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EP.5- Argentina’s Tears: Lessons From the Middle-Income Struggle

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Why Nations Fail: The Origins of Power, Prosperity, and Poverty
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Why do resource-rich nations like Argentina face poverty and turmoil while others flourish? Uncover the "Latin American trap" and its ties to the "middle income trap," exploring how geography, history, and resources shape economic outcomes. 

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Speaker 1:

you know what it takes to be bold, speak up and break it all down. That's deep story. Welcome folks, to another round of deep story. So tim rice and then andrew ll, lloyd Webber yeah, those legends wrote this musical. I absolutely love Evita it's my all-time favorite. And Gabriel Garcia M Vallequez you know the genius behind 100 Years of Solitude. That's my all-time favorite book.

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So, naturally, my brain is wired to focus on one part of the world today Latin America, specifically Argentina. Now, for a long, long time long enough to make you question your attention span Latin America has been a hot topic for political economists. Why, well, don't just take my word for it. Pull out a map, seriously, spread it out on your desk. Take a good look at the americas. What's the first vibe you get? It's ice and fire. Look at north america oh, canada, the us. What comes to mind? All the good stuff prosperity, wealth, civilization. You're thinking white picket fences, silicon Valley and maple syrup.

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Then, just as you cross the US to Mexico border, into Latin America, boom, what words start flying into your head? Poverty, slums, economic crisis, financial crisis, coups, drugs. Oh, it's like you flip to the dark side of the script. And isn't that wild? I mean, these are neighbors. They're sharing the same piece of land, breathing the same continental air.

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Geographically speaking, latin America might even have the upper hand. It's further south, warmer, more humid, perfect for growth, right, and if we're talking resources, south America has plenty. It's not exactly losing a minerals contest with North America, and, let's not forget, a huge chunk of North America is just icy, wastelands and desert in the middle. Yet somehow, the end result night and day, fire and ice. Why is that? Well, political scientists have a name for this mess the Latin American trap. Oh, and there's a cousin term for it in economics it's called the middle income trap.

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Sounds like something straight out of a Netflix thriller, but really it's economists trying to explain why places like Latin America are stuck in a Bermuda Triangle of development. Here's how it goes. The triangle of development here's how it goes. When a country's GDP per capita hits between $2,000 and $4,000, it's like crossing into a danger zone. Everything starts falling apart. Planes crash, boats sink Okay, not literally, but economies get stuck. That's exactly where Latin America landed in the 1970s. Right smack in this trap. Cue the coups, the crisis, the financial meltdowns and all the chaos that keeps dragging the place down. So then economists started scratching their heads. Is this just a Latin America thing thing, or is it happening all over? Turns out it's not just Latin America. Look at Malaysia, the Philippines, other parts of Asia. They're also hitting this weird economic ceiling and VOIL. The middle income trap became a fancy term. Economists throw around to sound smart and there you have it Latin America, where history, geography and economics come together to create the wildest development soap opera you'll ever see. So let's think about it. Doesn't this whole Latin American trap thing sound a little too familiar?

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When we talk about China, I mean, let's be real. A lot of the discussions in Chinese media about Latin America come with this big O side eye like O O. Are we heading down the same path? Here's the deal. China used to look like it was cruising past the Latin American trap. Back in 2015, china's GDP per capita hit around $6,000. People were high-fiving left and right, but fast forward to 2024. Now we're looking at stats like youth unemployment and shrinking foreign direct investment and guess what it's like? We're backsliding into the $4,000 zone. The symptoms are all there, folks.

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Turns out China hasn't exactly escaped this trap yet. Take urbanization, for example. Some economists say China's rapid development just pushed things too far, too fast. It's like back in the day, farmers would throw together a few planks, slap up a shack in the city and boom, they'd call it home the whole urban infrastructure, a total afterthought. And what did that do? It brewed up all kinds of intense social conflicts in the process.

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Other experts are out here pointing fingers at unchecked free market capitalism. They're saying look, the rich are getting richer and their wallets are so fat they can't even see the rest of society anymore. And guess what? They're not exactly rushing to build welfare systems or spread the wealth. So what do you get? Social inequality. That's just begging for a meltdown. Then there's the classic we-we-wrecked-the-environment argument over exploitation of resources, pollution, you name it. Basically, we're choking the long-term growth potential. It's like driving a car without changing the oil. Eventually the whole thing seizes up.

