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Larry Summers (photo: Fortune Live Media/flickr)
From the problems of Britain and Italy in the 1970s, through the Latin American debt crisis of the 1980s and the Mexican, Asian and Russian financial crises of the 1990s, the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability. There is ample room for debate about precise policy choices the fund has made. But the IMF has consistently stood for the proposition that the laws of economics do not and will not give way to political considerations.
This is arguably wrong as a general proposition, but it is certainly wrong in reference to the East Asian bailouts in 1990s that were largely engineered by Larry Summers and the U.S. Treasury Department, which controls the IMF. The conditions demanded in the East Asian bailouts required the countries in crisis in repay loans to western banks in full.
It allowed them to get the money needed to make the repayments by having the dollar rise in value against the currencies of the region (i.e. Robert Rubin’s strong dollar policy). It was not only the East Asian countries that deliberately lowered the value of their currency against the dollar, developing countries throughout the world adopted a policy of accumulating massive amounts of reserves in order to avoid ever being in the same situation as the East Asian countries.
This led to the enormous trade deficits that the U.S. has incurred in subsequent years. This situation was not sustainable, contrary to Summers’ assertion that the IMF puts countries on a sustainable course.
In fact, the trade deficit between the United States and the rest of the world was the major imbalance in the global economy in the last decade. It created the gap in demand that was filled by the stock bubble in the 90s and the housing bubble in the last decade. It is striking that the Post’s opinion pages are only open to people who try to conceal this fact rather than economists who try to explain this history to readers.
34 Comments
Recommended, and thanks for your input on probably the key factor in the financial debacle, the IMF.
Almost all countries belong to the IMF, whose stated goals are laudatory. Nevertheless, the leaders of countries, the elite, have more in common with each other than with their own people. This inevitable leads to austerity.
According to wikipedia, the governor and alternative governor for the USA are Timothy Geithner and Ben Bernanke. (what a hoot!)
Several irreverent, and prolly irrelevant, points.
There is too much saving chasing too few investment opportunities globally. Which is the underlying reason for bubbles & crashes, ever since the mid-1990s, so now going on a decade and a half. A consequence of supply side (LOL) economics. Why do you think central bank interest rates have been zero for that entire period.
IMF prescriptions are nuts.
Larry Summers is a (too stoopid for words) tool of 1%ers.
I think Larry Summers is venal and duplicitous but not stupid. Not as smart as he thinks he is, either, but not stupid. He’s certainly done very well for himself.
Summers: “… the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability.”
This is a recipe for disaster in Europe. Summers’ piece is meant to provide cover for what Geithner is secretly proposing be done in Europe. This is cover for the “money laundering” that is being proposed — or already actively underway — to “save” the EU.
Not so sure about stupid thing.
Done alright for himself financially for sure.
But remember that power is more impt and he was fired from prez at Haavaad. Gotta hurt that power thingy.
And stupid. Lost $8 billion at Harvard endowment? Didn’t figure out (unlike banksters) how to get bailed out? Now that’s really stupid.
Besides the most irreverent thing I forgot to mention is that, at least in the photo, his thumb is almost as long as his index finger. Now that’s weird.
If Geithner had been on “Adam-12″, he’d a been like Reed. NEVER allowed to drive the patrol car.
Or in hand cuffs — being perp-walked.
Larry Summers and John Corzine have a lot in common:
http://blogs.reuters.com/felix-salmon/2009/07/24/larry-summerss-billion-dollar-harvard-gamble/
It looks like Corzine followed the Summers model of using assets that should have been protected and instead using them for speculation.
It’s his emotional IQ that’s the problem. He is a fucking idiot who can solve differential equations — but can’t grab his ass with both hands.
I think the term that best fits Larry Summers’ mentality as an economic policy adviser is “fucktard”. Fucktard isn’t a word I’m prone to use, but if it fits anyone it’s Larry Summers.
I postulate that people considered very highly intelligent seem to be equally stupid in some way. The more intelligent a person is in some aspect – the more stupid they are in some other aspect. It’s what Larry does with his talents that makes him a f***ing fucktard.
I don’t think Mr. Summers is capable of understanding interconnections on a higher level.
The women of Harvard agree.
