Challenging the Dogma of Yesterday's Men

As I'm sure he expected, President Lula's "blue-eyed Banker" statement caused an international uproar. But Lula's point was beautifully illustrated last week when the CEOs of the major U.S. banks - 'Yesterday's Men' - emerged from the White House after being "wooed" by the Administration.

In her latest op-ed piece, Maureen Dowd called Lula's comment "...international lunacy." But if white bankers and economists have angered US citizens and roiled Congress, we should have the humility to understand how much more they have angered people in far-away countries - people suffering collateral damage from the crises in the US, Europe and Japan. Crises for which they have no responsibility.

For years the leaders of countries in these regions were lectured by white, largely Chicago-trained economists on how to run their economies. The same economists that encouraged de-regulated bank lending in the US, reviled government intervention, and encouraged the growth of AIG's reckless build-up of liabilities -- they also spread their dogma to poor countries.

In ways that were to foreshadow the crisis in the US, financial de-regulation policies were effectively imposed on poor countries by the 'Washington Consensus.' These policies led to frequent crises: to a massive build-up of liabilities and debt, to cuts in government spending, bank failures and even country (sovereign) insolvency.

And then double standards were, and are imposed. The US, Europe and Japan responded to their own financial crises by government (central banks) creating money (as opposed to borrowing money). This money is used to finance a fiscal stimulus, or government spending, to build and repair infrastructure, create jobs and moderate the crisis.

In contrast, poor countries are forbidden by the Washington-based International Monetary Fund from creating money, and instead are forced to do the reverse. That is: contract their economies by hiking, not lowering interest rates; by bankrupting, not bailing-out their finance and other industries. And by slashing government spending. This causes bankruptcies and unemployment to rise dramatically - leading to a further downward spiral, and to social and political unrest.

Last week the International Labour Organisation predicted that in 2009, between 40%-50% of men and women globally will not be able to earn enough to lift themselves and their families above the $2 a day poverty line.

Most of these men and women will be black and poor, and will have had no responsibility for the crisis. Indeed their political protests will have been drowned out by the power and influence of white, often faceless, foreign economists.

Their descent into deeper poverty will be fostering widespread anger -- and enthusiastic support for President Lula's comments. We would be foolish to dismiss their anger.

Instead we should be acknowledging the fact that this crisis is not of their making. And we should be encouraging an infusion of new blood into the economics profession -- to develop alternatives to the failed economics of these last three decades.

In my last post I promised a list of economists and financial experts that President Obama could usefully call upon to challenge the advice he gets from Larry Summers, Tim Geithner et al.

Thanks in part to Huffpost, we have been hearing from many liberal economists that appear not to be part of the White House magic circle, namely: Paul Krugman; Dean Baker of CEPR; Prof. Joseph Stiglitz; Simon Johnson of MIT, Prof. Jeffrey Sachs; Prof. James Galbraith; Prof. Nouriel Roubini and Prof. Kenneth Rogoff.

But there are many more he could call upon. I would strongly suggest that he seeks the advice of that sage of Steady State Economics, Prof. Herman Daly of the University of Maryland. Prof. Daly is a 'new economist'; advised the World Bank in the 1980s, and has pioneered ecological economics. His time has come.

I strongly recommend that the President set aside time on his visit to London next week to meet up with Graham Turner a former City of London economist. He has carefully studied the experience of Japan's long debt-deflationary agony, has written a book about it and, to my mind, has a better grasp of the management of Quantititave Easing than many in central banks.

In preparing my list it rapidly became clear: as far as diversity goes, economics, banking and finance still looks very much like America in the 1950s. The journal of Blacks in Higher Education undertook a survey back in 1994 and found 11 black economists at the nation's 30 highest-ranked universities. By 2006, this had risen to a miserly 13.

I strongly advise the President to include all 13 in his deliberations. The broader the spectrum of advice, the better.

Next the President should look to the example of Iceland, where, after the catastrophic meltdown of the Icelandic economy, women are at the forefront of the clean-up. " It goes back to our Viking women" said one of them. "While the men were out there raping and pillaging, the women were running the show at home."

