The ongoing disaster that is neoliberalism

Back in the 1970s, there was an ongoing debate between that giant (literally) of Keynesianism, John Kenneth Galbraith, and Milton Friedman who was toiling at the University of Chicago trying to resurrect the various economic ideologies that had been discredited by the Great Depression.  At one point Galbraith pointed out that "Milton Friedman’s misfortune is that his economic policies have been tried."

Unfortunately, Friedman's policies were tried again--and now we must deal with the chaos created by that mistake.  And the mindless Friedmanite bots continue crash forward with no awareness of their constant error.  Their refusal to recognize their mistakes proves beyond any reasonable doubt that neoliberalism is a religion--NOT a science--and that the practitioners of neoliberalism are Kool-aid drinking cultists.

What makes the IMF think it's right about Greece?

The same economists who failed to predict the 2007 financial crash are still in the driving seat – and just as clueless in a crisis

Dean Baker

guardian.co.uk, Monday 20 June 2011 19.46 BST

When did the IMF learn about the economy?

That's what people around the world should be asking as the IMF presents its latest assessment of the fiscal and economic prospects for nations around the world last week. Much of the world remains mired in the worst downturn since the Great Depression; a downturn that the IMF totally failed to predict, as noted by the IMF's own Independent Evaluation Office.

This was not a minor mistake; this was a horrendous failing. It's comparable to the surgeon amputating the wrong leg or leaving his operating tools inside the patient. This is the sort of incredible mess-up that most people lose their jobs over and likely never find work again in the same field.

Yet, as far as the world knows, not one person at the IMF lost their job. In fact, it's not even clear that anyone missed a scheduled promotion. As far as anyone can tell, an economic downturn that ruined the lives of tens of millions of people around the world has had no impact whatsoever on the people who actually have the responsibility for preventing such calamities, at the IMF and in other major governmental and international financial institutions.

This makes the IMF's stance behind the continued drive for austerity in much of world especially infuriating. How can Greek workers feel about being told that they will have to work longer for smaller pensions by IMF economists who can retire with six-figure pensions in their early fifties? The vast majority of Greek workers do their jobs. The IMF economists failed at their job. more

One thing for sure, the Greeks on the ground have had enough of the economic idiocies that have been the conventional "wisdom" since the return of Friedman's influence.  And the Greeks are just the mine canaries.

Athens protests: Syntagma Square on frontline of European austerity protests

The area in the centre of the Greek capital is playing host to thousands of angry demonstrators

Aditya Chakrabortty in Athens

guardian.co.uk, Sunday 19 June 2011 

Athenians used to stop off at Syntagma Square for the shopping, the shiny rows of upmarket boutiques. Now they arrive in their tens of thousands to protest. Swarming out of the metro station, they emerge into a village of tents, pamphleteers and a booming public address system.

Since 25 May, when demonstrators first converged here, this has become an open-air concert – only one where bands have been supplanted by speakers and music swapped for an angry politics. On this square just below the Greek parliament and ringed by flashy hotels, thousands sit through speech after speech. Old-time socialists, American economists just passing through, members of the crowd: they each get three minutes with the mic, and most of them use the time alternatively to slag off the politicians and to egg on their fellow protesters.

"Being here makes me feel 18 again," begins one man, his polo shirt stretched tight over his paunch, before talking about his worries about his pension.

The closer you get to the Vouli, the parliament, the more raucous it becomes. Jammed up against the railings, a crowd is clapping and chanting: "Thieves! Thieves!"

There is another mic here, and it's grabbed by a man wearing a mask of deputy prime minister Theodoros Pangalos: "My friends, we all ate together." He is quoting the socialist politician, who claimed on TV last year that everyone bore the responsibility for the squandering of public money. Pangalos may have intended his remark as the Greek equivalent of George Osborne's remark that "We're all in it together", but here they're not having it."You lying bastard!" They roar back. "You're so fat you ate the entire supermarket."

This is an odd alloy of earnestness and pantomime, to be sure, but it's something else too: Syntagma Square has become the new frontline of the battle against European austerity. And as prime minister George Papandreou battles first to keep his own job, and then to win MPs' support for the most extreme package of spending cuts, tax rises and privatisations ever faced by any developed country, what happens between this square and the parliament matters for the rest of the eurozone. more

Spain has not been exactly sanguine about the collapse of theoretical neoliberalism either.

‘Indignant’ demonstrators in new protests across Spain

Thousands of Spain’s "indignant" demonstrators converged on cities across the country Sunday in a major new protest against dire unemployment levels and biting austerity measures, which they blame on "inept" politicians.

