Project and content management for Contemporary Authors volumes
WORK TITLE: Failed
WORK NOTES:
PSEUDONYM(S):
BIRTHDATE: 1954
WEBSITE:
CITY:
STATE:
COUNTRY:
NATIONALITY:
http://cepr.net/about-us/staff/mark-weisbrot * https://en.wikipedia.org/wiki/Mark_Weisbrot
RESEARCHER NOTES:
LOC is still down.
PERSONAL
Male.
EDUCATION:University of Michigan, Ph.D.
ADDRESS
CAREER
Center for Economic and Policy Research, Washington, DC, codirector. Just Foreign Policy, Washington, DC, president.
WRITINGS
Contributor to Web sites and newspapers, including the Hill, New York Times, Washington Post, and Los Angeles Times.
SIDELIGHTS
Mark Weisbrot is an economist and codirector of the Center for Economic and Policy Research, which examines how government policies affect growth, employment, prices, poverty, and health. He is a frequent contributor of opinion pieces to newspapers as well as an author of books on economic topics.
Social Security
In Social Security: The Phony Crisis, Weisbrot and coauthor Dean Baker provide a rebuttal to the argument that the Social Security system is going bankrupt. That argument has been made by conservative think tanks and politicians, suggesting that Social Security will be saved by privatization, that is, by allowing its trust fund to invest in the stock market and not just U.S. Treasury securities, the only investment option available to it under current law. Weisbrot and Baker, however, note that the Social Security trust fund has a surplus and predict that it will have no difficulty covering benefit obligations for at least the next thirty years (from the time of the book’s publication, 2000). U.S. economic growth will likely add years of solvency to the system, they add. They also say that investment in stocks is no panacea. “It is easy to present a story in which everyone gets rich if the annual rate of return is high enough,” they write, but they point out that it is unrealistic to expect the rate of return on stocks to continue to be as high as it has been.
Some critics thought Weisbrot and Baker had written a persuasive and accessible volume. “Their useful book deconstructs the gimmicks, accounting tricks, and rhetorical devices used by those who advocate overhauling the system,” remarked Thomas Matzzie in American Prospect. They provide “a succinct, easy-to-read, and fact-packed economic and logical rebuttal to the assault on social insurance,” Matzzie continued, plus “an indictment of an economics that … has been manipulated to further the goals of those interests that have long opposed Social Security.” In Monthly Review, Alan G. Nasser added: “Baker and Weisbrot show in great detail that both the diagnosis of bankruptcy and the prescription of privatization are nonsense. Unlike most economists, the authors’ historical literacy is formidable and their quantitative and theoretical sophistication dwarfs the kind of confused and disingenuous sophistry coming out of the right wing think-tanks. They argue rigorously from the same set of economic and demographic assumptions and the same numbers that the privatizers play fast and loose with and demonstrate conclusively that the recommendations of the ‘reformers’ are entirely inconsistent with undisputed facts.” Vanessa Bush and Gilbert Taylor, writing in Booklist, found that the authors’ “interesting viewpoint … is certainly more welcome than the typical predictions of a shortfall.” New York Times contributor Fred Brock noted that their “very readable book” is “influencing the political debate.”
Failed
In Failed: What the “Experts” Got Wrong about the Global Economy, Weisbrot asserts that institutions such as the Federal Reserve, the World Bank, and the International Monetary Fund have made erroneous predictions and taken exactly the wrong approach regarding the global economy since the financial crisis of 2008, and actually did so even before. They have projected greater growth than has in fact occurred, and they have expected lower unemployment, he writes. These predictions, according to Weisbrot, are in line with the policies favored by powerful financial institutions, such as lower government spending — which frees up money to reduce debt — and reduced bargaining power for workers. These policies, though, have suppressed economic growth in debtor countries, and sometimes even in creditor countries, he reports. He recommends a policy of cooperation between creditors and debtors to increase trade, which will result in benefits for both. Among the debtor countries he covers are Greece, Argentina, and Venezuela.
Weisbrot emphasizes that his aim is to offer solutions as well as to analyze problems. “This is a book about failed economic policies and how they are implemented, and the role of deeply flawed economic ideas and institutions in this process,” he writes in his introduction. “Wading through this kind of wreckage could be a depressing venture, but I have also tried to show that there are alternatives to the rollbacks and lost opportunities of recent years and decades, and that some of these more hopeful reforms are actually being implemented in the twenty-first century.”
Several reviewers commented that the book would be useful to policymakers and anyone else seeking to understand the global economy. “Weisbrot’s Failed is a comprehensive March of Folly cataloging the intellectual and policy failures of a set of extremely powerful institutions,” related Herman Schwartz at H-Net: Humanities and Social Sciences Online. “Yet it is also written at a level accessible to any undergraduate with a basic economics background.” In Choice, H. D. Renning reported that Weisbrot’s “well-written” book is “for those interested in macroeconomic policy, especially economic growth policy and international economic relations.” Renning gave the volume a rating of “highly recommended.”
BIOCRIT
PERIODICALS
American Prospect, June 5, 2000 , Thomas Matzzie, review of Social Security: The Phony Crisis, p. 53.
Booklist, October 1, 1999, Vanessa Bush and Gilbert Taylor, review of Social Security, p. 311.
Choice, April, 2016, H. D. Renning, review of Failed: What the “Experts” Got Wrong about the Global Economy, p. 120.
Monthly Review, December, 2000, Alan G. Nasser, “‘Saving’ Social Security: A Neoliberal Recapitulation of Primitive Accumulation,” p. 42.
New York Times, August 6, 2000, Fred Brock, review of Social Security, p. BU10.
ONLINE
Center for Economic and Policy Research Web site, http://cepr.net/ (April 7, 2017), brief biography.
H-Net: Humanities and Social Sciences Online, https://networks.h-net.org/ (April 24, 2017), Herman Schwartz, review of Failed.*
Mark Weisbrot
From Wikipedia, the free encyclopedia
Mark Alan Weisbrot
Mark Weisbrot.jpg
Weisbrot in 2017.
Born Chicago, Illinois, United States
Institution Center for Economic and Policy Research
Alma mater University of Michigan
Mark Weisbrot is an American economist, columnist and co-director, with Dean Baker, of the Center for Economic and Policy Research (CEPR) in Washington, D.C. As a pundit, he contributes to publications such as The Huffington Post, the UK's The Guardian.
As an economist, Weisbrot has opposed privatization of the United States Social Security system and has been critical of neoliberal globalization and the International Monetary Fund (IMF). He has supported efforts by South American governments to create a Bank of the South, in order to make them more independent of the IMF. Weisbrot's work on Latin American countries (including Argentina, Bolivia, Brazil, Ecuador and Venezuela) has attracted national and international attention, and in 2008 was cited by Brazilian Foreign Secretary Celso Amorim.[1] His work on Greece’s ongoing debt crisis has influenced the debate[2] over what measures the Greek government should take in negotiating a solution with the European Central Bank, European Commission, and the IMF, including with Greece’s former Finance Minister Yanis Varoufakis[3] and current Prime Minister Alexis Tsipras.[4]
Contents [hide]
1 Education
2 Economist
2.1 Globalization
2.2 Latin America
3 Media
3.1 Activist
3.2 Film
3.3 Publications
4 Reception
5 Publications
6 References
7 External links
Education
Weisbrot received his Ph.D. in economics from the University of Michigan.[5][6] His 1993 thesis, Ideology And Method In the History of Development Economics[7] says the mainstream neoclassical economics model sets boundaries for development economics and is presented in a context where "development economics can be seen as an attempt to break out of the boundaries delineated by the neoclassical project in order to understand the problems of underdeveloped countries".[5]
Economist
In 1999, Weisbrot co-founded, together with economist Dean Baker, the Center for Economic and Policy Research (CEPR).[8] Weisbrot is co-author, with Baker, of Social Security: The Phony Crisis (University of Chicago Press, 1999). In the book, Weisbrot and Baker argue that much of the United States Social Security debate has been based on misconceptions, that privatization would be unlikely to improve the system, and that the system in fact performs satisfactorily and does not need fixing.[9]
Weisbrot is the President of Just Foreign Policy, a non-governmental organization dedicated to reforming United States foreign policy.[10] Weisbrot has several times contributed testimony to Congressional hearings, in 2002 to a House of Representatives committee, on Argentina's 1999–2002 economic crisis[11] and in 2004 to the US Senate Foreign Relations Committee, on the state of democracy in Venezuela, and on media representation of Hugo Chávez and of Chávez's Venezuela.[12]
Globalization
Commenting on international matters, Weisbrot argues that globalization, as promoted by the United States government and American lending institutions, has failed to live up to its promise of making poorer countries grow rich, stating that "no nation has ever pulled itself out of poverty under the conditions that Washington imposes on underdeveloped countries."[13][14] He has criticized the role played by the IMF[15] and took an active role in developing the Bank of the South, a joint project by Argentina, Brazil, Paraguay, Uruguay, Ecuador, Bolivia and Venezuela and spearheaded by Venezuelan president Hugo Chávez.[16][17] Weisbrot has been described as the intellectual architect behind the bank, and has provided some advice to countries seeking to take part in it.[18][19] He has also suggested that the founding of other alternative lending and finance institutions that do not include participation by the U.S., such as those being created by the BRICS countries, may have positive implications both for borrowing countries and in terms of weakening the influence of Washington-based institutions like the IMF.[20]
Latin America
Weisbrot's work was cited by Brazilian Foreign Secretary Celso Amorim.[1] In a 2016 National Review article describing Venezuela's deterioration following the Bolivarian Revolution, Weisbrot was described as one of the "leftist admirers of Venezuela" and an "ardent cheerleader" of Hugo Chávez's policies.[21]
Media
Activist
Weisbrot, a supporter of the policies implemented during Hugo Chávez's presidency,[22][23] and colleague Deborah James attended the "Chávez Was Here" gathering created by the Embassy of Venezuela, Washington, D.C. to commemorate the legacy of Hugo Chávez and show support for the Bolivarian Revolution. He spoke about the progress under the Bolivarian Revolution and criticized the Latin American media, the United States media and the Venezuelan opposition.[24][25][26][27][28] In 2014, Weisbrot headed the "Chavez, Communicator of the 21st Century" ceremony with Venezuelan government officials at the mausoleum of Hugo Chávez in the Cuartel de la Montaña (es), where he denounced alleged media attacks on Venezuela and the former president.[29]
Film
In 2009, Weisbrot and Tariq Ali wrote the screenplay for the Oliver Stone's South of the Border,[30][31][32] which examined the "pink tide" of elected leftist governments in South America.[33]
Publications
Weisbrot writes a column on economic and policy issues that is distributed across the United States by McClatchy-Tribune Information Services.[34] His work appeared in such publications as The Washington Post, the Los Angeles Times, The New York Times/International Herald Tribune, The Boston Globe and The Nation as well as news websites such as AlterNet,[34] the Common Dreams NewsCenter[34] and The Huffington Post.[35] Internationally, Weisbrot writes a column for the UK's The Guardian, and for Brazil's largest newspaper, Folha de S. Paulo.[34][not in citation given]
Weisbrot's commentaries on Latin American affairs have been broadly sympathetic to many governments in South America, including Argentina,[36][37] Bolivia,[38] Brazil,[39] Ecuador,[40] and Venezuela.[22][23][41] In particular, Weisbrot has praised Latin American governments' attempts to assert stronger national control over key national resources, and to take a tougher stance in relation to foreign creditors.[42][43]
Reception
Francisco Rodríguez, Head of Research of the United Nations Human Development Report Office, has debated with Weisbrot due to the praise Weisbrot gave to Hugo Chávez's economic policies.[44]
Weisbrot has also sparred with Larry Rohter, the former South American bureau chief of The New York Times, over his statements on Venezuela. Rohter claimed that in support of the film "South of the Border", Weisbrot, Tariq Ali, and Oliver Stone manipulated data to present a positive image of Hugo Chávez.[45] Weisbrot has contested the claims of inaccuracies, suggesting that they are indicative of sloppy and misleading coverage of Venezuela in the popular press.[46]
Publications
"Ecuador's Correa haunted by Honduras: This was a coup attempt – encouraged by Washington's shameful support for the overthrow of Manuel Zelaya last year". The Guardian. Poverty Matters Blog. 1 October 2010.
