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442952 |
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Date: October 23, 2024 at 00:17:32
From: ryan, [DNS_Address]
Subject: How the Left Shrank |
URL: https://www.counterpunch.org/2024/10/21/how-the-left-shrank/ |
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i agree with the basic premise...the left is dead...all we have now is the far right, the right and the moderates...
October 21, 2024
How the Left Shrank
David Rovics
I was born in 1967. When I was a baby, there was an intensely musical antiwar movement so big and so very attractive, that it swept much of society off its feet, demilitarized millions of hearts and minds, and played a serious role in curtailing the imperial interests of the world’s biggest empire, for about twenty years afterwards (it was called “Vietnam Syndrome”).
When I was a baby, there was a huge and militant Black Panther Party for Self-Defense, and they all were against the war, too, and made that very clear in all kinds of ways, including by participating in those huge antiwar marches. There was the American Indian Movement, Raza Unida, the student movement, the feminist movement, and it was all self-consciously interconnected into a thing that millions of people daily and habitually referred to as “The Movement.”
In 1971 some very heroic folks broke into the FBI offices in Media, Pennsylvania while everyone inside was busy watching an epic fight (Joe Frazier vs. Muhammad Ali). They stole over a thousand classified documents that revealed some of the practices of the FBI’s Counterintelligence Program.
Locally police departments had what were commonly known as Red Squads. What the FBI dubbed Cointelpro for short was a national-level Red Squad. The liberated documents revealed a stunning array of really underhanded methods the FBI used to systematically keep the left as disoriented, distracted, and divided as possible.
There’s your background. Apologies to those who already know all that history, but I increasingly meet people who have absolutely no idea any of this stuff ever happened, and it’s very necessary history for understanding everything that’s happened since then that I’ll be mentioning.
Growing up in the 1980’s me and my friends tended to think the left was really small and insignificant in the US, which it certainly was compared to twenty years earlier. But there were independent book stores, infoshops, indy record labels, cooperatives of various sorts, in cities across the US. Like other young people in the 80’s hanging out at places like that, me and my punk friends all learned about Cointelpro, learned about how cool the Black Panthers and AIM and SDS had been, discovered Utah Phillips and the history of the IWW, and read Howard Zinn’s A People’s History of the United States.
In the 90’s I was at least peripherally involved with what we called the radical environmental movement at the time. Then at the end of the 90’s, in a much more intense way, with the much larger and more pervasive global justice movement. And then the massive, global antiwar movement that rose up immediately following September 11th, 2001. And I’ve involved myself in many other movements that have sprung up since then.
With the movement that back in the 60’s they called The Movement, intersectionality was fundamentally important. With the global justice movement in the 90’s it was the same. In Europe they were calling it the red-green alliance. In the US context, where red is blue, it was “Teamsters and turtles.”
Since the days of the global justice movement, and especially since the rise of the antiwar movement after 9/11, I have watched as what we might historically have called the left — that is, the various elements of society who stand for the welfare of the working class, the health of the environment, the rights of women, those seeking to end militarism and imperialism, etc. — tear itself apart, one chunk of flesh at a time.
Cointelpro has continued since long after the raid on the FBI offices — of that there is no serious doubt. And at the same time, we don’t necessarily need the FBI’s help to arrive at such a divided and conquered state. Social media algorithms alone could do that for us pretty well, I suspect. And we probably don’t even need either the FBI or the algorithms, with all the other good reasons we have to disagree with each other.
For almost two decades I toured most of the time, mostly in the US, so I got to see the country as it evolved over time, a snapshot every few months of many different parts of the world. In the past decade or so, much less touring in the US, and far fewer snapshots. So when I get them, they can be much more of a shock.
It becomes much clearer, when you get the snapshot less often, how fast the left is disintegrating itself, excluding one group after another. People who would have been organizing, or at least coming to, my shows in a given city now don’t, because they don’t agree with something they now think I stand for, or because they suspect there will be other people in the room they don’t want to see — former comrades who now think they are fascists, or abusers, or transphobes, or racists, antisemites, or all kinds of other things.
In the 90’s I saw the left essentially drive out a Christian group called the Bruderhof. The Bruderhof have long been very supportive of political prisoners such as Mumia Abu-Jamal, and sought to build alliances for a while, but they were rebuffed, in many different ways, by leftists who couldn’t stomach working with people they perceived as sexist and homophobic.
After September 11th, 2001, there were many people who participated in antiwar movement activities whose general focus was on getting to the bottom of what really happened — what was the involvement of Saudi Arabia, of Israel, of the CIA, in cultivating Al-Qaeda in the first place? Were there people inside US intelligence agencies who knew something was about to happen?
This element of the antiwar movement was increasingly over time isolated from the rest of the movement. Conspiracy theories seemed to get wilder over time. There are all kinds of explanations for this phenomenon, which can operate simultaneously. But whatever was determining the development of this phenomenon, that’s what happened, and now if I ever see or hear about folks who were in that camp of the antiwar movement, it’s because I’m watching them on Fox.
It was once the case, at least by my possibly rose-tinted recollections, that the left tended to be a big enough tent that it included a spectrum of views on free speech as a concept, from free speech “absolutists” to those who engaged in actions like shutting down events and got accused in the press as people who were opposed to free speech, for what they themselves considered to be an opposition to hate speech, or dangerously far right views.
I have watched as the free speech absolutists have been alienated from the left, and many of those that would once have been considered part of the fabric of the progressive scene now consider themselves to be on the right, or at least libertarian, or, as they often call themselves, “politically homeless.”
I watched as those who didn’t subscribe to tactics like burning dumpsters or throwing projectiles got denounced as opponents of “diversity of tactics,” and I watched as demonstrations shrank precipitously with each new dumpster burnt.
I heard with horror of the end of the Michigan Women’s Festival in 2015. I was at the last London Anarchist Book Fair in 2017, and saw how the organizers were attacked as transphobes for daring to think that the book fair could still be a forum that included different perspectives on many issues, all in one large building, including women who would once have just been called feminists, but we are now told they are TERFs.
I witnessed one person after another get accused and broadly shunned allegedly for being abusers, or sympathetic to one, for questioning the story of someone claiming to be a victim, for not always, unquestioningly “believing her” in every case.
I watched elements of the environmental movement sabotage itself by spreading the notion within its ranks that white people wearing dreadlocks is cultural appropriation, and therefore racist. An environmental movement where around a third of the participants were white people with dreadlocks was suddenly anti-dreadlock.
I saw people get kicked out of venues because their professed belief in Nordic mythology was judged to be too sympathetic to Adolf Hitler. This is a widespread thing in Germany, where they excel at this sort of splitting, too.
I watched one after another Marxist or anarchist intellectual join the list of the shunned and denounced, for their attachment to the notion that we exist in the context of a capitalist system. I was personally kicked out of the Anarchist subreddit for being a “class reductionist.” Those of us involved with Occupy Wall Street in 2011 were told we weren’t paying enough attention to things like race and gender, with our obsession with the rich owning everything.
In 2020 I saw as one after another natural living yoga practitioner sort started drifting from a soft left kind of orbit to a more and more conspiratorial orientation, as they were increasingly shunned by those telling them if they were hesitant about the emergency vaccines, they were causing harm, being selfish, and probably supported Trump.
I watched one new group after another attempt to join the movement that was on the streets in 2020, and heard the accusations made about each of them, about how they fell short of what was expected of good allies these days, for insufficiently centering the right people, generally.
By my recollection, the left once included people who believed in voting for the Democrats, those who rejected the whole charade of elections in this corrupt system, and those that campaigned for third party candidates. Today if you support the Green Party you will be denounced as a stooge of Putin by some fairly prominent people long known as anarchists and socialists.
