Challenging the dogma of ‘yesterday’s men’.

Huffington Post blog by Ann Pettifor  29 March, 2009

As I’m sure he expected, President Lula’s “blue-eyed Banker” comment caused an international uproar. But Lula’s  point was beautifully illustrated Friday as the CEOs of the major U.S. banks  – ‘yesterday’s men’ – emerged from the White House after being “wooed” by the President.

The New York Times 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 – 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, that reviled government intervention, and that encouraged the growth of e.g. AIG’s reckless build-up of liabilities – 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 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 the Huff Po, 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.
Regrettably I know little of their work, but 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 Geithner 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.

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someonePrint this page

4 comments to Challenging the dogma of ‘yesterday’s men’.

  • Dr L Brownstein

    Ann, I don’t quite agree with your list of suggested candidates for advice. There are features of Daly’s outlook that I think are

    problematic, so I would not include him. In addition to Brooksley Born, what about Meredith Whitney? And what about Nassim Taleb and Thomas

    Homer-Dixon? Richard C. Koo? Riccardo Rebonato? Ed Leamer? Donald Moggridge? In addition to Victoria Chick, who is a wonderful choice, on the

    same basis I would include Axel Leijonhufvud and Donald Markwell.

  • Dr L Brownstein

    Ann, I left out Peter Temin. He might be useful on policy testing. Mervyn King recently committed a logical error, the fallacy of

    affirming the consequent in an interview with Faisal Islam. Here is the context:

    Logic of Policy Testing:

    H: Policy P will lead to

    desired results R – if P then R

    Can falsify policy P by not observing R (or observing not-R)
    Implement policy P
    Do not observe R

    within a reasonable time frame (not-R)
    Conclude not-P (I.e., P ineffective)
    [This is a valid inference ((if P then R) & not-R,

    therefore not-P)]

    Can NOT ‘verify’ policy P from simply observing R
    Implement policy P
    Observe R within a reasonable time frame

    Can’t conclude P is effective based on 2 – fallacious to do so
    [Fallacy of Affirming the Consequent – committed by Mervyn King in 3/2009

    (‘(if P then R) & R, therefore P’ is a fallacious inference)]

    Apologies for being a bit technical here but I saw no way around it.

  • Dr L Brownstein

    I wish I could have been able to preview my previous submission and been able to see how it would look. Your techies ought to be able

    to implement this feature.

  • ann

    Larry, sorry for this…will refer it to the techies….its a bit clunky wordpress..and we would welcome a little more

    expertise on its workings…

    And thank you for those names! I do not know them all is the honest answer to your question; but very grateful

    to be referred to them…

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>