"Sorry, Venezuela haters: this economy is not the Greece of Latin America". The Guardian. 7 November 2013.
"Structural adjustment in Haiti". Monthly Review. 48: 25–39. 1997. doi:10.14452/mr-048-08-1997-01_3.
Failed: What the Experts Got Wrong About the Global Economy. New York: Oxford University Press. 2015. ISBN 978-0-19-023450-8.
"The Debt Vultures' Fell Swoop". The New York Times. 22 June 2014
"Ten Years After: The Lasting Impact of the Asian Financial Crisis". In Ten Years After: Revisiting the Asian Financial Crisis, Bhumika Muchhala, ed. The Woodrow Wilson Center International Center for Scholars. October 2007.[47]
Co-authored with Dean Baker
"The logic of contested exchange". Journal of Economic Issues. Association for Evolutionary Economics. 28 (4): 1091–1114. 1994. JSTOR 4226888.
Social Security: The Phony Crisis. University of Chicago Press. 1999. ISBN 978-0-226-03544-4.
Mark Weisbrot, Co-Director
Expertise: Economic growth, trade, Social Security, Latin America, international financial institutions, development
mark1Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is author of the book Failed: What the "Experts" Got Wrong About the Global Economy (Oxford University Press, 2015), co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy.
He writes a regular column for The Hill, and a regular column on economic and policy issues that is distributed to over 550 newspapers by the Tribune Content Agency. His opinion pieces have appeared in the New York Times, Washington Post, the Los Angeles Times, The Guardian, and almost every major U.S. newspaper, as well as in Brazil’s largest newspaper, Folha de São Paulo. He appears regularly on national and local television and radio programs. He is also president of Just Foreign Policy.
Selected Works
Mark Weisbrot - In The News
Mark Weisbrot - Op Eds
Mark Weisbrot - Publications
Mark Weisbrot - Blog Posts
Contact
Email: weisbrot@cepr.net
Tel. 202-293-5380 x122
Quoted in Sidelights: interesting viewpoint … is certainly more welcome than the typical predictions of a shortfall.
Social Security: The Phony Crisis
Vanessa Bush and Gilbert Taylor
Booklist. 96.3 (Oct. 1, 1999): p311.
Copyright: COPYRIGHT 1999 American Library Association
http://www.ala.org/ala/aboutala/offices/publishing/booklist_publications/booklist/booklist.cfm
Listen
Full Text:
Baker, Dean and Weisbrot, Mark. Social Security: The Phony Crisis. Nov. 1999. 168p. index. Univ. of Chicago, $22 (0-226-03544-1). DDC: 368.4.
Baker and Weisbrot take issue with widespread dire predictions that the 64-year-old Social Security system will not be able to provide financial security for the aged and disabled in the future. Baker, a senior research fellow at the Century Foundation and the Preamble Center, and Weisbrot, a research director at the Preamble Center, project that Social Security will remain viable for at least 30 more years--longer if the U.S. economy continues to grow at its current pace. Concerns about a shortfall that will transform economic class warfare into "intergenerational conflict" are outright lies, according to the authors. Doomsayers have misinterpreted demographic trends and mistakenly lumped together Medicare and Social Security when estimating the financial burden on the government, the authors claim. Baker and Weisbrot offer an interesting viewpoint in the controversial debate about Social Security--one that is certainly more welcome than the typical predictions of a shortfall.
Quoted in Sidelights: Baker and Weisbrot show in great detail that both the diagnosis of bankruptcy and the prescription of privatization are nonsense. Unlike most economists, the authors' historical literacy is formidable and their quantitative and theoretical sophistication dwarfs the kind of confused and disingenuous sophistry coming out of the right wing think-tanks.They argue rigorously from the same set of economic and demographic assumptions and the same numbers that the privatizers play fast and loose with and demonstrate conclusively that the recommendations of the "reformers" are entirely inconsistent with undisputed facts.
"Saving" Social Security: A Neoliberal Recapitulation of Primitive Accumulation
Alan G. Nasser
Monthly Review. 52.7 (Dec. 2000): p42.
Copyright: COPYRIGHT 2000 Monthly Review Foundation, Inc.
http://monthlyreview.org/
Listen
Full Text:
Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago and London: The University of Chicago Press, 2000), 175 pp., $22.
The pronounced insecurity that inevitably attends capitalism's historic tendency to commodify, and hence privatize, everything that can be commodified and privatized has been met with two major forms of resistance. The first is revolutionary communism, which emerged in the latter half of the nineteenth century and the second is social democracy, which developed in its strongest form in Europe after the Second World War. A defining feature of our present situation is that neither of these forms of resistance to capitalist hegemony is currently a major historical force.
The absence of major challenges to capitalism has led to an attack on the social and economic policies that lessen the dependence of the working population on the vagaries of the market and the demands of capital. Neoliberalism is now mainstream orthodoxy: regulation of business activity is to be eased, publicly owned enterprises are to be privatized, and the services and income supplements that have constituted the social wage are to be notably reduced or outright eliminated. This massive assault on the security of working people has met with no small measure of success: the real income of the typical US worker has been in decline for at least two decades, the number of medically uninsured individuals has risen, and both intra- and international inequalities have reached levels unmatched since the Great Depression. In the United States, the decline of workers' real income has been accompanied by an overall shift of national income from labor to capital. [1]
The 1990s have seen two tremendous attacks by the rulers on the welfare and security of working people. The first, in 1996, resulted in a ruling-class victory: the sixty-year-old federal income guarantee for poor families was abolished. The second onslaught is still underway. It aims to cut benefits and at least partially privatize the Social Security system, which would no longer function as a system of social insurance, protecting all workers in the face of any misfortune that might befall them. Groups such as the Urban Institute, the Concord Coalition, the Cato Institute, and the National Center for Policy Analysis have produced a barrage of studies and statistics designed to undermine the most successful US program explicitly intended to reduce poverty. Jeanette Nordstrom of the National Center for Policy Analysis makes the aim of her organization clear: "to break the strong tie between the taxes employees pay during their working years and their right to a pension later on." [2] The media have on the wh ole communicated this agenda to the American people under the rhetoric of the "crisis" that Social Security faces and the corresponding need to "save the system"--presumably by excising its guts.
Social Security is often characterized as a pay-as-you-go arrangement under which current benefit payments are financed out of current payroll taxes. Yet, rather than conforming strictly to a pay-as-you-go principle, whereby current proceeds are immediately spent to meet current obligations, Social Security has been structured along actuarial lines (used by insurance companies) almost from the beginning. This has required the amassing of trust funds to meet future exigencies. Since 1984, the system has been building up a surplus of tax revenues over benefit payments, which the Social Security Administration (SSA) is required by law to use to buy US Treasury obligations. It has accumulated almost one trillion dollars in these government bonds and continues to add to this amount to the tune of more than one hundred billion dollars a year. (The current surplus stands at about 150 billion dollars.) According to figures accepted by all sides of the debate, the program will take in enough revenue to pay all promis ed benefits for almost forty years, without any change at all in the tax or benefit payout structure. (Baker and Weisbrot's analysis is based largely on the then-latest figures released by the SSA in April 1999, which projected a revenue shortfall in 2034. SSA's 2000 report, released last March, revises this projection to 2037. It's worth noting that for years, SSA set the dreaded date at 2029. Their 1998 report jumped the date to 2032, and the 1999 report to 2034. With the current wisdom projecting to 2037, we can probably expect further postponements of Judgment Day. This is remarkable in itself. What other project of this size, private or public, is able to guarantee its benefits for almost four decades?)
So what is all the fuss about? Most Americans seem to believe the scenario, put forward by pro-privatization think-tanks, politicians, and the media that (in the words of a 1998 report by the Heritage Foundation) "the Social Security system is bankrupt." It is this belief that leads many Americans to support neoliberal demands for privatization. The stock market is touted as a more secure investment outlet for workers than an allegedly insolvent fund managed by "big government." After all, haven't stocks been making money for "us" hand over fist for years?
Baker and Weisbrot show in great detail that both the diagnosis of bankruptcy and the prescription of privatization are nonsense. Unlike most economists, the authors' historical literacy is formidable and their quantitative and theoretical sophistication dwarfs the kind of confused and disingenuous sophistry coming out of the right wing think-tanks. They argue rigorously from the same set of economic and demographic assumptions and the same numbers that the privatizers play fast and loose with and demonstrate conclusively that the recommendations of the "reformers" are entirely inconsistent with undisputed facts. The pessimism of the general public regarding Social Security's future, created with the assistance of an uncritical media establishment, is testimony to perhaps the greatest public-relations scam in contemporary America. (And the hoax extends to another major form of social security; Baker and Weisbrot also include a detailed analysis of the phony Medicare "crisis.")