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Now all these theories sound fancy, sure, but here's the kicker none of them can fully explain the Latin American trap. It's kind of like those medical syndromes where doctors are like well, we know what it looks like, but heck if we know why it's happening. You know those names that sound scary but vague, like MNIA-risk disease or something same vibes. And just when you think you've nailed down a theory. Someone's got a counter-argument to shut it down Like OK K.

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If you're saying countries in this income range are stuck in some economic purgatory, then explain the ones who did break free. Take Asia, for example. Sure, the Philippines and Malaysia are classic middle-income trap cases, but look at their neighbors. The Philippines has Taiwan right next door and Malaysia has Singapore. Both of them crushed it. They escaped the trap and never looked back. Why them and not the others?

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Even within Latin America, there are success stories. Check out Chao. Back in the 1970s, chayo was one of the poorest countries in the region, and now they've zipped past Argentina like it's standing still. Today, chayo's GDP per capita is over $20,000. They're in the developed country club sipping fancy wine. What's up with that?

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So today we're diving into this mystery and, folks here at Deep Story, we're bringing you a bold hypothesis Backed by input from some of the sharpest minds in economics, business and political science. We've done the homework, double-checked the math and are ready to break it all down. All right, let's reel it back to Latin America for a second. If there's one term that's burned into the region's history over the past hundred years, it's military government. Oh yeah, you heard me. Military dudes running the whole show. What could go wrong right Now? Have you ever read 100 Years of Solitude? If you haven't, first of all, shame on you. Second, let me drop some culture on you.

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The opening line of that book is seared into my brain. Goes like this Many years later, as Colonel Uraliano Bandia faced the firing squad, he was to remember that distant afternoon when his father took him to discover ice. Oof, what a vibe. Huh, the whole novel is this haunting, sticky, sweaty saga about seven generations of the Bunda family. Seven generations of the Bunda family. And let me tell you the mood. It's like the opening line, but turned up to 11. Firing squads, coups, rifles, depressed colonels stomping around in soggy boots. It's all there, Damn, gloomy, oppressive and just a little bit gross. And that's the magic of a good novel, isn't it? The author builds you this weird fictional world that somehow feels exactly like the real one. That's where the genius lies and, honestly, that vibe. It pretty much sums up Latin America's last century Military governments coming and going like a bad roommate.

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Take Argentina, for example Four different military regimes. Some were short-lived, like two or three years, others overstayed their welcome, with the longest lasting seven years. Then you've got Childe, from 1973 to 1990, it was all about Pinochet. That's 17 years of one guy calling the shots. But wait, brazil takes the gold medal here. Their military government ran from 1964 to 1985. That's 21 years, two decades of camo pants in power.

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Peru oh, they were in on the trend too. Military rule from 1968 to 1980. But here's the kicker right after that in comes Fujimori from 1990 to 2000. Now, he wasn't technically military, but let's be real, his power base was the army. So we'll give it a semi-military grade. Basically, if you lined up all the Latin American countries and asked who hasn't had a military government in the last hundred years, guess what? None of them would raise their hand, not one. Now I get it. For us, sitting across the Pacific, this whole military government thing might feel a little foreign, distant, like trying to understand a friend's family drama from a totally different culture. But hey, it's not that hard to wrap your head around.

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If you want to get a sense of how a military government works, just take a look at Taiwan, the semiconductor empire. A few decades ago, taiwan wasn't exactly a democracy's poster child. After the Nationalist Party, or KMT, retreated from mainland China to Taiwan, they had one big thought it's all the communists' fault. Oh, and don't forget the spies. We've gotta root them out. And how do you root them out? Martial law, baby, that's how. Say goodbye to all your basic rights no freedom of assembly, no freedom of press, no freedom of speech. Taiwan lived under martial law for decades, and it wasn't lifted until the late 1980s. Now, if you want to understand what that time felt like, you don't have to look far. Just check out the works of Taiwan's first minister of culture.

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There's one particular story that sticks out. It's 1962. Our future minister of culture. Just a fifth grader sitting in math class. The teacher's up at the blackboard, chalk in hand, doing his thing. Suddenly a group of soldiers bursts in, guns in hand, wearing those khaki uniforms. The teacher doesn't even hesitate. He knows what's up. He drops the chalk like it's on fire and bolts, runs straight down the hallway all the way to the end, and then he jumps Right out of the building. The kids are screaming, scrambling. Once the chaos settles, they creep over to the railing and look down, and there he is, their teacher. That young, bright-faced guy is now lying lifeless on the dirt of the schoolyard. Guy is now lying lifeless on the dirt of the schoolyard staring blankly at the sky.