First on the list of women he should seek advice from would be our own Arianna Huffington, an economist and one of the 50 most influential figures shaping the direction of the upcoming G20 summit, according to London's Financial Times.

Then he should consult the woman who, way back in 1997, took on Greenspan, Summers and Rubin over the need to regulate derivatives. The woman who was roundly beaten by that triumvirate: Brooksley E. Born of the Commodity Futures Trading Commission.

Again the President might take the opportunity of his London trip to meet up with Prof. Victoria Chick Emeritus Professor of Economics, University of London. Prof. Chick is a Keynesian true to Keynes and an expert on Keynes's advice to Roosevelt's administration in the 1930s. Advice that helped lift the US of out of the Great Depression.

Next I nominate Carmen M. Reinhart, Professor of Economics at the Department of Economics at the University of Maryland. And finally, Professor Sakiko Fukuda-Parr, Professor of International Affairs at the New School, New York.

By broadening the spectrum of economic advice -- President Obama would both strengthen his own position; but also offer the most effective rebuttal to the taunts of President Lula.

Comments

[politicky]

I have a question. What does it do for the favelas (slums) of Rio and Sao Paulo for Brazil to buy such large amounts of US Treasuries?

http://www.treas.gov/tic/mfh.txt

[politicky]

"Recovery from the deepening depression does not reside in running a multi-trillion dollar printing operation, which only creates conditions for hyperinflation and the debasement of the dollar. The root cause is the over-accumulation of capital resulting from over-exploitation of labor, leading to rising rates of profit and the collapse of demand. The vast disparity between capital expansion and decline of worker consumption set the stage for the financial bubble."

http://informationclearinghouse.info/article22326.htm

Read the whole thing. It'll blow your mind.

[DuganS1]

Printing money is only a part of the equation. Lending is the key. You can print all the money you want and not spark inflation if no one lends it or spends it. The idea that the recession was caused by a collapse in demand doesn't take into account that over consumption was what led to the collapse in demand. People simply consumed too much, not too little. But now with the savings rate trending way up and people putting off purchases of goods, particularly durable goods like autos, households have begun to repair their balance sheets to increase consumption at some point again. It's cyclical.

[DuganS1]

I like how the author of the article in the link equates global economic growth with "exploitation" and apparently dates the turn of capitalism as 1970. I'd like to ask him when things were different and workers were on an equal footing to capital? Was it the mid 1950s to 1970 period. It certainly wasn't before WW2, as wealth inequality was huge and in the 1930s unemployment was between 15-25% all decade. It's funny that the socialists label the 50s and 60s as some kind of worker utopia. But, in fact, profits were extremely high from 1948 to about 1966, when the equity bull market peaked. In the late 60s the problem turned into inflation when unions demanded higher and higher wage and benefits concessions and corporations increased prices in response creating the wage-price spiral. This, of course, resulted in increased interest rates and lower levels of profitability and investment. The 1973-1982 period was a disaster economically in the US and it was all because of inflation. It wasn't until inflation receded in the mid-80s that growth resumed and that began the massive 1983 to 2008 economic boom. The author also oddly says that living standards for Americans have gone down, which they certainly haven't. And he says foreign workers are being exploited when they, in fact, often saw a tremendous upgrade of their living standards as most came from farms, rice paddies, or some other form of squawler.

[research]

It's funny that most of the banksters are white, probably not blue eyed ,males.

But make no mistake, should black, Latinos and women at some point rule the banking industry, with the same lack of regulations,

It will be just as bad.

The problem is unregulated greedy Banksters,

http://www.prospect.org/cs/articles?article=can_we_have_a_new_deal_without_the_new_dealers

[goodog]

It is disruptive of the careful reader's expectation that a writer strongly defending Lulu's post-r.a.c­.i.s.t_rac­e-awarenes­s can't be bothered to identify the 13 black_economists who might help rescue the world.

"The journal of Blacks_in_­Higher_Edu­cation undertook a survey back in 1994 and found 11_black economists at the nation's 30 highest-ranked universities. By 2006, this had risen to a miserly 13. I strongly advise the President to include all 13 in his deliberations. The broader the spectrum of advice, the better."