What are the relevant facts? In 2014 (now 2015 according to Baker and Weisbrot), the benefits paid out by Social Security are projected to slightly exceed taxes received. But does it follow from this that Social Security is "going broke?" Of course not. The privatizers know full well that the funds borrowed from Social Security by the US Treasury are to be paid back, as they have been since the system's inception, with interest. Accordingly, the system's total income consists of payroll taxes plus interest income. At the end of 2014, the system is projected to take in 585 billion dollars (in 1999 dollars) in taxes and 137.9 billion dollars in interest payments for a total income of 722.9 billion. And it will have nearly 2.3 trillion dollars in assets. With benefit payments projected at 592.7 billion dollars, the total income of the system is thus expected to exceed benefit payments by 130 billion dollars. The figures show that Social Security's total income will be able to cover all benefits until 2022. From that point until 2034, Social Security will be able to pay all benefits by drawing on the principal of its accumulated assets. (These figures were reported by Baker and Weisbrot in 1999. Recall that this year's projections have extended the year of reckoning to 2037.)
Note how mainstream economic reporting misrepresents these figures. Katharine Q. Seelye recently reported for the New York Times (May 14, 2000, section 1, 22) that Social Security "will begin paying out more than it takes in by 2015." (The 2015 date extends the 2014 projection available to Baker and Weisbrot.) Does Seelye think that what Social Security "takes in," i.e., its income, is exhausted by payroll taxes? As we have seen, an additional component of Social Security's annual income is the interest on the Treasury bonds it holds, which accounts for the 270-billion-dollar surplus the system is officially projected to have in 2015. In fact, this surplus was planned precisely in order to cover the anticipated shortfall. Seelye adds insult to injury when she further claims that "without a major fix, the system could go broke by 2037." But Baker and Weisbrot show that the contribution from interest payments makes it possible for the system to pay all benefits out of its income until 2022. From then until 203 7, it will draw on the principal in the trust fund to maintain full benefit payments. These payments can be further extended through 2074 with a mere 2.07 percent payroll tax increase, about 1 percent each for employer and employee. If the economy were to limp along at a growth rate somewhat lower than its present relatively low rate, indeed, if the economy simply manages to avoid a major depression, the "crisis" of Social Security, as defined by the privatizers, simply vanishes. This point requires further elaboration, as it touches on one of the principal contradictions in the case for privatization.
The SSA trustees are required by law to produce annual projections of the system's future financial status. The assumptions of the generally accepted projection are astonishing. The economy is projected to grow at an average annual rate of just under 1.5 percent over the next seventy-five years. (This year's report revises that figure to just under 1.7 percent.) This means that the economy is expected to perform worse than in almost any previ1ous period in US history. Now if this scenario were taken seriously, one would expect the alarm to be sounded not over the "crisis" of Social Security, but over the forecast that we may well be heading for an extended period of severe economic stagnation. Neoliberals have seized upon this slow-growth assumption to argue that the economy will generate insufficient income to cover Social Security benefits. Their case is conspicuously incoherent: the privatizers' central recommendation is that a portion of workers' income be transferred to private accounts invested in the stock market. But how can the stock market be expected to provide robust returns in an economy that is projected to be in virtual long term depression? The privatizers' assumption that future stock market returns will reflect past returns stands in stark contradiction to their reliance on SSA's ultra-pessimistic growth forecast.
We have recently experienced the fastest increase in stock prices in US history. MR readers are familiar with the underlying source of this phenomenon: the pronounced evaporation of profitable investment opportunities in industrial production since the mid-1970s has drawn what would otherwise be idle wealth into the gambling casino of the financial superstructure. The dramatic increase in stock prices is therefore unrelated to the behavior of corporate earnings. This is to say that the stock market is now massively overvalued. Historically, a share of stock has been valued at fifteen dollars per dollar of earnings. After the recent market takeoff, stock shares were selling for more than thirty dollars for each dollar of earnings. It is sheer folly to imagine that the stock market will continue to soar at a rate that bears no relation to the condition of the underlying economy. And it is not only the SSA trustees who foresee a grim picture for profits. The Congressional Budget Office (CBO) provides economic p rojections to Washington legislators debating tax and spending plans for the future. CBO anticipates after-tax corporate profits to decline by 4 percent over the next decade. The combination of current stock (over)valuations and official projections of low profit growth, both well known to Washington politicians, make it fanciful in the extreme to count on the stock market to sustain its historic rates of return. This has been demonstrated in painstaking detail by MIT professor Peter Diamond, a leading expert in public finance, and Dean Baker, who both show that the stock-return projections used by the privatizers in their calculations of the benefits of a privatized system are historically and mathematically preposterous. [3] Assume that stock prices continue to outpace profits. The current price to earnings ratio of thirty-to-one would, on the privatizers' prediction that stock returns of 7 percent can be sustained as the economy grows at half its past rate, rise to 230-to-one by 2055. Who can imagine that investors would continue to hold stocks, as opposed to government bonds, in these circumstances? When stock prices have risen this far from the earnings potential of the stock's underlying assets, we have the ingredients of a major stock-market crash. This kind of catastrophe appears to be implicit in the argument of the privatizers.
Keep in mind that the accuracy of SSA's and CBO's dire growth projections is not what is at issue here. The point is that the privatizers' case is conspicuously unsupported by their own data and self-contradictory to boot. To adhere simultaneously to optimistic stock-market projections and pessimistic growth projections is to try to have one's cake and eat it too. Adherence to either of the projections entails the rejection of the other. George W. Bush has recently been impaled on the horns of this dilemma. The Washington Post reported that Bush's aides defended their optimism regarding future stock returns by claiming that SSA's economic projections are too pessimistic (Glenn Kessler, "Bush Proposal Ventures Into Financial Unknown," May 16, 2000, A6). But if that's true, then Social Security is in good shape and Bush's case for privatization collapses. We have not seen slapstick logic on this order since Abbott and Costello.
The complicity of the mainstream media in the perpetuation of this entire hoax is all too familiar and hard to underestimate. It is not as if there are absolutely no references to the facts on the glaring inconsistencies of the case for privatization. It's just that the relatively very few citations of serious scholarship have no net effect on the overall impression communicated by the media. In early 1996, Robert Pear of the New York Times wrote a major story discussing Dean Baker's position on Social Security, which was run as written by the Pittsburgh Post-Gazette. But when it appeared in the Times, Baker's criticism of the case for privatization had been cut. The Times did publish an article by one of its own editors, Fred Brock, titled "Save Social Security? From What?" in its Business section (November 1, 1998, 12), which favorably quoted Weisbrot and Baker. Brock went on to attribute the hysteria of the privatizers to "hidden agendas." And it continued, "Wall Street would love to get its hands on at l east some of the billions of dollars in the Social Security trust fund...But knowing that the idea [of full privatization] won't fly politically, [politicians] are pushing for partial privatization, in which individuals would invest a portion of their contribution in the stock market, all in the name of rescuing the system." Still, in the very same issue, the lead editorial claimed that "The next Congress will have to deal with nothing less than...devising a plan to save Social Security in the next generation" (14). Last May, the Times ran a piece ("Money For Nothing," May 28, 2000, 11) by its Op-Ed economics columnist Paul Krugman that criticized Bush's stock-price projections. Yet none of this has made any difference to the neoliberal propaganda that pervades the newspaper's front-page reporting on this issue.
Fact checking also seems to be nonexistent when it comes to Social Security. The myth of the "baby boomers," whose retirement will allegedly bust Social Security is repeated as factual. But as Baker and Weisbrot show, the accommodation of the flood of boomer retirements from 2010-2030 has already been taken into account in the financing of Social Security. In 2037, the earliest year in which Social Security is currently projected to face financial difficulties, the biggest effect of the baby boom generation on retirement will be nearly over--the oldest baby boomers will be ninety-one and the youngest seventy-three, eleven years older than the minimum Social Security retirement age. The baby-boomer scare is factually off the wall, but you'd never know it reading the papers.
As noted at the beginning of this essay, the campaign to privatize Social Security is now the front line in the global war of neoliberalism against working people. In this onslaught, we find echoes of what Marx called "primitive accumulation." The world into which capitalism was born was not pervaded by market institutions, which is to say that human needs and desires were satisfied by means that did not on the whole render people dependent on markets for their livelihood. The historic mission of capitalism is to transform this situation by making people's ability to get what they need and want contingent upon their ability to strike a deal on a market, i.e., a deal that contributes directly or indirectly to the making of profit and the accumulation of capital. From the capitalist point of view, the ideal situation is one which everyone is dependent upon the market for everything they desire. Every human activity should contribute to the accumulation of capital. Precapitalist social and economic space was no t hospitable to this imperative. Most importantly, there were customary and traditional entitlements and rights of access to productive resources, e.g., land and the instruments of labor, to which one was guaranteed access simply by virtue of one's membership in one's clan, family, village, or kingdom. It was capitalism's original business to abolish these traditional use rights on which most working people depended for their livelihood. These common customary entitlements were correctly seen by capitalist landlords as interfering with their ability to accumulate private, self-expanding wealth, i.e., capital.
The forced enclosures of common land first begun on a large scale in sixteenth-century England were succeeded by "Parliamentary enclosure," when acts of Parliament formally reconstituted common resources as private property. Indeed, the history of enclosure in England from the sixteenth to the late eighteenth century might be termed the "primitive privatization," the historical progenitor of the contemporary neoliberal project to privatize and deregulate everything. The Parliamentary enclosures transformed what had originated as a wave of coerced expulsions into a political process, the legally sanctioned removal of any obstacles to the ongoing and limitless accumulation of capitalist wealth.
This secular tendency of capital to universally privatize was temporarily offset in the middle of the twentieth century by the emergence of the New Deal in the United States and social democracy in Europe. But even these meager provisions of non-market benefits proved to be too radical for capital. Born-again capitalism is now the order of the day, and social security is once again, as it was way back then, a principal obstacle to profitability. The struggle of large English landowners to privatize historically common land finds its contemporary counterpart in the campaign of big banks and Wall Street brokerage houses to put to private, profitable use resources currently earmarked for workers in need. Just as the social costs of the transition to capitalism were borne by the working population, so too the attempted transition back to pre-Keynesian capitalism will be borne by the same class. The administrative costs of privately managing a huge number of individual accounts in Chile and Britain amount to over 16 percent of the systems' annual revenue. If the US system was run in a comparable way, about seventy billion dollars would be transferred every year from workers' retirement accounts to brokerage houses and banks. Administrative costs under the present system, on the other hand, amount to less than 1 percent of total benefits paid each year. It would be about forty years before the first generation of private Social Security investors could retire on the returns from their individual accounts. Since current benefits will continue to be paid out of the system's current income, how will four decades of beneficiaries be able to receive their payments if a substantial portion of Social Security tax revenue continues to be diverted to individual private accounts? Surely not by tapping the resources of others' private accounts. Barring sharp cuts in benefits, tax increases will become a virtual necessity and these will be enough, as Baker and Weisbrot point out, to ensure a negative return overall for the first generations of privatized savers.
