The Shock Doctrine and the Ongoing Market Turmoil

[Joanne98]

The Shock Doctrine and the Ongoing Market Turmoil
by chapter1
Tue Jan 22, 2008 at 04:36:49 AM PST
Naomi Klein's The Shock Doctrine makes the casethat

"free market" policies have come to dominate the world-- through the exploitation of disaster-shocked people and countries.



These disasters include Pinochet’s coup in Chile in 1973, the Falklands War in 1982, the Tiananmen Square Massacre in 1989, the collapse of the Soviet Union in 1991, the Asian Financial crisis in 1997 and Hurricane Mitch in 1998.

Today, the financial markets are in turmoil, the housing market is in freefall, the labor market is in trouble. Over the next year, a lot of us will lose years of savings, much of the equity in our houses, or our jobs.

A lot of us are going to be shocked.

History teaches that this is when the free-marketers will strike.

Remember, they may only have one year to take whatever they can.

chapter1's diary :: ::
The Shock Doctrine has been discussed a lot on DailyKos.

Briefly, Klein shows how right-wing corporatist ideology has been imposed on dozens of countries, like Argentina, Indonesia, Poland, Russia, South Africa and others: long-term, corporatist "reforms" are presented as temporary solutions to a sudden crisis or shock.

As SusanG wrote:

Like an individual, a society that suffers a trauma—a natural disaster, an economic meltdown, a political upheaval—is initially so stressed in its wake that if ideologues move quickly enough, they can ram through "reforms" at what amounts to the political speed of light. Ergo, "the Shock Doctrine," with its ruthless privatization of formerly public property, elimination of social programs, busting up of worker groups, and the suspension of minimum wage laws. "Crises are, in a way," Klein writes, "democracy-free zones—gaps in politics as usual when the need for consent and consensus do not seem to apply."

I won't say more about Klein's book, except to very strongly encourage those of you who haven't read it to do so. Or at least read a few reviews or summaries (they don't do it justice, but its something.)

Shocks can be economic. As Klein notes, the Asian Financial Crisis of 1997 paved the way for the sell-off of many state-owned enterprises, and also gave the IMF a beachhead for its free-market policies.

Here's Wikipediaon how that worked out:

They suffered permanent currency devaluations, massive numbers of bankruptcies, collapses of whole sectors of once-booming economies, real estate busts, high unemployment, and social unrest. For most of the countries involved, IMF intervention had been been roundly criticized. The role of the International Monetary Fund was so controversial during the crisis, that many locals called the financial crisis the "IMF crisis".<15> To begin with, many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows); maintenance of high domestic interest rates in order to suck in portfolio investment and bank capital; and pegging of the national currency to the dollar to reassure foreign investors against currency risk.<14>

We should expect they will try something similar here. The Bushies have one more year left in office, and the next administration may-- may-- be a bit more hostile to this sort of thing.

Its true that we don't exactly live in a social Democracy, but thing can get a lot worse. Klein notes that those countries that have had a full dose of Chicago School capitalism, typically 25% to 60% of the population lives in abject poverty.

Its easy to imagine how events unfold. First, the market turmoil continues or worsens. (Economist Nouriel Roubini says "in a typical US recession the S&P 500 falls by an average of 28% in nominal terms and 21% in real terms." This recession follows a very big bubble and might be worse than most, but the market has fallen only 10 or 15% as of MLK day.)

The housing market continues to implode. the labor market continues to get worse. Perhaps oil and food prices continue to skyrocket.

Then Bush does announces, say, that we must stimulate the economy by raiding Social Security. Or that capital gains taxes should be waived "for the time being" to prop up the markets. Or that the government will give even larger grants to swing-state churches to help the needy. Or that beleaguered American businesses can't fight off greedy trial lawyers, so all damages should be capped at $19.95. Or that we need to bomb the Iranians/Chinese/Russians for causing market turmoil.

These guys know what they're doing. They used 9/11 to start building a police state (wiretaps), pass the Patriot Act, and launch a war in Iraq.

What can we do?
If this happens, the most important thing we can do is to try to remain oriented. Yes, a lot of folks are going to be a lot poorer in a few months than they were a few months ago. But the contents of our wallets do not determine the content of our character, and our financial worth does not measure our true worth. This too shall pass.

Second, we must recognize what is happening, describe it and denounce it-- loudly. We could say:

-To the extent that the market problems are short term (after all, recessions come and go), the solutions must be short term, too. You don't amputate a foot to cure a stubbed toe.

-To the extent that economic problems are long term, they must not be fixed by the same failed economic policies that created them. As Jerome recently wrote

Reagan's legacy is, altogether, a bad thing for most Americans: stagnant wages, widening inequality, the glorification of greed and debt, narrow-minded "values", impunity for crimes at the top, a massive build up of the militaro-industrial complex and, more worring, the development of the propaganda apparatus that promotes all of the above as good things.

