It's a story that has been coded into the deep structure of our cultural memory since at least as far back as Joseph and the Coat of Many Colors. During the fat years, save up so you can survive the lean years. But rarely do you see as clear an example of such basic prudence play out in real time economic management as what just happened in Chile.
Dani Rodrik points us to a fascinating Bloomberg story detailing the saga of Chile's Minister of Finance, Andres Velasco. Last November, Velasco was being burned in effigy by marching protesters. Today, he is the most popular minister in the Chilean government.
What happened? Chile's primary export is copper, and its biggest mining company is state-run. During the extended commodity price boom that sent copper prices booming, Velasco played it safe, squirreling away a huge proportion of the copper windfall, investing the proceeds abroad, and building up Chile's Treasury holdings from $5.9 billion to $48.6 billion -- equivalent to a whopping thirty percent of Chile's GDP -- during his three year tenure. Then: Pop-went-the-global-economy! But Chile was ready.
The price of copper plummeted 52 percent from Sept. 30 to year-end, and Velasco dusted off his checkbook. In the first week of January, he and Bachelet unveiled a $4 billion package of tax cuts and subsidies....
Velasco's stimulus spending, including 40,000-peso ($68.41) handouts to 1.7 million poor families, has paid off politically. His approval rating almost doubled to 57 percent in March from a low of 31 percent in August, according to Adimark GfK, a Santiago-based polling company. He is now the most well-liked member of the government, second only to the president at 62 percent.
"People finally understood what was behind his 'stinginess' of early years," said Sebastian Edwards, a Chilean economist at the University of California, Los Angeles. "That explains the rise in his popularity."
Dani Rodrik (who considers Velasco a close friend,) says the minister did what any "good macroeconomist would do: smooth intertemporal consumption by saving most of the copper surplus." That's exactly what Joseph told Egypt's Pharaoh to do too. You just wish someone had been around to give the ruling party in Washington the same advice during the last administration. Because here we are, looking at lean years coming, and we've got nothing in the tank.