Paul Krugman didn't see the Great Recession coming and he doesn't see the next crisis coming either.
Paul Krugman, New York Times columnist, Nobel Prize winner, and Keynesian economist extraordinaire is about to have his new book, titled End this Depression Now, released. In it, the Duke of Deficit Spending argues that a speedy, robust recovery from the Great Recession which started in 2008 is just a quick policy decision away. If only our leaders can muster the “intellectual clarity and political will” needed to raise federal spending further, Americans will begin consuming again, businesses hiring, and the current depression will be over in a flash. Once again Krugman is being true to his economic philosophy: increasing aggregate demand through loose fiscal and monetary policy is a cure-all for what’s ailing the economy. Let it be said that there is not a more consistent deflationist in all of the economic profession than Paul Krugman .…
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26 - troll
Glenn Contrarian -
Gee I didn't realize that the first world had been reduced to Germany...(but to answer your question one would have to take a look at the condition of the German working class which I haven't)
and what does your "What's more, can you point out to me a non-Keynesian economy where it normally takes only one wage-slave to support a family? Hm?" have to do with anything? Hm?
27 - roger nowosielski
Human relations aren't "unnatural" considering our form of life. Neither are governments, markets, nor any of our institutions, past or present. There are "natural" developments in the history of humankind, not aberrations.
I think Kenn's contrast is not ambiguous. By "natural" he should mean "free of interference." If he doesn't, then he's confused.
28 - Dr Dreadful
@ Glenn, troll:
Germany is a special case because the formerly communist East is more economically depressed than the West.
Eastern German women - whether they are parents or not - work significantly longer hours than their western sisters. (The stats are from pre-recession 2008, but I don't see any reason that things would have changed much.)
29 - troll
roger nowosielski - I was wondering more just who decides eg what levels of poverty and unemployment are positives that keep our economy on track
30 - Dr Dreadful
@ Roger:
Even if Kenn does mean "free of interference" it's an arbitrary criterion.
Any artificially created market has to have some interference, even if it's just "don't steal my stuff off my cart while I'm on my lunch break and sell it as your own".
In the natural world, that kind of thing happens all the time. Somehow I don't think even Kenn would be happy with a market that "operated" without even such basic ground rules.
31 - roger nowosielski
Of course he wouldn't. My only point was, I don't regard our institutions to be "unnatural." We're quite at home with them. In fact, we would be more "unnatural" without them, in a state of nature, as it were.
32 - Dr Dreadful
Neat paradox, isn't it, Roger?
33 - roger nowosielski
Right, but the source, I think, is just equivocation on meanings. The problem arises when the Nature model is taken too seriously, and Kenn may well be doing just that.
34 - Glenn Contrarian
Kenn -
This is what happens when corporations are able to tell the government what laws they will accept and what regulations they want ignored:
Under a new law, doctors in Pennsylvania can access information about chemicals used in natural gas extraction but they won't be able to share it with their patients. A provision buried in a law passed last month is drawing scrutiny from the public health and environmental community, who argue that it will "gag" doctors who want to raise concerns related to oil and gas extraction with the people they treat and the general public.
[...] There is good reason to be curious about exactly what's in those fluids. A 2010 congressional investigation revealed that Halliburton and other fracking companies had used 32 million gallons of diesel products, which include toxic chemicals like benzene, toluene, ethylbenzene, and xylene, in the fluids they inject into the ground. Low levels of exposure to those chemicals can trigger acute effects like headaches, dizziness, and drowsiness, while higher levels of exposure can cause cancer.
But I guess this is all part of nature seeking balance....
35 - Kenn Jacobine
No Glenn, it is what happens when government is too big and can be bought by the highest bidder - usually corporations.
36 - Igor
No Kenn, it's what happens when government is too small to enforce it's laws, and so small that it can be bullied by big corporations that are allowed to grow at will, in spite of the (disregarded) anti-monopoly laws.
You would do better to direct your ire at overgrown corps, who do real identifiable damage, than at the phantom of overgrown government.
