Goodbye NEOCONs!

Big thanks to Michael Sandel for writing this and to Thomas L. Friedman for reporting it in the New York Times - by far the greatest newspaper of all times... God Bless America!

“Taking office at a time of crisis doesn’t guarantee greatness, but it can be an occasion for it,” argued the Harvard University political philosopher Michael Sandel. “That was certainly the case with Lincoln, F.D.R. and Truman.” Part of F.D.R.’s greatness, though, “was that he gradually wove a new governing political philosophy — the New Deal — out of the rubble and political disarray of the economic depression he inherited.” Obama will need to do the same, but these things take time.

“F.D.R. did not run on the New Deal in 1932,” said Sandel. “He ran on balancing the budget. Like Obama, he did not take office with a clearly articulated governing philosophy. He arrived with a confident, activist spirit and experimented. Not until 1936 did we have a presidential campaign about the New Deal. What Obama’s equivalent will be, even he doesn’t know. It will emerge as he grapples with the economy, energy and America’s role in the world. These challenges are so great that he will only succeed if he is able to articulate a new politics of the common good”.

“… In this election, the American public rejected these narrow notions of the common good. Most people now accept that unfettered markets don’t serve the public good. Markets generate abundance, but they can also breed excessive insecurity and risk. Even before the financial meltdown, we’ve seen a massive shift of risk from corporations to the individual. Obama will have to reinvent government as an instrument of the common good — to regulate markets, to protect citizens against the risks of unemployment and ill health, to invest in energy independence.”

You can read the full NYT article by Thomas L. Friedman here.

God is dead, Marx is dead, Friedman is dead... and I am not feeling too well, myself.

The last week my genius friend Bing - post-graduate student in Physics in the U.S. - who is knowledgeable about everything on earth (and out), was kind enough to agree on the old post on the Chicagoans Waterloo. It then started a short messages exchange that I am assembling here. It will be nice to read it in two years or twenty years and see how much we were wrong or right to be as concerned and hopeful for a change as we are now.

B: totally agree with your opinion!! maybe you've also seen this:

http://www.pbs.org/moyers/journal/10102008/watch.html

George Soros was Karl Popper's student at one point, perhaps that explains why he recognizes fundamentalisms / unquestioned ideologies with dubious assumptions when he sees one.. whether it's communist or liberal.. unlike most economists / speculators.. i've always thought that unfettered free market economics with the assumptions of society progressing due to rational actions done by self-interested individuals (plus the "trickle down" philosophy) and an infinitely elastic market don't seem quite correct.. but unlike in physics, there's only one experimental lab for economics, and we have to pay the price if the assumptions turn out to be wrong.. i guess Soros has a much better way of articulating this situation, that's why i'm going to buy his book!!

W: Hey Bing, thanks a lot for the link!I actually haven't seen it yet,which is kind of a shame I can say now...indeed,what he says is just a consequence of your neat (and amazingly synthesized) point on the misleading foundation of neoclassical economic theory - brought to his recent splendour by the fundamentalist Chicagoans - with the political support over the past decades of neo-conservative republicans and some lobbies. The firsts truly believed (or at least I like to think so) in markets left alone and the trickle-down economics, while the seconds were just doing their job, promoting their own interests at the political level. Soros' principal-agent dilemma argument at the end of the video is perhaps the strongest one... with devastating political implications. I really think he's right when he says that a new era is starting... How to say that... God is dead, Marx is dead, Friedman is dead... and I am not feeling too well, myself.

B:Maybe God is not yet dead.. time and again he's bounced back from near fatality.. and maybe now he's laughing at us and the crass bankers...
but yeah i can't help being shocked at how many billions of dollars governments can instantly pour into the Iraqi war (then) and collapsing banks (now), while the MORE pressing issues of humanity - global poverty and lack of access to basic healthcare and illiteracy - which could be comfortably dealt with by the same amounts of money are conveniently neglected.. even claiming they are too expensive to undertake, or "not in the national interest".
And financial engineering.. can everything always be solved by modelling phenomena? when the same modelling process makes significant assumptions on which variables can be ignored and what can't be.. it's WEIRD how in the very earliest books on economics people like Alfred Marshall had put humanitarian concerns first.. but economics books nowadays resemble mathematical tracts. maybe i'm wrong.

W:I couldn't agree with you more, on every single point! Including the God's laugh...