Meanwhile, we get highly itemized information about the so-called liberal caucasian male economists we hear from daily in opposition to Obama and Geithner.

Krugman (despite his Reagan_Enron ties), Baker, Stiglitz, Johnson, Sachs, Galbraith, Roubini and Rogoff are all familiar names.

Among them, Roubini is the darkest, and he's among the most sensible, including Johnson, but we're blasted with Krugman, 24/7, who offers no plan in his complaint that Geithner has no plan.

This article should be largely about the 13 black economists to whom Obama should listen, not the white guys we've already heard from, so who are they?

[flossophy]

she's still stuck in the 'big0try of low expectations' mode... typical of the left.

it's this type of thinking which legislatively replaced the father with the state back in the 60's... we're still living in the wake of that socially destructive policy.

[goodog]

I think she was simply more intent on discussing gender than ethnicity, and she hijacked Lula's limelight in order to narrow the subject.

Since her list of women economists was somewhat diverse, she doesn't seem to fall very strictly into the category you discuss, but it's a point worth adding to the question about why she applied such a light touch on one of her main points, these heretofore anonymous black economists.

[Extranjero]

Free Market Capitalism is dead......­....It wasn't killed by Marxism, Communism or by some other form of economic competition. It rotted from within. Yes, the majority of those responsible for its demise happen to be from the US aristocratic class and they are mostly white, but there is nothing inherent in their race that caused this. Greed, corruption and antisocial behavior are not the traits of any particular group for people, but are universal sins that unfortunately infect all parts of the world. African dictators hoard millions, while children starve and die from treatable diseases. Asian dictators live in luxury, while their population slaves to earn enough to eat. Latin American cultures enable their wealthy to lead lives of the rich and famous from behind barbed wired and guarded mansions, while poverty runs rampant in the streets. We are all to blame!

[DuganS1]

There is no such thing as "free market capitalism", as capitalism has been highly regulated by government over the last seven decades. And capitalism is surely not dead, far from. What is dead is communism. The GDPs of the Soviet Union and the countries in Eastern Europe were in a depression from about 1981 until they collapsed in 1989-1990 or so. GDPs of many of those countries fell something like 30-50% in that period, which is significantly bigger collapse than what we've just experienced and it was significantly longer than about the seven months or real recession we've experienced thus far (real collapse began in September 2008). And when those governments finally collapsed, where did a huge number of those people go? They went west, to the capitalist countries.

[goodog]

"And when those governments finally collapsed, where did a huge number of those people go? They went west, to the capitalist countries.­"

But Russia became a capitalist country, so why flee... if deregulated capitalism is so free and blamless?

In the absence of regulation, the new Russian capitalist oligarchies took over and raped the nation, sending people into ever-greater poverty than they experienced under Communist control.

You bet they fled the country, but not in the manner that you hope to portray.

http://search.japantimes.co.jp/cgi-bin/eo20070911cc.html

One gross consequence of unbridled capitalism was the astounding increase in prostitution and human slavery in Russia, as women and children turned to the banker of last resort, the international slavery pimp.

[flossophy]

no... it was ki||ed by government interventi­on... the altruists thought they could control the market better than millions of smart minds... their arrogance crashed our system.

[goodog]

But credit default swaps weren't regulated. Neither was there a limit on the housing glut that we all seem to forget destroyed the housing market in the first place.

[econ1]

Ignoring the World Bank and International Monetary Fund would be a good first step for many third world countries, but I don't think that just changing the color and gender of the folks running them would be the solution. Yes, they are riddled with generally white males, but it is the feeling of all-knowing, big brother, know it all from the top that has led to their terrible results. Until we realize that you can't run an economy from the top we are likely to repeat the mistakes..­..whether women or non-whites run things or not.

[MacQ]

Let's see now. What do you call it when you selectively pick out members of a group and attach a stereotype to their skin color... hmm, what could that be?

I am so enlightened to know that there aren't any black bankers, and no women bankers. Franklin Raines comes to mind. Hey, Mr. Obama's grandmother would be surprised.