Opponents of NATO expansionism and all the billions in military aid sent to Ukraine are also denounced as Putin stooges.
As the antiwar movement shrank to nearly nothing, and people coming out of different political traditions tried to organize together, I saw how they were denounced right away, loudly and often, as some kind of closet fascist movement trying to build a mythical “red-brown alliance” in 2022.
In some places, especially Germany, we can see Arabs and Muslims in recent months being driven out of anti-racist rallies against the far right, on the basis that they are presumed to be antisemites, if they’re critical of Israel.
In England I have watched the British Labor Party eviscerate itself of all its best people, denouncing them as antisemites, an ongoing process.
And of course throughout all of this I have seen music and culture become more and more isolated from an ever-more cerebral and online left, arriving now at a juncture where across the USA you are extremely unlikely to hear live music at a protest, since now anyone with an acoustic guitar on the left seems to be associated with the perception of a failed antiwar movement that people have heard about existing, a long time ago, on TV.
You can still hear live music at political events, however. Just go to any Trump rally.
David Rovics is a frequently-touring singer/songwriter and political pundit based out of Portland, Oregon. His website is davidrovics.com.
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Date: October 23, 2024 at 11:05:09
From: ao, [DNS_Address]
Subject: Inequitable and Inadequate School Funding |
URL: Our schools create people unequipped to function as intellectually and emotionally mature adults.. |
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I would posit that it has been the GOP's efforts to underfund education that
has been at the root of the transformation noted in the OP.
Our generations propensity to migrate to the edges rather than the core of
society didn't help. And, of course, the rise of the Federalist Society
contributed its share.. but the lack of a meaningful education has created the
people that fill a Trump rally..
---
Fifty years ago, the U.S. Supreme Court effectively closed federal courthouse
doors to constitutional complaints about inequality in funding for public
schools. Since then, claims of inequity between richer and poorer school
districts have overwhelmed state courts and legislatures and deeply divided
politics in dozens of states with only limited progress.
Little has changed since University of Chicago Law School Professor Geoffrey
Stone observed several years ago that “Although a few state legislatures and
state courts have reformed their state’s funding system to promote greater
equality in public education, the situation in the vast majority of the states has
gotten only worse with time.”
On March 21, 1973, the Supreme Court decided San Antonio Independent
School District v. Rodriguez, ruling by a 5–4 vote that substantial inequality in
funding between two San Antonio school systems did not raise substantial
issues under the U.S. Constitution.
The lawsuit was filed by parents in the significantly low-income and
predominantly Mexican American Edgewood Independent School District. They
challenged the Texas system of funding public schools, which had three
components: a state per-pupil contribution, revenue from the local property
tax, and support from federal aid. Because the Edgewood region had low
property values and very little business or industrial base, the local property
tax rate was the highest in the area but only generated $26 per pupil at the
time. The state added $222 per pupil and federal aid of $108 for a total of
$356 per student.
The Edgewood parents compared their situation to the Alamo Heights
Independent School District, a wealthier area in San Antonio with a largely
white population. With high property values and local businesses, the tax rate
was lower than Edgewood but produced $333 per pupil. The state added $225
and federal aid of $36 for a total of $594 or $238 more per student than
Edgewood.
The lawsuit argued that this funding inequity was unconstitutional for two
important reasons: first, that discrimination in education funding on the basis
of wealth or income level violated the equal protection clause of the Fourteenth
Amendment, and, second, that the Edgewood students were deprived of a
fundamental right to education.
A three-judge federal district court agreed with the arguments made and ruled
in 1971 both that wealth was a “suspect” characteristic when used by
governments to make decisions and that education was a fundamental right.
Both of these conclusions would have required a federal court to examine
school funding disparities under the most demanding scrutiny, making it
difficult for a state to justify the inequality.
Both conclusions would also have reinforced the Supreme Court’s landmark
1954 ruling in Brown v. Board of Education. There, the Court said that public
education was likely the most important function of the state and doubted
whether anyone could be a full and equal participant in our democracy without
access to education. Racial segregation in public schools deprived Black
children of equal access to education, the Court ruled.
Many educators and legal experts argued then—and now—that eliminating
discrimination in funding for public schools had to go hand-in-hand with
eliminating racial segregation to maximize equal educational opportunity.
The Supreme Court was not persuaded. In an opinion by Justice Lewis Powell,
the Court said that the class of poor people was difficult to define, differing
from other government classifications based on race, gender, or national
origin. Powell also said that when the Court considered wealth discrimination in
past cases, it was because an individual was deprived entirely of a right, for
example, the inability to obtain a court transcript for a criminal appeal without
funds to pay for it. In San Antonio, however, Powell said, no one was denied an
education because of income level.
Justice Powell also said that education was not a fundamental right implicit in
the Constitution. “In addition to matters of fiscal policy, this case also involves
the most persistent and difficult questions of educational policy, another area
in which this Court’s lack of specialized knowledge and experience counsels
against premature interference with the informed judgments made at the state
and local levels,” Powell wrote. In the absence of any factors to trigger the
Court’s most rigorous constitutional scrutiny, Powell concluded, the Texas
education system adequately served rational purposes.
Several justices wrote dissenting opinions, none more impassioned than
Justice Thurgood Marshall, who successfully argued against racial segregation
in Brown v. Board of Education. Marshall wrote that the Court’s ruling “can only
be seen as a retreat from our historic commitment to equality of educational
opportunity and as unsupportable acquiescence in a system which deprives
children in their earliest years of the chance to reach their full potential as
citizens.” Marshall said that “having established public education for its
citizens, the State, as a direct consequence of the variations in local property
wealth . . . has provided some Texas schoolchildren with substantially fewer
resources for their education than others.”
Descriptions vary on how the landscape of school funding has changed since
1973. Most states have faced litigation over disparities in education funding or
over underfunding education generally. Only a handful of states have escaped.
Because the Supreme Court essentially shut off school funding claims under
the U.S. Constitution, the lawsuits that have occurred in most states have
involved provisions of state constitutions, which guarantee some form of public
education. In many cases, the litigation has been protracted.
Consider Texas itself. The Texas Supreme Court found the state education
funding system unconstitutional in 1991 and 1992, constitutional in 1995,
unconstitutional again in 2005, leading to new legislation, and constitutional
again in 2016. The decades of school funding litigation took place under the
state constitution’s guarantee of an “efficient system of public free schools” to
promote “a general diffusion of knowledge.” Even after so many years, when
the Texas Supreme Court upheld the system in 2016, the decision said the
legislature could do a better job. In an opinion by Justice Don Willett, now a
judge on the U.S. Court of Appeals for the Fifth Circuit, the court said, “Texas’s
more than five million school children deserve better than serial litigation . . .
they deserve transformational, top-to-bottom reforms.”
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443004 |
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Date: October 23, 2024 at 19:15:47
From: mitra, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
URL: https://www.americanbar.org/groups/crsj/publications/human_rights_magazine_home/wealth-disparities-in-civil-rights/inequitable-and-inadequate-school-funding/ |
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As I tried to read the article was interrupted like a
drum beat:
"I love the poorly educated.' (famous rump quote)
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443006 |
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Date: October 23, 2024 at 19:34:00
From: ryan, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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cuz he fits in with that crowd...
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Date: October 24, 2024 at 09:21:34
From: Redhart, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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by decree, everyone must be more stupid than he is.
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Date: October 24, 2024 at 11:19:17
From: ryan, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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wow, that is a very low bar...
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443013 |
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Date: October 23, 2024 at 22:40:21
From: mitra, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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Yup.
He's the poster boy of the arrogance of ignorance, and
spreads it's pride like a virus.
It was a good article, though. Thanks, AO.
