Author Archive

Can the Venezuelan economy be fixed?

October 25, 2016 Leave a comment

from Mark Weisbrot

The international media has provided a constant fusillade of stories and editorials (not always easily distinguished from each other) about the collapse of the Venezuelan economy for some time now. Shortages of food and medicine, hours-long lines for basic goods, incomes eroded by triple-digit inflation, and even food riots have dominated press reports.

The conventional wisdom has a set of predictable narratives to explain the current economic mess. “Socialism” has failed ― never mind that the vast majority of jobs created during the Chávez years were in the private sector, and that the size of the state has been much smaller than in France. The whole experiment, it is said, was a failure from the beginning. Nationalizations, antibusiness policies, populist overspending during the years of high oil prices, and then the collapse of these oil prices since 2014 sealed Venezuela’s fate. The downward spiral will continue until the chavistas are removed from power, either through elections or through a coup (most pundits don’t seem to care which).  Read more…

The stock market’s fear of Trump could be final nail in his coffin

October 6, 2016 2 comments

from Mark Weisbrot

Republican nominee Donald Trump’s embarrassments and scandals keep piling up, from his Twitter meltdown last Friday night to The New York Times revelations that he could have gotten away without paying income taxes for the past 18 years.

These may have some impact on the race, although it’s tough to guess how much. But a recent piece in the Times about Trump’s potential influence on the stock market could really take some votes away from him, if it happens to go viral.

The article, by economist Justin Wolfers, estimates that a Trump victory on Nov. 8 will take 10 to 12 percent off of the value of the stock market. It’s a crude estimate, but the logic appears to be sound. He bases it on the performance of stock market index futures on the evening of the September 26 presidential debate. To summarize very briefly, when Trump was doing badly in the debate — e.g., when Democratic nominee Hillary Clinton was hammering him about his tax returns and prediction markets indicated that his chances of winning the election were falling — the stock market index futures went up. The correlation is strong enough to extrapolate an estimated impact of an actual Trump win.

There are many people currently planning to vote for Trump on Nov. 8 for mostly personal monetary reasons. Some of these people may share his opponents’ views that Trump is unqualified to be president, to put it politely, and neither like nor trust him personally. But they will vote for him, and often any Republican, because they figure their taxes will be lower than under a Democratic government. Call it “vote buying,” if you will; this is a core constituency of the Republican Party.
Read more…

Will the IMF become irrelevant before it changes?

August 30, 2016 21 comments

from Mark Weisbrot

The neoliberal reforms it has imposed on countries around the world have been disastrous.

The UK’s vote in June to leave the European Union, combined with an extraordinary backlash against trade agreements as manifested in the US presidential election, has set off an unprecedented public debate about globalization and even some of the neoliberal principles that it embodies in its current form. It is therefore of great relevance to look at what is happening to one of the most powerful promoters of neoliberal globalization in the world economy: the International Monetary Fund.

An article in the June issue of the IMF’s quarterly magazine, Finance and Development, raised a lot of eyebrows in Washington policy circles. “Neoliberalism: Oversold?” was the title, and the authors presented some evidence in the affirmative, for at least some important neoliberal policies. To most of us, it was like an op-ed from Donald Trump titled “Insulting Your Opponents: Oversold?”

Neoliberalism refers to a set of policies that the IMF has been promoting all over the world for decades. These include tighter fiscal and monetary policies (sometimes even when the economy is weak or in recession); an indiscriminate opening up of countries to international trade and capital flows; the abandonment of state-led industrial and development policies; privatization of public enterprises; and various forms of deregulation, including financial.

It’s not exactly a household word in the United States, but in South America in the 21st century, for example, most of the winning presidential campaigns were against it. There were some solid reasons for their opposition: During the last two decades of the 20th century, when neoliberal reforms were being implemented, income per person in Latin America barely grew. Whereas in the previous two decades — when governments did most of the things that neoliberalism was designed to reverse — income per person nearly doubled.

If we look at the world as a whole during the decades of neoliberal reform (1980–2000), there was also a sharp slowdown in economic growth in the vast majority of low- and middle-income countries, as well as a decline in progress on such indicators as life expectancy and infant mortality. So yes, neoliberalism appears to be worse than oversold.

