Matamala's Lament

During the past year I have consistently read the columns of Daniel Matamala, a prominent Chilean columnist. I chose to read him because he is often quoted in the press and social media and seems to be the kind of columnist that is respected by a large fraction of the Chilean public. His columns almost always become a hot topic on Sundays. I also think it is a useful exercise to understand the general mood of a country by the quality of its most prominent op-eds in the same way that reading Edward Luce at FT or Krugman/Brooks at NYT give you a general idea of where the general discussion in the UK/US is going. After nearly a year of reading Matamala though, I still don’t really understand why he is such a prominent voice of the left. His columns often leave me confused as to his main point, even though he often puts it right in the title. In fact, his columns are too often a populist’s wet dream, the lamentations of a man of the people, demanding answers to his overly simplistic questions by shouting over any uncomfortable answers that would put anyone's mind to rest. He reminds me a bit of the character of Cartman, from South Park, who in one episode demands answers to ridiculous questions that he himself has posed and no one can really answer since the premise is flawed. I don’t want to talk generalities, so I bring here one example to illustrate the point. This is a recent column entitled: “Bet.Play.Risk.Win” and it is a discussion of the Chilean AFP system.

After reading the title, if you had never read his columns before, the naïve reader could be excused for thinking this is going to be a column about how AFP’s are not really worth the commissions they charge, given that they invest passively and could be easily outperformed by some index fund. Not so fast. He enters into a diatribe about our freedom to choose, and how it has been stolen from us by the government forcing us to save for old age. Using his own words:

"Lo que se ha derrumbado espectacularmente esta semana es esa fantasía de la “libertad de elegir” como pilar de nuestras jubilaciones. Los sistemas previsionales, por definición, no son “libres”: obligan a las personas, quieran o no, a ahorrar para el futuro. Una imposición como esa no puede basarse en una ficticia “libertad de elegir”

Tampoco en el sistema chileno. En él, usted está obligado a entregar parte de su sueldo al manejo de una empresa con fines de lucro llamada AFP. Usted está obligado a transferir otra tajada de su sueldo, como comisión, a esa AFP. Y usted está obligado a ceder el poder de decisión sobre ese dinero a los dueños de esa AFP, que usan esa plata, que teóricamente le pertenece a usted, para nombrar directores en las principales empresas de Chile."

I read the above paragraphs a couple of times and came out none the wiser. What is his complaint here? That we are being forced to save? He himself admits that pension systems by definition force you to save. Almost any pension system in the world, whether public or private involves some forced savings. If the government runs it, it taxes the young to pay the old. Or is his point that the phrase “free to choose” is a lie? If so then he is either being silly or disingenuous. When Lagos was referring to this, he clearly meant the freedom to choose how much risk to take. That is pretty clear. Matamala knows this, but he plays on the general confusion of the public between choosing whether to save or not (which was never on offer in any pension system) and choosing how much risk to take (which is a choice that only market based solutions give you).

But maybe I am being too hasty in judging him, let's read on:

Y esta semana tuvimos una nueva prueba de ello. Paralelo al del “corralito”, el gobierno envió otro proyecto, que facilita a las AFP comprar títulos de deuda emitidos por grandes empresas. O sea, prestarles plata. Nuestra plata. Lo llamativo es que esto no es parte de una reforma previsional, sino de un paquete de medidas de salvataje a las grandes empresas: en medio de la peor crisis de este siglo, nuestros ahorros van al rescate de, citando a Pinochet, los “imperios del dinero”.

Here he goes full Cartman. The government is allowing AFP’s to lend to big firms! Our money! Wake up sheeple! The explanation for this is rather banal if one is willing to pay a bit of attention. In most of the developed world, governments (or central banks) decided to lend to firms (large and small) because they were facing an unprecedented financial shock. The Chilean government, instead of using tax revenues for this purpose, allowed AFP’s to lend to these firms. If the government had decided to lend to them directly, where does Mr Matamala think that money would have come from? The government money tree? It would also have been our money. So the choice was between our money and our money. He either knows this and ignores it since it does not fit with the message, or he does not know it and does not even make an attempt to understand. Either way, it does not help. There may be a good argument to be made against AFP’s taking too much risk with underwriting debt in these uncertain times. But that argument seems too much for Cartman/Matamala, it requires genuine effort to understand.

At this point all pretense of a genuine discussion has already flown out of the window, but since I am a masochist I read on:

Y todo esto ocurre mientras los mismos que han protestado por décadas contra cualquier intervención estatal en la economía, claman ahora que el mismo Estado intervenga para salvar, con dinero fiscal, a las grandes empresas en problemas como Latam.

This brings to mind the Keynes dictum: “when facts change, I change my mind, what do you do sir?”. This is one of the most unprecedented economic shocks in decades. We have seen famous deficit hawks(Schäuble) become unrepentant profligates asking the government to spend with abandon. So if you hear anyone who claimed that governments have no business intervening in market activity suddenly make an about face in times of COVID, they are being anti-ideological if anything. They are changing their minds in the face of a crippling event. Are some of these people guided by self-interest? Sure. Let’s find them and shame them. But again, this requires effort to go into more depth on the question at hand. It seems Matamala is afraid he will lose clicks and likes if he presents nuance, so he does away with it altogether, content in the knowledge that the blood of the average Chilean has been set to boil, damn the consequences.

The Chilean AFP system has a million problems, the market is oligopolistic, the commissions are too high given the level of risk the AFP’s have. There have been studies showing that a simple index fund would be better. There are valid critiques of the current system that should come from the left.  In fact, I am convinced that the Chilean government will have to provide more support for those who fail to contribute. But if you are looking for the answer to these questions, you can do infinitely better than reading Matamala. There are plenty of good, honest people in Chile making a genuine effort to improve the pension system. They are trying to be right rather than popular. Unfortunately, Mr Matamala has opted for the populist route so as to play the working class hero that he knows he isn’t.