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We live in a non-linear world, and that means, among other things, rate of change governs everything whether we consciously perceive this or not. Sometimes tampering with the slope leads to immediate reaction. More often, changes in the rate of change aren’t easily appreciated in the here and now, playing out instead over prolonged periods of deep debate and, if left unchecked, division.

If anyone actually cared, I’d tell them that maybe the only ironclad rule in political economics, as it used to be known, is that the rate of change in economic growth contributing to the same in living standards is, over time, inversely proportional to the rate of change in that system’s political and social makeup.

Essentially high growth equals political stability, the kind which further contributes to high growth.

On the flipside, any economy sure can find itself growing but not nearly enough; history providing ample examples. When its rate of change is and remains too low, the torches get lit and pitchforks find their way out of the backcountry barnyards; imperceptibly at first, then increasingly in more detectable even obvious fashion. Knowing the signposts measuring such underlying social temperature becomes an imperative.

With the US CPI and the crypto slump up at the top and populating most US and developed world news sites, the tremor which struck down at the farthest edges of South America over the weekend rated little or no notice. This past Sunday, Chile held perhaps the most important election in its modern history, certainly since the dictatorship of Pinochet mercifully ended some thirty years ago.

At stake, Chileans are asking a special congress to rewrite that country’s constitution. For that body, on Sunday 155 seats were up for grabs for pretty much anyone. The government had empowered this special institution to make sweeping changes going forward – if it wished – provided it could muster a two-thirds majority of the 155.

Unlike its immediate neighbor and rival Argentina, Chile has hardly been one to make the world stop and pay attention. Quite the contrary, the country has existed as a figurative island of political and social stability rivaling (and surpassing) the best of its global peers. In direct comparison to others in its region, this nation had stood out for all the right reasons.

Had. Past tense.

This republican (small “r”) form of constitutional revision is not some new demand for a COVID-weakened populace. What happened last year merely contributed more to the misery which had propelled the political process toward this climax. The roots of the dissatisfaction, the proximate cause, was taken from the tiniest spark of a subway fare dispute whose origins trace all the way back into the purportedly globally synchronized boomtimes of 2018.

While the world was poised at the precipice of its long-awaited post-2008 recovery, according to the catchphrase “globally synchronized growth”, yet behind that façade many of the world’s dominions found themselves stuck instead in the direst of dire straits wondering what all the glowing press was really about.

In Chile’s capital of Santiago, local governments were forced to get creative or face the axe of “austerity.” Costs like prices were spiraling upward even as, because of, an economy that was so unlike the world’s prized slogan. By 2019, this had meant a great many of “reforms” which included an extremely modest 30-peso (about 4 US pennies) fare hike for rush hour metro riders.

The result was widespread unrest leading to at least 20 reported deaths. A deadly outbreak of violence over this?

Hardly, merely the last straw in a long and lengthening list of legit grievances. A once flourishing exemplar of the way to do it right, for years the cracks had grown more visible, getting too obvious to keep ignoring – yet, true to inertia, the ruling powers-that-be in Chile reacted to those cracks with first denial and then contempt for the popular read on their situation.

I’m not sure who the Chilean Jay Powell was, there may have been several, but the Minister of Economy at the time when the fare hike was announced in October 2019, Juan Andres Fontaine, had been the leading candidate. Responding to very genuine expressions of resentment, Fontaine told those in Santiago any of its millions who couldn’t afford or did not wish to pay the additional 30 pesos could simply wake themselves up earlier in order to catch a non-rush train so as to avoid the price change.

As I often have to write, it’s not just that the rate of change in economic growth has fallen, more the problem has been these callous officials who – at every turn, at each of these similar warnings – deny there is even a problem. Too easy to get partisan, which in Chilean terms meant branding the soon massive nationwide (at times violent) protests over a minimal metro cost the rantings of spoiled crybabies being egged-on by leftwing (in this case) agitators.

The last part may have been true, as it is in many places all around the world (where sometimes rightwing agitators equally try their best). But “we” have to ask ourselves why the same leftwing message that has been hanging in the air over these places seemingly forever has nowadays struck such a common chord.

The rate of change piece of the puzzle is absolutely the case, as anyone’s numbers show. I’ll use the World Bank’s estimates here for simplicity’s sake and as a sort of more neutral party’s assessment. Since the dawn of the new millennium and running up to 2013, Chilean real GDP (in constant price pesos) averaged 4.52% growth per year – even with two recessions, including the worst one in 2009, within that fourteen-year span.

Since 2013, beginning in 2014, real GDP growth has been an unfortunately lumpy 1.98%. About half doesn’t at first seem so bad, and it wouldn’t necessarily have been except for two amplifying factors. The first, time. Less than half the previous growth rate can be tolerated for a few years, but after four maybe five that’s really pushing everyone’s limits.

The second factor is prices. When you convert those GDP numbers to per capita terms and then price them in US dollars, suddenly the situation does seem more bluntly extreme. Between the end of 1999 and the end of 2013, Chilean per capita GDP in US$’s had expanded by 31%, shooting Chile into the upper echelon (better than China, for example) of emerging markets. No longer emerging, even.

Since 2013, less than zip. Negative. To the end of 2019, when the metro fare protests first flared, per capita GDP in US$s was down 6% for all those six years. Huge, huge recession in 2014 and 2015 followed by only a partial recovery (the so-called globally synchronized growth) in 2017 and 2018 before finally another downturn, contraction in 2019. All that before ever getting to 2020.