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442977 |
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Date: October 23, 2024 at 11:35:13
From: shadow, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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It's always been the GOP behind everything trying to limit
genuine *expansion of people's minds, and deepening
understanding of* just about anything and everything...
...Federalist Society...*shudder*...
AO, I believe in the sacred power that moves behind the
force of progressive, humanitarian, inclusive evolution,
and I know that whatever-all it must muck its way through,
to real-ize itself as Our Highest and Best, it WILL DO...
;) ...whatever-all that process takes we, who are its
servants, through... ;)
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Date: October 23, 2024 at 19:49:32
From: ao, [DNS_Address]
Subject: Re: Inequitable and Inadequate School Funding |
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"I believe.."
Me too.
Although in a model that suggest there are swings.. even nature is always in
a perpetual state of motion, change.. and history recounts all the ages of
darkness and renaissance. And yes we, the whole planet, mankind, has been
swinging towards insanity for a good while.. Steve Bannon is but the latest
to run around selling such madness..
So.. as a pendulum swings, as nature is always seeking a perfect balance
but overshooting it's mark and swinging back again, and again, for us to
escape the repeating pattern.. to swing so far in one direction as to escape
the gravity that holds the pendulum in place..how far must we swing in the
other direction to accumulate the momentum to pull such a feat off?
In other words, how much suffering must we endure in order to know how to
treasure our blessings when we receive them? In order to be rid of the
shackles that bind us to the pendulum?
So, is this the moment? Or do we need to live through the rising of the
Fourth Reich? Do we really need to give Europe to Putin? To make alliances
with Kim Jong Un? To give Taiwan to Xi? With the military in our streets to
insure our compliance? Or is just the whiff of it enough?
But yeah, I believe, with every fiber of my being.
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Date: October 23, 2024 at 09:29:27
From: old timer, [DNS_Address]
Subject: Re: How the Left Shrank |
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Date: October 23, 2024 at 09:16:03
From: shadow, [DNS_Address]
Subject: Re: How the Left Shrank |
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Huh...
So, what would you consider my orientation to be, then,
Ryan? I'm just curious... ;)
(Note: I'm not asking this of anyone else...)
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Date: October 23, 2024 at 10:50:57
From: ryan, [DNS_Address]
Subject: Re: How the Left Shrank |
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i (or the article) wasn't referring to individual beliefs or political positions...you are definitely very "left", as are plenty of others...lol...but as the article notes, the organized left has shifted way to the middle, for the reasons stated...
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Date: October 23, 2024 at 11:35:15
From: old timer, [DNS_Address]
Subject: Re: How the Left Shrank |
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ain’t it a bitch when people confuse you and the perspective of an article?
lol
still the article made good points on how in the old days the left were
antiwar, anti big government, for inclusion, freedom, against censorship.
things there seems to be little support for these days. very few
progressives, mostly those here are yellow dog democrats other than
akira. back in the day the left would protest democrats to ensure their
voices were being heard, now those who consider themselves to be on the
left would never criticize a democrat for political reasons
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Date: October 23, 2024 at 12:08:29
From: akira, [DNS_Address]
Subject: Re: How the Left Shrank |
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I think the deregulation, corporate-loving, anti-welfare, finance industry-
loving policies of Clinton and Obama played an enormous part in shifting the
democrats as a party to the right. As the article I posted below by economist
Joseph Stiglitz evidenced. Obama continue the rightward swing with his sleigh
of hand hope & change, move-forwards-not-back magic show.
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Date: October 23, 2024 at 12:37:30
From: old timer, [DNS_Address]
Subject: Re: How the Left Shrank |
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that, but there is also a more fundamental shift, from tolerance to
intolerance, from antiwar to support for multiple foreign wars, from
against genocide to “they started it”, from freedom and openness to
censorship supposedly to prevent misinformation. there was a time when
the left would begrudgingly vote democrat because they thought they
were the best match for their views. now the supposed left puts party
above all else and just hope they do the right thing
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Date: October 23, 2024 at 13:58:54
From: akira, [DNS_Address]
Subject: Re: How the Left Shrank |
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yeah, generally speaking the Democratic Party did shift from anti-war to pro
war in the span of about a generation. Again, I think Clinton and Obama
rhetoric & policies had a lot to do with that. I recall during the Obama years just
marveling at how comfortable dems suddenly seemed to become with
accepting torture, war crimes, Cheney, bush, etc... just forget it all and look
forward. Now look at us.
" there was a time when the left would begrudgingly vote democrat because
they thought they were the best match for their views. now the supposed left
puts party above all else and just hope they do the right thing"
Not for me. I didn't vote for them 'begrudgingly'. I believed they resonated with
my values, for the most part for many years. No longer.
You might want to examine the gop as closely as you do the dems. it might be
an eye opener. The misinformation, racism & fascism is real.
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Date: October 23, 2024 at 12:13:36
From: aria, [DNS_Address]
Subject: Re: How the Left Shrank |
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I notice nowhere on ao's post of Harris' 'promises' is there any mention of any
kind of effort to revise the medical insurance industry or substantial ideas about
how to make medical care truly affordable for everyone. Medicare for All is a
faraway forgotten dream nobody remembers.
and now gratefully we have Medicare "advantage" fucking us over. Thanks,
Obama.
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Date: October 23, 2024 at 12:04:20
From: ao, [DNS_Address]
Subject: Re: How the Left Shrank |
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Absolutely, I would gladly vote for a yellow dog before i would ever vote
for a Republican.. they’re out of their fucking minds. As a party they are
vile people intent on turning our citizens into slaves. They want our
children to be stupid. They criminalize us for our thoughts, they hate our
beliefs.
Even before Trump, what good has a Republican administration done, in
our lifetime? Anyone? Anything?
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442979 |
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Date: October 23, 2024 at 12:03:30
From: shadow, [DNS_Address]
Subject: Re: How the Left Shrank |
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Date: October 23, 2024 at 11:31:03
From: shadow, [DNS_Address]
Subject: Re: How the Left Shrank |
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Yeah...I know, was half asleep and wondering where I'd
fall just within that limited "far right, right,
moderate" context offered, which was silly and
unnecessary of me... And yeah, might've felt a bit of a
twitch at that "the left is dead" remark...but I know
what you meant... ;D
Taking this whole article in again, my sense is that
while I totally get what's meant by "the left is dead"...
(there are no inaccurate observations, there)...my
assessment would be that the term "left" is left in bits
in the dust by what the energy *actually being spoken of*
by that term actually represents, and is in a profound
process of real-izing... ;) Rather than the "left" I'd
call it all those who, cumulatively, resonate with the
principle of proactive, cooperative, progressive and all-
inclusive humanitarian evolution, and what's being
observed in that article is all this energy has had to
move through, on so many levels...through each person's
own psychoemotional growth, through elements of fear-
based resistance (the GOP) that've fought each and every
step of effort to enact these contexts of understanding
into how we're governed, and treat one another...