We won't fix our current problems with more Reaganomics.

Klein's book ends on a note of hope. We fight back, we can win-- if we keep our wits about us and try not to be too shocked.

We stopped them from privatizing Social Security. We can stop them from doing whatever it is they are now cooking up.

Again, in countries subjected to a full-scale Chicago School capitalism 25% to 60% of the country lives in abject poverty. So remember, as you watch your investments and income fall and your expenses rise, that things can get a lot worse.

We need to prevent that from happening here.
http://www.dailykos.com/storyonly/2008/1/22/73649/2298

[Joanne98]

1. The Shock Doctrine: Pseudo Crisis page 260

For years, there had been rumors that the international financial institutions had been dabbling in the art of "pseudo-crisis," as Williamson put it, in order to bend countries to their will, but it was difficult to prove. The most extensive testimony came from Davison Budhoo, an IMF staffer turned whistle-blower, who accused the organization of cooking the books in order to doom the economy of a poor but strong-willed country.

Budhoo was a Grenadian-born, London School of Economics-trained economist who stood out in Washington thanks to an unconventional approach to personal style: he let his hair stand on end, a la Albert Einstein, and preferred the windbreaker to the pinstripe suit. He had worked for the IMF for twelve years, where his job was designing structural adjustment programs for Africa, Latin America and his native Carribean. After the organization took its sharp right turn during the Reagan/Thatcher era, the independant-minded Budhoo felt increasingly ill at ease in his place of work. The fund was packed with zealous Chicago Boys under the leadership of its managing director, the staunch neoliberal Michel Camdessus. When Budhoo quit in 1988, he decided to devote himself to exposing the secrets of his former workplace. It began when he wrote a remarkable letter to Camdessus, adopting the j'accuse tone of Andre Gunder Frank's letters to Friedman a decade earlier.

Showing an enthusiasm for language rare for senior fund economists, the letter began: "Today I resigned from the staff of the International Monetary Fund after over twelve years, and after 1000 days of official Fund work in the field, hawking your medicine and your bag of tricks to governments and to peoples in Latin America and the Carribbean and in Africa. To me resignation is a priceless liberation, for with it I have taken the first big step to that place where I may hope to wash my hands of what in my mind's eye is the blood of millions of poor and starving peoples....The blood is so much, you know, it runs in rivers. It dries up, too; it cakes all over me; sometimes I feel that there is not enough soap in the whole world to cleanse me from the things that I did do in your name."

He then went on to build his case. Budhoo accused the fund of using statistics as "lethal" weapons. He exhaustively documented how, as a fund employee in the mid-eighties, he was involved in elaborate "statistical malpractices" to exaggerate the numbers in IMF reports on oil-rich Trinidad and Tobago in order to make the country look far less stable than it actually was. Budhoo contended that the IMF had more than doubled a crucial statistic measuring the labor costs in the country, making it appear highly unproductive-even though, as he had said, the fund had the correct information on hand. In another instance, he claimed that the fund "invented, literally out of the blue," huge unpaid government debts.

Those "gross irregularities," Which Budhoo claims were deliberate and not mere "sloppy calculations," were taken as fact by the financial markets, which promptly classified Trinidad as a bad risk and cut off its financing. The country's economic problems-triggered by a drop in the price of oil, its primary export-quickly became calamitous, and it was forced to beg the IMF for a bailout. The fund then demanded that it accept what Budhoo described as the IMF's "deadliest medicine": layoffs, wage cuts and the "whole gamut" of structural adjustment policies. He described the process as "deliberate blocking of an economic lifeline to the country through subterfuge" in order to see "Trinidad and Tobago destroyed economically first, and converted thereafter."

In his letter, Budhoo, who died in 2001, made it clear that his dispute was over more than the treatment of one country by a handful of officials. He characterized the IMF's entire program of structural adjustment as a form of mass torture in which "'screaming-in-pain governments and peoples are forced to bend on their knees before us, broken and terrified and disintegrating, and begging for a sliver of reasonableness and decency on our part. But we laugh cruelly in their face, and the torture goes on unabated."

After the letter was published, the government of Trinidad commissioned two independent studies to investigate the allegations and found that they were correct: the IMF had inflated and fabricated numbers, with tremendously damaging results for the country.

Even with this substantiation, however, Budhoo's explosive allegations disappeared virtually without a trace; Trinidad and Tobago is a collection of tiny islands off the coast of Venezuela, and unless its people storm the headquarters of the IMF on Nineteenth st, its complaints are unlikely to capture world attention. The letter was, however, turned into a play in 1996 called Mr. Budhoo's Letter of Resignation from the IMF (fifty years is enough), put on in a small theater in New York's East Village. The production received a surprisingly positive review in The New York Times, which praised its "uncommon creativity" and "inventive props." The short theater review was the only time Budhoo's name was ever mentioned in The New York Times.

[flashl]

2. K&R n/t

[tom_paine]

3. K & R