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Contents Bulletin Scripting in shell and Perl Network troubleshooting History Humor

Harvard Mafia, Andrei Shleifer and the Economic Rape of Russia

Chronicles of Harvard University Russian Economic Team Scam and Deep Corruption of Academic Economics

News Recommended books Recommended Links Casino capitalism Neoliberalism as a New Form of Corporatism Neoclassical Pseudo Theories and Crooked and Bought Economists Cargo Cult Science
Disaster capitalism Predator state Neocolonialism as Financial Imperialism IMF as the key institution for neoliberal debt enslavement Greece debt enslavement Ukraine debt enslavement Amorality and criminality of neoliberal elite
Rubin Larry Summers Shleifer Jeffrey Sachs Nancy Zimmerman Jonathan Hay Anders Åslund
 Audacious Oligarchy and "Democracy for Winners"  Systemic Fraud under Clinton-Bush-Obama Regime The Grand Chessboard Elite [Dominance] Theory And the Revolt of the Elite The Iron Law of Oligarchy Amorality and criminality of neoliberal elite Audacious Oligarchy and "Democracy for Winners"
The Rape of Russia, Testimony of Anne Williamson Critique of neoclassical economics Is neoclassical economics a mafia Lysenkoism Deception Humor Etc
I liked it when he said, "These cases are complicated and difficult to prosecute, but if you're serious about doing them, you can." Doesn't that describe the situation perfectly? It can be done if we set our minds to it. We need to get started and make that happen.

Comment to 'inside job' (Yahoo! Finance)

Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.

-- Napoleon Bonaparte

The modern power elites thrive by forgetting any regrettable past. This amnesia is easy at Harvard, where the legal fiduciaries operate in secret and need not answer for their acts. They are the antipodes of the selfless institutional servants who built Harvard and other great American enterprises, and they bear close watching.

(Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country)


Introduction

A interesting rogues’ gallery of international financial criminals with high academic degrees who got their education in Harvard (Harvard mafia in a broad sense) owes its existence to the dissolution of the USSR and subsequent financial crisis. The level of corruption and rent seeking behaviors of those individuals is really breathtaking. The term "mafia" is not rhetorical overshoot: they are mafia in a very precise meaning of this word: the mafia at its core is about one thing -- money (see also Russian board game Mafia). Like in a typical Mafioso family there is an ethnic core and a hierarchy, with higher-ranking members making decisions that trickle down to the other members of the family. And its policies are always about oppression, arrogance, greed, self-enrichment, power and hegemony above and against all others.

The story of Andrei Shleifer in Russia is a classic story of "academic extortion": betrayal of trust and academic principles by Harvard professor of economics (probably not without the influence of his wife, hedge fund manager Nancy Zimmerman, longtime friend of Larry Summers). While the guy was just a pawn in a big game, the issues of criminality of economists (and some universities economics departments ;-) and relevance of RICO statute against such offences is a much bigger issue.

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity." RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

... ... ...

On March 29, 1989, financier Michael Milken was indicted on 98 counts of racketeering and fraud relating to an investigation into insider trading and other offenses. Milken was accused of using a wide-ranging network of contacts to manipulate stock and bond prices. It was one of the first occasions that a RICO indictment was brought against an individual with no ties to organized crime. Milken pled guilty to six lesser offenses rather than face spending the rest of his life in prison.

There is a disturbingly deep analogy between Harvard University (which had been benevolently charged with just breach of contract by the US government) and Michel Milken activities. Separately Shleifer and an associate, Jonathan Hay, were charged with conspiracy to defraud the U.S. government. Later he was stripped of honorary title "Whipple V.N. Jones Professor of Economics" due to ethics violation, but he managed to preserve his position at the university due to Summers protection (Larry Summers A Suicidal Choice - Mark Ames).

How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer “were among each other’s best friends,” and Summers taught Schleifer “as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation.”

The furor about Andrei Shleifer shadow dealings in Russia contributed to the ouster of Summers from the Harvard presidency. It also exposed sad fact that neoclassic economics represents a dangerous sect which if not exactly mafia is pretty much borderline phenomenon. Somewhat similar with Lysenkoism

Academic Mafiosi as a Social Class

The cynical view is that "Rape of Russia" was a Mafiosi style operation, which was conducted using s Trojan horses special class of Mafiosi, academic economics. This might well have been the intent (in best "disaster capitalism" style of thinking). Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback,

“the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells.”

Corruption and local oligarchy were natural allies of this process which was, in essence, the process of Latin-Americanization of post Soviet space. And off-shore safe heavens were the tool. They partially failed in Russia as some of the most notorious deals of this periods (especially in mineral recourses and oil areas) were reversed in 2000-2008, but were quite successful in Ukraine, Georgia, Latvia and several other post Soviet republics. The external debt of those is just staggering. As Professor Michael Hudson noted:

It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years.

Throughout the Soviet Union the neoliberal model established “equilibrium” in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).

Here is one apt comment about the real nature of economic professors from Harvard and other nice places from the comments to post Economists Fall Back Into Neoclassical Stupor …( naked capitalism. January 18, 2011):

Hugh:

I echo lambert’s and scraping by’s sentiments. The economics profession is not about an analysis of our economy that can make reasonable predictions about it. Economics and economists are enablers of the con and validators of kleptocracy. They say the many must make do with less and do not say that the result of this policy will be the few will have more.

These are not innocent, unworldly types tied to outdated and obsolete ideas. They are abettors and apologists for the greatest economic crimes in human history. We should call and treat them for what they are: criminals. Kleptocracy is not a some time thing. It is not a label you apply occasionally. Kleptocracy is a system. The looters can’t function without corrupt politicians, a complacent propagandizing media, or complicit enabling academics. With kleptocracy, there is no middle ground. You either stand with the looters or their victims. I think this is the critical choice we all must make.

Another pretty telling quote ( from brilliant satire Blacklisted Economics Professor Found Dead NC Publishes His Last Letter « naked capitalism):

Q: Is it really plausible that economists threaten top banks that in the absence of some kind of payoff, they will change the theories they teach in a direction that is less favorable to the banks?

A: There are certainly cases in history of the following sequence:

a. Economist E espouses views that are less favorable to certain special interest groups S. Doing so threatens the ability of S to extract rent from the public.
b. Later, E changes his view, thereby withdrawing the prior threat.
c. Still later, E is paid large amounts of money by representatives of S in exchange for services that do not appear particularly onerous.

For example, let E = Larry Summers and let S = the financial services industry. In 1989 E was (a) a supporter of the Tobin tax, which threatened to reduce the rent extracted by S. This threat was apparently later withdrawn (b), and in 2008 E was paid $5.2 million (c) in exchange for working at the hedge fund D. E. Shaw (an element of S) for one day a week.

However, it is naturally more difficult to witness the negotiations in which specific threats were appeased with specific future payouts. This is a problem that also bedevils Public Choice theory, in which it is likewise difficult to show exactly how a particular politician is remunerated in exchange for threatening businesses with anti-business legislation. The theory assures us that such negotiations occur, although they are difficult to observe directly. Perhaps further theoretical advances will help us to close this gap.

Q: Isn’t it offensive to assume that economists, for motives of personal gain, shade their theoretical allegiances in the directions preferred by powerful interest groups?

A: How could it ever be offensive to assume that a person acts rationally in pursuit of maximizing his or her own utility? I’m afraid I don’t understand this question.

Academic Mafiosi as Byproduct and Simultaneously Enablers of Neoliberalism

Disappearance of a formidable opponent of unrestricted looting of developing countries that USSR formally represented on the the world scene essentially released all moral stops and considerations both inside the USA and outside. The triumph of neoliberalism

And former USSR republics were the first victims of new super-aggressive neoliberal "new normal". Despite crocodile tears about corruption, our world is being reshaped, in sinister fashion, by wide open capital markets and an international banking network that exists to launder hundreds of billions of dollars in ill-gotten gains stolen by government officials and oligarchs in "weaker" countries. In other words, corruption is an immanent feature and principal tool of neoliberalism in developing countries and xUSSR area.

Under pretext of showing the Russians how to convert command type economy to neoliberal model, and how to controls corruption, the gang-style rape of the country was inflicted on its unsuspecting citizens with poverty raising from 2% to 40% of the population. World have witnessed Russia losing half of its total output, plunging it into a depression deeper than the U.S. Great Depression. Please read Anne Williamson’s testimony. Here is one quote:

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others’ scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity – not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people – their abilities, efforts and dreams – which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet – on the Russian people – and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

The collapse of the USSR was by-and-large caused by internal problems and betrayal of nomenklatura which quickly understood that new neoliberal regime is more profitable for them that command-style economy (although role of financed by West wave of nationalism and West imposed technological isolation should not be underestimated). BTW this myth that Reagan administration won the Cold War is still current.

Economic rape of post USSR economic space was by design not by accident

After the dissolution of the USA, there was a vacuum of ideology in Russia and it was successfully filled with Harvard promoted neoliberalism and associated neo-classical economics. This was a powerful fifths column, oriented on helping the West to extract as much wealth from Russia as possible was created. The USA essentially forced Russians into so called shock therapy using Harvard academic mafia (plan was authored by Jeffrey Sachs who was lecturer at Harvard and implemented by Larry Summers protégé, Russian émigré Shleifer and several other Harvard academic brats with a couple of British poodles to make the gang international) and internal compradors in Yelstin government as fifth column. As a result poverty level jumped from 2% to 40%. Everything that can be stolen, was stolen by implementation of rapid privatization policy. During the heydays of corrupt Yeltsin regime implementation of shock therapy GDP dropped 50%. Suicide rate doubled, life expectancy for males dropped below 60 years (12,8% death rate increase), homeless children which were unknown in the USSR became mass feature of new social order.

