[Marxism] IMF economist: US is becoming a banana republic

Dbachmozart at aol.com Dbachmozart at aol.com
Wed Apr 1 07:35:51 MDT 2009

Tuesday, March 31, 2009 08:18 PDT
_Simon Johnson's crusade against the oligarchs of Wall  Street_ 

Few magazine articles in recent memory have excited as much  
econo-blogospheric commentary as former International Monetary Fund chief  economist Simon 
Johnson's _"The Quiet Coup."_ (http://www.theatlantic.com/doc/200905/imf-advice)  
For good reason: Johnson's  elucidation of how four decades of deregulatory 
ideology placed the interests of  Wall Street "oligarchs" above the interests 
of the general public is magisterial  and convincing. 
One can argue with his conviction that the Obama administration represents  
nothing more than a seamless continuation of such policies. Even Johnson, whose 
 views are now being showcased in a spectacular variety of media outlets, has 
 conceded in recent weeks that, in comparison with Europe, the U.S. is taking 
 much more aggressive action to confront the global economic mess. In _a Wall 
Street Journal Op-Ed piece published  Tuesday,_ 
Johnson also acknowledges that the White House's request for  new authority to 
regulate bank holding companies and other financial  institutions capable of 
threatening "systemic risk" would give the Treasury  Department the tools 
necessary to do exactly what he has long been recommending:  "walk into America's 
largest financial institutions, such as Citibank or Bank of  America, and 
liquidate them." 
Would Tim Geithner use such powers if he gets them? We don't know, but  
critics like Johnson and Paul Krugman serve a vital role in keeping the pressure  
on. There's no question: Breaking the back of the oligarchs who wrested control 
 of the global economy's commanding heights and then wrecked it almost beyond 
 repair is job No. 1, and aside from Krugman, no one has pushed the necessity 
for  strong action harder or with more visibility than Johnson. 
The central narrative gambit of "The Quiet Coup" is simple: The United States 
 is unwilling to take the same harsh medicine it would prescribe to a 
developing  nation that exhibited the same critical problem: domination of the 
political  process by self-interested economic elites. But there is more than a 
little  irony involved with the fact that this advice is coming from a former IMF  
chief economist. A great many people on the left who are applauding Johnson  
seem to have forgotten just how critical the IMF was in spreading exactly the  
kind of economic policies that helped secure Wall Street's absolute sway over 
 global markets. Doesn't anyone remember _"the Washington Consensus"_ 
(http://www.salon.com/tech/htww/2006/01/06/washington_consensus/)  -- the belief that 
 deregulation, privatization and trade liberalization were the holy writ for 
all  developing nations? The IMF was one of the primary proseletyzers and  
implementers of this vision. If your economy got into trouble, the IMF would  
help you out, but only after requiring "structural adjustments" that often  
caused significant hardship. 
The result, particularly after the Asian financial crisis of the late '90s,  
was a massive rejection of IMF help by developing nations, particularly in 
East  Asia and South America. If you're looking for reasons why so many countries 
in  South America have turned sharply to the left, it is partially due to the 
pain  caused by following IMF advice. If you want to know why China and other 
East  Asian nations have built up huge reserves of foreign dollars, creating 
global  imbalances that contributed to the creation of today's economic 
crisis, it is  precisely because they wanted to avoid ever again being forced to 
come, hat in  hand, to the IMF. As the Wall Street Journal notes on Tuesday, in 
_"An Empowered IMF Faces Pivotal  Test,"_ 
(http://online.wsj.com/article/SB123845771243271677.html)  "where once the IMF demanded that borrowers dramatically 
 remake their economies, the IMF is now taking a softer stance, and attaching 
few  restrictions to its massive loans." This is not out of the goodness of 
its  heart, but because few developing nations are willing to accept the 
conditions  that the IMF once required. 
Harvard economist Dani Rodrik, the always dependable contrarian, has been  
practically _the lone voice to point this  out:_ 
Johnson writes: 
The challenges the United States faces are familiar territory to the people  
at the IMF. If you hid the name of the country and just showed them the  
numbers, there is no doubt what old IMF hands would say: nationalize troubled  
banks and break them up as necessary.... 
The second problem the U.S. faces -- the power of the oligarchy -- is just  
as important as the immediate crisis of lending. And the advice from the IMF  
on this front would again be simple: break the oligarchy.
To which Rodrik responds: 
I find it astonishing that Simon would present the IMF as the voice of  
wisdom on these matters -- the same IMF which until recently advocated  
capital-account liberalization for some of the poorest countries in the world  and which 
was totally tone deaf when it came to the cost of fiscal stringency  in 
countries going through similar upheavals (as during the Asian financial  crisis). 
Simon's account is based on a very simple, and I believe misguided, theory  
of politics and economics. It is an odd marriage of populist and technocratic  
visions. Countries fail because political elites always end up in bed with  
economic elites. The solution, apparently, is to let the technocrats (read the  
IMF) run your affairs. 
Among the many lessons from the crisis we should have learned is that  
economists and policy advisors need greater humility. Too many of us thought  we had 
the right model when it turned out that we didn't. We pushed certain  
policies with much greater confidence than we should have. Over-confidence  bred 
hubris (and the other way around). 
Do we really want to exhibit the same self-confidence and assurance now, as  
we struggle to devise solutions to the crisis caused by our own  hubris?
― Andrew Leonard

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