We hear a lot about income inequality these days, and experts tell us it’s a problem we have to solve.
But one country, facing dramatic income inequality, made a tough call, and it worked.
Now they’re about to screw it all up.
According to some economists, the South American country of Chile has the most “unequal” economy among major countries.
Many countries trying to solve income inequality have taken serious steps — mostly by raising taxes.
But when confronted with the option, lawmakers in Chile took a different path. The results are pretty unbelievable.
The Wall Street Journal tells the story of two kinds of nations: those that created huge new social programs with borrowed money (like Greece), and those that didn’t (like Chile). The countries that didn’t go into massive debt to create new government programs (like Chile) actually grew five times faster than the countries who did go into major debt (like Greece).
What does this have to do with income inequality?
Greece was one of the most aggressive countries to fight income inequality — with higher taxes and government programs — and their economy has shrunk by more than 20% in the last five years.
Chile, on the other hand, did not setup massive new government programs, nor did they raise taxes. Their economy has grown at 4% each year so far this decade.
Chile’s low debt approach (#144 in the world) had another side effect: the poverty rate dropped 6%.
Chile cracked the code on helping the poor with less government and more opportunity. But now they’ve dropped the ball.
In 2014, Chile’s president signed comprehensive tax reform into law and increased taxes to pay for new social programs.
Guess what’s already started to happen…
Chile’s once roaring economy — that made the poverty rate drop 6% and changed millions of lives — is now being called “anemic”.
The story of Chile’s rise and fall has a lot of lessons for all of us.