The key seller of shock therapy was about Harvard Mafiosi, Professor Jeffrey Sachs who was a prominent neoliberal who because his role in destruction of Russian economics, contributed to immense sufferings in Bolivia, Chili, Poland and several other countries.

Instead of something like Marshall plan, a merciless ands unlawful grab of capital and national resources was successfully implemented in less then five year period after the dissolution. This was an amazingly greedy and short-sited policy by Clinton administration. To rephrase Talleyrand, it was worse then a crime, it was a blunder. As Otto von Bismarck advised long ago:

Do not expect that once taken advantage of Russia's weakness, you will receive dividends forever. Russian always come for their money. And when they come - do not rely on the Jesuit agreement you signed, you are supposed to justify. They are not worth the paper it is written. Therefore, with the Russian stands or play fair, or no play.

Let's hope that the USA will be protected by Providence from the consequences of this blunder because as Otto von Bismarck suggested "There is a providence to that protects idiots, drunkards, children and the United States of America". Otherwise, the level of anger felt by wide strata of Russian people (almost everybody outside of fifth column) can materialize into something really tragic. In Russian history, a generation that has taken a beating is often followed by a generation that deals one. In a way Putin is already a certain punishment, but the possibility of coming to power a real Russian nationalist instead of "resource nationalist" is not out the realm of possibilities ;-)

There is a Providence that protects idiots, drunkards, children and the United States of America.
Read more at http://www.brainyquote.com/quotes/authors/o/otto_von_bismarck.html#qr2ARypLke5VpwQb.99

Now Professor Jeffrey Sachs repainted himself from a sharky promoted of "shock therapy" into the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University. Here is an apt comment about this member of Harvard mafia ( NYT, 2009)

Arsen Azizyan

I grew up cold and hungry in the former Soviet republic of Armenia during the shock therapy years of the 90′s; my grandfather was one of the 3 million who died prematurely during those days (incorrect medication and power outages did him in).

I would very much like to tie Mr. Jeffrey Sachs to a chair and slowly force-feed him every worthless page of every idiotic policy paper he’s ever written. I believe that would justly mirror the diet that I had to subsist on for a number of years during my childhood and adolescence.

He still insists that Yeltsin, rather than his American advisors, was responsible for the fact that the privatization policy amounted in practice to the theft by a handful of favored apparatchiks of the industries previously ran – in its own inimitably corrupt fashion – by the state. As former World Bank economist David Ellerman noted it was the speed of the privatization which made such an outcome inevitable stating that

“Only the mixture of American triumphalism and academic arrogance could have produced such a lethal dose of gall.”

Janine R. Wedel in The Harvard Boys Do Russia (The Nation, May 14, 1998) wrote the following about extremely damaging for the USA (in a long run) and Russia (forever) policies Harvard mafia pursued:

"After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically. The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth. The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According to The New York Times, he "may be the most despised man in Russia." Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development. Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved. With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism." Luzhkov was referring to H.I.I.D. Chubais, who was delegated vast powers over the economy by Boris Yeltsin, was ousted in Yeltsin's March purge, but in May he was given an immensely lucrative post as head of Unified Energy System, the country's electricity monopoly.

Some of the main actors with Harvard's Russia project have yet to face a reckoning, but this may change if a current investigation by the U.S. government results in prosecutions. The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest." Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future. Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades. Shock therapy produced more shock--not least, hyperinflation that hit 2,500 percent--than therapy.

One result was the evaporation of much potential investment capital: the substantial savings of Russians. By November 1992, Gaidar was under attack for his failed policies and was soon pushed aside ...

I.I.D. had supporters high in the Administration. One was Lawrence Summers, himself a former Harvard economics professor, whom Clinton named Under Secretary of the Treasury for International Affairs in 1993. Summers, now Deputy Treasury Secretary, had longstanding ties to the principals of Harvard's project in Russia and its later project in Ukraine. Summers hired a Harvard Ph.D., David Lipton (who had been vice president of Jeffrey D. Sachs and Associates, a consulting firm), to be Deputy Assistant Treasury Secretary for Eastern Europe and the Former Soviet Union. After Summers was promoted to Deputy Secretary, Lipton moved into Summers's old job, assuming "broad responsibility" for all aspects of international economic policy development. Lipton co-wrote numerous papers with Sachs and served with him on consulting missions in Poland and Russia. "Jeff and David always came [to Russia] together," said a Russian representative at the International Monetary Fund. "They were like an inseparable couple." Sachs, who was named director of H.I.I.D. in 1995, lobbied for and received U.S.A.I.D. grants for the institute to work in Ukraine in 1996 and 1997 ...

Andrei Shleifer, a Russian-born emigre and already a tenured professor of economics at Harvard in his early 30s, became director of H.I.I.D.'s Russia project. Shleifer was also a protege of Summers, with whom he received at least one foundation grant ...

Another Harvard player was a former World Bank consultant named Jonathan Hay, a Rhodes scholar who had attended Moscow's Pushkin Institute for Russian Language. In 1991, while still at Harvard Law School, he had become a senior legal adviser to the G.K.I., the Russian state's new privatization committee; the following year he was made H.I.I.D.'s general director in Moscow. The youthful Hay assumed vast powers over contractors, policies and program specifics; he not only controlled access to the Chubais circle but served as its mouthpiece ...

With help from his H.I.I.D. advisers and other Westerners, Chubais and his cronies set up a network of aid-funded "private" organizations that enabled them to bypass legitimate government agencies and circumvent the new parliament of the Russian Federation, the Duma.

Through this network, two of Chubais's associates, Maxim Boycko (who co-wrote Privatizing Russia with Shleifer) and Dmitry Vasiliev, oversaw almost a third of a billion dollars in aid money and millions more in loans from international financial institutions ...

The device of setting up private organizations backed by the power of the Yeltsin government and maintaining close ties to H.I.I.D. was a way of insuring deniability. Shleifer, Hay and other Harvard principals, all U.S. citizens, were "Russian" when convenient. Hay, for example, served alternately and sometimes simultaneously as aid contractor, manager of other contractors and representative of the Russian government ... Against the backdrop of Russia's Klondike capitalism, which they were helping create and Chubais and his team were supposedly regulating, the H.I.I.D. advisers exploited their intimate ties with Chubais and the government and were allegedly able to conduct business activities for their own enrichment. According to sources close to the U.S. government's investigation, Hay used his influence, as well as U.S.A.I.D.-financed resources, to help his girlfriend, Elizabeth Hebert, set up a mutual fund, Pallada Asset Management, in Russia ... After Pallada was set up, Hebert, Hay, Shleifer and Vasiliev looked for ways to continue their activities as aid funds dwindled. Using I.L.B.E. resources and funding, they established a private consulting firm with taxpayer money. One of the firm's first clients was Shleifer's wife, Nancy Zimmerman, who operated a Boston-based hedge fund that traded heavily in Russian bonds.

According to Russian registration documents, Zimmerman's company set up a Russian firm with Sergei Shishkin, the I.L.B.E. chief, as general director. Corporate documents on file in Moscow showed that the address and phone number of the company and the I.L.B.E. were the same. Then there is the First Russian Specialized Depository, which holds the records and assets of mutual fund investors. This institution, funded by a World Bank loan, also worked to the benefit of Hay, Vasiliev, Hebert and another associate, Julia Zagachin. According to sources close to the U.S. government's investigation, Zagachin, an American married to a Russian, was selected to run the depository even though she lacked the required capital ...

Anne Williamson, a journalist who specializes in Soviet and Russian affairs, details these and other conflicts of interest between H.I.I.D.'s advisers and their supposed clients--the Russian people--in her forthcoming book, How America Built the New Russian Oligarchy. For example, in 1995, in Chubais-organized insider auctions of prime national properties, known as loans-for-shares, the Harvard Management Company (H.M.C.), which invests the university's endowment, and billionaire speculator George Soros were the only foreign entities allowed to participate. H.M.C. and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil. H.M.C. and Soros also invested in Russia's high-yielding, I.M.F.-subsidized domestic bond market.

Even more dubious, according to Williamson, was Soros's July 1997 purchase of 24 percent of Sviazinvest, the telecommunications giant, in partnership with Uneximbank's Vladimir Potanin. It was later learned that shortly before this purchase Soros had tided over Yeltsin's government with a backdoor loan of hundreds of millions of dollars while the government was awaiting proceeds of a Eurobond issue; the loan now appears to have been used by Uneximbank to purchase Norilsk Nickel in August 1997. According to Williamson, the U.S. assistance program in Russia was rife with such conflicts of interest involving H.I.I.D. advisers and their U.S.A.I.D.-funded Chubais allies, H.M.C. managers, favored Russian bankers, Soros and insider expatriates working in Russia's nascent markets ...

Despite exposure of this corruption in the Russian media (and, far more hesitantly, in the U.S. media), the H.I.I.D.-Chubais clique remained until recently the major instrument of U.S. economic aid policy to Russia. It even used the high-level Gore-Chernomyrdin Commission, which helped orchestrate the cooperation of U.S.-Russian oil deals and the Mir space station. The commission's now-defunct Capital Markets Forum was chaired on the Russian side by Chubais and Vasiliev, and on the U.S. side by S.E.C. chairman Arthur Levitt Jr. and Treasury Secretary Robert Rubin.

