Javier Milei strode onto the stage in Santiago, flung up his arms, and gave a bow to an economist with a front-row seat: Rolf Lüders, one of the last of the original Chicago Boys. In 2019, four years prior to Milei’s election as President of Argentina, he began implementing his anarcho-capitalist approach to shock therapy in one of Latin America’s most troubled nations. Earlier that day, when the two men had huddled, Lüders recalled that Milei eagerly absorbed the first-hand account of how a group of University of Chicago economists turned Chile into a free-market success story half a century ago. Lüders, 90, issued a caution to Milei, a reminder frequently overlooked in a time characterized by social media-driven politics, restless electorates, and volatile global investors capable of significantly influencing a nation’s economic landscape. “Structural economic changes are complex,” he noted in an interview late last month. “Individuals often underestimate the expenses associated with implementing change in this context. The process spanned several years and incurred significant initial costs. Implemented during the military dictatorship of Augusto Pinochet, the drastic reforms encompassed significant reductions in public expenditure and the elimination of price controls, which followed the tumultuous socialist administration of Salvador Allende, who was ousted in a coup in 1973.
The implementation of market-based policies led to significant economic downturns in Chile, resulting in painful recessions in both 1975 and 1982. The second was influenced, in part, by the repercussions of Federal Reserve Chair Paul Volcker’s vigorous campaign against inflation, which was also informed by the theories of Milton Friedman from the University of Chicago. This approach contributed to a downturn in Latin America so profound that the 1980s came to be referred to as “The Lost Decade.” Only following those challenging recessions did Chile’s economic experiment lead to decades of prosperity, enabling its per-capita income to surpass that of Argentina, Brazil, and Mexico. Following the restoration of democracy in 1990, successive centre-left governments further entrenched the Chicago-inspired model, simultaneously introducing regulations and social programs to impart a more humane aspect to it. Poverty rates have significantly decreased, resulting in the emergence of a strong middle class. Milei, recently buoyed by a resurgence in the legislative elections that has provided him with renewed political momentum, is endeavoring to replicate this success in Argentina, a nation burdened by layers of bureaucracy and profligate governance that have engendered rampant inflation and prolonged crises. However, the market-based model advocated by Lüders – frequently characterized as neoliberalism or, as he prefers to term it, a social market economy – necessitates a degree of government support that contrasts sharply with the slash-the-state libertarianism represented by Milei’s chainsaw-wielding theatrics. “There is an enormous difference,” Lüders stated in an interview. “They represent two distinct realms.” Libertarians advocate for a market devoid of state intervention: “In reality, that’s not feasible.”
Among the initial cohort of Chileans to pursue studies at the University of Chicago during the 1950s, Lüders played a pivotal role in inviting Friedman to Chile in 1975, shortly after Pinochet’s ascent to power. Lüders was the individual responsible for facilitating the professor’s meeting with Pinochet. Following Friedman’s proposal of “shock treatment” for Chile, Lüders remembered that Pinochet “requested him to provide his recommendations in writing.” In his now-famous letter to the general, Friedman “refers approvingly to what was being implemented in Chile as a social market economy,” Lüders stated. Friedman’s recommendations for significant reductions in government spending and the lowering of tariff barriers were implemented almost precisely a month later, well ahead of the neoliberal shifts initiated by Margaret Thatcher in the United Kingdom or Ronald Reagan in the United States. However, the subsequent events may have shaped Lüders’s perspective on contemporary libertarians. Following an initial recession, Chile’s implementation of free-market reforms catalyzed a credit-driven expansion that culminated in a severe downturn six years thereafter. Lüders was appointed by Pinochet in 1982 to restore order. He assumed control of commercial banks, imposing stricter regulations and attempting to establish a social market economy akin to that of Germany, as envisioned by Pinochet.
The outcome was a more prudent, state-directed variant of neoliberalism that arose from the crisis, fostering four decades of growth that positioned Chile as the leading economy in the region. Friedman referred to it as the “miracle of Chile.” Despite the economy’s sluggish performance over the past decade, the fundamental legacy remains intact. Even leftist millennial president Gabriel Boric, an admirer of Allende who once vowed to transform Chile into the “tomb of neoliberalism,” has maintained it largely intact. Milei is merely beginning the extensive economic transformation that Chile experienced five decades prior. The president, characterized by his shaggy hair, has implemented significant reductions in government expenditure, successfully lowering annual inflation from nearly 300 percent to approximately one-tenth of that rate. However, there has also been a form of state intervention that is fundamentally opposed to libertarian principles. The exchange rate of the peso is managed to maintain it within a narrow band relative to the dollar, which remains the preferred currency for Argentines who have experienced the adverse effects of devaluations.
Tariffs continue to be elevated. As concerns mounted regarding the potential derailment of Milei’s agenda due to the upcoming October 26 elections, leading to a sell-off of the peso by both investors and residents, Argentina sought assistance from the Trump administration, which stepped in to stabilize the currency in Buenos Aires’ markets. As Milei seeks to strengthen the backing of his allies, he grapples with political obstacles that were not encountered by the regime responsible for the transformation across the Andes, which has established a durable free-market consensus. “I don’t think we’re in a situation of great polarisation in terms of economics,” Lüders stated. Lüders posits that the economic discourse in Chile is predominantly resolved, as evidenced by the substantial consensus among the platforms of the three principal candidates in the upcoming presidential election on November 16: Jeannette Jara representing the Communist faction of the centre-left alliance, centre-right contender Evelyn Matthei, and the arch-conservative José Antonio Kast. “At heart, they are very similar,” he stated regarding their economic programmes. Lüders indicated a preference for Kast, who is promoting substantial reductions in public expenditure, as he believes that Chile would gain from reducing the scale of government intervention. “I’m optimistic about Chile’s economic future,” he stated. “There is widespread recognition of economic expansion, and the nation possesses the technical expertise required to suggest initiatives to facilitate this growth. No one wants to expropriate or fix the price for the guy selling vegetables on the corner anymore,” he stated. “The contest advocating for a social market economy has been successfully concluded.”