I see every phase of this as it's been described as
necessary to its ripening and cumulative real-
ization...which I believe the stage is being set for,
now, as we speak...by whatever word or term is used to
describe it... ;)
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Date: October 23, 2024 at 04:46:01
From: akira, [DNS_Address]
Subject: The Roaring Nineties: Greed, Deregulation & The Soul of The DNC |
URL: https://www.theatlantic.com/past/docs/issues/2002/10/stiglitz.htm |
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adding a little historical context
The Atlantic
From the archives:
""It's (Not) the Economy, Stupid" (July 1993)
Bill Clinton was elected on an untenable premise: that it is the job of the President
to manage the economy. Yes, that is what we have come to expect of Presidents;
but this expectation, the author argues, is punishingly at variance with anything
any President can credibly deliver. By Charles R. Morris The Atlantic Monthly |
October 2002
The Roaring Nineties
As the chairman of Bill Clinton's Council of Economic Advisers, and subsequently
as the chief economist of the World Bank during the East Asian financial crisis,
Joseph Sitglitz was deeply involved in many of the economic-policy debates of
the past ten years. What did this experience tell him? That much of what we think
we know about the prosperity of the 1990s is wrong. Here is a revised history of
the decade, by the winner of the 2001 Nobel Prize in Economics
by Joseph Stiglitz
t the height of the 1990s economic boom—a period of unprecedented growth—
capitalism American-style seemed triumphant. After sluggishness in the 1970s
and 1980s, productivity in the United States had risen sharply, to levels that
exceeded even those of the boom following World War II. Globalization was in full
swing, and in ways that redounded distinctly to the good of this country. The
North American Free Trade Agreement (NAFTA) and the so-called Uruguay
Round of international trade negotiations promised to bring untold benefits to our
economy. The flow of capital to emerging markets had multiplied sixfold in just
over six years—a remarkable increase, driven by the search for ever higher
returns. U.S. representatives at G-7 meetings and elsewhere boasted of our
success, preaching to the sometimes envious economic leaders of other
countries that if they would only imitate us, they, too, would enjoy such prosperity.
Asians were told to abandon the model that had seemingly served them so well
for two decades but was now seen to be faltering. Sweden and other adherents
of the welfare state appeared to be abandoning their models as well. The U.S.
model reigned supreme. There was even talk of a radical New Economy, in which
incomes would soar and the very idea of a business cycle would be relegated to
history.
There is no question that the nineties were good years. Jobs were created,
technology prospered, inflation fell, poverty was reduced. I served in the Clinton
Administration from 1993 to 1997, and all of us who were involved in U.S.
economic policy during those years benefited from a happy confluence of events.
We eagerly claimed what credit we could for the prosperity; the American people,
wanting to believe that the economic good times were a matter not just of luck
but, rather, of good management, willingly gave credit to those responsible for
shaping economic policy, in the hope that under the continued stewardship of
such policymakers this prosperity could be prolonged.
But the recession of 2001 showed that even the putative best of economic
management could not insulate the economy from downturns, and that the
business cycle was not dead. The bursting of the stock-market bubble showed
that New Economy rhetoric contained more than a little hype. And the Enron,
Arthur Andersen, Merrill Lynch, and Adelphia scandals presented another side of
American capitalism. Now the economy is setting new kinds of records:
WorldCom's is the largest bankruptcy in history; the fall in the stock market is the
largest in decades. As the market has plunged, those who confidently ploughed
their savings into stocks have found their retirement incomes in jeopardy.
It would be nice for us veterans of the Clinton Administration if we could simply
blame mismanagement by President George W. Bush's economic team for this
seemingly sudden turnaround in the economy, which coincided so closely with its
taking charge. But although there has been mismanagement, and it has made
matters worse, the economy was slipping into recession even before Bush took
office, and the corporate scandals that are rocking America began much earlier.
The history of the 1990s needs to be rewritten. How are we to assess that
decade in light of what we are seeing today?
For seven years, from 1993 to 2000, I was in a position to observe closely what
was going on in Washington, first as a member of the Council of Economic
Advisers, later as the chairman of that body (a Cabinet-level position), and then
as the chief economist and senior vice-president of the World Bank, in the
tumultuous years of the global financial crisis and the faltering transition of
Russia and the other formerly Communist countries to a market economy.
I could see what effects individual players can and can't have on the behavior of
the economy. We in the Clinton Administration took office at the right time. Some
of what happened was the consequence of forces set in play well before:
Investments in high technology finally began to pay off, leading to increased
productivity. Income inequality declined, owing in part to a change in the
"education premium" (the difference in income between those with and those
without a college education), which in turn was due to ordinary market forces of
supply and demand. Some Clinton policies—including increased support for
Head Start, an effort to compensate for the disadvantages of some of America's
poorest children—will make a difference in the future, but that difference won't
show up in the data for years. Future administrations will be the beneficiaries of
the wise policies instituted by the Clinton Administration.
Of course, even if the long-term productivity increases were partly attributable to
longer-term forces predating the Clinton Administration, its policies were pivotal
in the recovery (though for reasons that were quite different from those often
cited by Administration officials). The Fed deserves credit for not spoiling the
boom—and it had the potential to do so. The inflation-fearing Fed could have
slammed the brakes on the economy too hard, by raising interest rates too high,
bringing the boom to a premature end—as it had done several times in earlier
decades. Chairman Alan Greenspan's good sense prevailed over the fears of the
inflation hawks on the Fed's board, and for this Greenspan should be praised.
But at the same time, the groundwork for some of the problems we are now
experiencing was being laid. Accounting standards slipped; deregulation was
taken further than it should have been; and corporate greed was pandered to—
though not to the extremes taken by the Bush Administration. The U.S. economy
will pay the price for years to come. Many of the mistakes were debated during
my time at the White House; it sometimes seemed that we were arguing mainly
over the soul of the Democratic Party. But those debates were also about the
future of the U.S. economy.
Lucky Mistakes
ny story of the economic boom of the nineties has to begin with the recession
that preceded it, in 1991—a recession brought on in part by the long-overdue
bursting of the 1980s real-estate bubble. This bubble was caused primarily by
the tax giveaway of 1981 and by the poorly designed financial-sector
deregulation carried out under Ronald Reagan. The infamous savings-and-loan
debacle—in which the U.S. government had to bail out banks devastated by
nonperforming real-estate loans—dearly cost not only the federal budget but also
the economy. In its aftermath new banking regulations were put in place, and the
flow of capital dried up—as did, in a slowly unfolding way, the economy itself. The
Fed failed to recognize the underlying source of the problem. It lowered interest
rates, but not quickly enough. The economy went into a recession that was
described by many as short and shallow, but it didn't feel that way to those who
lost their jobs. Indeed, a closer look at the data shows that the downturn was
serious; as measured by the gap between the economy's potential and its actual
performance, it was as bad as the average postwar downturn. Bill Clinton was to
benefit from this and other economic miscalculations—in ways that go well
beyond his election (which itself owed much to the faltering economy).
Sidebar:
Imperfect Information
"In recent years economists have begun to question the previously unchallenged
notion that the economy had a 'natural rate' of unemployment...." When Clinton
took office, according to the conventional wisdom, he became convinced that
before committing substantial government spending to important social
programs, he had to restart the economy—and to do that he had to reduce the
federal budget deficit. As a result of Reagan's tax cuts and the increases in
expenditures that both his Administration and Congress had pushed for, the
deficit had soared to close to five percent of the gross domestic product. Though
Clinton had to trim his own ambitions, he did the right thing and cut the deficit.
Interest rates came down, and the recovery began.
But there's a basic problem with this story. It is inconsistent with what is taught in
virtually every economics course in the country—namely, that deficits are good
for employment, and that reducing the deficit during a downturn is a particularly
bad idea. (Those of us advising Clinton were, of course, aware of this; that's why
we tried, as far as possible, to "back load" the deficit reduction—that is, to have
greater deficit reduction in future years. By then, we hoped, the economy would
have recovered, because the markets, anticipating this reduction, would bring
down interest rates.) But if deficit reduction should have slowed the recovery, to
what can we attribute the recovery's vigor? To a series of lucky mistakes, I
believe. By lowering the deficit we inadvertently ended up recapitalizing a
number of American banks, and this, as much as anything else, refueled the
economy.