If working people knew all this, they would not support this venal agenda. One of the principal tasks of the socialist left is to fill the factual and analytical vacuum created by the corporate media. As immediate educational tasks go, none is more urgent than this one.
Alan G. Nasser teaches philosophy and political economy at Evergreen State College in Olympia, Washington. His article "The Atom Bomb, the Cold War and the Soviet 'Threat"' appeared in the December 1989 issue of Monthly Review.
NOTES
(1.) L. Mishel, J. Bernstein, and J. Schmitt, The State of Working America, 1 998-1 999 (Ithaca: Cornell University Press, 1999).
(2.) Quoted in Trudy Lieberman, "Social Security: The Campaign to Take the System Private," The Nation, January 27, 1997, 13.
(3.) Baker's arguments can be found in his detailed letter to the Harvard economist Martin Feldstein at [less than]http://www.cepr.net/Social_Security/letter_to_feldstein2.htm[gre ater than], and Diamond's What Stock Market Returns to Expect for the Future?" at [less than]http://www.bc.edu/bc_org/avp/csom/executive/crr/ib2.htm.[greater than]
(4.) For a fuller discussion, see Ellen Meiksins Wood, The Origin of Capitalism (New York: Monthly Review Press, 1999.)
Quoted in Sidelights: Their useful book deconstructs the gimmicks, accounting tricks, and rhetorical devices used by those who advocate overhauling the system.
a succinct, easy-to-read, and fact-packed economic and logical rebuttal to the assault on social insurance.
an indictment of an economics that … has been manipulated to further the goals of those interests that have long opposed Social Security.
Social Security: The Phony Crisis
THOMAS MATZZIE
The American Prospect. 11.14 (June 5, 2000): p53.
Copyright: COPYRIGHT 2000 The American Prospect, Inc.
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IT AIN'T BROKE
Social Security: The Phony Crisis, by Dean Baker and Mark Weisbrot. University of Chicago Press, 176 pages, $22.00.
Economists Dean Baker and Mark Weisbrot lay out a devastating critique of those who say Social Security is going broke and that something drastic needs to be done. Their useful book deconstructs the gimmicks, accounting tricks, and rhetorical devices used by those who advocate overhauling the system.
This peer-reviewed book, published by a respected academic press, is a succinct, easy-to-read, and fact-packed economic and logical rebuttal to the assault on social insurance. The book is also an indictment of an economics that, as Baker and Weisbrot see it, has been manipulated to further the goals of those interests that have long opposed Social Security.
Baker and Weisbrot contend that the program is in excellent health. From a purely economic perspective, they are correct. Social Security is entirely affordable in the future even under the worst-case scenarios. The authors acknowledge the possibility that changes might have to be made to bring in new revenue. But they say that workers in the future would, because of better living standards, still be better off after paying a higher tax. However, others in the center-left coalition opposed to Social Security privatization have found that a hard case to make.
The book makes an argument about stock market returns that can be considered a genuine breakthrough. Privatization advocates use an estimate for future stock market returns based on a historical average. "It is easy to present a story in which everyone gets rich if the annual rate of return is high enough," the authors say. The problem is that the future assumed by the Social Security trustees looks less rosy. The trustees project that the economy will grow over the next 75 years at a 1.5 percent rate, considerably lower than the 3 percent historical rate. The contradiction is that you cannot have a sluggish economy and a booming stock market over the long run. Once Baker and Weisbrot account for this, the long-term return for stocks falls sharply. This is an important point since the rate of return from stocks is key to the case for privatization. They have found mainstream and conservative allies in this argument, including economist Peter Diamond of MIT, the Federal Reserve Bank of Chicago, and a government advisory board chaired by a vocal entitlement critic and privatizer.
Baker and Weisbrot are sometimes the only voices in Washington making these important technical economic points. And despite their validation by other experts, they have largely been ignored by the pundit class that has bought the idea that Social Security is in crisis and that privatization is a solution. If this book is used as a handbook for citizen groups, organized labor, senior citizens, and others who are mobilizing to force politicians to level with the voters, the pundit class will discover the force of Baker and Weisbrot's arguments.
Many politicians are beginning to feel the jolt. George W. Bush is making partial privatization of Social Security a central plank in his campaign for president, and A1 Gore is clobbering him for it. It will be the job of smart candidates, activists, and advocates to put the electricity back in the third rail of American politics. Social Security: The Phony Crisis can help arm them for the election and the policy battles to follow.
THOMAS MATZZIE is a policy analyst at Campaign for America's Future where he coordinates the campaign's Social Security project. He is co-author of Social Security and Medicare: Myths, Lies, and Realities.
Quoted in Sidelights: well-written
for those interested in macroeconomic policy, especially economic growth policy and international economic relations. Highly recommended
Weisbrot, Mark. Failed: what the "experts" got wrong about the global economy
H.D. Renning
CHOICE: Current Reviews for Academic Libraries. 53.8 (Apr. 2016): p1209.
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Welsbrot, Mark. Failed: what the "experts" got wrong about the global economy. Oxford, 2015. 293p bib Index afp ISBN 9780195170184 cloth, $24.95; ISBN 9780190234508 ebook, contact publisher for price
53-3589
HB3782
2015-14988 CIP
In five well-written chapters, Weisbrot (codirector, Center for Economic and Policy Research) presents a broad analysis of economic transformations and growth in the world over the last 35 years. He focuses primarily on the many unsuccessful policy approaches--especially macroeconomic. He blames these failures mainly on the official positions taken by the US government in world affairs, in particular its powerful influence on how the IMF and the World Bank deal with international economic issues. Among the economic regions the author examines in detail are the eurozone, China, and Latin America. More than anything else, he argues, advocacy for and reliance on "neoliberal" policy principles are at the root of recession and inflation periods; these principles have stood in the way of--or at least slowed down--economic progress during the last several decades. This book, which includes a 31 -page bibliography, is for those interested in macroeconomic policy, especially economic growth policy and international economic relations. Summing Up: *** Highly recommended. Upper-division undergraduates through faculty.--H. D. Renning, California State University, Stanislaus
Renning, H.D.
Quoted in Sidelights: very readable book
influencing the political debate.
Some guides to a redefined retirement
Fred Brock
The New York Times. (Aug. 6, 2000): L, Business News: pBU10.
Copyright: COPYRIGHT 2000 The New York Times Company
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BOOKS aimed at the growing, and increasingly affluent, senior market are filling bookstore shelves around the country. Here is a sampling of recent additions, which touch on subjects from retirement to the Internet:
[...]
SOCIAL SECURITY If you're confused by the political discourse over the future of Social Security, two books from the University of Chicago Press may help sort out the issues.
''Social Security: The Phony Crisis,'' by Dean Baker and Mark Weisbrot ($22), argues that because of overly conservative economic projections, Social Security is not in danger and doesn't need to be ''saved'' by putting some of its funds into individual stock market accounts, as George W. Bush, the Republican presidential candidate, and others advocate. This is a very readable book by two economists that is actually influencing the political debate.
Quoted in Sidelights: Weisbrot’s Failed is a comprehensive March of Folly cataloging the intellectual and policy failures of a set of extremely powerful institutions. Yet it is also written at a level accessible to any undergraduate with a basic economics background.
Schwartz on Weisbrot, 'Failed: What the "Experts" Got Wrong about the Global Economy'
Author:
Mark Weisbrot
Reviewer:
Herman Schwartz
Mark Weisbrot. Failed: What the "Experts" Got Wrong about the Global Economy. Oxford: Oxford University Press, 2015. 312 pp. $24.95 (cloth), ISBN 978-0-19-517018-4.
Reviewed by Herman Schwartz (University of Virginia)
Published on H-Diplo (March, 2016)
Commissioned by Seth Offenbach
Every year since the start of the global financial crisis in 2008, the International Monetary Fund (IMF), the Bank for International Settlements (BIS), the US Federal Reserve Bank (Fed), the European Central Bank (ECB), and the central banks for most other rich countries have published predictions for economic growth, inflation, and unemployment in the coming years. They have a perfect record of significantly overestimating growth and inflation and underestimating unemployment.[1]
The future is fundamentally unknowable, so perhaps it is unfair to criticize these organizations for getting it wrong. If their errors were randomly distributed around the actual outcomes, and if these organizations had the same robust procedures for rooting out error that, for example, the transportation authorities have in place for diagnosing and preventing airplane crashes, then it would be patently unfair to be critical. But neither condition holds, even though the consequences when these institutions get things wrong affect tens of millions of peoples’ livelihoods. Both before and after the global financial crisis, these institutions consistently erred in the direction that favored their policy recommendations. And with one exception—to be discussed later, as it proves the rule—none of these institutions has engaged in any Bayesian updating of their models. The inability to make accurate predictions (or predictions whose direction of error tends to cancel out) strongly suggests that the underlying models these institutions use are wrong. Yet they continue to use them. And that in turn suggests that it is their policy preferences that drive their model choice and predictions, just as Philip Tetlock finds for the equally unreliable policy “experts” in his 2005 book Expert Political Judgment: How Good Is It? How Can We Know? Put simply, these institutions pick a model of how the world works that justifies picking the policies they prefer, rather than a model of the world that accurately predicts policy outcomes.
Mark Weisbrot’s Failed: What the “Experts” Got Wrong about the Global Economy addresses the existence and consequences of this systematic dual failure. He charts the policy advice dispensed by a number of Very Serious Institutions (VSI—if I may modify Paul Krugman’s expression, Very Serious People, who are invariably wrong and unapologetic about it). The book devotes most of its time to the IMF over the past four decades, to the aftermath of financial crises in Latin America over the same period with particular attention paid to the past twenty years, and to the Eurozone crisis of the past near decade. It complements these more general discussions with some detailed portraits of the IMF as an institution, several “Pink Tide” Latin American countries in the 2000s, and, above all, Argentina. The Pink Tide was the wave of Social Democratic governments elected after 1999, in reaction to the failure of the neoliberal, Washington consensus policies of the 1990s.