Read more…

Bringing the Troika to Paris

June 15, 2016 1 comment

from Mark Weisbrot

I have argued for years, and in my last post on this blog, that a big part of the story we have seen in Europe over the past eight years is a result of social engineering. This has involved a major offensive by the European authorities, taking advantage of an economic crisis, to transform Europe into a different kind of society, with a smaller social safety net, lower median wages, and — whether intended or not — increasing inequality as a result.

In recent weeks France has faced strikes and protests as the battle has come to their terrain, over a new, sweeping labor law. Among other provisions, the law would weaken workers’ protections regarding overtime pay, the length of the work week, and job security. But most damaging of all are the provisions that would structurally weaken unions and undermine their bargaining power. These would push collective bargaining away from the sectoral level, and toward the level of individual companies, thus making it more difficult for unions to establish industry standards for wages, hours, and working conditions.

Such structural “reforms” have been promoted by the European authorities (including the IMF) for years, and the ostensible rationale is to reduce unemployment. Economist Thomas Piketty succinctly sums up the major flaw in that argument:

Read more…

IMF economists discover some of the big failures of neoliberalism: about time

June 7, 2016 2 comments

from Mark Weisbrot

The International Monetary Fund (IMF) has gotten some attention in the past week for the publication of an unusual article in its quarterly magazine, Finance and Development. The article’s title, “Neoliberalism: Oversold?” itself is a shocker, since the institution has been the most influential proponent of neoliberalism in the world for more than four decades. It’s kind of like an op-ed from Donald Trump titled, “Insulting Your Opponents: Oversold?”

From the authors (Jonathan D. Ostry, Prakash Loungani, and Davide Furceri):

[T]here are aspects of the neoliberal agenda that have not delivered as expected. Our assessment of the agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalization); and fiscal consolidation, sometimes called “austerity,” which is shorthand for policies to reduce fiscal deficits and debt levels. An assessment of these specific policies (rather than the broad neoliberal agenda) reaches three disquieting conclusions:The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­

  • The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­

  • The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­

  • Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­

But the overall failure of the neoliberal agenda has been evident since the turn of the century, for anyone who cared to look at the data. The authors note: “There has been a strong and widespread global trend toward neoliberalism since the 1980s …” So, if an experiment has been conducted in scores of countries over a twenty-year period, why not look and see how the average country has done as compared with, e.g., the previous twenty-year period?  Read more…

European authorities’ failed economic policies hit resistance in Spain

March 6, 2016 3 comments

from Mark Weisbrot

The Spanish elections in December provided proof, if anyone needed it, that the fight over the economic and social future of Europe is far from over.

For the first time in three decades, each of two major parties that had ruled Spain since its incomplete transition to democracy was unable to form a governing coalition. The incumbent right-wing Popular Party (PP) — with roots in Francisco Franco’s fascist dictatorship — remained the largest party in the parliament but saw its representation shrink by a third. The center-left Socialist Workers Party (PSOE), which had lost its majority to the PP in 2011 due to its support for austerity, fared even worse. Their defecting voters went mostly to Podemos, a new left party, less than two years old, which grew out of the mass protests against austerity. Podemos surprised pollsters and most of the media by winning 20.7 percent of the vote, just 1.3 points behind the PSOE. The PP won 28.7 percent, and a new party called Ciudadanos (Citizens), which some have called “the Podemos of the right,” got 13.9 percent.
Read more…

Lessons from NAFTA for the TPP

October 16, 2015 1 comment

from Mark Weisbrot

There are many lessons from the North American Free Trade Agreement (NAFTA) that are relevant to the current debate over the Trans-Pacific Partnership (TPP). First, like the TPP, NAFTA was never mostly about trade, and even less about free trade. In 1994, the U.S. already had low tariff barriers to Mexican goods. The agreement was much more about creating and expanding new rights and privileges for investors, mostly multinational corporations. For example, the Investor-State Dispute Settlement (ISDS) provision of NAFTA allowed corporations to sue governments directly for laws or judicial decisions that infringed upon their profits. This became a threat [PDF] to environmental, food safety, public health and other regulation. The main concern is that the sovereign laws and judicial systems of the signatories of treaties such as NAFTA could be subordinated to a tribunal established by the agreement, without the guarantees and extent of due process of, e.g. the U.S. legal system, and by judges who were generally more sympathetic to corporations than to the public interest.   Read more…

New Greek bailout increases the odds that Grexit will actually happen, despite Washington’s pressure.