Andrei Shleifer was named special coordinator to all four of the Capital Markets Forum's working subgroups. Hebert, Hay's girlfriend, served on two of the subgroups, as did the C.E.O.s of Salomon Brothers, Merrill Lynch and other powerful Wall Street investment houses. When The Nation contacted the S.E.C. for information about Capital Markets, we were told to call Shleifer for comment. Shleifer, who is under investigation by U.S.A.I.D.'s inspector general for misuse of funds, declined to be interviewed for this article. A U.S. Treasury spokesman said Shleifer and Hebert were appointed to Capital Markets by the Chubais group--specifically, according to other sources, by Dmitry Vasiliev."

Several problems with Harvard academic advisors behavior during Russian privatization program were outlined by Adil Rustomjee (Yale University) in the letter to Johnson’s Russia List :

From: Arustomjee@aol.com (Adil Rustomjee)
Date: Thu, 6 Aug 1998 13:18:14 EDT
Subject: Role of foreign advisers in the Russian Privatization Program.

From: Adil Rustomjee, Yale University, 135 Prospect Street, New Haven, CT 06511
Email: adil.rustomjee@yale.edu

Dear David,

Many thanks for your superb news service. Johnson's Russia List is fast becoming an excellent resource for those who work, who have worked on, or who just share a fascination with that disturbing country. I am writing this letter to humbly suggest a research topic that should be of great interest to JRLs readers. It is a subject that deserves better treatment than that received to date. The topic itself is the exact role of foreign advisers in the Russian Privatization Program.

It is a marvelous tale waiting to be plainly told. The Russian Privatization Program, despite its subsequent vilification, ranks as one of the great experiments at social engineering in the twentieth century. It attempted an authoritative allocation of property rights - and consequently of power - within society on a scale never attempted before. It is therefore a very significant historical process, more significant in the long reach of events than even Stalin's collectivization campaigns of the 1930s. It deserves its own Robert Conquest.

The process itself went through two distinct phases - the voucher phase, and what for want of a better word, we call the "loans for shares" phase. It is the "loans for shares" phase of the program that has attracted the most attention, primarily because of its spectacular abuse by Russia's oligarchs. The real story is in the first voucher stage of the process and the dubious principles it was based on.

The entire voucher program was a product of foreign economic advice. Consider the basic timeline. The Soviet Union itself was dissolved in December 1991. In June 1992, the crucial document governing the voucher privatization effort came out - the State Privatization Program. This seminal document outlined the basic concepts behind the voucher phase of the program. It also rationalized what became a state sponsored giveaway of Russia's national patrimony to the country's managers. The implementation of the State Privatization Program document took a little over two years. By June 1994, Anatoly Chubias , Russia's privatization chief, was announcing the end of the voucher program. In a scant two years, Russia had gone from a communist country with no private sector, to a country with a private sector - that on paper at least - was larger than Italy's !!! Such progress could never have been possible without substantial foreign economic advice. It is a commonplace that privatization is essentially a "learning by doing" process.

Russia could never have gone through a learning curve in such a short time span. Its reformers basically rubberstamped a scheme conceived by Western economists in the crucial 6 month period between December 1991 and June 1992.

Yet despite this, the precise story of the economists behind the entire effort has not been told. Good attempts have been made by Janine Wedel and Anne Williamson - and I will discuss them later - but from a technical standpoint, the story has yet to be told well.

Who were these advisors and what did they achieve? Three groups of actors may be identified - academic economists, bureaucrats from the World Bank, and Western consulting firms. A close examination of the interaction between these three groups itself will offer interesting insights into the birth and dissemination of ideas. For the major ideas behind the Russian program came from a group of academics - many associated with Harvard. These ideas were picked up in the early years and became established "transition economics" orthodoxy at the World Bank. The substantial implementation of the basic ideas was carried out by consulting firms like the Big Six working (often) on USAID contracts.

This is as it should be. Academia is usually the source of the most original thinking on economics. International bureaucrats - particularly those associated with the World Bank - are surprisingly timid and cautious people. They are institutionally incapable of boldness - and great audacity was called for in the Russia of 1992.

Was this boldness misplaced? I believe it was. A rational examination of the process will, I suspect, lead to a damning indictment of Russia's foreign advisors. They created desolation and called it reform. The defining feature of the program was based on remarkably dubious ideas. Foremost among these was the belief that privatization was a series of payoffs - or bribes, as one of its leading advocates, Harvard's Andrei Shleifer, called it - to various " stakeholders" in the program. Given an uncertain legal environment and some
appropriation of state assets by these stakeholders, - euphemistically referred to as "spontaneous privatization" - , better to legalize what was believed to be a trough feeding frenzy. This was the program's dominant idea.

There is little empirical evidence from the early years about the exact extent of " spontaneous privatization". Anecdotal evidence abounds, especially from many near - hysterical accounts of the early 90s but the actual empirical evidence is slender. The decisions to sell a great nation's patrimony - a one shot historical phenomenon with irreversible long range implications - were basically conceived within a six month time frame by a bunch of frightened foreigners, using dubious assumptions, with little basis in empirical understanding. Astonishing.

The actual privatization was accomplished through basically giving away large segments of Russian assets - and consequently cash flows - to these stakeholders. The most notable insider stakeholders - the managers - ended up the biggest winners. They ended up owning most of Russian industry. This august group, more often than not, makes the Marx Brothers seem like models of German efficiency. For a variety of reasons, insider-owned firms are very inefficient, and indeed a long list of papers from the Bank - Fund complex testifies to this. Consequently, Russia is today reaping the whirlwind of its privatization policy. The long delayed supply-side response of the economy, that is supposed to be led by these insider-owned firms, simply refuses to happen.

To round out this stupidity ( and to make it theoretically neater), the advisors had to deal with the problem of insider ownership. They dealt with it in time honored economist fashion - they assumed it away. This was done by trotting out that most venerable of economic propositions - something called the Coase Theorem. In a series of seminal papers written at Chicago in the thirties, Ronald Coase reached a blindingly obvious conclusion on property rights. He proved that the initial allocation - or misallocation - of property rights would not matter as long as those rights could be traded till they found their highest valued end use. In other words, the advisors told the Russians, "Sure, we're making second-best or third-best policy choices on privatization , but hey guys, it doesn't matter. Through the magic of Coase, even if we misallocated the rights, they'll trade up to their highest valued end user, and we'll all live happily ever after ". Consequently, nothing mattered except getting the assets away from the government (depoliticization) and into the "private sector", thereby allowing
the Coase Theorem to work its magic.

The Russians believed this nonsense. The problems with using Coase as a rationale were commonsensical : too much monopoly power in the Russian economy and the fact that Coase himself never had anything remotely resembling Russia in mind, when he formulated the theorem. More crucially, capital markets which would be needed to trade property rights to their highest valued end use, were nonexistent or nascent, and continue to be so. One marvels at the Russians' own capacity for advice of this nature. My comfort is philosophical : It has often been said of the Russians, that they exhibit in extreme form, certain universal characteristics of the human condition.

Perhaps this tendency to extremes applies to their propensity for social engineering too.

In response to critiques of their advice, the foreign advisors resort to a "burden of proof " defense. In other words, they say, " What a pity it's a mess and had to be this way, but you'll have to prove it could have been otherwise". It is this "proving otherwise" that is a key issue. " Proving otherwise" would require a person with substantial economic expertise. Unfortunately most of the critiques of the advisors in Russia have come from people outside the economics community, which on Russia is quite tight knit.

Janine Wedel and Anne Williamson have made good first attempts . But given the enormity of the catastrophe in Russia that the advice has wrought, the definitive account will have to be from a person with some economic stature.

Who were these people anyway ? They include, Wedel and Williamson point out, Andrei Shleifer a Harvard economics professor, Jonathan Hay a freshly minted Harvard Law graduate, and Makim Boycko who was their man in Moscow. Shleifer, a Russian emigrant who remains a tenured professor at Harvard, must have possessed the great advantage of speaking native Russian. In December 1991, Shleifer on a World Bank consultancy authored a paper titled Privatization in Russia - First Steps. It is, I believe, the first systematic attempt at outlining the program's defining feature - privatization as a series of payoffs (or bribes as he called it) to key stakeholders in the process.

Later explications of the basic idea may be found in articles he co-authored with Robert Vishny on the process. Both the unpublished document and later articles remarkably parallel the basic philosophy of the State Privatization Program of June 1992.

A sense of moral outrage over the effects of their policies - while a great temptation - has to be avoided at all costs. This is especially difficult when one considers that the principal protagonists - Andrei Shleifer and Jonathan Hay - are under investigation for alleged insider trading and conflicts of interest in Russia. [ GAO and USAID having found that they "abused the trust of the US government " etc ]. The temptation might therefore be to focus on that entire shabby episode as Wedel and Williamson have done ( in part, but only in part). There is no need for this. The charges are unproven. Besides the amounts Shleifer and Hay are accused of improperly dealing in, are a pittance, compared to the wholesale thievery their ideas sanctioned. The real story is in the voucher scheme they designed and implemented. Told coldly, rationally, and solely concerned with the truth, it will still be a great story. Behind the story after all, loom the long shadows of the millions of Russians whose lives were effected by these disastrous policies. They deserve the truth.

