Bob Cropf

Posts Tagged ‘Free-market’

Globalization and the Great Recession

In economics, Obama on March 31, 2009 at 12:47 PM

Back in the golden era before 2001, the International Monetary Fund (IMF) took a hands-off approach to capital controls imposed by national governments. As Sarah Anderson points out:

As part of a broader market fundamentalist agenda, the IMF and the U.S. government once galloped side by side in a crusade to eliminate these controls, which are various measures to reduce volatility by taxing or prohibiting certain cross-border investments. The IMF banned them through loan agreements, while the U.S. government severely restricted their use through bilateral investment treaties and the investment chapters in trade agreements.

The thought was if free trade worked, why not deregulate the flow of capital as well?

The problem was the countries that fare the best in times of financial meltdowns like the one we’re experiencing just so happen to be the countries with more restrictions on capital. The point was empirically proven in the Asian Crisis in the late 1990s. The IMF seemed to learn this lesson and became less dogmatic on the point of regulating capital. The same, however, could not be said for the previous administration, which followed a market fundamentalist line on this issue.

Now, the current administration has an opportunity to reverse the failed policy of the past and follow the lead of economists such as Joseph Stiglitz and Paul Krugman who favor allowing nation-states to impose tighter controls on capital flight. So far, the administration has not said too much on the subject and it is hard to read too much into previous statements on similar topics by Obama and his economic policy advisers. (Tim Geithner is on record, however, as supporting continued deregulation–another reason to suspect his good judgment at Treasury).

As the G-20 gets underway this week, one can hope that this issue will be revisited. Ideally, there will be a consensus among the world leaders to convene another meeting to tackle the question of capital controls in the near future.

BC

Marx would have approved of banks bail-out

In economics, Free-market on February 20, 2009 at 8:58 AM

This tongue-in-cheek article in the Financial Post, a Canadian online publication, makes the case that Karl Marx would have endorsed last year’s bailout of the US financial sector. According to the article, Marx would have joined such stalwarts of conservative economic thought as the Heritage Foundation and the Wall Street Journal’s editorial page in applauding the $700 billion bank bailout. As we have often said in class, sometimes the current crisis makes for some interesting bed fellows.

The article itself presents a fairly standard neo-classical argument against the bailout. It goes on to say:
“At first glance, anyone who understands economics can see that there is something wrong with this picture. The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs and make businesses less productive elsewhere. Increasing the money supply is no different. It is an invisible tax that redistributes resources to debtors and those who made unwise investments.
So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets? ”

The author, who is a free-market Canadian journalist, is probably thinking that somewhere Milton Friedman is spinning in his grave.

Who was Milton Friedman?

In economics, Free-market on February 9, 2009 at 12:49 PM

The New York Review of Books published this article in 2007, a year after Friedman went to the Great Free Market in the sky. Not only does the author, Nobel Prize-winning economist, Paul Krugman, do a good job in summarizing Friedman’s contribution to economics, he also does a nice job in recapping the history of post-war US economic policy. Read this and go back and watch the Charlie Rose interview of Friedman.

Krugman makes the point that Friedman was the anti-Keynes in his fervent belief in the power of the free market, free from government intervention. He also notes that Friedman, the economist, was a formidable force. He, for example, predicted the effects of stagflation before they actually occurred. However, according to Krugman, the man was also a polemicist for capitalism and monetarism. The latter, Krugman says, is a highly technocratic, apolitical form of government intervention in the economy. On the other hand, fiscal policy which actually requires political debate and decisionmaking, and is, therefore, inherently more democratic, is viewed by monetarists as an inferior type of intervention. Friedman was deeply skeptical of government’s role in the economy, going so far as to say in an 1976 interview, “the elementary truth is that the Great Depression was produced by government mismanagement.” In truth, the government under-managed the economy into a catastrophic depression.

Krugman’s final observations regarding Friedman are telling:

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there’s a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I’d argue, is a counter-counterreformation.

–BC