37 - Igor
We actually have an opportunity to examine a Libertarian Economy, Friedman style, in Chile, after the CIA overthrew the democratically elected Allende government, and Pinochet came to power with "The Chicago Boys", a group of Austrian economists from the Chicago school of Friedman.
Chile: the laboratory test
Many people have often wondered what it would be like to create a nation based solely on their political and economic beliefs. Imagine: no opposition, no political rivals, no compromise of morals. Only a "benevolent dictator," if you will, setting up society according to your ideals.
The Chicago School of Economics got that chance for 16 years in Chile, under near-laboratory conditions. Between 1973 and 1989, a government team of economists trained at the University of Chicago dismantled or decentralized the Chilean state as far as was humanly possible. Their program included privatizing welfare and social programs, deregulating the market, liberalizing trade, rolling back trade unions, and rewriting its constitution and laws. And they did all this in the absence of the far-right's most hated institution: democracy.
The results were exactly what liberals predicted. Chile's economy became more unstable than any other in Latin America, alternately experiencing deep plunges and soaring growth. Once all this erratic behavior was averaged out, however, Chile's growth during this 16-year period was one of the slowest of any Latin American country. Worse, income inequality grew severe. The majority of workers actually earned less in 1989 than in 1973 (after adjusting for inflation), while the incomes of the rich skyrocketed. In the absence of market regulations, Chile also became one of the most polluted countries in Latin America. And Chile's lack of democracy was only possible by suppressing political opposition and labor unions under a reign of terror and widespread human rights abuses.
...
Chile is a tragic failure of right-wing economics, and its people are still paying the price for it today.
The history of Chile and the "Chicago boys"
...
From 1970 to 1973, Salvadore Allende embarked on a "Chilean road to socialism." From 1973 to 1989, General Augusto Pinochet and his military regime conducted a "silent revolution" (so-called because the free market quietly brought about drastic social change). After 1990, Chile has returned to democracy, but it will be a long time recovering from its experiments.
...In 1970, Salvadore Allende became the first Marxist to be democratically elected president in the Western hemisphere. In the course of his sweeping socialist reforms, he nationalized not only the copper mines but banks and other foreign-owned assets as well. Along with the redistribution of land under land reform, these actions deeply antagonized Chile's business community and right wing. It is now a matter of historical record that the CIA helped organize their opposition to Allende. A massive campaign of strikes, social unrest and other political subversion followed. In September 1973, the CIA helped General Pinochet launch a military coup in which Allende was killed. The Pinochet government claimed he committed suicide; his supporters claimed he was murdered.
The new government immediately began privatizing the businesses that Allende had seized, as well as reversing his other socialist reforms. But Pinochet did not have an economic plan of his own, and by 1975 inflation would run as high as 341 percent. Into this crisis stepped a group of economists known as "the Chicago boys."
The Chicago boys were a group of 30 Chileans who had studied economics at the University of Chicago between 1955 and 1963. During the course of their postgraduate studies they had become disciples of Milton Friedman, and had returned to Chile completely indoctrinated in free market theory. By the end of 1974, they had risen to positions of power in the Pinochet regime, controlling most of its offices for economic planning.
The arrangement was a new one in the history of governments. ...Although Pinochet was a dictator, he turned the economy over to the Chicago boys, and his only role was to suppress political and labor opposition to their policies. This arrangement was presented to the Chilean people as the removal of politicians and politics from the nation's affairs. Instead, technocrats with Ph.D.'s would run the economy according to the best theory available. Those theories, of course, were the "neoliberal" theories of Milton Friedman. Rational science would decide policy, not political slogans and muddled democracy.
In March 1975, the Chicago boys held an economic seminar that received national media attention. Here they proposed a radical austerity program, "shock treatment," they called it, to solve Chile's economic woes. They invited some of the world's top economists to speak at the conference, among them Chicago professors Milton Friedman and Arnold Harberger. Unsurprisingly, they gave the proposal their highest praise. The plan called for a drastic reduction in the money supply and government spending, the privatization of government services, massive deregulation of the market, and the liberalization of international trade.
