The Icelandic Chutzpah Prize Is Retired: Portes and Baldursson Win by Losing

William K. Black, guest blogger (originally posted at New Economic Perspectives, Benziga, and the Dollars & Sense blog)

Portes as the poster child for the failure of econometrics and neoclassical dogma

Richard Portes is the economist that the U.K.’s neoclassical economists chose to be their representative.  They consider him to represent the greatest strengths of neoclassical economists in general and econometricians in particular.  “Econometricians” is a fancy term for economists whose specialty is statistics.  Economics is unique in that one can receive exceptional honors from fellow-neoclassical economists for proving catastrophically wrong – repeatedly and causing immense human suffering.  Wesley Marshall and I are doing a book that illustrates this point by focusing on Nobel Laureates in economics, and explains the underlying pathology that has so twisted the field.  Portes has not been made a Laureate, but he is a global leader among neoclassical economists.  Portes’ pronouncements on Iceland have proven so wrong, so often, that they serve a similar purpose in illustrating these crippling pathologies.

His infamous November 2007 ode to the soundness of the big three Icelandic banks was commissioned by Iceland’s Chamber of Commerce and it went on at length about Portes’ accomplishments.  Here is a brief excerpt to give the reader a feel for tone.

“Professor Portes is a Fellow of the Econometric Society, a Fellow of the British Academy, a Fellow of the European Economic Association, and Secretary-General of the Royal Economic Society. He is Co-Chairman of the Board of Economic Policy. He is a member of the Group of Economic Policy Advisors for the President of the European Commission; of the Steering Committee of the Euro-50 Group; of the Bellagio Group on the International Economy; and Chair of the Collegio di Probiviri (Wise Men Committee) of MTS.”

Yes, they were so sexist that they had a “Wise Men Committee” in 2007, and Portes used that phrase to describe the group.  The Committee, of course, proved to be an oxymoron composed of regular morons.  The Queen named him a Commander of the British Empire (CBE) in 2003 then famously asked British economists why they had missed the developing crisis.

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"Structural Reforms" and Unemployment

Philip Arestis and Malcolm Sawyer

There is little doubt that the “fiscal compact,” which has replaced the Stability and Growth Pact of the Economic and Monetary Union, reinforces an already-established neoliberal perspective on macroeconomic policy—with the emphasis on balanced budgets and an “independent” central bank only concerned with price stability (the latter to be achieved through interest-rate manipulation).

The perspectives on labour and product markets were not so clear-cut initially, but recent developments have seen a distinct shift in the neoliberal direction. There had long been calls from institutions such as the European Central Bank (ECB) for “structural reforms,” “liberalisation,” etc., alongside fiscal consolidation. Now, the Treaty on Stability, Coordination and Governance imposes, for any country subject to an “excessive deficit procedure,” that it “shall put in place a budgetary and economic partnership programme including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of its excessive deficit” (emphasis added).

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“Structural Reforms” and Unemployment

Philip Arestis and Malcolm Sawyer

There is little doubt that the “fiscal compact,” which has replaced the Stability and Growth Pact of the Economic and Monetary Union, reinforces an already-established neoliberal perspective on macroeconomic policy—with the emphasis on balanced budgets and an “independent” central bank only concerned with price stability (the latter to be achieved through interest-rate manipulation).

The perspectives on labour and product markets were not so clear-cut initially, but recent developments have seen a distinct shift in the neoliberal direction. There had long been calls from institutions such as the European Central Bank (ECB) for “structural reforms,” “liberalisation,” etc., alongside fiscal consolidation. Now, the Treaty on Stability, Coordination and Governance imposes, for any country subject to an “excessive deficit procedure,” that it “shall put in place a budgetary and economic partnership programme including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of its excessive deficit” (emphasis added).

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Offshore Banking, Fraud, and the Crisis

Sara Hsu

The global financial crisis that began in 2008 in the United States had roots in offshore banking, some of which have been revealed: the Bear Stearns’ 2007 Cayman Island hedge fund bankruptcy, in which the company attempted to file offshore to protect U.S. assets, Goldman Sachs’ off balance sheet Cayman deals in shaky asset-backed securities (ABSs), and Citigroup’s creation of structured investment vehicles in London to hide the sales of ABSs.  These offshore banking centers, which include locations such as Luxembourg, the Netherlands, and Bermuda, were safe havens for large American banks that wished to move collateralized debt obligations (CDOs) and other asset backed securities off their balance sheets, and away from the scrutiny of auditors and shareholders.

