Annals of polemicism

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It's hard for me to read this without thinking of Ken Rogoff's immortal open letter to Joseph Stiglitz.  Consider this passage from Professor Cochrane:

As usual, academics need to waste two paragraphs before getting to the point, which starts in the first bullet. To really enjoy this delicious prose you have to first read it all in one place.


• Many colleagues are distressed by the notoriety of the Chicago School of Economics, especially throughout much of the global south, where they have often to defend the University's reputation in the face of its negative image. The effects of the neoliberal global order that has been put in place in recent decades, strongly buttressed by the Chicago School of Economics, have by no means been unequivocally positive. Many would argue that they have been negative for much of the world's population, leading to the weakening of a number of struggling local economies in the service of globalized capital, and many would question the substitution of monetization for democratization under the banner of "market democracy." 

 

Yes, there are people left on the planet who write and think this way, and no, I'm not making this up. Let's read this more closely and try to figure out what it means.

 

"Many colleagues are distressed by the notoriety of the Chicago School of Economics, especially throughout much of the global south, where they have often to defend the University's reputation in the face of its negative image."

 

If you're wondering "what's their objection?", "how does a MFI hurt them?" you now have the answer.  Translated, "when we go to fashionable lefty cocktail parties in Venezuela, it's embarrassing to admit who signs our paychecks." Interestingly, the hundred people who signed this didn't have the guts even to say "we," referring to some nebulous "they" as the subject of the sentence.  Let's read this literally: "We don't really mind at all if there's a MFI on campus, but some of our other colleagues, who are too shy to sign this letter, find it all too embarrassing to admit where they work." If this is the reason for organizing a big protest perhaps someone has too much time on their hands.


 "Global south"


I'll just pick on this one as a stand-in for all the jargon in this letter.  What does this oxymoron mean, and why do the letter writers use it?  We used to say what we meant, "poor countries. " That became unfashionable, in part because poverty is sometimes a bit of your own doing and not a state of pure victimhood.  So, it became polite to call dysfunctional backwaters "developing." That was already a lie (or at best highly wishful thinking) since the whole point is that they aren't developing.  But now bien-pensant circles don't want to endorse "development" as a worthwhile goal anymore.   "South" - well, nice places like Australia, New Zealand and Chile are there too (at least from a curiously North-American and European-centric perspective).  So now it's called "global south," which though rather poor as directions for actually getting anywhere, identifies the speaker as the caring sort of person who always uses the politically correct word.   

 

"The effects of the neoliberal global order that has been put in place in recent decades...."

 

Notice the interesting verb tense. Let's call it the "accusatory passive." "Has been put in place.." By who, I (or any decent writer) would want to know?  Unnamed dark forces are at work.

 

"Many would argue that they have been negative for much of
the world's population... weakening ... struggling local economies"

 

I can think of lots of words to describe what's going on in, say, China and India, as well as what happened previously to countries that adopted the "neoliberal global order" like Japan, Hong Kong, and South Korea. Billions of people are leading dramatically freer, healthier, longer and more prosperous lives than they were a generation ago.

 

Of course, we all face plenty of problems. I worry about environmental catastrophes, and their political, social and economic aftermath.  Many people are suffering, primarily in pockets of kleptocracy and anarchy.  Life's pretty bleak about 5 blocks west of the University of Chicago. In my professional life, I worry about inflation, chaotic markets, and their possible death by regulation. There is a lot for thoughtful economists and social scientists to do. But honestly, do we really yearn to send a billion Chinese back to their "local economies," trying to eke a meager living out of a quarter acre of rice paddy, under the iron grip of some local bureaucrat? I mean, the Mao caps and Che shirts are cool and all, but millions of people starved to death.

 

This is just the big lie theory at work. Say something often enough and people will start to believe it. It helps especially if what you say is vague and meaningless.


Why aren't there hordes of economists studying meaningful alternatives to market capitalism?  Because we've been experimenting with various other systems--both localism and extreme centralization--for over a century, and the experiment produces the same damn result every single time:  human lives that are nasty, brutish, and short.  And no matter what the professors who signed the Milton Friedman letter may believe, we haven't discovered any alternative to neoliberal policies, other than "be sitting on commodities during a boom", which is good luck, but not really good advice.  The problem with neoliberal policies was not that they drove people into poverty, but that they weren't nearly as effective at driving people out again as we once hoped.  Yet they are still more effective than anything else we've tried.


Neoliberal policies are hated in poor countries because they are associated with economic pain.  But the association in most peoples' mind runs the wrong way, as Ken Rogoff pointed out:


Governments typically come to the IMF for financial assistance when they are having trouble finding buyers for their debt and when the value of their money is falling. The Stiglitzian prescription is to raise the profile of fiscal deficits, that is, to issue more debt and to print more money. You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable. You seem to believe that when investors are no longer willing to hold a government's debt, all that needs to be done is to increase the supply and it will sell like hot cakes. We at the IMF--no, make that we on the Planet Earth--have considerable experience suggesting otherwise. We earthlings have found that when a country in fiscal distress tries to escape by printing more money, inflation rises, often uncontrollably. Uncontrolled inflation strangles growth, hurting the entire populace but, especially the indigent. The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.


People in Nigeria, for example, tend to blame the Western bailout in the 1980s for the economic misery that followed.  But the economic misery was the result of the collapse in oil prices; the fiscal reforms were aimed at keeping a bad situation from getting even worse.


The idea that Chicago should scuttle the Milton Friedman Institute because it makes other professors unpopular with economic illiterates is shameful, and moreover, something that I presume few of these "scholars" would tolerate if the ignorant were targeting their own fields.  That this should be coming out of a university with Chicago's reputation for intellectual rigor is mortifying.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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