[Morpheus008]

Ok, so I know an albino -- just as common as the only black guy in the room. Wall street and finance has never been a model of diversity so guess whose opinions and values are heard, respected and reinforced. It's a perfect case of inbreeding and we are all now suffering with the bastards it bore. Its not racial politics.. its just life. The masters of the universe let one guy slip through.. Stan O'Neil at Merrill -- he was the first and only .. and did everything he could to prove he was a bona fide member of the club by replicating what everyone else was doing. Its a club, a very elusive members only club. The blog is spot on in her premises.

[Hastings1066]

Is anybody looking at what our Business Schools are teaching? People come here from all over the world to take advantage of our education system. Garbage in - Garbage out!!

[DuganS1]

These white male bankers are the same men responsible for lifting over a billion people out of poverty over the last 15 years. They were also responsible for the 2002-2008 global boom, which was the biggest boom since the 1970s (and built upon a much larger base to boot). So go ahead and criticize them, but also give them credit where and when credit is due -- and they're due a heck of a lot.

[GuiltyUndertaker]

And you have evidence of this?

Let's hear it, because even the lazy, skin-flint, cheerleading 'liberal media" have finally wised up to what these free-marketeers were really about.

[DuganS1]

"While the current pace isn't quite a record - according to the IMF the world grew at a 5.4% average annual rate from 1970 to 1973, vs. a projected 4.9% from 2003 through 2007- there's really no contest. When our ties were fatter and we were thinner, total world GDP was $13 trillion in constant dollars. Today it's more than $36 trillion"

http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100134937/index.htm

This article came out in July 2007 and gdp was strong worldwide in the second half of 2007 and the early months of 2008.

[DuganS1]

400 Million Chinese Lifted Out of Poverty
Via The Economist

"The brighter news is that China's progress against poverty is no less impressive than previously advertised. By Mr Ravallion's and Ms Chen's new standard, the number of poor in China fell by almost 407m from 1990 to 2004, compared with the previous estimate of almost 250m."

World Bank data shows that the percentage of the population living in households with consumption or income per person below the poverty line has decreased in each region of the world since 1990:[11][12]
Region 1990 2002 2004
East Asia and Pacific 15.40% 12.33% 9.07%
Europe and Central Asia 3.60% 1.28% 0.95%
Latin America and the Caribbean 9.62% 9.08% 8.64%
Middle East and North Africa 2.08% 1.69% 1.47%
South Asia 35.04% 33.44% 30.84%
Sub-Saharan Africa 46.07% 42.63% 41.09%

[GGMarks]

I love Ann - and she's the only economist who explains the money supply vs inflation dilemma - but this is just wrong.

WHITE has NOTHING to do with this. Yes, these guys are white - but there are just as many, if not more black tyrants in the world.... more black crooks in more black countries.

I don't like racial politics. -- I don't like ethnic politics..­.. even though I see evidence of it on all sides every day.

[den1953]

Everyone needs a Robin Hood in there life the damm problem is the rich bastards think there Robin Hood!

[norkas]

INVESTAGATE the Board of Directors of every big bank. You will see who pulled the strings to force bankers to loan money to people they knew that would or could never pay it back.

The proof is easy to find just ask loan officers how often they wanted to turn down bad loans and how they were met with threats that they had to make the loans.

The boards of the banks forced Pres. of banks and others to make loans in the billions of billions of dollars that were toxic to begin with because of there conflicts of intrest to Wall Street.

Yes board members knew Wall Street was packaging these garbage loans and selling parts of them all over the world.

I truly believe that Barak Obama owes America and its hard working people a answer why we are bailing at these big banks when they committed fraud and who comitted or who gave orders for them to commit fraud in the trillions

We need answers now or things will get worse. I know i will never trust the banks again as others feel the same way but if those that committed this major fraud are confronted i assure you this will NOT happen again.

[Hastings1066]

Excellent post, and I couldn't agree with you more. But rather than fixing the problem and making the banking industry become honest brokers we have Mr. Giethner holding secret meetings and trying to figure out a way to put those toxic assets back on the market for some one to make further profits.

Hedge Fund Managers - the same people who committed the fraud in the first place are now being asked to bail us out - at tax payers expense no less. And Black Rock - who made over $1 Trillion in the mortgage backed securities business is first in line to buy up these "assets". Something REALLY WRONG with that picture.