August 2, 2015 3 comments

from Mark Weisbrot

It is now clear that the European authorities do not intend to let the Greek economy recover any time in the foreseeable future. The primary surpluses that the government has been forced to agree to—2, 3, and 3.5 percent of GDP for the three years of the deal, 2016 through 2018—will not allow Greece to escape its depression, which is now in its sixth year.  Even if they miss these targets, which is likely, just trying to do what they have committed to will keep the economy from recovering.

The Foundation for Economic and Industrial Research in Athens has projected that the Greek economy will not recover in 2016.  It is worth noting that since 2010 past projections from official sources, e.g., by the IMF, have almost always projected recovery for the following year – even though it never happened until the tiny, short-lived, recovery of 2014.

One can only speculate on the motives for inflicting this harm on the people of Greece. Clearly it is not about the money – the Financial Times estimated that the primary surpluses will contribute about 4.5 billion euros out of what is now an 86 billion euro package. Punishment is probably part of the motivation for these hateful conditions, as well as a fear on the part of the tormentors that “leniency” could encourage people in other vulnerable eurozone economies to vote for left parties or demand an earlier exit from mass unemployment.   Read more…

European authorities refuse to let Greek economy recover, making eventual Grexit more likely

July 19, 2015 3 comments

from Mark Weisbrot

The battle over the future of Europe – currently centered in Greece – is far from over. But, with the tentative deal that has been struck between the Syriza government and European authorities, it has certainly entered a new phase.

Prior to the July 5 referendum, European officials had been carrying out a strategy of “regime change.” Deadlines came and went, and threats of a forced Grexit were mainly bluff, despite the fact that the most powerful leader of the eurogroup of finance ministers, Germany’s Wolfgang Schäuble, seemed to favor it. The strategy of regime change looked relatively easy: the European Central Bank (ECB), by restricting credit, together with the standoff and rumors of Grexit, had already pushed the Greek economy back into recession. It seemed only a matter of time before the economic failure, combined with anti-Syriza media coverage, would undermine support for the Greek government enough to usher in a new one.

In his first interview since his July 6 resignation from the post of Greek finance minister, Yanis Varoufakis describes “The complete lack of any democratic scruples, on behalf of the supposed defenders of Europe’s democracy,” i.e., his eurozone negotiating partners. They continuously “delayed and then came up with the kind of proposal you present to another side when you don’t want an agreement.”  Read more…

Germany is bluffing on Greece

June 12, 2015 8 comments

from Mark Weisbrot

You can ignore all the talk of a “Grexit,” the bluff and bluster of right-wing German ideologues such as Finance Minister Wolfgang Schäuble who would celebrate it, and repetitive, stubbornly dire warnings that time is running out. Did you notice that the much-hyped June 5 deadline for the Greece’s payment to the International Monetary Fund (IMF) came and went, Greece didn’t pay and nobody fell off a cliff? Trust me, this is not a cliffhanger.

Although there have been numerous references to game theory in the ongoing commentary, it’s really not necessary if you look at the revealed preferences of those whom the Syriza government is polite and diplomatic enough to call its European partners. Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone. Read more…

Are the European authorities destroying the Greek economy in order to “save” it?

March 31, 2015 5 comments

from Mark Weisbrot

There is a tense standoff right now between the Greek government and the European authorities – sometimes known as the Troika because it includes the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). ECB President Mario Draghi denied this week that his institution is trying to blackmail the Greek government.