This was not solely the Chicago boys' plan. It was also formulated by the International Monetary Fund and the World Bank, who made the program a precondition for future loans to Chile. The IMF and World Bank would make similar conditions of other developing nations around the world, but none would implement their program as thoroughly and completely as Chile. Interestingly, the World Bank now holds Chile up as an example to be emulated by the rest of the Third World. Considering Chile's huge debt and interest payments to the World Bank, it is not difficult to see why. The debt, devastation, inequality and exploitation that the IMF and World Bank bring to Third World countries in the name of "neoliberal development" is another story in itself. Brazil and Peru are two other notable examples , but Chile remains the worst.
Shortly after the 1975 conference, the Chilean government initiated the Economic Recovery Program (ERP). The first phase of shock therapy was reducing the money supply and government spending, which succeeded in cutting inflation to acceptable levels. However, it also caused unemployment to rise from 9.1 to 18.7 percent between 1974 and 1975, a figure on par with the U.S. Great Depression. Output fell 12.9 percent, making this Chile's worst recession since the 1930s. (2)
Meanwhile, to prevent the political consequences of such a shock, the Pinochet regime began cracking down on potential opposition leaders. Many just "disappeared." The human rights violations of the Pinochet regime will be reviewed below, but, suffice to say, workers "accepted" this austerity program at gunpoint.
...
More here:
Bidstrup
...and here:
Palast
38 - Igor
Even with that tragic history of failure, Bush was eager to commit the same mistakes:
Bush's Chile plan...
This article appears in the December 17, 2004 issue of Executive Intelligence Review.
Bush's Chile Model:
Take Their Pensions and Run!
by Cynthia R. Rush
Almost 25 years ago, in 1981, the free-market ideologues directing the economic policy of Gen. Augusto Pinochet's military junta in Chile, most of them trained at the University of Chicago in the fascist quackery preached by Milton Friedman and Friedrich von Hayek, privatized that country's Social Security system. Today, Chile is George W. Bush's model for Social Security privatization. Chile took $22 billion deposited in the government-run social security fund and handed it over to 18 private investment funds, known as AFPs (Pension Fund Administrators).
The chief architect of Chile's privatization scheme was Harvard-trained economist José Piñera, a longtime member of the Cato Institute's Project for Social Security Privatization, who is cited frequently by President Bush. Piñera has travelled the world to convince, especially, developing sector and Eastern European nations of the benevolence of Chile's pension and free-trade model.
Through a splashy multimillion-dollar propaganda campaign, Piñera and Gen. Pinochet's "Chicago Boys" told Chilean workers the same thing that Bush is telling Americans today. The large number of funds (run by banks, insurance companies, and other financial vultures) would offer workers an array of "choices" on how and where to invest their money, without government looking over their shoulders. They promised workers a high rate of return and a secure future.
Those who agreed to leave the old U.S.-style "pay as you go" Social Security system and join the new privatized one would experience nothing short of earthly paradise, the privateers vowed. All they would have to do is allow a mandatory 12.5% of their monthly paycheck to be deducted and deposited into the AFP of their choice, from which it would be "wisely" invested. Unlike the old system, employers would make no contribution at all.
One million Chilean workers did switch to the new system in 1981. They were offered incentives and rewards, including an initial wage increase.
It Doesn't Work
Earthly paradise? In a Dec. 9 conversation with EIR, Manuel Riesco, a board member of the private Center for Alternative National Economic Studies (CENDA), put it this way: This has been a quarter-century experiment and the results are uncontestable. "The system doesn't work!"
Reiterating what CENDA stated in its January 2004 report, "Chile: Basis for a Reform of the Pension System," Riesco said there is a consensus today among "everyone", the government, AFP administrators, trade union leaders, think-tanks, and even the World Bank (which recently published a report on the subject), that the system is a complete failure. More than half of the people belonging to the system today will not qualify for even the minimum pension of $110, which the state guarantees. That's 3.3 million people out of a labor force of 6 million. One government study concluded that the number not qualifying for the minimum pension is as high as two-thirds of all affiliates. This has been the case even in years when the rate of return on the AFP investments was 10%, a rate no fund is likely to see again anytime soon.