Put as simply as possible, the book makes a counterfactual argument. Economic policy advice from VSIs like the ECB and IMF has invariably made outcomes worse in crisis countries. This policy advice invariably demands deflation, calling for less government spending, wage cuts, and devaluations. Unsurprisingly, contractionary policy is contractionary. But the goal here is not growth, as such, but rather assuring that creditor claims can be honored. To the extent that these policies “work,” they work by drastically reducing imports and claims on government revenue in order to free up revenues and foreign exchange to service internal and especially external debt. But they do so by driving down growth in both the debtor country and, something less often recognized, the creditor country. These policies work by creating export surpluses for debtors, which means import surpluses and thus lower Gross Domestic Product (GDP) growth in creditor countries. (By definition, GDP equals consumption [C] plus non-transfer government spending [G] plus investment [I] plus net exports [X-M]. So a trade deficit is growth reducing, as it subtracts from GDP.)
The explicit counterfactual here is that an expansionary solution to financial crises also exists. In this solution both creditor and debtor would work together to mutually expand their economies. By providing bridging finance and boosting their own economy, creditors could both absorb extra imports (i.e., debtor exports) and thus provide debtors with the income they need to service their debts. This was the solution John Maynard Keynes advocated at the 1944 Bretton Woods conference. Keynes’s version of the IMF would have issued international money to deficit countries, enabling them to continue imports of capital goods and forcing creditors to recycle that international money as imports from deficit countries. Keynes unfortunately lost that debate. The less expansionary American policy preference put forward by Harry Dexter White prevailed, and eventually hardened into the contractionary policy stance of the IMF.
The core of Weisbrot’s book is a qualitative and quantitative contrast of these two approaches. The deflationary neoliberal policies imposed and accepted after the 1980s Latin American debt crises led to two decades of slow growth in Latin America. By contrast, the closed economy, import substitution industrialization period of 1940 to 1980, and the more Keynesian policies of 2000 to 2014 had significantly higher growth rates and significantly better poverty and income equality outcomes. The same is true for Europe’s troubled “south” before and after the Eurozone financial crises. The Troika of the ECB, IMF, and EU have tried to use the euro crisis to force a rollback of southern welfare states, much as the IMF forced market opening and welfare cuts in Latin America and Asia. Though Weisbrot paints altogether too rosy a picture of governments and elites in Argentina, Venezuela, and Greece, it is not obvious that creditors have the moral right to dictate their policy preferences to democracies. This is particularly true for institutions like the ECB, whose single-minded concern appears to be keeping inflation below the arbitrary level of 2 percent per year, regardless of the implications for growth and employment. Equally so, the book understates the degree to which Argentina is a model of the processes the book condemns. Argentina was the poster child for neoliberal reform in the 1990s, until, as with post-1997 Southeast Asia, crisis turned cheerleaders into critics. VSIs wrongly argued that it was the Argentines who had failed neoliberal policies and not the policies that failed the Argentines; just as these VSIs argued that it was Southeast Asian economies’ inability to deal with massive inflows and then outflows of speculative capital that caused their crash, not the fault of the lenders.
That said, the book does make a few questionable arguments. Most prominent among these is to dismiss the positive effects of Chinese demand on Latin American resource exporters in favor of crediting the Pink Tide shift away from neoliberal policies. Granted, Chinese demand for Latin American exports was partially offset by Chinese exports of manufactured goods to Latin America. But most Latin American countries were net exporters to China. Over the rough decade in which the Pink government of Luiz Lula da Silva expanded the social safety net, Brazil ran a cumulative trade surplus with China of sixteen billion dollars, roughly equal to the cumulative expansion of spending on the poor via the successful poverty reduction program, Bolsa Familia.
More to the point, the increase in Chinese demand for commodities like iron ore, soybeans, and meat—all major Brazilian exports—over the period was equal to or exceeded the increase in Brazilian exports of those goods. Though Brazil was not the sole supplier for China, Chinese demand pushed global commodity prices to new highs. It is hard to imagine that Brazil would have had the same robust growth in the 2000s in the absence of China, which takes one-fifth of Brazil’s exports. As China’s economy faltered after 2013, so too did Brazil’s, much to the dismay of Dilma Rousseff’s equally Pink government.
I cover much of this same terrain in many of my classes, and my students often ask the same question about elites and the various international financial institutions: are they crazy or are they stupid? To which I generally reply: neither. They are not stupid; they know precisely what they are doing. But they are also not crazy. Rather, akrasia. Akrasia is the ancient Greek word that means to lack self-control and act against one’s own interests. Every global financial crisis started with a panic by lenders that drive merely illiquid debtors into insolvency, thus harming lenders as well as borrowers. Every global episode of mass default—including those by nine US states in the early 1840s—has resulted in creditors implicitly or explicitly writing down debt, or seizing lower yielding collateral as compensation for the loss of higher yielding financial claims. Creditors have tended to do better in recovering money in the past forty years, but that is largely due to the ability of the Fed and IMF to impose collective discipline on creditors postcrisis. Precrisis, of course, neither the Fed nor the IMF seems to have any interest in disciplining creditors’ desires to lend far too much money and drive bubbles in borrowers’ economies. As Weisbrot’s Center for Economic Policy Research colleague Dean Baker never tires of pointing out, the experts at the Fed famously managed to miss the emergence of the eight trillion dollar US housing bubble.[2] Equally so, the IMF was energetically promoting capital market liberalization just before unconstrained capital flows brought on the 1997 Asian Financial Crisis.
Intellectual maturity requires the ability to recognize one’s mistakes and adjust one’s model of the world in response to consistently failed predictions. Are the VSIs Weisbrot studies capable of change? He thinks not, and I agree. The one major change in policy recommendations that has occurred is the one noted above as the exception that proves the rule. Here the rule is that the VSIs’ preferences for specific policy outcomes and the financial and geopolitical interests behind those VSIs drive their choice of model. After the global financial crisis the IMF changed its tune on capital controls, and during the Eurozone crisis it cautiously advocated expansionary policy rather than its traditional deflationary package. Why? Not a sudden Damascene conversion. Rather, every developing country capable of running an export surplus after the 1997 Asian Financial Crisis did so, and parked those surpluses in US Treasury notes in order to be able to defend themselves from currency speculation. This threatened the IMF’s institutional mission, particularly as Asian political leaders were furious with the IMF’s flawed and damaging response to the 1997 crises. The IMF thus had to find some way to restore its prestige and bargaining power. Similarly, the IMF’s softer line on austerity in the Eurozone crisis reflected American concerns that the ECB’s hard line on bailing out southern governments would provoke an even greater crisis, and damage the US economy as well. Institutional policy preferences drove policy advice and the selection of a model of the world to justify that advice.
Weisbrot’s Failed is a comprehensive March of Folly cataloging the intellectual and policy failures of a set of extremely powerful institutions. Yet it is also written at a level accessible to any undergraduate with a basic economics background. I recommend it to those looking for a follow-up to the classic reporting on the 1997 Asian Financial Crisis and Argentine default found in Paul Blustein’s classic books The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF (2003) and And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina (2006).
Notes
[1]. Some examples can be found at https://www.whitehouse.gov/sites/whitehouse.gov/files/images/slide3.jpg; http://bruegel.o... and http://economistsview.typepad.com/.a/6a00d83451b33869e201b8d183847e970c-500wi.
[2]. Fed Board of Governors member Edward Gramlich was a notable, yet ultimately ignored, exception. See Edward Gramlich, Subprime Mortgages: America's Latest Boom and Bust (Washington, DC: Urban Institute, 2007).
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Social Security: The Phony Crisis
Vanessa Bush and Gilbert Taylor
Booklist. 96.3 (Oct. 1, 1999): p311.
Copyright: COPYRIGHT 1999 American Library Association
http://www.ala.org/ala/aboutala/offices/publishing/booklist_publications/booklist/booklist.cfm
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Baker, Dean and Weisbrot, Mark. Social Security: The Phony Crisis. Nov. 1999. 168p. index. Univ. of Chicago, $22 (0-226-03544-1). DDC: 368.4.
Baker and Weisbrot take issue with widespread dire predictions that the 64-year-old Social Security system will not be able to provide financial security for the aged and disabled in the future. Baker, a senior research fellow at the Century Foundation and the Preamble Center, and Weisbrot, a research director at the Preamble Center, project that Social Security will remain viable for at least 30 more years--longer if the U.S. economy continues to grow at its current pace. Concerns about a shortfall that will transform economic class warfare into "intergenerational conflict" are outright lies, according to the authors. Doomsayers have misinterpreted demographic trends and mistakenly lumped together Medicare and Social Security when estimating the financial burden on the government, the authors claim. Baker and Weisbrot offer an interesting viewpoint in the controversial debate about Social Security--one that is certainly more welcome than the typical predictions of a shortfall.
"Saving" Social Security: A Neoliberal Recapitulation of Primitive Accumulation
Alan G. Nasser
Monthly Review. 52.7 (Dec. 2000): p42.
Copyright: COPYRIGHT 2000 Monthly Review Foundation, Inc.
http://monthlyreview.org/
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Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago and London: The University of Chicago Press, 2000), 175 pp., $22.
The pronounced insecurity that inevitably attends capitalism's historic tendency to commodify, and hence privatize, everything that can be commodified and privatized has been met with two major forms of resistance. The first is revolutionary communism, which emerged in the latter half of the nineteenth century and the second is social democracy, which developed in its strongest form in Europe after the Second World War. A defining feature of our present situation is that neither of these forms of resistance to capitalist hegemony is currently a major historical force.