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This kind of stuff left a mark, especially on people who grew up in the 50s and 60s. That same minister of culture once said at our school nothing surprised us anymore If a teacher didn't show up one day normal, if your buddy from class disappeared, totally normal. Maybe something happened to them, maybe something happened to their family, but you know what? We didn't talk about it. Nobody said a word. Or this was the mood of the time silence. People avoided eye contact, barely whispered a hello, the term they used. Walking the streets in silence, a bleak, oppressive and downright scary vibe. And honestly, I imagine this was exactly the atmosphere in Latin America during its military government era too. In Taiwan they even have a name for it the White Terror. Sounds like a horror movie, doesn't it? Now? At this point you might be thinking oh, I get it. Now.

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The military governments caused the Latin American trap Case closed, a bunch of guys with guns running the show, squashing all freedoms. Of course the economy couldn't grow right. Well, hold on there, sherlock. That's not the answer. Let's look at Taiwan again. Sure, martial law wasn't exactly a golden age of civil liberties, wasn't exactly a golden age of civil liberties. But guess what the KMT actually managed to put together a pretty solid economic report card. Even today they're still out there saying, hey, remember us, the KMT, we're great at building stuff. Vote for us again, and you know what. The same thing happened across the Pacific, in Latin America. Military governments weren't all bad at managing economies. So if you think it's all their fault, you might want to rethink that theory. So here's the thing If you talk to regular folks in Argentina today, they'll tell you straight up the roads, the bridges, the infrastructure you see, all built during the military government era and the democratically elected governments not much to show for it, wild right. It's like the military governments actually left behind a better economic report card. And let's not pretend these military regimes were running the show with zero public support. They had some. For example, during the 1980 World Cup in Argentina, people were absolutely hyped. National pride was through the roof. Or take the Falklands War At least at the start, folks rallied behind the government like crazy.

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And Pinochet, the infamous dictator of child? When he died in 2006, at the ripe old age of 91, he was out of power up to his neck in lawsuits and drowning in scandals, but guess what? People still lined up to see his body. His wake drew 13,000 visitors a day, so many that the military had to extend viewing hours by nine hours daily. The day of his funeral, hours daily. The day of his funeral, tens of thousands showed up. Sure, it wasn't a state funeral, because hey, not an elected leader, but the military still gave him a big send off with the Chilean flag draped over his casket. So yeah, not everyone hated the guy, and you've gotta ask why.

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Now let's talk about another weird twist. You think countries like the US and the UK, the self-proclaimed champions of democracy, would have given military dictatorships the cold shoulder right? Nope, when it came to Latin America, they were all about it. Take 1976, for example, when the US was causing up to China. Enter Henry Kissinger, china's old friend. You know it's a big deal to earn that title. Kissinger straight up told a visiting Argentine military official Americans are clueless. They keep thinking about human rights, but they don't get your situation. You've got a civil war to win, hurry up and finish it, and we've got your back. Yep, that's Kissinger for ya. But here's the thing what's this situation Kissinger was talking about? What's the real backstory behind the chaos and what exactly caused this whole Latin American trap. To figure it out. We've got a zero in on the poster child of this mess, argentina.

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Now, argentina's story boils down to two big questions. First, why was it so rich back in the day? And second, why is it such a disaster now? A hundred years ago, argentina was the place to be. This country was dripping with cash. Back then there was even a saying in Europee Wow, you're rich Like in Argentina. Seriously, people were throwing around that level of flex, like how we talk about Middle Eastern oil tycoons today. So what made Argentina so loaded?

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A lot of folks chalk it up to natural resources. I mean, come on, the place has massive land, lush pastures and more cattle than you can count, and with food preservation and processing tech already on point, back then, argentina was flooding European dinner tables with beef Kaiching. How could they not be rich? But hold up, don't settle for that simple explanation. If you think it's just about natural resources, you've barely scratched the surface. Why? Because a country's resources can do one of two things boost it to greatness or curse it into misery. Take oil, for example. Tons of countries have it, but how many are actually thriving because of it? Not many. Libya, iran, venezuela They've got oil out the wazoo. But are they thriving modern states? Nope, still stuck in the third world struggle. Sometimes natural resources aren't a blessing, they're a curse, and Argentina's story might just be another example of that.