Will the story be told with integrity. I am afraid not. There are too many reputations and too much credibility at stake. The usual candidate would be someone of stature in academia. This is not really an option. The old Kremlinologists have been largely rendered irrelevant by the pace of events and are struggling to retool themselves. The younger economists who work on Russia, who have access to the data and hands-on experience, are the least likely candidates given the devastating outcomes of the policies they advocated. Self serving rationalizations with little intellectual integrity are all that can be expected from this group. Witness for example, Anders Aslunds' comic absurdity "How Russia became a Market Economy". If Russia is a market economy, then I, sir, am a monkey's uncle ! Finally it would be too much to expect the protagonists themselves - Shleifer and his collaborators - to say " We were wrong, terribly wrong". An old man named Robert McNamara looking back on his life, said that about a war that ended twenty five years back, and look at the condemnation that brought him. It would be too much to expect Shleifer and the others - all reportedly in their late thirties and early forties - to make such an admission.

The World Bank is another candidate, but they will distort the tale. The Bank's division that does such studies - the Operations Evaluation Department - will use the standard bureaucratic boiler plate it excels at. Besides the Bank itself picked up the substantial ideas and policies from the Harvard group, and has its own credibility at stake. While some hand wringing can be expected, so can a less than zealous concern for the truth. Besides, even if it is honest, the drama of the story will be lost in the telling.

... ... ...

The reasons of such a behavior by Andrei Shleifer and other players "on the ground" probably run deeper. As Stefan Lemieszewski noted in his letter to Johnson's Russia List:

The failure of these IMF/World Bank/State/Treasury programs should not come as a surprise. Economists such as Michel Chossudovsky (University of Ottawa) go further and suggest that they are by design. In his book, "The Globalization of Poverty: Impacts of IMF and World Bank Reforms" Chossudovsky writes:

"The IMF-Yeltsin reforms constitute an instrument of "Thirdworldisation"; they are a carbon copy of the structural adjustment programme imposed on debtor countries in Latin America and sub-Saharan Africa. Harvard economist Jeffrey Sachs, advisor to the Russian government, had applied in Russia the same 'macro-economic surgery' as in Bolivia where he was economic advisor to the MNR government in 1985.

The IMF-World Bank programme adopted in the name of democracy constitutes a coherent programme of impoverishment of large sectors of the population.

It was designed (in theory) to 'stabilize' the economy, yet consumer prices in 1992 increased by more than one hundred times (9,900 per cent) as a direct result of the "anti-inflationary programme". As in Third World 'stabilization programme', the inflationary process was largely engineered through the 'dollarization' of domestic prices and the collapse of the national currency. The 'price liberalization programme' did not, however, resolve (as proposed by the IMF) the distorted structure of relative prices which existed under the Soviet system."

In Ukraine and some other republics the magnitude of collapse was even greater and all middle class was essentially wiped out. Many emigrated. Also a lot of assets were simply stolen by western companies for cents on the dollar (disaster capitalism in action; some of most blatant cases were reversed under Putin, but not much). Bush II administration was busy with reelections and Clinton administration never viewed Russia as a partner only as a body on the ground to kick with a boot with impunity. As President Richard Nixon pointed out a major aid package could stop the economic free fall and help anchor Russia in the West for years to come.

In this respect the Clinton administration’s greatest failure was its decision to take advantage of Russia’s weakness. And the fact that they used puppets like Jeffrey Sachs to take advantage of the Russia situation produced a long term damage to the US strategic interests in the region. Here is a relevant quote from Foreign Affairs article “Losing Russia”:

BEHIND THE facade of friendship, Clinton administration officials expected the Kremlin to accept the United States’ definition of Russia’s national interests. They believed that Moscow’s preferences could be safely ignored if they did not align with Washington’s goals. Russia had a ruined economy and a collapsing military, and it acted like a defeated country in many ways. Unlike other European colonial empires that had withdrawn from former possessions, Moscow made no effort to negotiate for the protection of its economic and security interests in Eastern Europe or the former Soviet states on its way out. Inside Russia, meanwhile, Yeltsin’s radical reformers often welcomed IMF and U.S. pressure as justification for the harsh and hugely unpopular monetary policies they had advocated on their own.

Soon, however, even Russian Foreign Minister Andrei Kozyrev–known in Russia as Mr. Yes for accommodating the West–became frustrated with the Clinton administration’s tough love. As he told Talbott, who served as ambassador at large to the newly independent states from 1993 to 1994, “It’s bad enough having you people tell us what you’re going to do whether we like it or not. Don’t add insult to injury by also telling us that it’s in our interests to obey your orders.”

But such pleas fell on deaf ears in Washington, where this arrogant approach was becoming increasingly popular. Talbott and his aides referred to it as the spinach treatment: a paternalistic Uncle Sam fed Russian leaders policies that Washington deemed healthy, no matter how unappetizing these policies seemed in Moscow.

As Talbott adviser Victoria Nuland put it, “The more you tell them it’s good for them, the more they gag.” By sending the message that Russia should not have an independent foreign policy — or even an independent domestic one — the Clinton administration generated much resentment. This neocolonial approach went hand in hand with IMF recommendations that most economists now agree were ill suited to Russia and so painful for the population that they could never have been implemented democratically. However, Yeltsin’s radical reformers were only too happy to impose them without popular consent.

Here is the Shleifer part of the story although it is important to realize that he was just a puppet, low level criminal (No. 6 card or "shesterka" : lowest member of a gang in Russian slang) in the biggest looting of the century, looting that exceeds performed by Hitler armies in 40th. (Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country):

In 1992, Andrei Shleifer, a Harvard professor and a close friend of Summers since Shleifer's college days at Harvard, became head of a Harvard project that directed U.S. government money for the development of the Russian economy. Tens of millions of dollars in noncompetitive U.S. contracts flowed to Harvard for Shleifer's Russian work, and his team directed the distribution of hundreds of millions more. Through the mid-1990s, complaints accumulated in Washington about self-dealing and improper investing by the Harvard team, and by mid-1997, the Harvard contracts had been canceled and the FBI had taken up the case. For two years it was before a federal grand jury.

In September, 2000, the government sued Harvard, Shleifer, and others, claiming that Shleifer was lining his own pockets and those of his wife, hedge fund manager Nancy Zimmerman -- formerly a vice president at Goldman Sachs under Rubin.

Soon after, when Summers became a candidate for the Harvard presidency, Shleifer lobbied hard for him in Cambridge. Rubin assured the Fellows that the abrasiveness Summers had exhibited at Treasury was a thing of the past. They named him president--in spite of what was already known about his enabling role in the malodorous Russian affair, and the implausibility of a personality metamorphosis.

Summers did not recluse himself from the lawsuit until more than three months after his selection as president, and even then used his influence to protect Shleifer. The Fellows--including Rubin, whom Summers added to the Corporation--fought the case for years, spending upwards of $10M on lawyers. But in 2005 a federal judge found Shleifer to have conspired to defraud the government and held Harvard liable as well. To settle the civil claims, Shleifer paid the government $2M and Harvard paid $26.5M; Zimmerman's company had already paid $1.5M. Shleifer denied all wrongdoing, and Harvard disclosed nothing about any response of its own--a departure from its handling of misconduct by faculty farther from the center of power.

Summers remained close to Shleifer, yet claimed in a February 2006 faculty meeting to know too little about the scandal to have formed an opinion about it. This prevarication brought a gasp from the assembled faculty and solidified faculty opposition to the Summers presidency.

Rubin is now gone from his leadership role and his board membership at Citigroup, hauling away $126M from a firm that was $65B poorer than when he joined it, with 75,000 fewer jobs. But he remains on the Harvard board, in spite of the financial meltdowns at both Citigroup and Harvard and his poor oversight of the problematic president he persuaded Harvard to hire.

The Rubin network remains alive and well in the White House, including not just Summers but several other Rubin protégés. Among the strangest of these power loops is that the well-connected Nancy Zimmerman has turned up as a member of Summers's economic policy brain trust.

It's pretty funny that in 1993 Andrei Shleifer co-authored a paper about corruption":

Abstract

This paper presents two propositions about corruption. First, the structure of government institutions and of the political process are very important determinants of the level of corruption. In particular, weak governments that do not control their agencies experience very high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why, in some less developed countries, corruption is so high and so costly to development.

Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Compare this paper with the assessment of his own behavior in the article "On Post-Modern Corruption"(Economic Principals):

It is against this background that a seemingly unrelated matter, the Andrei Shleifer case, should be considered. Readers are all too familiar with the details of how a 31-year-old Russian expatriate, swiftly risen to eminence as a Harvard University economics professor, was put in charge in 1992 of a huge US government-financed, Harvard-administered mission to advise the Russian government of Boris Yeltsin on how to establish a market economy of their own -- until he was discovered in 1996 to be lining his own pockets, and those of his wife, his deputy and the deputy's girlfriend. At that point the mission collapsed.

Four years later, the US Attorney in Boston sued. Four years after that, Shleifer was found to have committed fraud and Harvard University to have breached its contract. Each was ordered to repay the government.

Perhaps the Shleifer story is no big deal, and not the symbol of post-modern corruption having spread to universities that I think it is. Yet there are similarities to the Congressional situation, I believe. The case against Shleifer case was a civil complaint, not a criminal charge. Cunningham was elected, Shleifer was hired. Each helped himself to some good old-fashioned graft, and each was found by a court to have done (in the words of the San Diego prosecutor) "the worst thing an Éofficial can do -- he enriched himself through his position and violated the trust of those who put him there."

And just as the tactics of the House leadership are more alarming than the conduct of the lowly Cunningham, so the determination of Harvard's administrators to defend Shleifer for nine long years is more astounding than what Shleifer actually did. He was young and inexperienced. They had all the advice and time in the world. His culpability has been established. Theirs has barely been addressed.