The absence of major challenges to capitalism has led to an attack on the social and economic policies that lessen the dependence of the working population on the vagaries of the market and the demands of capital. Neoliberalism is now mainstream orthodoxy: regulation of business activity is to be eased, publicly owned enterprises are to be privatized, and the services and income supplements that have constituted the social wage are to be notably reduced or outright eliminated. This massive assault on the security of working people has met with no small measure of success: the real income of the typical US worker has been in decline for at least two decades, the number of medically uninsured individuals has risen, and both intra- and international inequalities have reached levels unmatched since the Great Depression. In the United States, the decline of workers' real income has been accompanied by an overall shift of national income from labor to capital. [1]
The 1990s have seen two tremendous attacks by the rulers on the welfare and security of working people. The first, in 1996, resulted in a ruling-class victory: the sixty-year-old federal income guarantee for poor families was abolished. The second onslaught is still underway. It aims to cut benefits and at least partially privatize the Social Security system, which would no longer function as a system of social insurance, protecting all workers in the face of any misfortune that might befall them. Groups such as the Urban Institute, the Concord Coalition, the Cato Institute, and the National Center for Policy Analysis have produced a barrage of studies and statistics designed to undermine the most successful US program explicitly intended to reduce poverty. Jeanette Nordstrom of the National Center for Policy Analysis makes the aim of her organization clear: "to break the strong tie between the taxes employees pay during their working years and their right to a pension later on." [2] The media have on the wh ole communicated this agenda to the American people under the rhetoric of the "crisis" that Social Security faces and the corresponding need to "save the system"--presumably by excising its guts.
Social Security is often characterized as a pay-as-you-go arrangement under which current benefit payments are financed out of current payroll taxes. Yet, rather than conforming strictly to a pay-as-you-go principle, whereby current proceeds are immediately spent to meet current obligations, Social Security has been structured along actuarial lines (used by insurance companies) almost from the beginning. This has required the amassing of trust funds to meet future exigencies. Since 1984, the system has been building up a surplus of tax revenues over benefit payments, which the Social Security Administration (SSA) is required by law to use to buy US Treasury obligations. It has accumulated almost one trillion dollars in these government bonds and continues to add to this amount to the tune of more than one hundred billion dollars a year. (The current surplus stands at about 150 billion dollars.) According to figures accepted by all sides of the debate, the program will take in enough revenue to pay all promis ed benefits for almost forty years, without any change at all in the tax or benefit payout structure. (Baker and Weisbrot's analysis is based largely on the then-latest figures released by the SSA in April 1999, which projected a revenue shortfall in 2034. SSA's 2000 report, released last March, revises this projection to 2037. It's worth noting that for years, SSA set the dreaded date at 2029. Their 1998 report jumped the date to 2032, and the 1999 report to 2034. With the current wisdom projecting to 2037, we can probably expect further postponements of Judgment Day. This is remarkable in itself. What other project of this size, private or public, is able to guarantee its benefits for almost four decades?)
So what is all the fuss about? Most Americans seem to believe the scenario, put forward by pro-privatization think-tanks, politicians, and the media that (in the words of a 1998 report by the Heritage Foundation) "the Social Security system is bankrupt." It is this belief that leads many Americans to support neoliberal demands for privatization. The stock market is touted as a more secure investment outlet for workers than an allegedly insolvent fund managed by "big government." After all, haven't stocks been making money for "us" hand over fist for years?
Baker and Weisbrot show in great detail that both the diagnosis of bankruptcy and the prescription of privatization are nonsense. Unlike most economists, the authors' historical literacy is formidable and their quantitative and theoretical sophistication dwarfs the kind of confused and disingenuous sophistry coming out of the right wing think-tanks. They argue rigorously from the same set of economic and demographic assumptions and the same numbers that the privatizers play fast and loose with and demonstrate conclusively that the recommendations of the "reformers" are entirely inconsistent with undisputed facts. The pessimism of the general public regarding Social Security's future, created with the assistance of an uncritical media establishment, is testimony to perhaps the greatest public-relations scam in contemporary America. (And the hoax extends to another major form of social security; Baker and Weisbrot also include a detailed analysis of the phony Medicare "crisis.")
What are the relevant facts? In 2014 (now 2015 according to Baker and Weisbrot), the benefits paid out by Social Security are projected to slightly exceed taxes received. But does it follow from this that Social Security is "going broke?" Of course not. The privatizers know full well that the funds borrowed from Social Security by the US Treasury are to be paid back, as they have been since the system's inception, with interest. Accordingly, the system's total income consists of payroll taxes plus interest income. At the end of 2014, the system is projected to take in 585 billion dollars (in 1999 dollars) in taxes and 137.9 billion dollars in interest payments for a total income of 722.9 billion. And it will have nearly 2.3 trillion dollars in assets. With benefit payments projected at 592.7 billion dollars, the total income of the system is thus expected to exceed benefit payments by 130 billion dollars. The figures show that Social Security's total income will be able to cover all benefits until 2022. From that point until 2034, Social Security will be able to pay all benefits by drawing on the principal of its accumulated assets. (These figures were reported by Baker and Weisbrot in 1999. Recall that this year's projections have extended the year of reckoning to 2037.)
Note how mainstream economic reporting misrepresents these figures. Katharine Q. Seelye recently reported for the New York Times (May 14, 2000, section 1, 22) that Social Security "will begin paying out more than it takes in by 2015." (The 2015 date extends the 2014 projection available to Baker and Weisbrot.) Does Seelye think that what Social Security "takes in," i.e., its income, is exhausted by payroll taxes? As we have seen, an additional component of Social Security's annual income is the interest on the Treasury bonds it holds, which accounts for the 270-billion-dollar surplus the system is officially projected to have in 2015. In fact, this surplus was planned precisely in order to cover the anticipated shortfall. Seelye adds insult to injury when she further claims that "without a major fix, the system could go broke by 2037." But Baker and Weisbrot show that the contribution from interest payments makes it possible for the system to pay all benefits out of its income until 2022. From then until 203 7, it will draw on the principal in the trust fund to maintain full benefit payments. These payments can be further extended through 2074 with a mere 2.07 percent payroll tax increase, about 1 percent each for employer and employee. If the economy were to limp along at a growth rate somewhat lower than its present relatively low rate, indeed, if the economy simply manages to avoid a major depression, the "crisis" of Social Security, as defined by the privatizers, simply vanishes. This point requires further elaboration, as it touches on one of the principal contradictions in the case for privatization.
The SSA trustees are required by law to produce annual projections of the system's future financial status. The assumptions of the generally accepted projection are astonishing. The economy is projected to grow at an average annual rate of just under 1.5 percent over the next seventy-five years. (This year's report revises that figure to just under 1.7 percent.) This means that the economy is expected to perform worse than in almost any previ1ous period in US history. Now if this scenario were taken seriously, one would expect the alarm to be sounded not over the "crisis" of Social Security, but over the forecast that we may well be heading for an extended period of severe economic stagnation. Neoliberals have seized upon this slow-growth assumption to argue that the economy will generate insufficient income to cover Social Security benefits. Their case is conspicuously incoherent: the privatizers' central recommendation is that a portion of workers' income be transferred to private accounts invested in the stock market. But how can the stock market be expected to provide robust returns in an economy that is projected to be in virtual long term depression? The privatizers' assumption that future stock market returns will reflect past returns stands in stark contradiction to their reliance on SSA's ultra-pessimistic growth forecast.
We have recently experienced the fastest increase in stock prices in US history. MR readers are familiar with the underlying source of this phenomenon: the pronounced evaporation of profitable investment opportunities in industrial production since the mid-1970s has drawn what would otherwise be idle wealth into the gambling casino of the financial superstructure. The dramatic increase in stock prices is therefore unrelated to the behavior of corporate earnings. This is to say that the stock market is now massively overvalued. Historically, a share of stock has been valued at fifteen dollars per dollar of earnings. After the recent market takeoff, stock shares were selling for more than thirty dollars for each dollar of earnings. It is sheer folly to imagine that the stock market will continue to soar at a rate that bears no relation to the condition of the underlying economy. And it is not only the SSA trustees who foresee a grim picture for profits. The Congressional Budget Office (CBO) provides economic p rojections to Washington legislators debating tax and spending plans for the future. CBO anticipates after-tax corporate profits to decline by 4 percent over the next decade. The combination of current stock (over)valuations and official projections of low profit growth, both well known to Washington politicians, make it fanciful in the extreme to count on the stock market to sustain its historic rates of return. This has been demonstrated in painstaking detail by MIT professor Peter Diamond, a leading expert in public finance, and Dean Baker, who both show that the stock-return projections used by the privatizers in their calculations of the benefits of a privatized system are historically and mathematically preposterous. [3] Assume that stock prices continue to outpace profits. The current price to earnings ratio of thirty-to-one would, on the privatizers' prediction that stock returns of 7 percent can be sustained as the economy grows at half its past rate, rise to 230-to-one by 2055. Who can imagine that investors would continue to hold stocks, as opposed to government bonds, in these circumstances? When stock prices have risen this far from the earnings potential of the stock's underlying assets, we have the ingredients of a major stock-market crash. This kind of catastrophe appears to be implicit in the argument of the privatizers.
Keep in mind that the accuracy of SSA's and CBO's dire growth projections is not what is at issue here. The point is that the privatizers' case is conspicuously unsupported by their own data and self-contradictory to boot. To adhere simultaneously to optimistic stock-market projections and pessimistic growth projections is to try to have one's cake and eat it too. Adherence to either of the projections entails the rejection of the other. George W. Bush has recently been impaled on the horns of this dilemma. The Washington Post reported that Bush's aides defended their optimism regarding future stock returns by claiming that SSA's economic projections are too pessimistic (Glenn Kessler, "Bush Proposal Ventures Into Financial Unknown," May 16, 2000, A6). But if that's true, then Social Security is in good shape and Bush's case for privatization collapses. We have not seen slapstick logic on this order since Abbott and Costello.
The complicity of the mainstream media in the perpetuation of this entire hoax is all too familiar and hard to underestimate. It is not as if there are absolutely no references to the facts on the glaring inconsistencies of the case for privatization. It's just that the relatively very few citations of serious scholarship have no net effect on the overall impression communicated by the media. In early 1996, Robert Pear of the New York Times wrote a major story discussing Dean Baker's position on Social Security, which was run as written by the Pittsburgh Post-Gazette. But when it appeared in the Times, Baker's criticism of the case for privatization had been cut. The Times did publish an article by one of its own editors, Fred Brock, titled "Save Social Security? From What?" in its Business section (November 1, 1998, 12), which favorably quoted Weisbrot and Baker. Brock went on to attribute the hysteria of the privatizers to "hidden agendas." And it continued, "Wall Street would love to get its hands on at l east some of the billions of dollars in the Social Security trust fund...But knowing that the idea [of full privatization] won't fly politically, [politicians] are pushing for partial privatization, in which individuals would invest a portion of their contribution in the stock market, all in the name of rescuing the system." Still, in the very same issue, the lead editorial claimed that "The next Congress will have to deal with nothing less than...devising a plan to save Social Security in the next generation" (14). Last May, the Times ran a piece ("Money For Nothing," May 28, 2000, 11) by its Op-Ed economics columnist Paul Krugman that criticized Bush's stock-price projections. Yet none of this has made any difference to the neoliberal propaganda that pervades the newspaper's front-page reporting on this issue.