Here is how it worked. In the aftermath of the savings-and-loan debacle, new
regulations required banks to maintain adequate capital on which to draw if
things went sour. The amount of capital banks need, of course, is related to how
much risk they assume. Economists who were thinking about the problem,
including Michael Boskin, the head of the first President Bush's Council of
Economic Advisers, agreed that in this context risk included not only bankruptcy
but also a decrease in the value of assets. From this perspective, long-term
government bonds are risky, even with no chance of default, because they can
decrease in value when interest rates rise. But during the early 1990s the Fed
decided to allow banks to ignore this risk and treat long-term government bonds
as safe. This made the banks happy by increasing their profitability, at least in the
short term, because long-term bonds yielded high returns. By taking deposits
and buying long-term bonds, they were able to make seemingly large profits. (In
1991, for instance, long-term government bonds were yielding 8.14 percent while
Treasury bills averaged 5.4 percent and rates on certificates of deposit were
typically far lower.) This was a dangerous strategy. If interest rates had risen, as
they might well have if runaway deficits had continued, then bond prices would
have plummeted, and the federal government would again have been left to pick
up the pieces. (In other words, the strategy was "profitable" only because of
inappropriate accounting and regulatory practices; the banks should probably
have been forced to continue setting aside reserves to protect them against the
risk of a drop in the price of long-term government bonds, but they were not, and
they did not do so.)
Fortunately, owing in part to Clinton's success in cutting the deficit, long-term
interest rates did come down. The price of long-term bonds increased. The risky
gamble had paid off, and as a result the banks' balance sheets were greatly
improved. And because long-term interest rates were now low and long-term
bonds were a less attractive investment, banks began to look elsewhere for
profits. They went back to their real business, which is lending.
Here the second lucky mistake occurred. The Fed, like many other forecasters at
the time, thought that inflation would pick up as soon as unemployment fell below
about six percent. This critical rate, below which unemployment cannot go
without stimulating inflation, is called the NAIRU—the "non-accelerating inflation
rate of unemployment." If the Fed had been able to anticipate the extent to which
lending, and hence economic activity, was subsequently to pick up, it would have
tightened monetary policy (by raising interest rates) early on, in an effort to thwart
inflation before it started. But the Fed didn't foresee the increased economic
activity, and so it didn't raise interest rates—to the economy's good fortune. By
September of 1994 unemployment had crashed through the NAIRU barrier,
falling by December to 5.5 percent—but, contrary to the Fed's model, inflation
didn't pick up. Eventually unemployment fell another two percentage points, still
without stimulating inflation. This course of events powerfully benefited the poor:
the reduction in unemployment reduced welfare rolls as much as any other
measure we might have undertaken. It played a major role in other social
changes, too, including a drop in the crime rate.
The Fed had not fully appreciated the consequences of rapid changes in the
labor market: higher levels of education, weaker unions, a more competitive
marketplace, increased productivity, and a slower influx of new workers meant
that the economy was able to operate at much lower rates of unemployment
without triggering inflation. As evidence mounted that lower unemployment need
not mean inflation, Alan Greenspan, to his credit, grasped the new reality. While
the inflation hawks at the Fed continued to fret (they said inflation had to be shot
before one saw the whites of its eyes), Greenspan raised interest rates more
slowly than they wanted. If the hawks had had their way, the period of growth
would very probably have been cut short.
Thus the way was paved for the largest peacetime expansion in U.S. economic
history by a combination of pragmatism, luck, and fortunate mistakes. But other
mistakes turned out to be less salubrious.
Creative Accounting and Crony Capitalism
merica has always taken pride in its innovativeness. Not all sorts of innovation,
however, lead to higher productivity. Sometimes companies can increase their
profits more by figuring out how to avoid taxes than by producing better
products; sometimes they can maximize their wealth by gulling unwary investors
rather than by actually inventing goods that yield high returns.
It is understandable that business wants to boost profits and that Wall Street
enjoys the rise in share prices that comes from these higher profits. But as we
have seen with Enron, Xerox, and WorldCom, it is important for the credibility of
our stock markets that the profits booked be real, not based on phony
accounting. Alas, the U.S. government got involved in options accounting, to the
detriment of our financial markets.
The Financial Accounting Standards Board, the supposedly independent body
that, as its name suggests, sets accounting standards, recognized a problem in
the fact that executive stock options were assumed for accounting purposes to
have no value. The problem was that when executives are paid in stock options,
what they receive does not come out of thin air: other stockholders' share values
are diluted when the options are exercised.
In 1993 and 1994 the FASB proposed changing the treatment of executive stock
options. But the companies that use options were happy with the status quo.
They fully realized what it would mean if their shareholders better understood
how such options decreased the value of their shares: stock prices would fall, and
so would executive compensation. Executives didn't want this to happen—at
least not until they had cashed in. Wall Street and Silicon Valley, among others,
had a mutual interest in making the FASB back down. So they turned for help to
both Congress and the Administration. They got support from the Treasury and
Commerce Departments. But we at the Council of Economic Advisers thought it
wrong that powerful political forces should interfere with the decisions of the
FASB. The board was supposed to be independent precisely to avoid such
meddling. We noted that although it was difficult to put a value on options (the
reason companies gave for wanting not to give them a value at all), it was also
difficult to measure many other items in the accounting framework. Providing an
accurate estimate of depreciation, for instance, is far more difficult than
accurately estimating the value of an option. Clearly, a value of zero was wrong,
and we could and should do better. But as is often the case, politics won over
principle: the Treasury and Commerce Departments sent a letter to the FASB,
arguing against accounting for options. Other pressures were brought to bear,
and the FASB finally gave in. As the events of the past few months illustrate, this
was a mistake.
In truth, more than the principle of good government was at stake. Share prices
provide signals for investment. When those prices don't reflect the best
information available, the risk increases that resources will be poorly deployed.
Thus did one factor contributing to the stock-market bubble endure, and the
insidious idea that fancy financial techniques could be used to mislead
shareholders was reinforced. We were all told, of course, that what was really
going on with options and executive compensation was explained in the
footnotes of annual reports. But even sophisticated analysts sometimes couldn't
interpret what was being said; and no one could figure out Enron's footnotes. The
whole point of having accounting standards is to make it easier for investors to
evaluate what is going on inside a firm.
Misleading accounting practices, along with tax incentives, encouraged
companies to reward their executives with stock options rather than with
incentives that might have improved the companies' true performance in the long
run. This created a vicious circle, in which executives had even more reason to
engage in misleading accounting practices. The executives were being rewarded
not on the basis of their companies' performance but on the basis of stock prices.
The examples of Enron and Global Crossing prove that incentives matter, and
that markets do not always provide the right incentives. That is why government
has an important role. Every game has to have rules, and government sets the
rules of the economic game. If the rules promote special interests, or the interests
of corporate executives, then the outcomes are not likely to promote general
interests, or the interests of small shareholders.
The accounting industry, meanwhile, had ample incentive to cooperate with acts
that were thought of not as defrauding American investors—after all, they, too,
seemingly gained in the short run—so much as "realizing full market potential." To
his credit, Arthur Levitt Jr., the former head of the Securities and Exchange
Commission and one of the true and often unsung heroes of the Roaring
Nineties, recognized the potential for conflict of interest when accounting firms
were not only doing their routine business—that is, accounting—but also making
millions by providing consulting services. He pushed for regulations to prevent
accounting firms from doing lucrative consulting for companies that they also
audited. Unfortunately, the accounting firms and their allies, who said "Trust us,"
prevailed. Now we recognize Levitt's wisdom: when incentives for misbehavior
are strong, trust can go only so far.
Corporate CEOs had other accomplices, especially within the investment-
banking community. Investment banks disseminated poor information that led to
mispricing; to high volatility, as their misdeeds gradually became apparent; and,
finally, to a lack of confidence in the markets.