Here is some information about the events form Wikipedia article Andrei Shleifer:

Controversy

Under the False Claims Act, the US government sued Harvard, Shleifer, Shleifer's wife, Shleifer's assistant Jonathan Hay, and Hay's girlfriend (now his wife) Elizabeth Hebert, because these individuals bought Russian stocks and GKOs while they were working on the country's privatization, which potentially contravened Harvard's contract with USAID. In 2001, a federal judge dismissed all charges against Zimmerman and Hebert.[4] In June 2004, a federal judge ruled that Harvard had violated the contract but was not liable for treble damages, but that Shleifer and Hay might be held liable for treble damages (up to $105 million) if found guilty by a jury [2].

In June 2005, Harvard and Shleifer announced that they had reached a tentative settlement with the US government. On August 3 of the same year, Harvard University, Shleifer and the Justice department reached an agreement under which the university paid $26.5 million to settle the five-year-old lawsuit. Shleifer was also responsible for paying $2 million dollars worth of damages, though he did not admit any wrong doing. A firm owned by his wife previously had paid $1.5 million in an out of court settlement.

Because Harvard University paid most of the damages and allowed Shleifer to retain his faculty position, the settlement provoked allegations of favoritism on the part of Harvard's outgoing president Lawrence Summers, who is Shleifer's close friend and mentor. Shleifer's conduct was reviewed by Harvard's internal ethics committee. In October 2006, at the close of that review, Shleifer released a statement making it clear that he remains on Harvard's faculty. However, according to the Boston Globe, he has been stripped of his honorary title of Whipple V. N. Jones Professor of Economics[3].

Shleifer's involvement in Russia was investigated by David McClintick, a Harvard alumnus and journalist for Institutional Investor Magazine. His 30-page January 2006 article claims to show that "economics professor Andrei Shleifer, in the mid-1990s, led a Harvard advisory program in Russia that collapsed in disgrace." The article drew considerable criticism among Shleifer's colleagues, collaborators, close friends, and students. According to the Harvard Crimson[4], the university's daily newspaper, Shleifer's colleague and economics professor Edward Glaeser said that the Institutional Investor article "is a potent piece of hate creation—not quite 'The Protocols of the Elders of Zion,' but it's in that camp." But Glaeser later apologized for his statement[5].

Larry Summers was not only defender but also the handler of Andrei Shleifer

Prominent role of Larry Summers in Andrei Shleifer affair shed very negative light on this very controversial figure. Positioning him as a key figured in Clinton administration intended to destroy the xUSSR republic economies, especially economics of Russia. And that role perfectly alight with his general political role in Clinton administration and after that. The role of enforcer of neoliberal social order. Role of Larry Summers in adopting "shock therapy" and Yeltsin privatization of state assets still needs to be investigated. But it is perfectly consistent with his track record. Among key "mis-achievements" of Bubble Boy Larry:

Opium for the masses: Neoclassical economics role under neoliberalism as equivalent of the role of Catholic Church under feudalism

Some use the term “neo-feudalism” to characterize operation of the USA and "friends" in xUSSR space but they are essentially neocolonialism. When open brutal used of military force for conquering nations was substitutes by financial instruments. But neoliberalism definitely use neo-feudal methods, and that includes usage of neoclassic economics in the USA. Here I mean use of neoclassic economic as a new religion that justify and "bless" neoliberal social order. Essentially the same role that Catholic church played for classic feudalism. It serves as "An opium for the masses", if we use slightly overdone Marx quote ;-)

While related to economic rape of Russia, Shleifer's story has a wider meaning as an apt symbol of "post-modern" corruption at universities and especially in Harvard where students were actively indoctrinated in pseudoscientific theories which constitute a theoretical framework of casino capitalism serving simultaneously as the role of ideology which is not that far from the role of Marxism in the USSR. Here is Anna Willamson view (The Rape of Russia, Testimony of Anne Williamson Before the House Banking Committee)

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading Wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

As reader with nickname DownSouth commented on Naked Capitalism blog (Obama Administration “Nothing to See Here” on Foreclosure Crisis « naked capitalism), historically one of the most powerful forces that supported feudalism in Europe were Catholic and Orthodox churches: the feudal order was upheld by the Church’s priestly class allied with European royalty.

In the modern USA something similar can be said about the relations of the neoclassical economists and bankers. It wasn’t meant to be this way, either with the priests of old or the priests of new. As Robert H. Nelson points out in Economics as Religion,

…Samuelson followed the Roman Catholic model. The members of the economics profession, and other scientific and professional elites, would be motivated by the higher considerations of a priesthood, as compared with businesspeople and other ordinary citizens in the commercial realm. There would be no popular votes held for the scientific leaders of society. Samuelson acknowledged the practical necessity to allow wide rein for the pursuit of self-interest in the marketplace. However, the professional economists and other scientific managers of the progressive state would function according to the ethical standard of the Roman Catholic priesthood. They would reject the commercial motive of self-interest and instead act in their professional and public capacity to serve the common good—-“the public interest”—-of all of society.

In Darwin’s Cathedral David Sloan Wilson made the observation that all major churches seem to have a “life cycle.”

Religious denominations range from huge established churches that encompass most of the population to tiny sects that reject the larger churches as corrupt and regard themselves as keepers of the original faith. The huge established churches begin as sects, grow into churches, give rise to offspring sects, and then mysteriously fall into senility, to be replaced by their own offspring sects. I would just add that it seems like theology follows function in this life cycle.

For instance, as Wilson points out, the early Christian church, while it was still a small sect, had “a policy of extreme altruism and forgiveness toward the downtrodden” and “a policy of unyielding opposition” toward the main Jewish religious institutions, which it perceived to be in league with the Roman Empire. As the Christian church matured and became the established church, however, it became part and parcel of the power structure, championing it and defending it against the downtrodden. What began as a small sect with a theology based upon knowledge and moral authority morphed into a church whose theology was all about defending wealth and power.

Eventually a new sect rose to challenge this priestly class. As Nelson explains:

Indeed, it was this strong distinction between ordinary people and the church priesthood that, among a number of other tenets of Catholic doctrine, incurred the wrath of Martin Luther. Luther saw the Roman Catholic Church as selling ordinary people short and thus declared a new Protestant “priesthood of all believers.” The ministry of the Protestant churches would stand on an equal plane with the faithful—-both, for example, would marry. The leadership of Protestant parishes would be elected by the ordinary members of the church, while the Roman Catholic Church would continue to select its own leaders in a hierarchal fashion, as when the pope designates the cardinals of the church.

What Luther had to say about the priestly class of the Medieval Catholic Church rings true about modern-day high priests of "casino capitalism", the neoclassical economists of "Harvard Mafia". As Luther wrote the Pope in letter in 1520:

But they See, which is called the Roman Curia, and of which neither thou nor any man can deny that is more corrupt than any Babylon or Sodom ever was, and which is, as far as I can see, characterized by a totally depraved, hopeless, and notorious wickedness—-that See I have truly despised… The Roman Church has become the most licentious den of thieves, the most shameless of all brothels, the kingdom of sin, death, and hell… They err who ascribe to thee the right of interpreting the Scripture, for under cover of thy name they seek to set up their own wickedness in the Church, and, alas, through them Satan has already made much headway under thy predecessors. In short, believe none who exalt thee, believe those who humble thee.


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[Oct 19, 2015] Is Money Corrupting Research?

Notable quotes:
"... Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their opinions are bought and paid for. ..."
"... Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted. ..."
economistsview.typepad.com
Luigi Zingales:
Is Money Corrupting Research?: The integrity of research and expert opinions in Washington came into question last week, prompting the resignation of Robert Litan ... from his position as a nonresident fellow at the Brookings Institution.

Senator Elizabeth Warren raised the issue of a conflict of interest in Mr. Litan's testimony before a Senate committee... Senator Warren was herself criticized by economists and pundits, on the left and right. ... But at stake is the integrity of the research process and the trust the nation puts in experts, who advise governments and testify in Congress. Our opinions shape government policy and judicial decisions. Even when we are paid to testify..., integrity is expected from us. ...

Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives do not matter. Had the conclusions not pleased the Capital Group, it would probably have found a more compliant expert. And the reputation of not being "cooperative" would have haunted Mr. Litan's career as a consultant. ...

Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational incentives do not work because the practice of bending an opinion for money is so widespread as to be the norm. ...

He goes on to suggest some steps to strengthen the reputational incentive.

pgl said in reply to Larry...

"Businesses sometimes finance policy research much as advocacy groups or other interests do," the economists wrote. "A reader can question the source of the financing on all sides, but ultimately the quality of the work and the integrity of the author are paramount." They praised Litan's quality and integrity as having been "impeccable over a career of four decades."

The fact of the matter is that funding comes from all sorts of places. One should always disclose the sourcing of funding and then let one's writings stand scrutiny.

Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their "opinions" are bought and paid for.

anne said in reply to Larry...
http://www.reuters.com/article/2015/09/30/us-brookings-warren-resignation-idUSKCN0RU00B20150930

September 29, 2015

Brookings fellow resigns after Senator Warren accuses him of conflicts
By SARAH N. LYNCH - Reuters

WASHINGTON

A prominent Brookings Institution fellow resigned on Tuesday, after Massachusetts Senator Elizabeth Warren accused him of failing to fully disclose industry funding tied to a study that criticized the U.S. Labor Department's plan to regulate brokerages.

The resignation of Robert Litan came just one day after Warren, a Democrat, sent Brookings' president a letter demanding to know more about the think tank's policies on financial conflicts and details about the communications between Litan and Capital Group, an investment firm that funded his research paper.

"He has acknowledged that he made a mistake in not following Brookings regulations designed to uphold the independence of the institution," Brookings President Strobe Talbott said in a statement provided to Reuters.

