Inequality and Income Gaps in Chile

     What is most important is not the distance (or gap) between the lines, but the slope of each line (especially the red line). If both lines have a positive slope, as is the case in Chile, society is much better off financially and the gap width is not very relevant. In many countries with more interventionism to “fix” market failures that produce income inequality, which also have many poor people, such as Brazil, Bolivia, South Africa (all with a relatively high and therefore “bad” Gini coefficient), along with places like India, Indonesia, Sudan and Venezuela (with “mediocre” Gini coefficients), the blue line has a positive slope while the red line is flat or rises very little. This situation is appalling because it indicates that the rich are getting richer while the poorer people (middle and lower classes) are staying just as poor or only slightly better off. (Image sources: 1st, 2nd and 3rd).

     Envy is not worth much; it changes little in the real world. Those on the red line wishing they were on the blue line (or being upset with those who are) will not make members of either class any happier. Moreover, coveting the wealth of the upper class satisfies few in the long run; plunder through taxation and interventionism hardly has improved the economic reality of the poor. As seen in Chile, the poor do far better when the rich are left alone and left to implement their economic goals and plans unmolested. What is necessary for economic prosperity is to promote policies that produce increasingly wealthier people that are able to buy the goods and services offered by classes C and D, and employ them, a process which over time results in increasing the salaries of the lower and middle classes. Would you rather live in a country with “less equality” (according to Gini), that sees wages triple in twenty years (which has happened in Chile), or one that is “more equal” and yet has seen stagnant wages for these classes? Surely it is better to live in a country with 17 billionaires on Forbes’ list of richest people in the world, and a clearly growing middle class, than one with only 3 billionaires. Such rich people invest in their country, at least when it has decent economic policies that protect property rights and keep taxes low like Chile does, and promote economic growth and well-being for everyone in the long term. The fact that Chile has been successful is largely on account of such policies. Liberty is a far better agent for economic improvement than envy, covetousness and confiscation. 

     Chile has progressed wonderfully, even though its Gini is “bad” (similar to the U.S. and Japan, which also have relatively high and therefore unflattering Gini coefficients), and people in Chile realize that economic life is better now than it was years before. Forty years ago, Chile was an economic basket-case. Now it is the envy of the region and, at least for libertarians, it is the envy of much of the world. According to what was reported in an article in El Mercurio (Saturday, 28 September 2013, page B7), we can applaud Chilean policies which have generated positively sloping blue and red lines in recent years, with the red line’s slope being the more positive of the two. 
Compared to just five years ago, there has been an increase of 0.1% in the number of Chileans earning over 6.6 million pesos per month (US$13,077), and an increase of 0.75% more workers that receive wages in excess of 2 million pesos per month (US$3,961). Thus, the trend and slope of the ABC1 blue line has been upward.

     As if that were not encouraging enough, the red line’s upward tendency is even stronger and has been really impressive: 4.2% fewer Chileans earned under $546,000 pesos per month (US$1,080) in 2013 than did so in 2008 (a salary mainly of those in classes C3 and D1 ) and, even better, 0.8 % more Chilean workers now earn between 1.2 million and 2 million pesos monthly (US$2,375 to US$3,960), representing a large segment of classes C2 and C1. 

     What does all this mean? It means that people are getting rich in Chile and that the middle class is growing fast. People are climbing out of poverty rapidly and increasing their ability to save or consume more. All of that is good for business and good for overall prosperity. Thus, forget about the Gini coefficient and its index. Chile shows why income (or wealth) gaps are not as important as rising slopes of income levels over time. The biggest challenge for Chileans now, other than their own economic ignorance, is to somehow not pull down their economic achievements by electing leftists (like Michelle Bachelet) as either President or as members of Congress. Such candidates will debilitate Chile by implementing interventionist policies to (supposedly) produce greater “equality” (as defined by the Gini coefficient) and thus flattening the slopes of both the blue and red lines.

     You can be part of this unraveling story of prosperity in the Southern Hemisphere. Your place of refuge in Chile is in Freedom Orchard. Check it out. Invest in it, and diversify out of the decaying assets in “First World” nations. Also, be sure to tune in to Dr. Cobin’s radio program: “Red Hot Chile” at noon (ET) on Fridays on the Overseas Radio Network (ORN). You can login at www.overseasradio.com. You can also join the thousands of other people who download the shows each month via the link provided on the ORN website (recorded show updated every Monday morning). Be sure, too, to visit www.allaboutchile.com for discussion and forums about the country.

     Dr. Cobin’s sequel book, Expatriates to Chile: Topics for Living, adds even further depth on important topics to expatriates who either live in Chile already or who have Chile on the short list of countries where they hope to immigrate. The book deals with crucial issues pertaining to urban and rural real estate transactions, natural disasters, issues pertaining to emigration and its urgency, money and the quality of life, medical care and insurance, business opportunities, social manifestations (including welfare state and divorce policy concerns), Chile in the freedom indices, social maladies (lying, cheating, stealing and murder), as well as discussion of a few places worth visiting and some further comments about Santiago. Note: If the link to buy the book at the Overseasradio.com site does not appear, since the ORN Store is sometimes closed for maintenance, just send US$39 by PayPal to jcobin@policyofliberty.net and send an email or PayPal notice that you have completed your order. A download link will be sent to you directly.