It is now common knowledge that analysts at investment houses deliberately
touted stocks their firms represented even when internal e-mails suggested that
those stocks were not well thought of. Levitt pushed for fair disclosure, so that
information provided to a few analysts would be publicly provided at the same
time, but without much success.
hile Levitt endeavored unsuccessfully to reduce conflicts of interest, legislative
changes made matters even worse. Some twenty-five years earlier America had
begun its love affair with deregulation. It was clear that something was wrong
with the vast array of regulations put into place during the New Deal. The world
had changed, and the regulations had not kept pace. Too often, however, the
question was not What is the right regulatory structure? but How do we get rid of
the regulations as fast as possible?
America should have learned a lesson from the savings-and-loan debacle, which
cost U.S. taxpayers several hundred billion dollars and was one of the main
factors in the 1991 recession. The collapse of the S & Ls resulted from excessive
deregulation—and bad accounting practices—during the Reagan years, which is
why in 1989 the Bush Administration imposed a more balanced regulatory
regime.
Stock options and other badly designed compensation schemes proved as
problematic in the financial sector as elsewhere, with even more serious
consequences. When the market was booming, some investment banks were
emboldened to violate regulations and ethical standards by demanding
kickbacks or extra commissions from people awarded valuable initial-public-
offering (IPO) allocations, a practice exposed by the now famous SEC
investigation of Credit Suisse. The banks worked with Enron and others to create
sham transactions—for example, disguising loans as prepayments on energy
contracts. The banks made money from the deals, and the value of their stock
went up—just as Enron's did when investors were unable to decipher the true
magnitude of its outstanding liabilities.
If there was ever a time not to push deregulation further, the nineties was it. Even
legitimate new financial-engineering techniques meant that investors and
regulators alike were having an increasingly difficult time assessing companies'
balance sheets. Such innovations had created new opportunities for those who
wished to provide misleading information; deregulation would simply expand
those opportunities. But the forces for deregulation were never greater than in the
Roaring Nineties: the profits to be made were enormous, and with the abiding
faith in the market economy seemingly confirmed by that economy's stupendous
performance, banking interests saw an unprecedented opening. For more than
half a century commercial banking had been separated from investment banking,
with good reason. Investment banks push stocks, so if a company whose stock
they have pushed needs cash, it becomes very tempting to make that company a
loan.
The Glass-Steagall Act of 1933, which separated investment banking from
commercial banking, recognized the conflicts of interest that can arise when the
two are conflated. But concerns about keeping them separate were put aside
after the arrival at the Treasury Department of Robert Rubin, in 1995. The big
banks saw getting rid of Glass-Steagall as an opportunity to become even bigger.
Treasury argued that scrapping the law was of no consequence, because banks
had learned how to circumvent it anyway. (If this had been so, the appropriate
response would, obviously, have been to try to limit the circumvention.) Treasury
also argued that it could address the conflicts of interest (which it admitted) by
constructing barriers between the banks' parts—"Chinese walls," they were
called. Of course, if such measures had worked, that would have undermined the
most cogent argument for eliminating the formal separation in the first place. One
cannot simultaneously claim that it is important that banks be integrated, to take
advantage of what economists call economies of scope (the benefits that
businesses can reap by working in many different areas), and also that it is
important for the parts of a bank to be compartmentalized, to avoid any conflicts
of interest. In retrospect it is clear that Chinese walls did not work—or did not
work well enough to prevent serious problems from arising. For example, banks
continued to lend to Enron even as its problems began to surface; the profits the
banks made (they got fees for Enron's deals) more than compensated them for
the risk in lending.
It is no coincidence that three of the sectors involved in today's economic
problems—finance, telecommunications, and electricity trading—were all subject
to deregulation. Almost every major episode of deregulation gives rise to a
bubble-and-burst cycle, and the progression of events in these three sectors
proved to be no exception. In telecommunications a new regulatory regime was
required; the previous one, sixty years old, was clearly unsuited for the New
Economy. No matter what legislation was passed, problems would have arisen.
But as market forces were unleashed, it became part of the conventional wisdom
that whatever company established itself in the marketplace first would be able
to make untold profits. The race began. Naturally, the race required money, and
deregulation in the financial sector played a central role here.
The complexities of the new economic world—new technologies, new financial
instruments, a more integrated global economy—were putting strains on the old
regulatory system. Change was clearly needed. Accounting had to learn to deal
with new financial instruments, such as derivatives, and the myriad of techniques
by which liabilities could be moved off the balance sheet; regulatory bodies had
to cope with globalization and new technologies. But special interests, their
power augmented by an unwavering faith in markets, remained dominant in
policymaking and continued to chant the mantra of deregulation.
Deregulation policies did help to fuel the economy in the short run. They created
a stock-market bubble that made some investors into millionaires overnight. But
they also fed an irrational exuberance (to use Alan Greenspan's famous phrase)
that eventually led to a huge misallocation of resources. Money that could have
gone into basic research, to improve the country's long-term prospects; money
that could have been spent to improve the deteriorating infrastructure; money
that could have been invested in improving both dilapidated inner-city schools
and rich suburban ones, instead went into useless software, mindless dot-coms,
and unused fiber-optic lines.
Those who were supposedly guiding the country's economy benefited from the
euphoria brought on by false accounting no less than did the CEOs. Yes, the
statistics looked good in the final years of the bubble, the final years of the
Clinton Administration. But the bursting of the bubble has put America's
economy in jeopardy.
Even as the belief in unfettered and self-regulating markets led to government's
retreat from areas where it was needed, there was, ironically, somewhat less
enthusiasm for eliminating government from areas where its role was far more
questionable. Early in the Clinton Administration, Labor Secretary Robert Reich,
along with the Council of Economic Advisers, pushed for reducing what is now
commonly known as "corporate welfare"—direct subsidies, tax breaks, protection
from foreign competition. However, little progress has been made in reducing
corporate welfare; in fact, new forms have developed and old forms have been
altered to keep them alive.
Sidebar:
The Tyranny of Financial Markets
"There is a newly emerging tyranny attempting to suppress democratic discourse
about issues of economic policy that are vital to prosperity...." One example is the
global aluminum cartel that was spearheaded by Paul O'Neill, who later became
George W. Bush's Treasury Secretary. Shortly after taking public office, last year,
O'Neill announced that the problem with the world was not too much capitalism
but too little. Yet seven years earlier, as chairman of the board of Alcoa, he had
asked for government help in stopping market forces from operating, because
they were leading to a worldwide decline in aluminum prices. The aluminum
industry concluded that the best way to restore "stability" to the market (meaning
high prices and corporate profits) was an international cartel. This cartel put the
ordinary workings of competitive markets aside: each member country was
assigned a fixed output.
Another example is the multibillion-dollar tax break for U.S. export firms, which so
infuriated our trading partners that in 1998 they brought action before the World
Trade Organization and won. Rather than abandoning the subsidy, Congress
attempted to make it compatible with WTO rules. Nevertheless, just nine months
after the new legislation was passed, in November of 2000, the WTO ruled that it,
too, was not compliant.
A third example is the argument of Clinton's Treasury Department (pushed by
Wall Street lobbyists, whose firms stood to make millions) that the government
agency charged with making enriched uranium, the key ingredient in nuclear
weapons as well as in nuclear power, should be privatized—which, as one critic
said, would put America's security up for sale, and which looks increasingly
absurd as anxiety over nuclear proliferation has increased.
Finally, and perhaps most memorable of all, there is the publicly orchestrated but
privately financed bailout of Long-Term Capital Management (LTCM), one of the
world's largest hedge funds, in September of 1998. Hedge funds are typically
aimed at the well-off, usually the very well-off; and although the term "hedge"
suggests that investors hedge their bets, they often take large speculative
positions.