Warren's concerns center a study that Litan and researcher Hal Singer jointly conducted which examined a controversial plan by the Labor Department to try and rein in conflicts posed by brokers who offer retirement advice.

The proposal has garnered fierce opposition from Wall Street, and Litan's study concluded that the plan could harm consumers.

Litan testified about the study's findings in a July hearing before a U.S. Senate panel, in which he represented himself as a fellow at Brookings.

The study was conducted by Litan and Singer in their capacity as staffers for Economists, Inc., a consulting firm.

Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions.

In addition, he disclosed that Capital Group had paid Economists Inc $85,000 for the study, and his share was $38,800.

In her letter to Brookings, Warren said the lack of disclosure raises "significant questions about the impartiality of the study and its conclusions."

Litan, a former top official in the Clinton administration, did not respond to an email seeking comment.

He is a well-known economics expert in Washington who has authored or co-authored over 25 books.

"We greatly appreciate all the good work Bob has done for Brookings over the 40-plus years he has been connected to this institution," Talbott said.

mulp said in reply to Larry...
What did Brookings do to Litan???

According to Reuters, he failed to disclose his relationships when presenting his report and when testifying, and seems to have lied:

"Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

"In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

"This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions."

Can I edit anything you write and claim as solely your own work? I want to have my point of view endorsed by a much larger group of writers, and the best way is for me to fix their writings.

It was not Litan being paid that was the problem, but the fact he claimed the words written for him were his own as an "independent" authority.

Second Best said...
Money corrupts research as sure as the Pope is Catholic...
greg said in reply to anne...
Rumors of Thomas Malthus' irrelevance to humanity's future are greatly exaggerated.

Consider instead: "Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies"
http://www.sciencedirect.com/science/article/pii/S0921800914000615

Authors: Safa Motesharreia, Jorge Rivasb, Eugenia Kalnayc

This is the actual paper of the model, but do not be afraid. Here are the highlights:

" HANDY is a 4-variable thought-experiment model for interaction of humans and nature.
The focus is on predicting long-term behavior rather than short-term forecasting.
Carrying Capacity is developed as a practical measure for forecasting collapses.
A sustainable steady state is shown to be possible in different types of societies.
But over-exploitation of either Labor or Nature results in a societal collapse."

There are equations. And graphs. The concluding paragraph of the abstract:

"The measure "Carrying Capacity" is developed and its estimation is shown to be a practical means for early detection of a collapse. Mechanisms leading to two types of collapses are discussed. The new dynamics of this model can also reproduce the irreversible collapses found in history. Collapse can be avoided, and population can reach a steady state at maximum carrying capacity if the rate of depletion of nature is reduced to a sustainable level and if resources are distributed equitably."

This made the press about a year and a half ago, was commented on, but has since been ignored. Google "Handy Model" for popular presentations and critiques.

You decide whether it should continue to be ignored, given the remarkable progress the world has made towards remedying inequality, conserving resources, and controlling population growth. (That's sarcasm.)

reason said...

There is another solution to this issue. Financing should never be direct to the researcher. That way there is a funding body (say a university) that decides who researches what, and the funding is channeled through them (through a public application process). If a firm is really interested in disinterested research, no problem.

If it wants to control the research, they have a problem. Of course the whole funding body could be corrupted but if there is a public review process that can be minimised.

cm said in reply to reason...

It is more subtle than asking for or implying a preference for specific results. Regardless how the funding is distributed, except perhaps by lottery, there is the issue of "repeat business" or expert shopping (cherry-picking research organizations that are known to fall in a particular camp).

Then there is the issue of fads - even in relatively apolitical tech science, funding and research flocks to certain hot topics, as people hunt for funding by trying to tie their proposal to the current hot topics. But then this is perhaps more a consequence of an already corrupted funding process that only supports R&D that conforms to current preconceived notions and business interests.


bakho said...

Money supports bias.

RC AKA Darryl, Ron said...

Money is power. Power corrupts.

mrrunangun said...

Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted.

Even in science, when research into a controversial area has been ambiguous enough for sustained disagreement, it is common to find that a given research shop's work consistently comes down on one side of the controversy and another shop's work consistently on the opposing side of the controversy. In such cases, only people who follow the research in the area closely are likely to be aware of this. Usually time and technical improvements in measuring equipment puts controversies to rest, but the time is often measured in years. In these cases, the biases come from the leaders of the research shops rather than the grantors.

There are politics among granting institutions as well. These are less often political biases and more often they are of a personal nature, and since the people on a granting committee are necessarily expert in the field that the grantee will be working in, they will often be personally acquainted with the grant applicants. Not uncommonly, former students of the members of the committee.

Economics and long range climate science are necessarily model-based. Their short-term predictions are often proven wrong which casts doubt on the reliability of their long-term predictions. As a result, there may be legitimate differences of opinion as to the applicability of a particular model to a particular situation.

In the case of Mr Litan, the fact that he acknowledged that his study was funded by Capital and that he was testifying on behalf of the industry announce his bias.

GeorgeK said...

Tainted research is the norm in most industries, research dollar come from corporations that expect their interest to be served. Currently Monsanto emails show how heavy handed this pay for research problem has become. ...""Professors/researchers/scientists have a big white hat in this debate and support in their states, from politicians to producers," Bill Mashek, a vice president at Ketchum, a public relations firm hired by the biotechnology industry, said in an email to a University of Florida professor. "Keep it up!"...

http://www.nytimes.com/2015/09/06/us/food-industry-enlisted-academics-in-gmo-lobbying-war-emails-show.html

DeDude said...

The antidote to this kind of crap is the public funded University with tenured professors and sufficient resources (endowed Chairs) to conduct research without need to go out and get external funding for a study. As the public funding is reduced in order to give tax cuts to the rich plutocrats such truly independent research become more rare -and the plutocrats increasingly manage to own the facts.

[Sep 07, 2015] The Thirty-Year Boom

September 06, 2015 | Economist's View

Part of an essay by David Warsh:

... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure from the center stage of economics after forty years of dominating the scene. The two had entered their sixties; neither was out of steam. But the leaders of the next generation had become apparent: Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.

The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman spent a quarter at the University of California at Los Angeles, shortly after Reagan had been elected Governor of California.He was invited to lecture in China. And the international success of Free to Choose kept Friedman in the public eye.

But Paul Volcker took a different approach to monetary policy from the one Friedman advocated, and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer. A research appointment at the Federal Reserve Bank of San Francisco was not the same platform as the University of Chicago. Friedman still had his membership on the President's Economic Policy Board, but after he "savaged" Volcker to his face before the president in a meeting in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's account), "because of the policies of the Fed under that man we have had an inflationary surge in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward Nelson, of the Federal Reserve Bank of St. Louis is writing a scientific biography of Friedman. It will make interesting reading when it is done.

In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler, president of the National Academy of Sciences, advocating major cuts in the budget of the National Science Foundation, as a step towards the abolition of the NSF. The Reagan administration had proposed sharp cuts in the economics program. Friedman argued the government shouldn't pay for any scientific research. True, the NSF had funded much good science; but it had paid for much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists of the past had done without NSF funding. Einstein did his work in a government patent office; general relativity might never have made it past a peer-review panel. "The innovative ideas that have stirred controversy in economics since NSF funding of economics began two decades ago owe little or nothing to NSF funding," he wrote.

Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945. Perhaps more important, by extension he dismissed the program of government fellowships, awarded by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid – and countless others since, many of them as impecunious as Friedman had been in 1932. The NSF ran similar programs in mathematics and many ciences, and the principle had been extended, by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar role at many other public and private universities.

No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned the column he written for fifteen years. When, many years later, I asked him about his timing, he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for the file the next day repeating what he had said. I have always wondered if he sought to defuse the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years was clearly a source of pride, though privately he grew less tolerant of his rival after 1980.

Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded from the biting criticism of the New Classicals in the '70s. Tensions were growing within the MIT department over appointments and the direction of future research. Samuelson formally retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention. Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner, was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up. The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani, and Robert Solow received Nobel Prizes.

Young Lions at Large

To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics and real business cycle theory posed a considerable bar. To work in the new traditions required a considerable investment in new tools and mathematical techniques, and, even fully teched-up, didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising star of saltwater economics after another left academia for a policy job.

Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in the early days of the controversies over deficits before returning in 1984 to Harvard and his position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT, was next, wrapping up a highly successful research career in order to serve as chief economist of the World Bank (a path that led to leadership positions in the International Monetary Fund, governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton administration, where he advanced to Secretary of the Treasury.

Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff, Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists who served in government jobs or NGO positions. Paul Krugman retooled as a journalist. Lists of MIT and Harvard graduates in high positions in European, South American, and Asian governments were even longer. Did this differ in kind, and not degree, from the trajectory of academic economists dating back to to the New Frontier, if not the New Deal? I think so.

In 2006, Harvard's Mankiw, in an article for the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests among economists were best understood as being similar to those between scientists and engineers. The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic tools and establishing theoretical principles. Their students the '80s had joined teams along similar lines. "Recently Paul Romer, of New York University, introduced a different distinction to elucidate some of the controversies in present-day macro – between bench science and clinical medicine. Both analogies will get plenty of elaboration in future years, for this is what changed in kind in the '80s: economics developed a clinical/engineering wing.

... ... ...

likbez said...

Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman can be viewed as a one of the first economic hitman for multinationals, member of organized crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA. In 1987 45% of Chile's population was below poverty line. From Wikipedia:

==Start of quote ===
Milton Friedman gave some lectures advocating free market economic policies in Universidad Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of government deficits that had increased in the past years and a flat commitment by government that after six months it will no longer finance government spending by creating money. He proposed relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the ideas of Milton Friedman…and his Chicago School".[26]
=== End of quote ===

In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal scheme of the economic rape of the countries under disguise of transformation toward "free" market economics -- the neoliberal restructuring that followed the military coups in several countries using suspiciously similar schemes. She suggested that the primary role of neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship violence toward opponents was the level of opposition to Chicago School policies in Chile.

And Friedman himself was a coward who never personally acknowledged his role in the events. After a 1991 speech on drug legalization, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview), but that only his students (Chicago boys) were involved.

He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably also prepared in collaboration with the CIA...

It is interesting that the paper does not mention Galbraith who was important opponent of Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power," "The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules and regulations, is the best economic system.

So it might be useful to distinguish between two instances of Friedman: the first is Friedman before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom is a pitiful figure of a prostitute to power that be.

chris herbert said...

The best observation was the one by Wojnilower that the animals in the zoo were let out of their cages.. They are still roaming around, not yet put back in their regulatory cages. The list of financial crises beginning in the 1980s looks as bad and as frequent as those of the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose, more trouble will visit the Kingdom.

bakho said...

Interesting history lesson.
Needs more links.
Friedman's spat with Volcker:

In Friedman's view, Volcker was too vulnerable to political pressures from Congress and the White House, Condemned by liberals and conservatives for plunging the country into recession and worried that continued high interest rates would cause massive default by Third World debtors, Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's targets for money growth and restoring interest-rate manipulation as a policy tool. In the five months before the November 1984 elections, the Fed increased the money supply to bring down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After Reagan's reelection victor in November, the Fed again tightened the money supply, "This is not monetarist policy," Friedman says, "The key element of monetarism is to define what you are going to do and then stick with it."

For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely technical, "a matter of every month looking at the money base and making sure it increases by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good job, he would become an unknown, a faceless bureaucrat."

Cooper, M. H. (1987). Economics after Reaganomics. Editorial research reports 1987 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1987082100

I wonder if so many of the young economist went into policy because the people involved: Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.

bakho said...

Just how wrong was Friedman?
DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.

NSF funds high risk investment, the kind that most corporations cannot. High risk research means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot. It takes a large organization with very deep pockets to fund enough high risk research over long periods to have a good likelihood of getting a large hit. Industry cannot fund at that level, government can.

Another example: NSF funded obscure biochemistry into esoteric research on enzymes that could degrade DNA. That research became the foundation of genetic engineering. Who could have known?

pgl said in reply to Paine ...

Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever endorsed Laffer's stupid cocktail napkin.

Lafayette said...

REAGANOMICS

From WikiP: {According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. However, conservatives insist that the significantly lower tax rates caused the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}

Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending to get his presidency out of the deep-doodoo.
Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS was a Democrat ...

pgl said in reply to Lafayette...

Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse the fiscal stimulus in exchange for lower interest rates. The White House did not even know what was going on. And Wikipedia does not either.

[Aug 03, 2015] Freshwater's Wrong Turn

"... This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).
Aug 2, 2015 | Economist's View

Paul Krugman follows up on Paul Romer's latest attack on "mathiness":

Freshwater's Wrong Turn (Wonkish): Paul Romer has been writing a series of posts on the problem he calls "mathiness", in which economists write down fairly hard-to-understand mathematical models accompanied by verbal claims that don't actually match what's going on in the math. Most recently, he has been recounting the pushback he's getting from freshwater macro types, who seem him as allying himself with evil people like me — whereas he sees them as having turned away from science toward a legalistic, adversarial form of pleading.
You can guess where I stand on this. But in his latest, he notes some of the freshwater types appealing to their glorious past, claiming that Robert Lucas in particular has a record of intellectual transparency that should insulate him from criticism now. PR replies that Lucas once was like that, but no longer, and asks what happened.
Well, I'm pretty sure I know the answer. ...

It's hard to do an extract capturing all the points, so you'll likely want to read the full post, but in summary:

So what happened to freshwater, I'd argue, is that a movement that started by doing interesting work was corrupted by its early hubris; the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems, and sent them off on the path Paul now finds so troubling.

Recent tweets, email, etc. in response to posts I've done on mathiness reinforce just how unwilling many are to confront their tribalism. In the past, I've blamed the problems in macro on, in part, the sociology within the profession (leading to a less than scientific approach to problems as each side plays the advocacy game) and nothing that has happened lately has altered that view.

Posted by Mark Thoma on Sunday, August 2, 2015 at 11:54 AM in Economics, Macroeconomics, Methodology | Permalink Comments (20)

pgl said...
When I first heard this Lucas island - also known as Friedman-Phelps - story about business cycles being driven by unanticipated inflation, it initially stuck me as interested. Then I thought about the fact that the Rational Expectations version would have trouble explaining why nominal shocks affect real events for more than a few months.

No - it did not take long to realize that this nice neat model could not explain the real world. But what we usually got back then is a large parade of statistical techniques that just confused matters even more.

At which I began to wonder what I was interested in macroeconomics in the first place.

eightnine2718281828mu5 said in reply to pgl...
---
the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems
---

iow, assigning a higher value to their accumulated research (reputation?) than it was actually worth.

sticky prices indeed.

RC AKA Darryl, Ron said in reply to eightnine2718281828mu5...
:<)

[For most of us then:]

"...Freedom's just another word for nothing left to lose
Nothing don't mean nothing honey, if it ain't free
Feeling good was easy, Lord, when he sang the blues
You know, feeling good was good enough for me
Good enough for me and my Bobby McGee..."
ARTIST: Kris Kristofferson
TITLE: Me and Bobby McGee

*

[For most of them then freedom is just a matter of low-regulation low-tax supply side economic policy. TO which end their statistics demand many degrees of "freedom" and they have taken increasingly more extensive "freedoms" with their theories ever since Uncle Milty taught us about "Capitalism and Freedom," why the initial conclusions reached by Keynes were all wrong, and why monetarism was sacred. (barf)

I remember the 1970's well. The terminal punctuation was Reagan's election in 1980. When I was drafted in 1969 I still retained some hope, although much diminished since MLK was murdered a year earlier. By the time I returned from Viet Nam it was just one slap in the face after another. All our (the social movement that happened alongside the hippies) hopes from the 60's were dashed. Blacks were to be "locked" into ghettos by public policy and the working class was to be sacrificed on the alter of corporatism one merger or outsource at a time. ]

anne said...

https://en.wikipedia.org/wiki/Real_business_cycle_theory

Real business cycle theory models (RBC theory) are a class of New classical macroeconomics models in which business cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

anne said in reply to anne...
http://krugman.blogs.nytimes.com/2014/02/17/the-trouble-with-being-abstruse-slightly-wonkish/

February 17, 2014

The Trouble With Being Abstruse (Slightly Wonkish)
By Paul Krugman

Political scientists who write clearly for a broader audience are upset * with Nick Kristof ** for saying that political scientists no longer write for a broader audience. I'm not going to get into that fight. I do want to register one point, however: In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.

And what is the nature of that problem? It's not that laypeople don't understand what the academics are saying. It is, instead, that the academics themselves don't understand what they're saying.

Don't get me wrong: I like mathematical modeling. Mathematical modeling is a friend of mine. Math can be a powerful clarifying tool. So, in some cases, can jargon, which used right can both save time and add clarity to the discussion. If I talk about Dixit-Stiglitz preferences, or for that matter the zero lower bound, technically trained economists immediately know whereof I speak, where plain English would both take longer and leave room for misunderstanding.

But it's really important to step away from the math and drop the jargon every once in a while, and not just as a public service. Trying to explain what you're doing intuitively isn't just for the proles; it's an important way to check on yourself, to be sure that your story is at least halfway plausible.

Take real business cycle theory – I know it's a horse I beat a lot, but it's not dead, and it's a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I've been looking for a simple, intuitive explanation by an RBC theorist of what's going on. And I haven't been able to find one!

I mean, I could do it myself. Strip the story down to basics – make it a steady-state model, not a growth model, and drop the capital accumulation; what you're left with is fluctuations in the marginal productivity of labor, which have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good. As I've written before someplace, it's the story of a farmer who stays inside when it's raining and puts in extra hours when the sun is shining.

But the RBC theorists never seem to go there; it's right into calibration and statistical moments, with never a break for intuition. And because they never do the simple version, they don't realize (or at any rate don't admit to themselves) how fundamentally silly the whole thing sounds, how much it's at odds with lived experience.

I once talked to a theorist (not RBC, micro) who said that his criterion for serious economics was stuff that you can't explain to your mother. I would say that if you can't explain it to your mother, or at least to your non-economist friends, there's a good chance that you yourself don't really know what you're doing.

Math is good. Sometimes jargon is good, too. But plain language and simple intuition are important to keep you grounded.

* http://crookedtimber.org/2014/02/16/look-who-nick-kristofs-saving-now/

** http://www.nytimes.com/2014/02/16/opinion/sunday/kristof-professors-we-need-you.html

mulp said in reply to anne...
Freshwater economists, free lunch economists, speak very clearly.

Its too good to be true which makes everyone who wants a free lunch to believe it.

For example, free lunch economists say lower prices are achieved by lower wages, fewer workers, tax cuts, and higher profits, which creates wealth, and the unemployed and working poor spend more using money the will never pay back because of the wealth effect, with mathiness to backup their claims.

What they never do is put them all together like I have done so the words are revealed as nonsense and the math is 1+2-3 = 10 and thus obviously bogus.