By Ben Barnier 19/06/2011 

AP – Spanish protesters of all stripes – young and old, working and unemployed - marched Sunday in Madrid to drive home their anger over high unemployment, bleak economic prospects and politicians they see as inept.

Similar demonstrations were being held later in other cities including northern Barcelona, eastern Valencia and southern Seville. Police were out in force after a Wednesday protest in Barcelona turned violent.

Prime Minister Jose Luis Rodriguez Zapatero said he expected the protests to be peaceful.

“A sacred rule of democracy is that in the exercise of rights you do so peacefully,” he said.

Nearly two years of recession have left Spain with a 21.3-percent unemployment rate _ the highest in the 17-nation eurozone – and addled with debt.

The jobless rate, which has more than doubled since 2007, jumps to 35 percent for people aged 16 to 29. Many young, highly educated Spaniards can’t find jobs as the eurozone’s No. 4 economy struggles with low growth.

Protests began May 15 and spread to cities across the country, striking a chord with hundreds of thousands fed-up with the wage cuts and tax hikes needed to resolve a financial crisis they see as created by banks and wealthy developers. more

And let's not forget the problem in Ireland for they have certainly not disappeared.

Ireland Opens New Front as ECB Battles to Avert Meltdown 

June 16, 2011, 11:53 AM EDT

By Jana Randow and Simon Kennedy

June 16 (Bloomberg) -- Ireland opened a new front in the drive to restructure debt on the euro area’s periphery, adding to the European Central Bank’s concerns as it tries to head off another wave of financial turmoil.

Irish Finance Minister Michael Noonan said yesterday that senior bondholders should share in the losses of Anglo Irish Bank Corp. and Irish Nationwide Building Society, reversing a policy of protecting owners of senior securities. The ECB is against imposing losses on investors. President Jean-Claude Trichet said on Feb. 7 that haircuts aren’t part of a plan to reduce Ireland’s debt load.

Ireland’s about-face on bondholder involvement in its banking crisis comes as European lawmakers struggle to settle a dispute over how to avoid a Greek sovereign default. While German Finance Minister Wolfgang Schaeuble said last week that Europe’s biggest economy insists on the participation of the private sector, his French counterpart Christine Lagarde has ruled out any action that constitutes a “credit event,” backing the ECB’s view.

“Noonan must be kidding,” said Klaus Baader, an economist at Societe Generale in London. “It’s not so much money-saving as a way of Ireland trying to improve its bailout terms, just as the Eurogroup is focused on Greece. Naturally, it means investor stress and increases pressures on bank funding. The ECB won’t take this particularly seriously, but the annoyance factor is extremely high.”

The Frankfurt-based ECB, which sets monetary policy for the 17 nations sharing the euro, declined to comment. more

There are Germans who are also coming to the recognition that in addition to all the other problems of the European Union, the current economic woes are a sign of a conceptual failure.  This is especially good reading for those of us who believe that theory matters a LOT!

Time for Plan B

How the Euro Became Europe's Greatest Threat

06/20/2011 

The euro is becoming an ever greater threat to Europe's common future. The currency union chains together economies that are simply incompatible. Politicians approve one bailout package after the other and, in doing so, have set down a dangerous path that could burden Europeans for generations to come and set the EU back by decades. By SPIEGEL Staff

In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions.

For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn't working. We need a Plan B.

Instead, those in responsible positions are getting bogged down in crisis management, as they seek to placate the public and sugarcoat the problems. They say that there is only a government debt crisis in a few euro countries but no euro crisis, citing as evidence the fact that the value of the European common currency has remained relatively stable against other currencies like the dollar.

But if it wasn't for the euro, Greece's debt crisis would be an isolated problem -- one that was tough for the country, but easy for Europe to bear. It is only because Greece is part of the euro zone that Athens' debts are a problem for all of its partners -- and pose a threat to the common currency.

If the rest of Europe abandons Greece, the crisis could spin out of control, spreading from one weak euro-zone country to the next. Investors would have no guarantees that Europe would not withdraw its support from Portugal or Ireland, if push came to shove, and they would sell their government bonds. The prices of these bonds would fall and risk premiums would go up. Then these countries would only be able to drum up fresh capital by paying high interest rates, which would only augment their existing budget problems. It's possible that they would no longer be able to raise any money at all, in which case they would become insolvent.

But if the current situation continues, the monetary union will invariably turn into a transfer union, a path the inventors of the euro were determined to prevent. more