Only a year earlier, in response to allegations from the Prime Minister of Malaysia
and others that hedge funds were responsible for the financial meltdown in East
Asia, Treasury and the International Monetary Fund had declared that such funds
were simply too small to cause a problem, even in a small country like Malaysia.
But now, with friends in dire need of help at LTCM, they argued that the demise of
a single firm might wreak havoc in the global financial marketplace. Whether this
fear was justified will never be known; but the sudden turnaround in attitude was
jarring. Earlier, Treasury and IMF officials had talked about the importance of
maintaining a strict separation between government (including financial
regulators) and the private sector. Not doing so, they said, would inevitably lead to
crony capitalism, as it allegedly had in East Asia. But here was a government
regulator serving as the ringleader in a private bailout. During the East Asia crisis
U.S. officials had condemned conflicts of interest in corporate governance—yet in
the case of LTCM, CEOs were using their power to commit their publicly owned
companies' resources to bail out a firm in which in some instances they had
private equity interests. Around the world the LTCM bailout was seen as the
emblem of our hypocritical attitude during the Roaring Nineties.
A Misguided Model
he Clinton Administration's foreign economic policy is generally regarded as
another great 1990s triumph. In its early days the Administration took heroic
political risks: pushing through NAFTA and the Uruguay Round, and
circumventing Congress to finance a bailout of the Mexican economy. But from
our current vantage point such acts appear to have set the stage for one of our
greatest failures—the mishandling of the U.S. approach to globalization. That
mishandling has left the world in general with a heightened sense of economic
insecurity, and the developing world with a strong feeling of unfairness.
From the archives:
"The Social Contradictions of Japanese Capitalism" (June 1998)
The economic woes of Asia have been much written about—in purely economic
terms. But behind many of those woes lies a social crisis in Japan. By Murray
Sayle Take the East Asia crisis, a disaster for which the U.S. Treasury Department
is at least partly to blame. Treasury, in conjunction with the IMF, encouraged rapid
capital-market "liberalization"—that is to say, the opening of underdeveloped
markets to the onslaught of highly speculative investment, which can move in
and out overnight and leave economic devastation in its wake. With the high
savings rate in the East Asian countries there was no need for them to open up
rapidly; those countries, in other words, had enough domestic capital for
productive investment to make the need for an influx of foreign capital less
urgent. But the fundamentalist market ideology demanded that the free flow of
capital that had worked for the United States be allowed to benefit developing
countries as well. That such free-flowing capital would benefit speculators was
clear; but there was little evidence that it would promote economic growth.
Indeed, the overwhelming evidence—shown in a number of studies by the World
Bank—is that rapid liberalization is extremely risky for developing countries.
Treasury ignored this evidence and pushed for faster liberalization. It won—and
the world lost.
Having in large part created the East Asia crisis, Treasury and the IMF then
designed a bailout. More than $100 billion was used to help shore up Asian
countries' sinking exchange rates and to provide funds with which to repay
Western banks. It was the banks as much as the countries that were being bailed
out. In fact, East Asia didn't benefit much. High exchange rates (higher than they
might otherwise have been) did allow a few rich people to spirit money out of
their countries on favorable terms, and the bailout did enable some Western
banks to recoup more than they otherwise might have. But in the countries the
bailout was designed to help, unemployment soared, GDP and real wages
plummeted, and governments were left billions of dollars in debt.
The countries that fared the best were precisely those that didn't heed the so-
called Washington Consensus. Malaysia, which not only had no IMF program but
also, despite sharp criticism from Treasury, had imposed controls on the outflow
of capital, experienced the shortest and shallowest downturn. China avoided a
downturn altogether by pursuing expansionary monetary and fiscal policies—the
exact opposite of what Treasury and the IMF were recommending for other
countries in the region. Meanwhile, Thailand, the country that followed U.S.
advice most closely, did not return to the pre-crisis level of GDP for more than
four years.
Sidebar:
Wall Street's Handmaiden
"To [Alan] Blinder and fellow CEA member Joseph Stiglitz, Treasury was acting as
Wall Street's handmaiden and taking insufficient account of the risks involved in
exposing developing countries to the ebbs and flows of global money markets...."
East Asia is no anomaly. Much the same pattern—a misguided market
liberalization followed by a major economic crisis followed by a shortsighted
bailout attempt—has occurred in Russia, for instance, and in Argentina. And
although the economic scars of these crises are deep, the political scars may turn
out to be even deeper. I do not believe that the United States designed these
policies to benefit itself at the expense of other countries—but the fact is that in
the short term some U.S. and European companies did benefit from these crises.
Western banks made money when they went into East Asia, Russia, and
Argentina, and they made money when they were brought in to help restructure
economies in the aftermath of the crises. The IMF pushed policies—among them
very high interest rates—that exacerbated the downturns and led to bargain-
basement prices for exports. Treasury and the IMF then insisted that the
countries sell their assets at these low prices. At the macro level the United
States benefited both from lower prices for imports and by becoming a safe
haven for capital fleeing crisis-ridden countries.
Today countries around the world view with cynicism the economic ideas we
were trying to export. They came to believe that our push for liberalization and
privatization was guided in no small measure by our own corporate and financial
interests. Our bailout plans, which provided billions of dollars to help repay banks
but denied millions of dollars in food and fuel subsidies for the very poor, only
confirmed this impression. So did, for example, Treasury's successful resistance,
during the East Asia crisis, to Japan's proposal for an Asian Monetary Fund,
which would have allowed countries in the region to help one another. Japan
itself offered $50 billion—much as the United States had done for Mexico during
its economic crisis not long before.
In the midst of the East Asia crisis many economists, along with some officials at
Treasury and the IMF, blamed the affected countries for a lack of financial
transparency and for the prevalence of crony capitalism there. Transparency is
important, as the accounting scandals show so forcefully. The issue is one to
which I was especially attuned, because the work for which I was to be awarded
the Nobel Prize centered on the consequences of imperfect and asymmetrical
information (that is, information some people have and others don't), including
the problems presented by conflicts of interest. But the crisis was largely the
result of the overzealous market liberalization promoted by Treasury and the IMF.
The quick recovery of Malaysia demonstrates this clearly: had the crisis stemmed
from deep-seated institutional failures, as alleged, the country could never have
recovered as quickly as it did.
In fact, two standards were applied: Asian banks and companies were told to
become more transparent even as the United States resisted regulations that
would have required European and U.S. banks, offshore banking centers, and
hedge funds to do the same. America's hypocrisy became even more evident in
the aftermath of September 11, when the role of secret offshore bank accounts in
financing terrorism became clear, and the U.S. position regarding such accounts
suddenly changed.
Myth and Consequences
ur emerging understanding of the 1990s requires that we admit, to ourselves and
to the world, that we were engaged in a misguided attempt to achieve growth on
the cheap. Instead of curbing consumption to finance our boom, we borrowed—
heavily, year after year—from abroad. We did this to fill the widening gap between
what we were saving and what we were investing—a gap that opened in earnest
under Ronald Reagan but grew under George H. W. Bush and Bill Clinton, and has
reached new dimensions under the new President Bush. (At least during the
Clinton years borrowing went to finance investment, rather than—as in the
Reagan and first Bush Administrations—a national consumption binge.)
Borrowing cheaply for high-return investments makes sense, of course, if all goes
well: returns are more than sufficient to pay what is owed, with interest. For years
we were extraordinarily lucky.