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In 1975, something big went down in Shiloh. Milton Friedman, the godfather of free market economics, visited Pinochet. They had a little chat and Friedman basically told him if you want this country to work, you need to embrace the free market. And you know what? Pinochet listened, and because he was a dictator, when he listened, policies happened. No debates, no committees, just action. Pinochet's reforms were surprisingly straightforward Stop the printing presses, no more funny money, no more inflation, slash tariffs, tear down trade barriers and plug child's trade into the global economy. Then came the big one sell off state-owned enterprises and protect private property like your grandma's secret cookie recipe. And guess what Work? Starting in the 1970s? And guess what Work? Starting in the 1970s, child's economy took off and kept soaring. By today, their GDP per capita is over Tundarty Dalarzan, putting them solidly in the middle of the developed world.

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Pack and Child didn't just crawl out of the Latin American trap, it leaped. It's now known for having one of the highest levels of economic freedom, ranking seventh globally, ahead of countries like the US and France. When Pinochet stepped down in 1990, he was feeling pretty good about himself. He even said when I took over, this country was a disaster and now I'm handing over a nation with a solid foundation and a bright future. The guy wrote memoirs, gave interviews and even declared back in E73, I didn't want to take over. But, looking back, if I had to do it all over again, I'd do it just smarter. No regrets, none. Instead, he seemed almost proud of the bloodshed and chaos he caused. And that's the wild thing about Pinochet. This guy oversaw unimaginable horrors, but Childe's economy soared.

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Meanwhile, just over the border, argentina was crashing and burning. You tell me, isn't that luck? Now, before anyone jumps up and says so, you're saying dictatorship is great. Ha. You're all about military governments bringing stability and prosperity. Let me stop you right there. That's not what I'm saying. Absolutely not. Because no matter how much stability or wealth a dictatorship creates, it's built on brutality, fear and the complete absence of basic human rights. And let's be honest, if the price of prosperity is living like a well-fed pig, then no, thank you. We're human beings, not livestock.

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Take Argentina's military government from 1976 to 1983. In just seven years they were responsible for the deaths of nearly 10,000 people. That's what we know. They didn't even have the nerve to do it openly. It was all done in secret Abductions at night, executions in the dark.

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And the horror didn't stop there. Ever heard of Argentinas Stolen babies? Here's how it went. Many of the people the government targeted were young leftists, students, activists, people just starting families. Some were pregnant when arrested. When their babies were born in prison, the government would take the infants, hand them off to loyal families and erase any trace of their real parents. These kids grew up never knowing what happened to their families or even where their parents' bodies were.

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And then there's the infamous death flights. The picture this prisoners were chained. Picture this the prisoners were chained, loaded onto planes and flown over the ocean. No trial, no record, no witnesses, just tossed out into the sea, gone. So yeah, pinochet might turn child into an economic success story, but let's not romanticize what military governments do. They don't build prosperity, they bury bodies, and that's a cost no nation should have to pay.

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Let's get one thing straight when it came to covering their tracks, these military governments were absolute cowards. They didn't even have the guts to execute people openly. Take Pinochet, that darling of child. Sure. His later years in power weren't as bloody, but those first couple of years Brutal. Official numbers show he executed over 2,000 people, with another 1,000 simply disappearing. And the methods, oh and they went straight up horror movie.

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Recently, divers found steel railroad tracks in the ocean. Why? Because back in the day, the Chilean military would tie communist leaders to steel rails, load them onto planes and drop them into the sea. That's how they solved their problems. That's not law and order, that's straight-up cowardice. And yet if you read the military statements from that era, you'd think they were the victims. They went on and on trying to justify their actions. These leftists got into power with violence and lies, so we had to use violence to stop them.

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One Argentine general even said Some people in Argentina just need to die. Without their deaths, the country will never know peace. Can you believe that? They saw themselves as heroes, carrying the burden of history on their shoulders, taking the fall for the good of the nation? Pinochet took it even further.

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The man had a flair for dramatic quotes. Freedom cannot defend itself, he said. Do you know what defends freedom? My iron whip and my instruments of torture. They'll protect freedom until you own land and property and then freedom will come to you. Wow, the audacity. This guy made it sound like his death squads were doing everyone a favor.