Fact checking also seems to be nonexistent when it comes to Social Security. The myth of the "baby boomers," whose retirement will allegedly bust Social Security is repeated as factual. But as Baker and Weisbrot show, the accommodation of the flood of boomer retirements from 2010-2030 has already been taken into account in the financing of Social Security. In 2037, the earliest year in which Social Security is currently projected to face financial difficulties, the biggest effect of the baby boom generation on retirement will be nearly over--the oldest baby boomers will be ninety-one and the youngest seventy-three, eleven years older than the minimum Social Security retirement age. The baby-boomer scare is factually off the wall, but you'd never know it reading the papers.
As noted at the beginning of this essay, the campaign to privatize Social Security is now the front line in the global war of neoliberalism against working people. In this onslaught, we find echoes of what Marx called "primitive accumulation." The world into which capitalism was born was not pervaded by market institutions, which is to say that human needs and desires were satisfied by means that did not on the whole render people dependent on markets for their livelihood. The historic mission of capitalism is to transform this situation by making people's ability to get what they need and want contingent upon their ability to strike a deal on a market, i.e., a deal that contributes directly or indirectly to the making of profit and the accumulation of capital. From the capitalist point of view, the ideal situation is one which everyone is dependent upon the market for everything they desire. Every human activity should contribute to the accumulation of capital. Precapitalist social and economic space was no t hospitable to this imperative. Most importantly, there were customary and traditional entitlements and rights of access to productive resources, e.g., land and the instruments of labor, to which one was guaranteed access simply by virtue of one's membership in one's clan, family, village, or kingdom. It was capitalism's original business to abolish these traditional use rights on which most working people depended for their livelihood. These common customary entitlements were correctly seen by capitalist landlords as interfering with their ability to accumulate private, self-expanding wealth, i.e., capital.
The forced enclosures of common land first begun on a large scale in sixteenth-century England were succeeded by "Parliamentary enclosure," when acts of Parliament formally reconstituted common resources as private property. Indeed, the history of enclosure in England from the sixteenth to the late eighteenth century might be termed the "primitive privatization," the historical progenitor of the contemporary neoliberal project to privatize and deregulate everything. The Parliamentary enclosures transformed what had originated as a wave of coerced expulsions into a political process, the legally sanctioned removal of any obstacles to the ongoing and limitless accumulation of capitalist wealth.
This secular tendency of capital to universally privatize was temporarily offset in the middle of the twentieth century by the emergence of the New Deal in the United States and social democracy in Europe. But even these meager provisions of non-market benefits proved to be too radical for capital. Born-again capitalism is now the order of the day, and social security is once again, as it was way back then, a principal obstacle to profitability. The struggle of large English landowners to privatize historically common land finds its contemporary counterpart in the campaign of big banks and Wall Street brokerage houses to put to private, profitable use resources currently earmarked for workers in need. Just as the social costs of the transition to capitalism were borne by the working population, so too the attempted transition back to pre-Keynesian capitalism will be borne by the same class. The administrative costs of privately managing a huge number of individual accounts in Chile and Britain amount to over 16 percent of the systems' annual revenue. If the US system was run in a comparable way, about seventy billion dollars would be transferred every year from workers' retirement accounts to brokerage houses and banks. Administrative costs under the present system, on the other hand, amount to less than 1 percent of total benefits paid each year. It would be about forty years before the first generation of private Social Security investors could retire on the returns from their individual accounts. Since current benefits will continue to be paid out of the system's current income, how will four decades of beneficiaries be able to receive their payments if a substantial portion of Social Security tax revenue continues to be diverted to individual private accounts? Surely not by tapping the resources of others' private accounts. Barring sharp cuts in benefits, tax increases will become a virtual necessity and these will be enough, as Baker and Weisbrot point out, to ensure a negative return overall for the first generations of privatized savers.
If working people knew all this, they would not support this venal agenda. One of the principal tasks of the socialist left is to fill the factual and analytical vacuum created by the corporate media. As immediate educational tasks go, none is more urgent than this one.
Alan G. Nasser teaches philosophy and political economy at Evergreen State College in Olympia, Washington. His article "The Atom Bomb, the Cold War and the Soviet 'Threat"' appeared in the December 1989 issue of Monthly Review.
NOTES
(1.) L. Mishel, J. Bernstein, and J. Schmitt, The State of Working America, 1 998-1 999 (Ithaca: Cornell University Press, 1999).
(2.) Quoted in Trudy Lieberman, "Social Security: The Campaign to Take the System Private," The Nation, January 27, 1997, 13.
(3.) Baker's arguments can be found in his detailed letter to the Harvard economist Martin Feldstein at [less than]http://www.cepr.net/Social_Security/letter_to_feldstein2.htm[gre ater than], and Diamond's What Stock Market Returns to Expect for the Future?" at [less than]http://www.bc.edu/bc_org/avp/csom/executive/crr/ib2.htm.[greater than]
(4.) For a fuller discussion, see Ellen Meiksins Wood, The Origin of Capitalism (New York: Monthly Review Press, 1999.)
Social Security: The Phony Crisis
THOMAS MATZZIE
The American Prospect. 11.14 (June 5, 2000): p53.
Copyright: COPYRIGHT 2000 The American Prospect, Inc.
http://www.prospect.org/
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IT AIN'T BROKE
Social Security: The Phony Crisis, by Dean Baker and Mark Weisbrot. University of Chicago Press, 176 pages, $22.00.
Economists Dean Baker and Mark Weisbrot lay out a devastating critique of those who say Social Security is going broke and that something drastic needs to be done. Their useful book deconstructs the gimmicks, accounting tricks, and rhetorical devices used by those who advocate overhauling the system.
This peer-reviewed book, published by a respected academic press, is a succinct, easy-to-read, and fact-packed economic and logical rebuttal to the assault on social insurance. The book is also an indictment of an economics that, as Baker and Weisbrot see it, has been manipulated to further the goals of those interests that have long opposed Social Security.
Baker and Weisbrot contend that the program is in excellent health. From a purely economic perspective, they are correct. Social Security is entirely affordable in the future even under the worst-case scenarios. The authors acknowledge the possibility that changes might have to be made to bring in new revenue. But they say that workers in the future would, because of better living standards, still be better off after paying a higher tax. However, others in the center-left coalition opposed to Social Security privatization have found that a hard case to make.
The book makes an argument about stock market returns that can be considered a genuine breakthrough. Privatization advocates use an estimate for future stock market returns based on a historical average. "It is easy to present a story in which everyone gets rich if the annual rate of return is high enough," the authors say. The problem is that the future assumed by the Social Security trustees looks less rosy. The trustees project that the economy will grow over the next 75 years at a 1.5 percent rate, considerably lower than the 3 percent historical rate. The contradiction is that you cannot have a sluggish economy and a booming stock market over the long run. Once Baker and Weisbrot account for this, the long-term return for stocks falls sharply. This is an important point since the rate of return from stocks is key to the case for privatization. They have found mainstream and conservative allies in this argument, including economist Peter Diamond of MIT, the Federal Reserve Bank of Chicago, and a government advisory board chaired by a vocal entitlement critic and privatizer.
Baker and Weisbrot are sometimes the only voices in Washington making these important technical economic points. And despite their validation by other experts, they have largely been ignored by the pundit class that has bought the idea that Social Security is in crisis and that privatization is a solution. If this book is used as a handbook for citizen groups, organized labor, senior citizens, and others who are mobilizing to force politicians to level with the voters, the pundit class will discover the force of Baker and Weisbrot's arguments.
Many politicians are beginning to feel the jolt. George W. Bush is making partial privatization of Social Security a central plank in his campaign for president, and A1 Gore is clobbering him for it. It will be the job of smart candidates, activists, and advocates to put the electricity back in the third rail of American politics. Social Security: The Phony Crisis can help arm them for the election and the policy battles to follow.
THOMAS MATZZIE is a policy analyst at Campaign for America's Future where he coordinates the campaign's Social Security project. He is co-author of Social Security and Medicare: Myths, Lies, and Realities.
Weisbrot, Mark. Failed: what the "experts" got wrong about the global economy
H.D. Renning
CHOICE: Current Reviews for Academic Libraries. 53.8 (Apr. 2016): p1209.
Copyright: COPYRIGHT 2016 American Library Association CHOICE
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Welsbrot, Mark. Failed: what the "experts" got wrong about the global economy. Oxford, 2015. 293p bib Index afp ISBN 9780195170184 cloth, $24.95; ISBN 9780190234508 ebook, contact publisher for price
53-3589
HB3782
2015-14988 CIP
In five well-written chapters, Weisbrot (codirector, Center for Economic and Policy Research) presents a broad analysis of economic transformations and growth in the world over the last 35 years. He focuses primarily on the many unsuccessful policy approaches--especially macroeconomic. He blames these failures mainly on the official positions taken by the US government in world affairs, in particular its powerful influence on how the IMF and the World Bank deal with international economic issues. Among the economic regions the author examines in detail are the eurozone, China, and Latin America. More than anything else, he argues, advocacy for and reliance on "neoliberal" policy principles are at the root of recession and inflation periods; these principles have stood in the way of--or at least slowed down--economic progress during the last several decades. This book, which includes a 31 -page bibliography, is for those interested in macroeconomic policy, especially economic growth policy and international economic relations. Summing Up: *** Highly recommended. Upper-division undergraduates through faculty.--H. D. Renning, California State University, Stanislaus
Renning, H.D.
Some guides to a redefined retirement
Fred Brock
The New York Times. (Aug. 6, 2000): L, Business News: pBU10.
Copyright: COPYRIGHT 2000 The New York Times Company
http://www.nytimes.com
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BOOKS aimed at the growing, and increasingly affluent, senior market are filling bookstore shelves around the country. Here is a sampling of recent additions, which touch on subjects from retirement to the Internet:
[...]
SOCIAL SECURITY If you're confused by the political discourse over the future of Social Security, two books from the University of Chicago Press may help sort out the issues.
''Social Security: The Phony Crisis,'' by Dean Baker and Mark Weisbrot ($22), argues that because of overly conservative economic projections, Social Security is not in danger and doesn't need to be ''saved'' by putting some of its funds into individual stock market accounts, as George W. Bush, the Republican presidential candidate, and others advocate. This is a very readable book by two economists that is actually influencing the political debate.