Sidebar:
Moral Hazard
"Alan Greenspan freely admitted that by orchestrating a rescue of Long-Term
[Capital Management], the Fed had encouraged future risk takers and perhaps
increased the odds of a future disaster...." However, in the 1990s we began to
test our luck, not to mention that of the countries we told to follow our example,
and we continue to test that luck. We have put ourselves deep in debt, not to
finance productive investments but, rather, to finance wasteful projects: in the
1980s empty office buildings; in the 1990s fiber-optic systems that will not see
light for years, and software that has interfered with business productivity rather
than enhancing it; today a tax cut that disproportionately benefits the rich, fueling
a consumption extravaganza that, though it may have prevented a greater
slowdown, has not provided the foundations for future economic growth. It is still
not clear how much of the private so-called investment of the 1990s was sheer
waste; but even if we consider that only a fraction of the erosion in stock values is
attributable to bad investments, the figure must be in the hundreds of billions of
dollars. We are still so well off that we may not suffer immediately from this
diminution in our wealth, but the consequences are already becoming clear: a
loss of confidence not only in markets, and especially the stock market, but in
government; a suspicion that the system is rigged to be an insider's game; a blow
to America's moral leadership abroad. The attack on American-style globalization
may be driven by Luddites and protectionists—but it is fed by a perception of
American hypocrisy and the unfairness of the new global regime. The Uruguay
Round—which forced developing countries to open up their markets to the
products of the developed countries, while leaving in place protection and
subsidies for many of the goods produced by the developed world—was so
unbalanced that sub-Saharan Africa, the poorest region of the world, actually
ended up worse off. The interests of drug companies were put ahead of those of
the millions of people suffering from AIDS and other diseases, whose lives were
jeopardized when the drug companies insisted that the production of low-cost
generic drugs in developing countries be shut down.
If we don't learn from our mistakes, for which the private sector and the
government both bear responsibility, we may not be so lucky next time. That said,
we shouldn't disparage the successes of the 1990s, even if we can't be sure who
is responsible for them. And some of those successes look particularly
impressive in light of what has happened since. Putting America's fiscal house in
order was a hard-won achievement, for which Robert Rubin deserves great credit.
The sudden reversal, in just a year, as the result of a misguided tax cut, shows
how frail such a victory can be—how success can be undone in short order by
bad policy. The Clinton Administration managed to resist pressure from the steel
industry for protection; the Bush Administration, however, caved in, reinforcing
already strong perceptions of American hypocrisy. The SEC under Clinton put
initiatives in place to reduce conflicts of interest, at least recognizing the problem.
Under Bush seeming conflicts of interest have become the order of the day; only
under the force of public outrage has anything been done.
In many ways the fundamentals of the U.S. economy are strong, and they were
strengthened during the 1990s. The New Economy is real, even if its significance
has been exaggerated. New technology has engendered increases in
productivity that will continue to make an enormous difference in our living
standards. Conditions that sustain low rates of unemployment have both fueled
economic growth and given us an opportunity to address important social
problems—particularly those involving the exclusion of less skilled laborers from
the job market.
The fact that the New Economy is real, however, doesn't mean that we've
understood it. In explaining our success in the nineties to ourselves and the world
we have largely drawn on a set of myths that desperately need debunking: that
deficit reduction by itself led to the economic recovery of the 1990s; that the
brilliance of our economic leaders created our newfound prosperity; that
deregulation and self-regulated markets are the key to sustaining that prosperity,
and should thus be exported to the rest of the world; and that American-style
globalization is based on high-minded principles of equality and social justice
and will inevitably lead to global prosperity, benefiting not only financial markets
in America but also the poor in the developing world.
These myths arguably served a purpose. The deficit-reduction myth, for instance,
rallied the country behind the politically hard measures (which passed the House
by a single vote) that were required to restore fiscal responsibility after twelve
years of soaring deficits. The globalization myth helped us move toward
overcoming protectionist sentiments. But no matter how useful these myths were
in the short term, ultimately they are harmful. The deficit-reduction myth
suggests that if, say, Argentina or Japan is in a recession and has large deficits,
cutting those deficits will bring back prosperity. But almost all economists
recommend instead an expansionary fiscal policy, fueled if necessary by larger
deficits. The myth that prosperity was the work of our economic heroes is
dangerous too: It shifts attention away from where it should be—on policies. And
it increases the vulnerability of the economy: economic vicissitudes inevitably
cast doubt on our heroes' ability to perform miracles, and a loss of confidence in
these heroes will bring a corresponding loss of confidence in the economy.
Economies are like large ships: they cannot be turned around quickly. Moreover,
they change so slowly that cause and effect are not always clear. As it happens,
statisticians now tell us that growth in the 1980s was more robust than we
thought, and that growth in the late nineties was less robust than we thought. We
had invested heavily in computers and high technology for decades, but the
investments mysteriously kept failing to be reflected in data on the nation's
productivity. In the 1990s the payoff finally came—and the credit went to the
short-term policies of Rubin and Greenspan. Then, assuming we had discovered
the answer to the world's economic ills, we pushed those policies onto other
countries. Our economic system has enormous merit, but it is not the only system
that works; other systems may work better for others. The Swedes, for example,
though they have modified their traditional welfare system, have not abandoned
it; the security that it provides not only reduces extremes of poverty—still so
prevalent in America—but also encourages the kind of risk-taking that is essential
in the New Economy. Living standards have improved every bit as much, new
technologies have spread every bit as fast, in Sweden as in the United States.
And the Swedes have in fact weathered the latest global slowdown better than
we have.
Sidebar:
Further Reading
Brief descriptions of recommended books. Because we are the strongest country
in the world, others are looking for us to falter; our hubris, the overselling of
capitalism American-style, fed their hostility. The cracks in our system that have
now been exposed have provided ample opportunity for America's critics to say
"I told you so." If the selling of U.S. capitalism and democracy was one of the
primary objectives of American foreign policy, our conduct was self-defeating.
The fact is that the world has become economically interdependent, and only by
creating equitable international arrangements can we bring stability to the global
marketplace. This will require a spirit of cooperation that is not built by brute
force, by dictating inappropriate conditions in the midst of a crisis, by bullying, by
imposing unfair trade treaties, or by developing hypocritical trade policies—all of
which are part of the hegemonic legacy that the United States established in the
1990s, but seem to have become worse since the beginning of the new
Administration.
The recent protests at meetings of global financial leaders, in Seattle, Prague,
Washington, and Genoa, came as a rude shock to many Americans. It became
clear that globalization as we are promoting it is intensely unpopular, as is the
United States itself. To those of us who spend much of our time in developing
countries, the protests weren't surprising, but to people who believe in the myths
of American-style globalization, they were an absolute mystery. Why, people
asked, should countries whose economies we were helping feel such antipathy
toward us and our policies? The answer comes in large part from the simple fact
that globalization has left many of the poorest in the developing world even
poorer. Even when they are better off, they feel more vulnerable. Argentina was
touted as the A+ student of reform. Looking at Argentina, they ask, If this is the
result, what is in store for us? And as unemployment and the sense of
vulnerability increase, and the fruits of what limited growth occurs go
disproportionately to the rich, the sense of social injustice increases too. We have
focused so hard on our own economic mythology, and on managing globalization
to our short-term benefit, that we have been blind to what we're doing to
ourselves and the world.
What do you think? Discuss this article in the Politics & Society Post & Riposte.
Joseph Stiglitz, a former chief economist of the World Bank, a former chairman of
the Council of Economic Advisers, and a member of the Cabinet under President
Bill Clinton, received the 2001 Nobel Prize in Economics. He is a professor of
economics and finance at Columbia University and the author of Globalization
and Its Discontents (2002). Anya Schiffrin contributed to this article.
Copyright © 2002 by The Atlantic Monthly Group. All rights reserved.
The Atlantic Monthly; October 2002; The Roaring Nineties; Volume 290, No. 3;
Page 75-89."
source: https://www.theatlantic.com/past/docs/issues/2002/10/stiglitz.htm
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