Then Bing wrote a weighty poetry which I am not attaching now as I'd have to ask him first. However, it's good to remind how Bing and I met each other. We've only seen one night, at St.Gery in Brussels - perhaps during the pub crawl that the author of this blog organized with the rest of the Strangelovers Laison Committee for the new batch of EC trainees. He had come to Brussels to meet a friend he had studied with in Cambridge - physicist as well - who had just started the stage at the Commission. We quickly got into this conversation on how alienating it is the North American way of doing post-graduate studies, and from there we got on pretty quickly on everything, including all difficult things except our favourite Trappist beer. And it is always a great event when you meet such a person.

The Chicagoans Waterloo

I have always been a great estimator of Paul Krugman, this year Nobel Prize in Economics. My thesis started with a quotation of him and I liked the way he wrote, his style, quite unconventional to be an economist, although probably not in absolute terms, as my Canadian room mate Nathan - a sharp policy grad student highly trusted by the author of this blog when it comes to Anglo-Saxon culture - used to complain about his inability to write articles in a decent english...

However, for how much Krugman has criticized the Bush administration since he joined as op-ed the New York Times, I can't forget how much he was radical about the goodness of free trade and globalization when he was an academic, how he regarded it as always good for everyone no matter how, who and when you open to it. Something that could only be true if you see the world under the fundamentalist eyes of the Chicago School of Economics. Those eyes that do not have a clue about what is going on now with the financial crisis and worst of all do not have a clue about how to react. Exactly as the market orthodox elite stood silent and still after the crisis of the 1929.

As at that time it was an Englishman - John Maynard Keynes - who advised the then President of the United States Franklin Delano Roosevelt on how to get out of the mess, this time it was the British prime minister - Gordon Brown - who had the promptness to react firmly and rapidly to the crisis by showing so far the only possible - we can't know if it is the right one yet - emergency exit to the crisis. As the brand-new Nobel Laureate in economics neatly explains here. Probably, the editorial that eventually brought him to an early Nobel Memorial Prize in Economic Sciences.

Hopefully, a first of a long list to "unconventional" economists after a couple of decades of Chicago triumph.

Diego Rivera - Affresco Murario - Detroit Industry, Parete Sud 1932-33.

“In Detroit’s Institute of fine arts there is a remarkable room whose walls are painted with four stunning murals by Diego Rivera. The Rivera murals, completed in 1933, show in considerable detail the operations of Ford’s River Rouge industrial complex – a giant facility that combined at a single site blast furnaces, rolling mills, engine casting, body stamping, and assembly of complete automobiles. … Although Rivera’s murals were intended as a celebration of the power of modern industry (and also, to his patron’s dismay, a condemnation of its brutality), they now have a decidedly archaic feel. Part of that sense of old-fashioned industry comes from the very degree of integration that seemed so impressive at the time. What are all those desperate operations doing in the same facilitiy? Why are they not being done at specialized places scattered around the globe?”
Paul Krugman, “Growing World Trade: Causes and Consequences”, 1995

Fellow citizen Zygmunt Bauman writes for "La Repubblica" on the philosophical roots of the current financial crisis (only Italian Language)

"... L'odierna stretta creditizia non è risultato del fallimento delle banche. Al contrario, è il frutto del tutto prevedibile, anche se nel complesso inatteso, del loro straordinario successo: successo nel trasformare una enorme maggioranza di uomini e donne, vecchi e giovani, in una genìa di debitori. Perenni debitori, perché si è fatto sì che lo status di debitore si auto-perpetui e si continuino a offrire nuovi debiti come unico modo realistico per salvarsi da quelli già contratti. Entrare in questa condizione, ultimamente, è diventato facile quanto mai prima nella storia dell'uomo: uscirne non è mai stato così difficile. ...".

Zygmunt Bauman on La Repubblica (08/10/2008)

You can read the full article here (Italian Language).

Walt Disney and the Subprimes

Last friday, Seb - my officemate at CASE - passed me on a link to the slides below. I am passing on as well. This cartoon on the origin of the financial crisis explains all that economists and business journalists have systematically failed to explain. Plus... these figures bring a great deal of support to a recent thought of mine: the next time I'll have to open a bank account I'd rather ask Walt Disney than a credit rating agency.

The SubPrime Crisis Primer

View SlideShare presentation or Upload your own. (tags: subcrisis subprime)

Financial Weapons of Mass Destruction...