The laws of economics? Ha. What a joke! The laws that couldn’t predict the crisis? Bernanke says the laws aren’t meant for that.
http://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926/ref=ntt_at_ep_dpi_1/188-6776840-3835556
I watched the Munk debates with Summers and Krugman and it was a sad sad display. Krugman says he agrees with Summers on everything except whether we should be pessimistic or optimistic. Summers is simply a loudmouth. Really, it was the first time I had ever watched him at length and it was extremely underwhelming and downright pathetic. Two hours and all he said was that if things go down the shitter it is because people aren’t optimistic enough. He and Krugman kept going back to Keyne’s quote about us having a magneto problem and how much they agreed that was our problem. Really, I am not speaking as a partisan when I say this, but as someone trained in more than one hard science, Larry Summers and Paul Krugman are not profound. They are extremely superficial thinkers who are members of a field that indoctrinates their students. And they and their field are a huge embarrassment.
http://www.munkdebates.com/debates/North-American-Economy
Economists are going to be in for some rude fucking awakenings. This crisis has forced many many people who are trained in real sciences and the humanities and other fields to take a good hard look at economics and they are not at all impressed with what they see. Over the next decade the economics profession is going to be ripped to shreds and every single one of its insecure loudmouth posturing members are going to be sent home in embarrassed silence.
http://www.zerohedge.com/news/guest-post-its-time-give-mainstream-economics
You’re confusing economics with economic policy.
Same thing happens in science vs science policy, exhibit I being climate change.
Economic policy in developed economies is all about enriching the 1%ers. It doesn’t matter how lame and stupid the rationale sounds, it’s the result that counts.
Ditto climate change. As long as carbon corps, that own pols, can find someone who calls himself a scientist (or someone who might once have been a scientist but who can be bought by carbon corps) can string propaganda together, the underlying reality is irrelevant.
I was in hard science & switched to economics. Hard science is head & shoulders above economics, even when policy is not entered as a complication. Even so, you should keep the distinction in mind. Economics is much more involved in policy than hard science so much more corruptible.
Absolutely, but I’m not sure what I said that was false. It is the tie to policy that makes “economists” so dangerous. Super smart people are tired of being talked down to by “economists” who are simultaneously pushing dangerous policies.
And have you ever noticed how when physicists are explaining quantum mechanics to the layman or a historian is explaining the origins of feudalism how they always treat their audience with respect and emphasize the main points, but when economists or economic policy people start talking they always have to make the audience feel not qualified to understand what the subject?? That Summeresque fucktard behavior, that Krugman also evinces, has been duly noted and a lot of people are going to rain down like a IQ shitstorm on these assholes. So sick of them.
larry summers is confused. he’s confused what larry summers wants with the ‘laws of economics’.
You’re still mixing up policy with the field. For example, when a QM guy is explaining it to a layperson (not that I’ve ever had the pleasure), he is not also making QM policy for the govt.
I could, and have too many times to do it anymore, explained economics to other commenters on FDL, with respect, etc. If you don’t believe me, ask perris. But I am not in a policy making position. Summers & Krugman are economics hacks whose only interest is cocktail weenies with the PTB, which is why you correctly experience their public appearances as condescending, to put it mildly.
And since the rationale for redistributing wealth upwards is so perverted, they can’t help but come off badly to the 99ers. But they will not fall out of grace until the pols, who are in turn owned by corps, fall out of grace.
Disagree about historians. The U.S. ones are snake oil salesmen who are selling the myths about how great the U.S. is. The diff bet them (I’m referring to Goodwin, McCullough types) is that they’re more polished than economists.
His paycheck depends on it.
I am not disagreeing with any of that. I asked what I said was false and you haven’t said. I am not confused about the difference. I have known economists and I have known policy people and I have known a number of apologists and I know there are are critical economists, yada, yada, yada. But I am not looking for anybody to explain economics to me, certainly not any one person. I am approaching it my own way. The stakes being as high as they are, I am doing my own thinking.
And as for historians, I don’t know enough about Americanists as a whole to say, but I wouldn’t be surprised if what you say is dead on. I was careful to choose an example in the distant past.
eblair,
I’m not sure what you are asking.
I have agreed with you both on your opinion of S&K and your mockery that what they say are teh “laws” of economics.