But blackmail is actually an understatement of what the ECB and its European partners are doing to Greece. It has become increasingly clear that they are trying to harm the Greek economy in order to increase pressure on the new Greek government to agree to their demands.  Read more…

The buck stops here – Greece is fighting to save Europe

February 27, 2015 5 comments

from Mark Weisbrot

Greece has been dragged through a lot of mud in the media over the past few years because previous governments overborrowed, and that contributed to the initial crisis that – we should remember – Spain, Portugal, Italy and almost everyone else in the eurozone had to go through. But the initial crisis could have been resolved relatively quickly. In the United States, which was hit by the explosion of an $8 trillion housing bubble, our recession lasted just 18 months. In Greece it has been six years, with a loss of a quarter of its national income, and more than 25 percent unemployment (and twice that for youth).

By now it is clear not only to the majority of economists, but to most people who are paying attention that this long depression was not only unnecessary but caused directly by bad policies.  Read more…

Greece: ECB kicks Syriza in the face; Syriza turns the other cheek

February 7, 2015 7 comments

from Mark Weisbrot

On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.

We should be clear about what this means.  The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made.  It looks very much like a deliberate attempt to undermine the new government.  They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to. Read more…

Syriza’s win is the beginning of the end for the Eurozone’s long nightmare

February 6, 2015 13 comments

from Mark Weisbrot

Everyone seems to agree that Syriza’s big victory in Greece is a milestone for Europe, which has been plagued by mass unemployment and a failure to really recover from the financial crisis and world recession of 2008-09.  But what kind of a milestone will it be? We can get some ideas from focusing on a few key issues, especially economic policy, which remain surrounded by much confusion in the public debate.

Alexis Tsipras himself, the charismatic 40-year old leader of Syriza who has become the country’s youngest prime minister in 150 years, declared on Sunday that “Democracy will return to Greece.” This was mostly overlooked as mere political rhetoric, but it was actually a concise political statement that goes to the core of not only Greece’s but the eurozone’s main problem. All we need to do is compare the recovery of the United States – which was the epicenter of the earthquake that shook the world economy in 2008 and 2009 – and that of Europe, to see what a difference democracy makes. Read more…

Fed shouldn’t be raising interest rates any time soon

December 10, 2014 2 comments

from Mark Weisbrot

A lot has changed in the last 20 years since then-Federal Reserve Vice-Chairman Alan Blinder had the audacity to suggest, in a speech, that the Fed could use interest-rate policy to help reduce unemployment in the short term. It was real blasphemy back then, and despite the fact that the Fed had by law a dual mandate to maintain both “price stability” and full employment, his remarks ignited a firestorm of controversy.

Now, thanks to the Great Recession, and Ben Bernanke’s willingness to use zero interest rates and venture into uncharted territory with quantitative easing, the “dual mandate” is widely accepted.  Both Bernanke and current Fed Chair Janet Yellen also spoke out in favor using fiscal policy (i.e. deficit spending) to increase employment, something that U.S. Fed chairs didn’t say in the past.  In a recent speech, Yellen noted that “the lack of fiscal support for demand in recent years also helps account for the weakness of this recovery compared with past recoveries.”

These are important institutional advances, even if other branches of government – most importantly the Congress – are not smart enough to take advantage of free money to create some of the millions of jobs that are so desperately needed. But today’s Fed could still be a threat to full employment if it proceeds too early with the “normalization” of interest rates that even Ms. Yellen is talking about.  And everyone is talking about some time next year, and that is too early. Read more…

How to fix Venezuela’s troubled exchange rate

July 24, 2014 1 comment

from Mark Weisbrot

Most people think that the Venezuelan economy is a basket case on the verge of collapse, and that has been a widespread belief for most of the last decade. But the South American nation has only run into serious trouble in the past two years. Starting in 2004, after the government wrested control from its political opposition over the all-important oil industry, the economy performed quite well through 2012. It grew at an annual rate of 4.8%, and the poverty rate fell by half.

During the past two years, however, a number of problems worsened. Inflation has hit annual rates of more than 60%, and the country has faced an increasing shortage of essential consumer goods like milk and toilet paper. The black market price of the dollar also soared.