... posing a "mega-catastrophic risk". This is not Hugo Chavez latest tall story, it's how Warren Buffet - the richest person on earth in 2008 according to Forbes magazine - defined the derivatives (complex financial instruments) at the microphones of BBC. Yes the same Media Company of Ed O'Brian of Radiohead from the post of yesterday... however this is not the point now that a financial crisis comparable only to that of 1929 is ongoing. Mr. Buffet - a very famous insider, perhaps "the insider" - used this expression not today or yesterday, after the notice of the failure for bankruptcy of Lheman brothers, America’s fourth-largest investment bank.

Mr. Buffet just said that five years ago. Yes five. That's probably why he came up with such a brilliant expression. Financial weapons of mass destruction. It was the time of the media preparation for the U.S. troops invasion of Iraq. In those days I remember I took part in Amsterdam - where I was doing the Erasmus - to a world-wide demonstration for peace (nothing spectacular though). Perhaps people had something else to be concerned with and didn't really take the words of the guru of finance seriously. But what about the people in the finance sector?? Sometimes I just have the feeling that many people know and knew everything - it can't be otherwise - but they were just sure that in any case they would have not paid directly in case of a crisis cause they had better information than others and would have made it on time to hand the hot potato off on someone else belonging to that rest of humanity who didn't share the same access to information.

For that matters, you can still read the BBC full article here or watch the Faithless video below. Mr. Burret and Maxi Jazz. Apparently different. They said one thing. Five years ago. Not yesterday.

Faithless - Mass Destruction
Za�adowa�: bebepanda

Wansterdam discontents the IMF

Today the NGO I work for - CASE, Centre for Social and Economic Research - hosted a seminar by Christoph B. Rosenberg, head of the International Monetary Fund’s (IMF) regional office for Central Europe and the Baltics on the "Macroeconomic adjustment in Baltic countries: hard or soft landing?". It was a very good talk, clear, informative and much less theoretical than what I was used to attend at UBC, without loosing much rigour for such a reason. The bottom line was that after a decade of extraordinary growth of foreign banks financial lending in Esthonia, Latvia and Lithuania the current credit crunch - toghether with other con-causes - has provoked an outstanding fall of the international financial flow towards those countries (i.e. money saved in other countries and invested in the Baltic countries by foreign banks) which in turn is creating recession and big problems of public finance stability (i.e. the current government deficit is soaring and none knows if they'll be able to fix it). Now, one additional fact is that some 90% of the banks operating in the Baltic countries are foreign. As there was no saving in those countries when they started to operate (early nineties), they lent there the money saved by their clients in other countries. Mainly Nordic countries. Shall the Baltic borrowers start to fail to pay back, the foreign banks are much likely to run away from those countries and provoke a financial crisis exactly as those seen in Argentina, South-East Asia and Mexico. People will massively go get their money from their bank cause they don't feel it is safe to keep it there but the banks - as it would happen to all the banks of the world in such a situation, even the most virtuous ones - will not be able to give the money to all at the same time simply because they don't have it (it is not that it is all lost, but the vast majority of the money is not kept in ATM, but invested somewhere else and they can't just sell all their assets in one day and give them back in cash to their clients.).

This is a brief summary of what's happening in those countries.

The most interesting part however came when the IMF guy mentioned as a counterexample the case of Slovenia, where the bank sector is closed to international competition, so they only have one big, “inefficient, overstaffed and monopolist” national player. And he didn't seem scandalized by the fact that he mentioned this scenario as a perfectly possible alternative to what we have seen in the Baltic Countries. And that is when I am afraid to have kind of embarrassed him reminding of how the IMF actually uses to propose ultra-liberal economic receipt to every kind of country at any point in time (especially if particularly poor) and to regard protectionism as the mother of all evil. And then I asked him about any such plan at the IMF to undertake a study on whether completely open markets are the best solution at any point on time, or there is room for some kind of mixed element of protectionism and liberalism to promote the sustainable growth of the wealth of a nation. He didn't seem to have quite got the point and just replied that "looking for the optimal share of protectionism is not the IMF's business". Well, as forms of protectionism are actually everywhere and, especially in the past, protection of some industrial sectors has worked out well for all the countries that are now developed and prepared them for a tougher competition on an international level, perhaps times are ready for the IMF to enter into the dynamic optimal openness of markets business.