NoisetteandtheDude’s Blog

October 25, 2008

Economics: the Dismal Science


…An especially dismal science lately.  We’re all hurting these days, which is the main reason Obama will be elected in a landslide in 10 days. Poor John never had a chance: not only does he admit that he’s no economist, he’s been swamped by a tsunami of repossessions, forfeitures, and just plain panic.  And all of us have had way more than enough of this crap.

But I think we need to poke around in the pile and see if we can understand just how we got here, then set a course to higher ground.  I mean, someone’s got to do it; might as well be us.

Most politicians now agree that under-regulation of the banking and securities industry is the root cause of this latest economic melt-down.  But politicians tend to line up, lemming-like, marching in lock-step cadence to the latest polls.  You and I need to look a little deeper.

Naomi Kline’s “The Shock Doctrine: Disaster Capitalism” is a good place to start.  A word of caution: the book is not a pleasure read; it’s too full of things that make your blood boil to be any fun as bedtime escapism.  The problem is that I can’t stop reading the damned thing because it’s so real and brutal.  And so very, very scary.

In painful detail, Kline’s book delineates how Milton Friedman’s “Chicago School” taught a whole generation of economists how to take advantage of – and create  “shocks” to speed adoption of unfettered free enterprise.  They’ve succeeded beyond Friedman’s wildest ambition; his “neoliberal economics” dominates the world.

Lots of terms have been used to describe this kind of economics: “neoliberalism,” “classical economics,” “laissez-faire,” “neoconservatism,” or more familiarly, “Trickle-down economics” or “Reaganomics.” [Your assignment for tomorrow, class: How does trickle-down economics differ from getting pissed on? Compare and contrast.]

The most accurate terminology is Ms Klein’s: “The Shock Doctrine: Disaster Capitalism.” Whatever you call it, it’s destroying our country – and our world.

Ms Klein starts by talking about Pinochet and Chile, and how Chicago School economists and the CIA worked hand-in-iron-fist with the Pinochet regime to restructure Chile’s economy – all for the benefit of Pinochet’s governing class, wealthy Chilean business owners and land-holders, foreign investors (especially Ford Motor Company), and the United States government.  All in the name of anti-communism and unregulated free enterprise, and all at the expense of the citizens of Chile, who went from living in poverty to living in fear and ruin.

Much has been written of Friedman’s Chicago School in helping Pinochet achieve the “economic miracle” of Chile.  And much has been written of Pinochet’s human-rights abuses, and Amnesty International’s role in documenting those abuses.  Until Ms Klein’s book, almost nothing has been written about how those abuses were deliberate, and essential to achieve the “Chilean Miracle.”

Amnesty International’s role in documenting human rights abuses in Chile was exquisitely narrow; they could document the specifics of Pinochet’s abuse of his citizens and publicize those specifics in glorious detail, but they could not examine the reasons for the abuse.  They could document the what, but not the why.  Their charter specifically forbad them from looking into the why, and their funding – mostly from the Ford Foundation – was conditional on them not looking for causes.

Which explains why Milton Friedman’s role in promoting those abuses was ignored – and why Friedman was awarded the Nobel Prize for Economics in 1976 for his work with Pinochet, and why Amnesty International was awarded the Nobel Peace Prize in 1977, for its work in the very same country.  For a couple years there, it appears everyone on the Nobel committee was wearing very tightly fitted blinders.  Or, more likely, just seeing what they wanted to see.

Ms. Klein’s book goes on to explain how the shock doctrine remade the economies of the rest of the world, after Chile: the balance of the “southern cone” (Peru, Venezuela, Brazil, Columbia), Great Britain under Thatcher, the United States under Reagan, Russia since the fall of the Berlin Wall, Poland (under Solidarity), South Africa (under the ANC), and China (ongoing).  The list is endless.  And more than a little depressing.

So, what do we do?  I’ve got some ideas – you know I do.  But this tome is already too long.  You’ll just have to wait.  Or better yet, offer your own.

Until next time, thanks for your attention – I look forward to hearing your thoughts.