And what's going on with the President meeting with the Bankers now?? What is going on behind those closed doors? The bankers came out smiling so I don't think it was good for Main Street.

Nothing this Administration is doing is instilling confidence in anybody. It certainly doesn't give anyone any reason to TRUST the banks or Wall Street. If I won't do business with them I'm sure the World Banking Industry won't - they were the ones who got burned the first time.

[ndem]

This is a great and honest and true post! Thank you!!

[langej]

I am pleased to see, from the picture above, that none of these men seem to have blue eyes.
So we must be dealing with the right people then.

I think our Ms Pettifor has something here about raising the amoumt of advice we get from women and black people.

Women aren't the sort to max out their credit cards and black people wouldn't be suckered into borrowing money on the inflated value of equity in a home to spend on daily consumption.

[returnofthejedi]

What does Blue Eyes have to do with greed and corruption? Why do you believe in lies and easily disproved non sense? Is a brown eyed white man now more corrupt than a blue eyed white man? Or is your whole belief system that you got from your forefathers total bunk and rubbish?
Do you owe the World more than you are able to pay and seek a way to swindle us by raising stupid arguments about white victimization?

[Hastings1066]

I don't think it has anything to do with black or white - it has to do with education first - doesn't matter what color you are if you go to business school you get taught the same thing. Then there is the moral/ethical thing. If you are dishonest and greedy you are going to rip people off and not think twice about it. Period.

[SunlightAndShadows]

Guys! Let's leave the racial aspects outta this.
Yes, we know that the white bankers of the US ruined things for all of us.
It's not just the white male, though. It's the various males and females who spent beyond their
means, too. All you people with a credit card, you know I'm pointing at you. That transcends race, although it may have been white bankers who started this s**t.

Not every white person is a banker, any more than every black person is a shoe-shine boy.
And it's people of every ethnicity who have been affected by this crisis.
I say this AS one of those non-American people whose country has been affected by the economic bulls**t that's been going on.

My key point, I guess, is that we should, rather than picking on races - from one side or another - instead, learn from this, have a more open mind to other countries if they have advice to give and, in the end, understand that no one country has all the answers.

[Hastings1066]

May I also add that not every banker is white either. It's not a race issue; it's a GREED issue. And i fear that Wall Street hasn't learned its lesson yet. It's ready to go for round two. Problem is this time they'll have no takers. NOBODY TRUSTS THEM. They'll have no buyers.

[DeadPossum]

It has become abundantly clear that the whole science of economics has been discredited.
The vast bulk of economists did not see it coming and have no idea how to fix it and are now running around like chickens with their heads cut off.
Ann, you named some of the sounder and more prescient economists who perhaps we ought to lend a ear to, but they are still economists and the finance system is so complex, that I dont believe even they understand it. The system needs major overhaul to bring back some transparency, and many of the 'products' in the unreal economy such as derivatives should be outlawed.
I agree that a significant imput from outsiders and women should be sought. In fact I have this fantasy of a group of white haired old ladies who still remember the virtues of parsimony, thrift and frugality sitting around in a sewing circle uttering sage-like wisdom like "If you aint got no money, dont spend", "If you cant pay back, dont borrow", "If you dont owe nothin', and you got one dollar, you're rich' etc.
In other words back to basics, because the models economists have been using are stuffed.
The sad truth is that the party is over and we have got to clean up the mess even with a hangover. Downsizing, not trying to pump up the bubble again, the only option.

[quixix]

I do not know on what criteria you call economics a science. It certainly does not make it according to the classical and clear definition of what constitutes a science. You may call it an artisanship, perhaps history, but it certainly has absolutely none of the requisites of science.
Perhaps from here all the mistakes, wanting to give the wrong prestige to things that do not deserve it.

[Hastings1066]

Oh but they did see it coming - and Congress was warned several times. Barney Frank, Chris Dodd and the SEC chose to ignore the warnings. People were too dizzy with the GREED and the huge profits they were making. They still can't believe the party is over. They don't want to let go of their "troubled assets" They don't want the party to be over - they want to start it all again.