A couple of days ago, Levitt posted this:
John Lippert presents an interesting and extremely well-reported article on the financial crisis’s impact on the thinking of Chicago economists. It does a nice job of capturing the multifaceted nature of the institution, with people on all sides of the issues.
I absolutely love the following excerpt, which better captures what it is like to hang around with Chicago economists than just about any quote I have ever seen:
“We should have a recession,” [John] Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”¨
His love of a comment that is the height of social cruelty shows not only a certain disturbing baseness, but it also shows why the Chicago School is so favored by the wealthy – which needs an outlet to say the unsayable. Of course, in a sensible society, people who spend their lives recommending unregulated markets, and training young people with the potential to do many socially useful things to go into the field of finance, which should be the dullest mechanism for saving and loaning money, would be encouraged to find other fields in which to flourish – perhaps selling cigarettes under the table to children. Too autistic to embrace the life of crime that is their true bent, they become, instead, the theologians of predation.
The Federal Reserve Bank of Dallas – the most consistently reactionary of the branches of the Federal Reserve – issued a report on Mexico the other day that was sidesplitting in its blind application of a predatory ideology to a suffering object. For the researchers in Dallas, Mexico is turning out to be a pleasant surprise. The nation has been, as it were, crucified upon a cross consisting of emerging market securities. The OECD lists Mexico, along with Turkey, Portugal and the U.S., among the bottom five nations in terms of wealth inequality. The vast wealth of the U.S. ameliorates the lot of people who live in LI´s income percentile – here I am, for instance, the guest of a friend who could afford to pay for a ticket for me to go to Mexico, participating (albeit as a temporary scrounger) in the good life. In Mexico, it is much harder for a vender of balloons, say, to participate in the lifestyle of a billionaire. The freefall in worker´s wages since the seventies, the inability of Mexico to leverage its geographic advantage into an economic advantage (due to the interdiction on the massive public spending which should have accompanied the attraction of foreign industry), and the consequent deterioration of trust in every aspect of Mexican life are superbly overlooked by the Dallas researchers, who see – o love at first sight! – budgetary prudence exercised by the Mexican government:
´Once inward-looking and crisis-prone, Mexico has transformed itself into a nation that thrives on foreign investment and trade and displays a steadfast commitment to monetary and fiscal discipline.
Largely as a result of this transformation, Mexico has been crisis-free since 1995. The country has now weathered two potentially turbulent presidential transitions without experiencing significant financial difficulties—a remarkable achievement, given its economic history.¨
Should we laugh or cry about this utterly bizarre notion of what an economy is for? The crises, of course, derived in toto from the abandonment of the ínward-looking model, or in other words, the standard Import substitution development model of the post war period. The result has been to shift the periodic crises once paid for by the richest to the permanent crisis which now constitutes the year by year of the majority of the country´s population. The lesson was already learned during the first era of laissez faire, a terrible time for the British worker in terms of any of the living standards that count. From those conditions arose the power of organized labour – but the second era of laissez faire is built upon the bones of organized labour.
Here, in its Gradgrindian splendour, is the FRB´s entire view of civilization:
Investors have grown increasingly confident in the country’s commitment to macroeconomic discipline, allowing Mexico to greatly improve its public debt management. The government ran into trouble a decade ago in part because most of its debt was in foreign hands, dollar-denominated and short-term.It is in this way that breeders speak of cows, marvelling about added weight gains that come through mixing bovine bone bits and corn into the feed. The cow is bred to be slaughtered. But a word to the wise – human products, illnourished, ill educated and ill remunerated until they are sublimely poor in the best of all possible worlds, can, unlike cows, learn to aim and shoot a gun. Give Mexico another decade of disciplined policymaking and those FRB dittoheads might learn, to their discomfort, to appreciate this elementary fact of zoology.
The external share of total public debt has fallen from a high of 85 percent before the Tequila Crisis to 40 percent today. In 1995, Mexico’s longest bond had a maturity of one year. Today, the nation issues 30-year, peso-denominated bonds.
This deep change in the composition of debt became possible because of disciplined policymaking and has greatly bolstered Mexico’s ability to deal with short-term fluctuations in interest rates or exchange rates.