Earlier this month, the government announced that it would try to resolve these imbalances by creating a single, unified exchange rate system. Venezuela currently has four different exchange rates. Most dollars are bought from the government at the official rate of 6.3 bolivares fuertes per U.S. Dollar. These are intended for essential goods, such as food and medicine. Some other importers can buy dollars from the government at a rate of about 11 bolivares per dollar on a limited exchange called SICAD 1. There is also SICAD 2, which was introduced in March and involves private sellers, at a rate of 50 Bf. per dollar. Finally, there is the black market, which is unregulated, where dollars currently sell for about 79 Bf. per dollar.  Read more…

BRICS’ new financial institutions could break a long-standing and harmful monopoly

from Mark Weisbrot

Back in 1998, when middle-income Asian countries were hard hit by big capital outflows, there was an effort – joined by China, Japan, Taiwan and other countries—to put together an Asian Monetary Fund to offer balance of payments support.  Washington vetoed the idea, insisting that all assistance had to go through the IMF.  The result was a mess, including an unnecessarily deep regional recession, as the IMF failed to act as a lender of last resort, and then attached all kinds of harmful and unnecessary conditions to its lending.

But the world has changed a lot in the past 15 years.  Last week the BRICS countries (Brazil, Russia, China, India, and South Africa) decided to form the Contingent Reserve Arrangement (CRA) and the New Development Bank (NDB), and the United States will not have a veto this time.  These new institutions have the potential to become a game changer for the world economy.

The western media coverage of these events has been mostly dismissive, but that primarily reflects the concerns of Washington and its allies.  They have had unchallenged sway over the decision-making institutions of global financial governance for 70 years, and the last thing they want to see is competition.  But competition is exactly what the world needs here.  Read more…

China has good reason to help stabilize Latin American economies

February 3, 2014 4 comments

from Mark Weisbrot

In the last week or so much of the international business press has been focused on the problems of financial stability in developing countries, some of whom have recently become more vulnerable to capital outflows.  The main cause is that investors are trying to get the jump on possible moves by the U.S. Federal Reserve to allow U.S. interest rates to rise, which will draw capital from developing countries and cause their borrowing costs to rise.

Argentina has gotten some of this attention, as it allowed the peso to fall by 15 percent in one day and increased some access for Argentines to dollars on the official market.  Venezuela is not so much affected by these market developments, but is always negatively portrayed in the international media, and more so in the last year since its exchange rate system problems have caused its inflation to rise to an annual rate of 56 percent over the past year.

The two countries face different sets of problems, but they will both likely have to stabilize their exchange rates in order to resolve them.  This is where international help can make a big difference, and there is one country that has both the ability to help and a compelling interest in doing so:  China.  Read more…

Economic and social policy and the problems of the Eurozone and European integration

January 30, 2014 Leave a comment

Mark Weisbrot

The latest (February) issue of Harpers’ Magazine has an interesting discussion of Europe and the eurozone, “How Germany Reconquered Europe: the Euro and its Discontents.” Some of the big questions of European unity, democracy, and national sovereignty are debated in broad and direct terms not often seen in other analyses:

“The basic lesson of the past ten, twenty years – even of the past hundred years – is that the upper limit, not only of democracy but of political legitimacy, is the nation-state…” (John N. Gray, London School of Economics.)

Then there is the Franco-German relationship, which is central to the eurozone:  Read more…

Five economic policy changes for 2014 that could boost employment and reduce climate disruption

January 27, 2014 5 comments

from Mark Weisbrot

The U.S. economy is still weak, with 7 percent unemployment, many millions more underemployed and less people employed in November than there were six years ago. At the same time – and not unrelated – we are still devolving along a path toward increasingly ugly inequality, with 95 percent of the income gains since the Great Recession going to the top 1 percent of the income distribution.

Meanwhile, the crisis of global climate change is moving toward more irreversible catastrophic damage each year that the United States, which is responsible for more of the cumulative carbon emissions than any other country, procrastinates in making the necessary changes to reduce fossil fuel consumption.

There are feasible policy changes that can address all of these problems – and we don’t have to sacrifice employment or a more just and decent society in order to make progress on climate change. Here are five of them: Read more…