Look nowhere other than the peso, meaning dollar. The 21st century (and even before) Chilean economy has performed in lockstep with the shape of the eurodollar. Double its misery since 2013, as the peso has dropped (meaning dollar up) economic growth has dried up in local terms while prices, broadly speaking, have surged across-the-board. October 2019’s violence wasn’t about a single subway ticket’s price; it amounted to just one-too-many in a system that hadn’t found much right in such a very long time.

The protestors’ demands thereafter were increasingly severe; only further encouraged by another economic disaster thrown on top last year. For more than half a decade Chile had struggled to figure itself out in the wake of a complete change in economic fortunes – even if local GDP estimates kept going up albeit far more slowly.

Published results as of earlier this week show that the ruling center-right Chile Vamos party of President Sebastian Pinera could only manage about 38 of the 155 seats in the constitutional assembly. It had been expected its reps would at least cross the one-third threshold keeping the most radical agendas out of the process.

Instead, “independents” grabbed 48 seats though many are believed to be more closely aligned to leftist organizations. The more “moderate” left, which has been less moderate since late 2019, picked up 24 while the hardcore Communists swept in 28 of their numbers (smaller parties picked up individual seats).

And it wasn’t just the national constitutional referendum where socialism scored so highly. Iraci Hassler won the mayoral contest for Santiago itself, whose 6.8 million city residents make up more than a third of the country’s total population. Though Hassler was victorious with only 38.8% of the vote – split between several candidates including the outgoing mayor Felipe Alessandri – it wasn’t really close.

Incoming Mayor Hassler is a longstanding member of the Communist Party of Chile.

Many Americans cannot see the forest for all these trees, especially those on the right looking to Wall Street for cues on “capitalism’s” status. The siege is global because the issue behind it is global, and for all these years unrecognizable to the public since no one wants to admit we have a huge problem on our hands. QE’s do dazzle the popular imagination, if accomplishing nothing else.

I wrote the following in March 2014, just as what I call Euro$ #3 was descending like a plague across the entire world eventually wrecking emerging market currencies before their economies in places like Brazil, China, and, yes, Chile with unusual and unseen (to the “Western” gaze directed to QE and bank reserves) destructiveness:

“For all that positive energy and advance, something has to be called to account for the current and stubborn dislocation. This progression of apparent Marxist appeal (or if not direct appeal, then attention) and renovation is not an idle fascination or it would be limited to the university class settings that it never left. There is widespread dissatisfaction that punctures a status quo that is painfully ill-suited to the task. For example, it used to be common knowledge that minimum wage jobs were also a temporary placement in the hierarchy of the income spectrum - you never really expected to stay at the bottom, nor was that expected of you. 

“In this ‘recovery’ that has all changed, the equation is off and the spin of economic function has taken a seemingly new axis. The ire of the first major incarnation of this new Marxist fascination, Occupy Wall Street, was, I think, at least thoughtful enough in its eponymous target. There was and remains an obviousness in the game of inequality politics in demonizing the big banks, not the least of which is their durable unpopularity. ‘Too big to fail’ cuts against every known fabric by which the capitalist system has forestalled those Marxist expectations of apocalypse.”

Ever since Dear Comrade Karl first wrote his (borrowed, from François Noël Babeuf) first scribblings about collectivism, he and his followers have been desperately waiting for capitalism to hang itself. It would, they thought, die out, reaching just this sort of an end to where progress and economic growth was no longer possible.

At that point, the Revolutionaries take over and begin confiscations before redistribution (as well as, you know, dishing out some serious retribution along the way). These Communists have been stumped that it has taken so long, the tombstone of capitalism having first been quarried and carved a century and a half ago.

Trending in the Marxist direction, the 2008 “recession” caused by that virulent strain of global monetary disease (dollar shortage) remains to infect more and more of the world closing in on a decade and a half unchecked. What happened in Santiago over metro tokens happened to a somewhat lesser extent in the US just last summer, common cause uniting each event.

Just last year, I pointed out more locally:

“It’s only at that point [capitalism’s natural end] socialism is meant to spur all workers to take everything back; thank you Mr. & Mrs. Capitalist for creating this massive pile of wealth, now hand over all your shit!... Most people simply scoff and laugh at the notion; don’t these spoiled crybabies preaching communism know that history has shown it doesn’t work? True socialism has never been tried. Bah. To the committed Marxist, it is their opponent who is ignorant of history. Unfortunately, they are right (in this regard) and they are winning the argument especially among today’s youth because of it.”

What more could be concluded than from recently chastened Pinera’s comments in the aftermath of his party’s awful showing? Chile’s for-now President, facing an election of his own later on, spoke of how this stunning defeat was some “great opportunity” for his country to begin piecing together a “fair, inclusive, prosperous and sustainable country.”

This was the center-right guy in charge of what had been one of the few stable situations around that part of the world today sounding like he’d fit right in at the local Socialists club. Meanwhile, Gabriel Boric of the invigorated far-left Broad Front only stopped just short of Uncle Karl:

“We are looking for a new treaty for our indigenous populations, to recover our natural resources, build a state that guarantees universal social rights. We're going to start from scratch and build a new Chile.”

Rate of change. The one in economy goes down and stays down, the one for politics goes up and only becomes more extreme. And this really isn’t about just Chile.

Emboldened by nearly a decade of futility in much of the world as the eurodollar era and its obvious prosperity fades further into long ago history, like the monetary system behind all these things there isn’t any place on Earth this doesn’t or won’t affect negatively. More than it already has.

And yet, for however many more months still, all we’ll hear about is global recovery (yet again) when so much – beyond GDP - has already been lost. 

Jeffrey Snider is the Head of Global Research at Alhambra Partners. 

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