Many of the large financial corporations were engaged in these dealings and created structured investment vehicles, many of which were held offshore.  While we may never know about all of these dealings, some rough calculations performed using the SEC’s Edgar database and offshore classification from the Tax Justice Network reveals interesting statistics on offshore entities held by major financial corporations.

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Battle Won, The War Goes On

India has only managed a short-term reprieve from the WTO to implement its Food Security Act

Timothy A. Wise, originally published at BW|Businessworld

In the courtyard of the bali International Convention Centre, just outside the hall where World Trade Organization (WTO) delegates were negotiating a modest, if controversial, agreement, someone had erected a small impromptu shrine, replete with flower petals and other offerings. The memorial was for Lee Kyung Hae, the Korean farmer who, ten years earlier, had scaled the barricades keeping the masses from WTO negotiators in Cancún, Mexico. He pronounced the simple indictment that “WTO kills farmers,” then took his own life.

With a reported quarter-million farmer suicides since 1990, Indian negotiators may well have had Lee Kyung Hae on their minds as they arrived in Bali, Indonesia for the WTO’s ninth ministerial. The country’s National Food Security Act was under threat from the WTO’s arcane rules, and Indian negotiators came to fight.

So did India’s Right to Food Campaign, which sent two representatives to object to the intrusion of the global trade body in India’s domestic policy-making. The act was the result of a decade of organising and lobbying. How could a distant trade body undermine its simple principles of paying hungry farmers a decent price for their grains and distributing it to India’s millions of hungry?
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The Social Agenda in 2014

Martin Khor

While political events will no doubt dominate the news in 2014, social issues such as health and environment and coping with the rising cost of living will be just as important in the new year.

Good health is the basis of everything else that is positive in life. Thus, a preview of key social issues in 2014 should begin with health.

In Malaysia, a major concern is the dramatic rise in dengue, with 39,222 cases in 2013, a 90% jump from a year before.

There is a re-emergence of the deadly human variety of avian flu, with 47 deaths from 147 cases in China coming from the new H7N9 strain in April-December last year.

A few years ago there was the expectation that a flu epidemic could sweep through the world, affecting millions of people. The flu pandemic in 2009 killed thousands of people, including in Mexico and Indonesia, but it was fortunately contained.
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How Beer Explains 20 Years of NAFTA's Devastating Effects on Mexico

Timothy A. Wise

Cross-posted from Global Post.

Mexico’s largest agribusiness associated invited me to Aguascalientes to participate in its annual forum in October. The theme for this year’s gathering was “New Perspectives on the Challenge of Feeding the World.”

But it was unclear why Mexico, which now imports 42 percent of its food, would be worried about feeding the world. It wasn’t doing so well feeding its own people.

In part, you can thank the North American Free Trade Agreement (NAFTA) for that. Twenty years ago, on January 1, 1994, NAFTA took effect, and Mexico was the poster child for the wonders of free trade. The promises seemed endless.

Mexico would enter the “First World” of developed countries on the crest of rising trade and foreign investment. Its dynamic manufacturing sector would create so many jobs it would not only end the U.S.  immigration problem but absorb millions of peasant farmers freed from their unproductive toil in the fields. Mexico could import cheap corn and export electronics.

So much for promises.

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How Beer Explains 20 Years of NAFTA’s Devastating Effects on Mexico

Timothy A. Wise

Cross-posted from Global Post.

Mexico’s largest agribusiness associated invited me to Aguascalientes to participate in its annual forum in October. The theme for this year’s gathering was “New Perspectives on the Challenge of Feeding the World.”

But it was unclear why Mexico, which now imports 42 percent of its food, would be worried about feeding the world. It wasn’t doing so well feeding its own people.

In part, you can thank the North American Free Trade Agreement (NAFTA) for that. Twenty years ago, on January 1, 1994, NAFTA took effect, and Mexico was the poster child for the wonders of free trade. The promises seemed endless.

Mexico would enter the “First World” of developed countries on the crest of rising trade and foreign investment. Its dynamic manufacturing sector would create so many jobs it would not only end the U.S.  immigration problem but absorb millions of peasant farmers freed from their unproductive toil in the fields. Mexico could import cheap corn and export electronics.

So much for promises.

Read the rest of this entry »