Schwartz on Weisbrot, 'Failed: What the "Experts" Got Wrong about the Global Economy'
Author:
Mark Weisbrot
Reviewer:
Herman Schwartz
Mark Weisbrot. Failed: What the "Experts" Got Wrong about the Global Economy. Oxford: Oxford University Press, 2015. 312 pp. $24.95 (cloth), ISBN 978-0-19-517018-4.
Reviewed by Herman Schwartz (University of Virginia)
Published on H-Diplo (March, 2016)
Commissioned by Seth Offenbach
Every year since the start of the global financial crisis in 2008, the International Monetary Fund (IMF), the Bank for International Settlements (BIS), the US Federal Reserve Bank (Fed), the European Central Bank (ECB), and the central banks for most other rich countries have published predictions for economic growth, inflation, and unemployment in the coming years. They have a perfect record of significantly overestimating growth and inflation and underestimating unemployment.[1]
The future is fundamentally unknowable, so perhaps it is unfair to criticize these organizations for getting it wrong. If their errors were randomly distributed around the actual outcomes, and if these organizations had the same robust procedures for rooting out error that, for example, the transportation authorities have in place for diagnosing and preventing airplane crashes, then it would be patently unfair to be critical. But neither condition holds, even though the consequences when these institutions get things wrong affect tens of millions of peoples’ livelihoods. Both before and after the global financial crisis, these institutions consistently erred in the direction that favored their policy recommendations. And with one exception—to be discussed later, as it proves the rule—none of these institutions has engaged in any Bayesian updating of their models. The inability to make accurate predictions (or predictions whose direction of error tends to cancel out) strongly suggests that the underlying models these institutions use are wrong. Yet they continue to use them. And that in turn suggests that it is their policy preferences that drive their model choice and predictions, just as Philip Tetlock finds for the equally unreliable policy “experts” in his 2005 book Expert Political Judgment: How Good Is It? How Can We Know? Put simply, these institutions pick a model of how the world works that justifies picking the policies they prefer, rather than a model of the world that accurately predicts policy outcomes.
Mark Weisbrot’s Failed: What the “Experts” Got Wrong about the Global Economy addresses the existence and consequences of this systematic dual failure. He charts the policy advice dispensed by a number of Very Serious Institutions (VSI—if I may modify Paul Krugman’s expression, Very Serious People, who are invariably wrong and unapologetic about it). The book devotes most of its time to the IMF over the past four decades, to the aftermath of financial crises in Latin America over the same period with particular attention paid to the past twenty years, and to the Eurozone crisis of the past near decade. It complements these more general discussions with some detailed portraits of the IMF as an institution, several “Pink Tide” Latin American countries in the 2000s, and, above all, Argentina. The Pink Tide was the wave of Social Democratic governments elected after 1999, in reaction to the failure of the neoliberal, Washington consensus policies of the 1990s.
Put as simply as possible, the book makes a counterfactual argument. Economic policy advice from VSIs like the ECB and IMF has invariably made outcomes worse in crisis countries. This policy advice invariably demands deflation, calling for less government spending, wage cuts, and devaluations. Unsurprisingly, contractionary policy is contractionary. But the goal here is not growth, as such, but rather assuring that creditor claims can be honored. To the extent that these policies “work,” they work by drastically reducing imports and claims on government revenue in order to free up revenues and foreign exchange to service internal and especially external debt. But they do so by driving down growth in both the debtor country and, something less often recognized, the creditor country. These policies work by creating export surpluses for debtors, which means import surpluses and thus lower Gross Domestic Product (GDP) growth in creditor countries. (By definition, GDP equals consumption [C] plus non-transfer government spending [G] plus investment [I] plus net exports [X-M]. So a trade deficit is growth reducing, as it subtracts from GDP.)
The explicit counterfactual here is that an expansionary solution to financial crises also exists. In this solution both creditor and debtor would work together to mutually expand their economies. By providing bridging finance and boosting their own economy, creditors could both absorb extra imports (i.e., debtor exports) and thus provide debtors with the income they need to service their debts. This was the solution John Maynard Keynes advocated at the 1944 Bretton Woods conference. Keynes’s version of the IMF would have issued international money to deficit countries, enabling them to continue imports of capital goods and forcing creditors to recycle that international money as imports from deficit countries. Keynes unfortunately lost that debate. The less expansionary American policy preference put forward by Harry Dexter White prevailed, and eventually hardened into the contractionary policy stance of the IMF.
The core of Weisbrot’s book is a qualitative and quantitative contrast of these two approaches. The deflationary neoliberal policies imposed and accepted after the 1980s Latin American debt crises led to two decades of slow growth in Latin America. By contrast, the closed economy, import substitution industrialization period of 1940 to 1980, and the more Keynesian policies of 2000 to 2014 had significantly higher growth rates and significantly better poverty and income equality outcomes. The same is true for Europe’s troubled “south” before and after the Eurozone financial crises. The Troika of the ECB, IMF, and EU have tried to use the euro crisis to force a rollback of southern welfare states, much as the IMF forced market opening and welfare cuts in Latin America and Asia. Though Weisbrot paints altogether too rosy a picture of governments and elites in Argentina, Venezuela, and Greece, it is not obvious that creditors have the moral right to dictate their policy preferences to democracies. This is particularly true for institutions like the ECB, whose single-minded concern appears to be keeping inflation below the arbitrary level of 2 percent per year, regardless of the implications for growth and employment. Equally so, the book understates the degree to which Argentina is a model of the processes the book condemns. Argentina was the poster child for neoliberal reform in the 1990s, until, as with post-1997 Southeast Asia, crisis turned cheerleaders into critics. VSIs wrongly argued that it was the Argentines who had failed neoliberal policies and not the policies that failed the Argentines; just as these VSIs argued that it was Southeast Asian economies’ inability to deal with massive inflows and then outflows of speculative capital that caused their crash, not the fault of the lenders.
That said, the book does make a few questionable arguments. Most prominent among these is to dismiss the positive effects of Chinese demand on Latin American resource exporters in favor of crediting the Pink Tide shift away from neoliberal policies. Granted, Chinese demand for Latin American exports was partially offset by Chinese exports of manufactured goods to Latin America. But most Latin American countries were net exporters to China. Over the rough decade in which the Pink government of Luiz Lula da Silva expanded the social safety net, Brazil ran a cumulative trade surplus with China of sixteen billion dollars, roughly equal to the cumulative expansion of spending on the poor via the successful poverty reduction program, Bolsa Familia.
More to the point, the increase in Chinese demand for commodities like iron ore, soybeans, and meat—all major Brazilian exports—over the period was equal to or exceeded the increase in Brazilian exports of those goods. Though Brazil was not the sole supplier for China, Chinese demand pushed global commodity prices to new highs. It is hard to imagine that Brazil would have had the same robust growth in the 2000s in the absence of China, which takes one-fifth of Brazil’s exports. As China’s economy faltered after 2013, so too did Brazil’s, much to the dismay of Dilma Rousseff’s equally Pink government.
I cover much of this same terrain in many of my classes, and my students often ask the same question about elites and the various international financial institutions: are they crazy or are they stupid? To which I generally reply: neither. They are not stupid; they know precisely what they are doing. But they are also not crazy. Rather, akrasia. Akrasia is the ancient Greek word that means to lack self-control and act against one’s own interests. Every global financial crisis started with a panic by lenders that drive merely illiquid debtors into insolvency, thus harming lenders as well as borrowers. Every global episode of mass default—including those by nine US states in the early 1840s—has resulted in creditors implicitly or explicitly writing down debt, or seizing lower yielding collateral as compensation for the loss of higher yielding financial claims. Creditors have tended to do better in recovering money in the past forty years, but that is largely due to the ability of the Fed and IMF to impose collective discipline on creditors postcrisis. Precrisis, of course, neither the Fed nor the IMF seems to have any interest in disciplining creditors’ desires to lend far too much money and drive bubbles in borrowers’ economies. As Weisbrot’s Center for Economic Policy Research colleague Dean Baker never tires of pointing out, the experts at the Fed famously managed to miss the emergence of the eight trillion dollar US housing bubble.[2] Equally so, the IMF was energetically promoting capital market liberalization just before unconstrained capital flows brought on the 1997 Asian Financial Crisis.
Intellectual maturity requires the ability to recognize one’s mistakes and adjust one’s model of the world in response to consistently failed predictions. Are the VSIs Weisbrot studies capable of change? He thinks not, and I agree. The one major change in policy recommendations that has occurred is the one noted above as the exception that proves the rule. Here the rule is that the VSIs’ preferences for specific policy outcomes and the financial and geopolitical interests behind those VSIs drive their choice of model. After the global financial crisis the IMF changed its tune on capital controls, and during the Eurozone crisis it cautiously advocated expansionary policy rather than its traditional deflationary package. Why? Not a sudden Damascene conversion. Rather, every developing country capable of running an export surplus after the 1997 Asian Financial Crisis did so, and parked those surpluses in US Treasury notes in order to be able to defend themselves from currency speculation. This threatened the IMF’s institutional mission, particularly as Asian political leaders were furious with the IMF’s flawed and damaging response to the 1997 crises. The IMF thus had to find some way to restore its prestige and bargaining power. Similarly, the IMF’s softer line on austerity in the Eurozone crisis reflected American concerns that the ECB’s hard line on bailing out southern governments would provoke an even greater crisis, and damage the US economy as well. Institutional policy preferences drove policy advice and the selection of a model of the world to justify that advice.
Weisbrot’s Failed is a comprehensive March of Folly cataloging the intellectual and policy failures of a set of extremely powerful institutions. Yet it is also written at a level accessible to any undergraduate with a basic economics background. I recommend it to those looking for a follow-up to the classic reporting on the 1997 Asian Financial Crisis and Argentine default found in Paul Blustein’s classic books The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF (2003) and And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina (2006).
Notes
[1]. Some examples can be found at https://www.whitehouse.gov/sites/whitehouse.gov/files/images/slide3.jpg; http://bruegel.o... and http://economistsview.typepad.com/.a/6a00d83451b33869e201b8d183847e970c-500wi.
[2]. Fed Board of Governors member Edward Gramlich was a notable, yet ultimately ignored, exception. See Edward Gramlich, Subprime Mortgages: America's Latest Boom and Bust (Washington, DC: Urban Institute, 2007).
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Again, not really a review, but quoted from it to make word count. It's right at the beginning of the introduction.