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But let's be real. What kind of freedom comes from iron whips and torture chambers? What kind of democracy grows out of secret prisons and mass graves? None that anyone with a shred of humanity should want. And speaking of mass graves, let's not forget the worst crimes of Argentina's military regime. Between 1976 and 1983, nearly 10,000 people were killed or disappeared.

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The military didn't even own up to it. They operated in the shadows, arresting people at night, executing them in secret. One of the darkest chapters the stolen babies. Young leftists were arrested, some were pregnant, others had newborns. The regime took their babies and gave them to loyalist families to raise, wiping out any trace of the original parents and those parents. Many of them were dumped into the ocean during what's now infamously called the Deeth Flights Duh. They chain people up, load them onto planes and toss them into the sea. No trials, no records, just gone.

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Now you might think these military regimes started with good intentions, and maybe, maybe at first some of them did. In a lot of developing countries, the military is often one of the most disciplined, educated and organized groups and organized groups. So when populist governments run amok with bad policies, the military steps in, thinking we're here to save the nation. But here's the thing power corrupts. It changes people. Even the most patriotic soldier can't resist the taste of absolute authority. And once their hands are stained with blood, they're trapped. They know they're not legitimate, they know they've committed atrocities and they'll do anything to cling to power.

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That's when the hero turns into the villain. It's like that old story about the dragon. A village is terrorized by a dragon in the mountains For generations. No one can defeat it. Then one day a young hero steps up, sword in hand, he slays the beast. The villagers cheer, thinking they're free. But as the hero sits on the dragon's hoard of treasure, something happens. He starts to change, scales grow on his skin, his eyes turn red and before long he becomes the dragon.

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That's the story of these military governments. They start out with grand ideals nationalism, patriotism, saving the country and end up as nothing more than bloodthirsty tyrants. And that brings us back to the question what is the Latin American trap? Is it just some weird Bermuda Triangle of economic and political doom, A mysterious point in a nation's rise where everything goes haywire. Or is it something deeper? Exactly? It's not some magical, mysterious curse. The so-called Latin American trap is just populism. Folks, that's it. Whether it's a democratically elected populist government or a military regime that crashes the party with tanks and guns, it's two sides of the same coin. Cold sweats, populism, feathers, populism Same disease, different symptoms. And here's the kicker neither democracy nor violence can cure it. If you don't treat this illness, the country stays trapped in this endless cycle of chaos. It's like quicksand you just sink deeper and deeper.

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Now, what's the biggest enemy of populism? It's not rocket science, it's free market economics. But here's the thing economic theories don't win elections. You know that old saying from Economistas we win the argument but lose the reality. Why? Because letting the rich get richer while the poor struggle, oh, that doesn't sit well with folks. Poor people want welfare, they want protection and they're always suspicious of foreign investors coming in and stealing opportunities. This is why populism thrives. It gives people someone to blame, whether it's the wealthy elites, foreign corporations or some vague notion of globalization. Populism channels all that frustration into resistance against progress, and in that sense, populism isn't just a political problem. It's the ultimate boss fight in a nation's modernization process.

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And that brings us to another problem. People love to split the world into two camps democratic countries vs non-democratic countries. Democracy equals good, authoritarianism equals bad or, for some, the reverse. But you know what? That's the wrong framework entirely, because democracy doesn't solve the problem of populism. Look at Latin America Democratically elected governments there have been some of the biggest populist disasters.

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And let's be honest, does America's economic success exist because of democracy? Sure, it's got democracy, but is that the reason it's wealthy? That's a way tougher question, because if democracy guaranteed economic success, then explain India. It's the world's largest democracy and yet its economy is struggling. Corruption runs rampant and, frankly, it's got issues that make even authoritarian regimes look like efficiency experts. So, yeah, democracy is a good thing, but it's not a cure-all. If you really want to cure the populism disease, history seems to suggest two key ingredients constitutionalism, acca rules, laws, structure and free market economics. That's it. You don't mess with these two things, because the moment you ditch the free market, because the moment you ditch the free market, prosperity is out the door. Now take a look at the world today. Sound familiar? Do you see any countries out there gambling their futures on a mix of luck and leadership, relying on a government's roll of the dice to succeed.