–The Dude




  1. Thank you for pointing me in the right direction. In about a week I think the planet will make the most important paradigm shift in the history of mankind as the ‘last remaining superpower’ sets its sails to either spiral into the vortex or reach safe harbor. If the former, how ironic that gross bigotry and a touch of irrational economic gluttony will be the underlying cause of THIS sociological disaster.

    Comment by Barry — October 28, 2008 @ 12:38 am

  2. You clearly pick which economics books to read and facts to look at very selectively.

    The most recent shock of the housing bubble was in large part caused by Government and lobbyists meddling with the free market. Think about this: why would banks, in a totally free market, give out 100% loans and lend money to people who by one look at their pay-stub would clearly not qualify for a mortgage?

    Fannie Mae (created by FDR in 1938) and Freddie Mac (created during the Nixon administration by a Democratic-led Congress at the tail-end of the Great Society in 1970) were set up to create the secondary mortgage market we know today. Yes, there was some idiocy on Wall Street, primarily amongst the ratings agencies who rated these piece of shit loans as AAA, but there was quite a bit of institutional inertia and a wink-and-a-nod that the GSEs and, frankly, other old investment firms were simply too big to be allowed to fail by the Federal Government. They bailed out the S&Ls after the junk bond mess in ’87, and they bailed out the airlines after 9/11; what’s another sector of the economy (people’s houses, no less) for them to bail out if things go awry?

    And why did they go awry? Who were these people taking out these bad loans they couldn’t possibly pay back? Well, in part, they were beneficiaries of liberal do-gooders they’d never heard of such as the Greenlining Institute ( and other groups of “community organizers” in favor of “affordable housing” that badgered banks with threats of lawsuits or congressional investigations into their lending practices if they didn’t fall into line and give people free mortgages premised on the fact that (to quote Franklin Raines) houses are “riskless” assets.

    So you can bitch and moan about Milton Friedman and Pinochet and the disaster of Laissez-Faire economics all you want, but the U.S. economy has been mixed (in the sense of the government having a large role in making and regulating markets in several sectors of the economy) at least since the New Deal.

    And the hoary old “McSame” accusations make McCain look better than Obama in the current situation to me; Bush supported (largely for partisan reasons, but he did so nonetheless) Congressional hearings aimed at reigning in Fannie Mae, and he also supported reforming Social Security, something Obama intends to completely transform from a form of social insurance (a government mandated program everyone pays into out of their paycheck and collects on at retirement) into a way to both give away free money to the poor (since their “tax refunds” will refund their payroll taxes, and yet they’ll still collect social security even though they never paid a penny into it) as well as a way to add a 6.7% tax hike on those earning over $250k (making his tax plan _much_ more progressive than he portrays it to be) by restarting the payroll tax on all income over $250k. How that has any connection to making sure that you’ve paid your fair share into Social Security, I have no idea, it does, though, seem like a politically convenient way to raise taxes 7% without having to say that in his, you know, tax plan.

    Comment by Adam L — October 28, 2008 @ 12:56 pm

  3. In some situations bailouts make sense IMHO. The banks (some, not all) failed because of irresponsible mortgage lending by management, such as ARM’s, lowered loan standards, uncontrolled home equity lending, etc. But these same banks also offered checking and savings accounts, IRA’s, and many other services to tens of thousands of ordinary citizens who had nothing to do with the faulty loan process. These people must be protected … and the managers purged. Bailouts and finding merger partners was the answer. Insurance companies are similar. They offer legitimate policies to millions of people, as a way to protect them from unexpected losses. But the management of some companies (AIG, etc) was also heavily involved in insuring assets for speculators who didn’t own the assets they were insuring, clearly an invitation to disaster! Those managers must go, but the typical policy holders protected. The AIG bailout will enable to company to be broken up, sold, and then disolved. What about Lehman’s Brothers? That company, it appears, was essentially a casino, facilitating speculators, hedge funds, margin buyers, and other unregulated activities. What useful service did they offer ordinary citizens? None that I know of. Bernacke was right to NOT bail out Lehmans … it helps wash away the speculative crap that led to high oil and other commodity prices. Its no coincidence oil, gold, and other commodity prices have significantly dropped, along with the stock market, as speculators at Lehmans scramble to meet margin calls.

    Comment by Bruce — November 3, 2008 @ 7:10 pm

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