I tried to add information that just bc they say it doesn’t make it so. Smith’s Econned and Adler’s Economics for the rest of us are 2 useful books that detail some of the more important fallacies of S&K.
eblair,
I noticed you deliberately chose distant past historians and I deliberately chose recent ones. I am pretty much of a history moron, except if I’ve read a book on a particular part of history, which might give me a nodding acquaintance instead of total ignorance. I suspect that even the distant past ones have an agenda, just as it is clear that the contemporary ones do. I don’t know enough about history to know what those distant agendas might be.
I do now know that the Xtians lost the crusades, so I am perpetually puzzled why every contemporary war of the west against Islam is called a crusade.
Thank you, Mr. Baker for explaining to ordinary folk like me the sequence of events from the bailout of the Asian countries, touted as such a success at the time, through their subsequent devaluation of currency – makes sense only now as you explain this to me – to the trade deficit and consequent patches on the economy by a succession of bubbles. Wow.
I really get an education on this forum – it is all so simple when it seemed so disconnected before. Plenty to think about.
The U.S. had enormous trade deficits, financed by Japan, China & India, long before the 1997 implosion of Tigers.
This is why I have such a problem with Baker. Selective recall. Life is too short to correct everyone’s errors.
Corzine, now…..Jon is stupid.
Study ecological trophics (food chain, energy flow) and you will know what economists don’t.
The purpose being way back then, as ever since, that the U.S. is the consumer of last resort. Clearly unsustainable & stupid policy, but as a forecasting matter, it is now 15 years later and nothing has changed, except for the worst.
Because the Western intercession in the ME never stopped. From the ME perspective, Western Europeans, of which the Americans are just the westernmost, have been crusading (more or less) continuously since the eleventh century. The word “Frank” still resonates in the ME. I’ve long thought that the ME animus toward Israel is largely because Israel is European. Religion is our explanation.
Why, lordy, I remember when the US was the lender of last resort. How time flies.
That’s from the waybackmachine to be sure.
Good post. I agree with some of what you say but it’s not exactly true that economists did not predict the collapse of the real estate bubble. Noriel Rubini is one who I remember reading was warning against this and there were others I’m sure. From a lay perspective, there is a bit of lucky coincidence in some economists getting it right and some not but I’m not in a position to judge whether Rubini or others who were warning about a collapse based their prognostications on some “economic laws.” There are some laws like price is determined by the intersection of the supply and demand curves which are sort of truisms.
I think you’re right though in your points about taking a hard look at economics and not being impressed. One would have thought that the collapse of a hedge trading firm established by two Nobel prize winning economists would have ripped the reputation of the profession to shreds but that was in the 1990′s. I’d be in favor of having the Nobel committee eliminate any prize for economists. There’s something wrong with putting any economist on a sort of equality with people like Martin Luther King, Jr. or Norman Borlaug, who demonstrably improved the lives of millions of people. Anyway, I hope you are right about what the coming decade holds for the economics profession. I hope a lot of these loudmouth posturing economists are sent home in silence. My sense is that their fortunes will probably rise and fall with our own and people will still listen to economists like they listen to priests or their therapists.
Keynes, whom I admire, said that economists should be a humble profession like dentists. There is a role for economists in society but it is not, as such, using their roles to proclaim their superiority in making or understanding policy. Summers, I gather, is one of those individuals who impress and intimidate a lot of people. He apparently uses his brilliance in his profession to do so. From what I’ve read, he had far too much influence in the first two years of the Obama administration. I hope I never hear of him holding any influential position again. In fact, I would hope people give Summers the same level of credence in economics or policy they would have given Richard Nixon on ethics.
I’ve read that we entered the Reagan presidency as the number one creditor nation of the world and exited, eight seemingly interminable years later, the number one debtor nation of the world. A few commentators noted it as the fastest top to bottom turnaround in economic history. Very few commentators. The popular press is a business and its golden moments have been few and short, sparingly interspersed among much longer periods of blatant hackery(the spellcheck wants to substitute “quackery.” That, too.)
Love Dean Baker and consider him a national treasure, but I question whether arguing with America’s long-discredited and largely obsolete newspapers, week in and week out, is the most useful way to get at understanding and overcoming our problems. The liberal obsession with the mainstream press (as when we publicize the Sunday talk show schedule here) does not move the “Overton window.”
Let’s start ignoring some of these creeps, move on and start a better world.
Good idea. Being ignored is the worst thing that can happen to those people. Being ignored means you’re not in the conversation any more, nobody’s listening.