moron proceeded to crash Chile’s economy by nationalizing banks, mining, education, and healthcare, seizing and redistributing land, and enacting things like price controls, free college, 12 weeks paid leave for pregnant women, and all kinds of other things that give left-wingers boners, but tend to destroy economies in the long-term.
As is usually the case with big government, this stuff worked great in the short term. Wages went up, unemployment went down, education went up, crime went down, production went up, and Allende was hailed as a hero.
However, just two years later, Chile was slammed with a recession. (Big shock, I know.) There was mass capital flight, private investment plummeted, everyone withdrew their cash from Chilean banks, and inflation of Chilean currency (the escudo) was at 140%.
By 1973, the people had enough. The Chilean military (aided by the CIA under the criminal Richard Nixon) staged a coup, and Allende shot himself in the face with an AK-47. Nice.
This brought the murderous Pinochet into power, and Chile suffered horribly for a few decades. (As usual, the revolutionaries quickly become as bad as or worse than the people they overthrow.)
Isn’t big government nice?
Finally, after a few horrible decades, Chile started embracing small government and pro-business reforms, more so than any other country in South America. Today, Chile is the most successful nation in South America and among the least bad in the world. To quote Wikipedia:
[Chile] leads Latin American nations in rankings of human development, competitiveness, income per capita, globalization, state of peace, economic freedom, and low perception of corruption.
It’s such a good place today that it’s on my short list of countries to possibly move to in 2025.
Small government works.
In 1997, South Korea suffered a massive economic crisis. Due to massive debt, over aggressive corporate expansion, and the Asian financial crisis that was hitting all of Asia at that time, South Korea’s economy got smashed, hard. Their credit rating crashed from A1 all the way down to B2 (which was probably too conservative; it should have been lower). Their stock market fell by double digit percentage points. Everyone freaked out.
The government bailed out… wait for it… virtually no one. They allowed companies to close, go under, or merge with other companies. They left the free market to do its job (more or less). Hyundai took over Kia. GM took over Daewoo. Lots of companies lost of money. Samsung lost $5 billion, as just one example. (To be fair, the IMF lent South Korea $58 billion, though they only actually used a small fraction of that. It was peanuts compared to the money that their banks and corporations lost.)
It was a nightmare. People and businesses went bankrupt everywhere.
Today, South Korea is one of the most successful countries in the world. They’ve tripled their GDP since then, and are doing great.
Letting recessions take their course, works.
In the early 1990s, Scandinavia experienced a huge real estate collapse. People everywhere lost their homes. Since no one could bail them out, no one bailed them out. People everywhere went bankrupt and Scandinavia had a really horrible three years.
They recovered. In the last 15 years, the three countries in Scandinavia have been among the least bad economies of Europe, even despite their worship of socialism and the usual suicidal European immigration polices. To be fair, much of this is because of Norway’s oil, but the lesson is still clear.
Letting recessions take their course, works.
Here’s the way recessions are supposed to work: When bad times hit, people go bankrupt. Successful people who know what they’re doing take over the assets and the less successful, more incompetent (or corrupt) people lose them. The more successful people reorganize, start over, and eventually everything gets back to prosperity again. It’s very painful during this transition, but it works after a few years.
When the government doesn’t allow people to go bankrupt and lose their asses, it perpetuates the incompetent (or corrupt) people and the recession simply lingers forever. The economy never gets a chance to get back to prosperity.
Case in point: Japan. They collapsed in the early 90s, but they wouldn’t let anyone fail. 20 years later they have still not recovered. They’ve experienced two lost decades, where the economy is in a weird, grey limbo, where everything sucks but without being super horrible. (Sound familiar, Americans?)
Compared to the success stories of Chile, South Korea, Scandinavia, and other countries that let people fail (more or less), Japan’s stock market today is 75% less than it was in 1990(!).
This is what happens when you bail out banks. This is what happens when you bail out incompetent or corrupt people.
Since the bank bailouts of 2008-09, America has entered this Japanese limbo, and will likely continue like this for a very, very long time. As long as our government won’t let banks and corporations fail so we can return to prosperity, this limbo will be our perpetual state (until our collapse, that is).
America = The New Japan