As CENDA documents, this is because contributors have not been able to make the required 240 monthly payments into a private fund over a 20-year period. Many low-wage earners registered with the private system evade the mandatory monthly payments by underreporting their income, assuming that the minimum pension will yield more than whatever their retirement accounts offer. A majority of participants only make an average of two to three monthly payments a year.
In 1973, 77.7% of the labor force was covered by the government's Social Security system. Today, the old system and the privatized system combined cover only 60% of the labor force; 40% have no coverage at all. Only a tiny fraction of those who contribute to the private system will get pensions that allow them to live decently.
Those who don't qualify for the minimum pension may withdraw whatever meager funds have accumulated in their individual accounts, and must apply for the state's special welfare pension, about $50 a month. But not all of the country's poorest citizens can be assured even of those small grants, as only 300,000 are available. Chile's unemployment is 10%; and the 26% of the labor force employed in the "informal economy", off the books, can hardly make voluntary contributions to any pension fund.
Stealing by Any Other Name...
The truth is that Chile's private pension system is a gigantic Enron-style swindle. The financial sharks who set it up never intended it to be anything other than a mechanism to loot the work force and the economy,...
39 - Kenn Jacobine
Yea, Chile was run by libertarians. My title should have been Igor and Keynesians are Clueless.
40 - Glenn Contrarian
Kenn -
No Glenn, it is what happens when government is too big and can be bought by the highest bidder - usually corporations.
"See? Government can be bought by the highest bidder - elect us and we'll PROVE it by making doggone sure that there are NO regulations in place to prevent it, and we'll put Supreme Court judges in there who'll make damned sure that the corporate dollar bill is every bit as much free speech as anything a protester ever said!"
"Corporations are people, my friend"
41 - Igor
Libertarianism is just a a cover for republicans who are too timid to kick ass.
42 - Kenn Jacobine
Glenn,
Regulations in government are made by the industries that are supposed to be governed by them. Thus, regulations are anti-competition, meant to crush the little guy and any newcomers to an industry. And yes Glenn, that is the major reason I oppose regulations because they are meant to and do help the big players in industry. Look at pharmaceuticals and banking just to name two. In a true free market there are no regulations that benefit one entity over another. If a company has done something to hurt another, fraud, pollution, faulty product, that company is held accountable. Since there are no goodies to give away politicians can't be bribed for regulatory relief, big bailouts, and kushy deals. That is the system you condone. And Igor, Republicans condone it too - not libertarians.
43 - Igor
No, Kenn, it is unregulated big corporations that destroy the competition of the small guys. With their wealth and monopoly position in markets they can easily outlast tiny competitors and outright threaten their customers to NOT try the little competitors products.
That is what REALLY happens, which you would know if you had actually worked with executives of big corps that stomp out little competitors routinely to maintain their strangleholds on markets.
Get out of that ivory tower you hide in! Go out in the real world. Start a small business. Or work staff to a corp exec. Either way the scales will be torn from your eyes!
44 - Kenn Jacobine
How do big companies "threaten their customers"? BTW - unlike most teachers and I am sure academics you admire, I have both worked for a medium sized corporation and owned 3 small businesses. No ivory tower here pal.
45 - Igor
You must really be naive if you haven't seen big corps threaten their customers.
Suppose that your distribution business buys a lot of laptops, from a major laptop makers, and you also buy a few laptops from smaller competitors, for competitive analysis and Due Diligence. That Big Guy is going to swoop in pretty soon and threaten to pull that Special Program or that Special Procurement he gave you if you don't kick out that small supplier. And believe me, his Branch Manager is riding his ass!
46 - Kenn Jacobine
It is called competition Igor. You have to ask how did that big business become so big and wealthy? It is because they provided a superior product at a price people would buy it at. Apple has enriched so many peoples' lives through its products - that is why it is big and wealthy. Who is naive? The only destructive monopoly is government. It has a monopoly over regulation and its uses that power to rig the game and pick political winners and losers. It threatens its so-called customers with jail, fines, or worse.