Note fresh water economists NEVER state that consumer spending is driven by wage income, as in real wage income, not the income from capital gains which sorta lots like wages but is really rent seeking aka private tax on the savings of workers.

How can lower wages to get lower prices ever result in higher GDP without lots of debt that can never be repaid?

Lafayette said in reply to anne...
TO APE ONE ANOTHER

{PK: with the many academics who never even try to put their thoughts in plain language.}

Ha! I like that!

Tis True. How many times do we see the word "exogenous". Many. How often, "endogenous"? Never.

Anybody for a hard look at the "endogenous" factors causing economic cyclicity? How about the human ability to "ape" one another's consumer habits that builds patterns increasing in intensity - until the "bubble" bursts? ("Cyclicity"? Wow! Nice word? Hardly used! Here we go again!!!;^)

Like lemmings falling off a cliff - cyclic in nature but deadly in consequence.

DeDude said...
When your math is incompatible with the observations from the real world - its the math that's wrong. I don't have a 3 page formula, but just trust me on this one.
GeorgeK said...
You will find the answers to all your questions in this book
http://www.amazon.com/Wiser-Getting-Beyond-Groupthink-Smarter/dp/1422122999/ref=sr_1_1?s=books&ie=UTF8&qid=1438554831&sr=1-1&keywords=Group+think+getting+beyond

bakho said...

Science advances one funeral at a time. - Max Planck

They are too invested in their mistakes to accept criticism.
The next generation of economists will accept that they were wrong.

likbez said...
Before becoming columnist Krugman was mathiness practioner ;-)

reason said...

Anne
"That is, the level of national output necessarily maximizes expected utility"

We could stop right there. Clear nonsense. (You can always INCREASE utility by redistributing from rich to poor - at least with any sensible definition of utility.

See this discussion
http://crookedtimber.org/2015/07/24/utilitarianism-with-the-potentially-left-wing-bits-stripped-out/comment-page-2/

Egmont Kakarot-Handtke said...

Here it comes: the sexit
Comment on 'Freshwater's Wrong Turn'

There is political economics and theoretical economics. In political economics it suffices to tell a plausible story, in theoretical economics scientific standards are observed. Because economists since Adam Smith pursued these two hares simultaneously, coherence got eventually lost. As a result, economists never developed a theory about how the market economy works that satisfies the scientific criteria of material and formal consistency (Klant, 1994, p. 31).

Economics is a failed science. Therefore, Paul Romer is in for a second big surprise. Until now he thought: "As you would expect from an economist, the normative assertion in 'X is wrong because it undermines the scientific method' is based on what I thought would be a shared premise ..."

Now he learns: "In conversations with economists who are sympathetic to the freshwater economists ... it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists'."

What is the difference between political and theoretical economics?

"A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent." (Haack, 1997, p. 1)

The fact of the matter is that theoretical economics has from the very beginning been hijacked by the agenda pushers of political economics. Smith and Mill were agenda pushers against feudalism. Marx and Keynes were agenda pushers and so were Hayek and Friedman. However, all these economists insisted that they were doing science. This has changed now: "... the evidence ... suggests that freshwater economists differ sharply from other economists."

The freshwater economists simply state the obvious, that is, that they are committed to politics and not to science. This marks the beginning of a voluntary scientific exit (sexit for short). What Romer has not yet realized is that most saltwater economists have to leave through the same door.

Egmont Kakarot-Handtke

References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_scientism_and_anti-science_in_the_age_of_preposterism.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

lagarita said...

This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).

Lafayette said in reply to lagarita...

APART FROM BERNIE

{"we create reality"}

Their entire existence revolves around such vapid, empty simplisms because they have no theoretical substance to their politics. It is either their lack of intelligence or their selfish perfidy that reduces their theoretical foundation of political views.

They are hooked on the fallacy of wealth-creation as the sole credible goal/consequence of an economy. Piketty put that thought to shame in his work on Income Disparity, as did Domhoff on Wealth Disparity. The statistical facts (ie., the "numbers") could not be more clear.

What should bother us most is not only the generation of enormous wealth, and the influence it has on a moneyed electoral system, but the dynastic tendency of such riches. The Koch Bros are already the first generation - will we be contending with the political antics of second, or third, or fourth generations?

The last time historically that happened in Europe, called Inheritance Aristocracy, it all came apart in bloodshed.

And yet the better notion of Social Justice, which supposes that all humans are created with the equal right to fairness and equitability, has taken decades upon decades to come to the fore.

It is still no where near dominating political thought in America. Apart from Bernie, that is ...

Lafayette said...
LOOK IN THE MIRROR

{the braggadocio and trash-talking of the 1970s}

Of the 1970s?

This type is still the mainstay of American parlance, whether political or business or just blogging. The aggressiveness of the language employed knows no bounds.

The intent in commentary, whether verbal or written, whether political or otherwise, is overly combative and largely "ad hominem". The real subject of controversy is lost in the personalization of the rebuttals. The issues that largely determine the political consensus thus become secondary and confused.

Really 'n truly puerile ... like the children they were and they remain, particularly in politics. Propelled by one and only one goal - to win, win, win.

And without politics or politicians, what is a democracy? It's an autocracy. With them, its a manifested willfulness by a moneyed few to dominate electoral outcomes - and we are pawns in the game.

My point? As an electorate, the people we chose to represent us personify as well the kind of people we are. So, complaining about the politicos in LaLaLand on the Potomac is useless.

Seeking someone to blame? Look in the mirror ...

[May 14, 2015] Neocon Writer Anne Applebaum Covers Up the Role West Played in Looting Russia by Lucy Komisar

May 11, 2015 | russia-insider.com/The Komisar Scoop

Eager to pile the looting of Russia in 1990s on Vladimir Putin and his KGB friends Applebaum omits the role played by western reformers and banks. No room for pro-western corruption in Applebaum narrative

This article originally appeared at The Komisar Scoop


Anne Applebaum’s article about Vladimir Putin, “How He and His Cronies Stole Russia,” should have a few words added to the title: “And How The West Drove The Getaway Car.” To suggest that looting occurred independently of the corrupt offshore system organized by Western banks finesses the truth.

Applebaum refers to KBG officers who acted as the Soviet Union seemed near collapse in the 1980s. “Assisted by the unscrupulous international offshore banking industry, they stole money that belonged to the Russian state, took it abroad for safety, reinvested it in Russia, and then, piece by piece, took over the state themselves.”

She writes that KGB leaders began transferring money that belonged to the Soviet Communist Party out of the Soviet Union and into offshore accounts tended by Swiss or British bankers. But American banks were also involved.

Applebaum notes that in 1999, the German Federal Intelligence Agency (BND) accused the St. Petersburg Real Estate Holding Company (SPAG) linked to Putin, of laundering money for Russian and Colombian criminals. “Among other things, the BND said that SPAG took money that had been sent out of Russia and was parked “offshore,” and helped its owners—among them the leaders of the Tambov gang, part of the St. Petersburg mafia, repatriate it back through purchase of property and other assets.

SPAG was registered in Germany and laundered money though Liechtenstein. According to a confidential BND document I obtained, “The Liechtenstein lawyers Dr. Eugen Heeb and Rudolf Ritter participate in a network of firms in Liechtenstein, Europe and overseas. They make this network available -amongst others – to South American drug cartels, e. g. the Ochoa clan and to the new Russian clientele.”

She writes about Mikhail Khodorkovsky as “the most famous victim of Russia’s arbitrary justice.” And about a favored “reformer,” William Browder,” she says, “After he turned out to be an annoyingly activist shareholder,” Browder was barred from Russia in 2005.

But she ignores the offshore connection between Khodorkovsky and Browder. Khodorkovsky’s company Menatep used TMC, a phony Isle of Man “sales” company, to buy the output of Avisma, his titanium sponge company, at fake low prices and sell it on the market at real prices, cheating minority shareholders and Russian taxpayers.

When Browder and his partners, billionaire investor Kenneth Dart and New York investor Francis Baker, bought Avisma from Khodorkovsky in 1997, they agreed the corrupt profit skimming would continue.

Baker told me that the Bank of New York moved the stolen money. He said that “monies put in one end of the machine came out totally clean at the other end of the machine,” adding that, “It was not a piddling amount.” He said, “They moved it through about 20 entities.”

So when Applebaum says, “while constantly speaking of “reform” in Western capitals, Putin was systematically destroying the nascent institutions of liberal democratic society, I wonder what society she is talking about. It sure wasn’t “liberal democratic,” but Putin was using that great Western institution, the crooked offshore bank and corporate secrecy system, as global criminals and Western corporations still do, to loot Russia.

Indeed, Putin and his collaborators looted Russia. But to suggest that this occurred independently of the corrupt offshore system organized by Western banks and in spite of allegedly well-meaning Western advisors the U.S. sent to Russia is a distortion of the truth.

Anne Applebaum’s article with my comments interspersed and parts of the article bold-faced to point out what I cite:

How He and His Cronies Stole Russia by Anne Applebaum

“For twenty years now, the Western politicians, journalists, businessmen, and academics who observe and describe the post-Soviet evolution of Russia have almost all followed the same narrative. We begin with the assumption that the Soviet Union ended in 1991, when Mikhail Gorbachev handed over power to Boris Yeltsin and Russia, Ukraine, and the rest of the Soviet republics became independent states. We continue with an account of the early 1990s, an era of “reform,” when some Russian leaders tried to create a democratic political system and a liberal capitalist economy. We follow the trials and tribulations of the reformers, analyze the attempts at privatization, discuss the ebb and flow of political parties and the growth and decline of an independent media.”

Reform? Liberal capitalism? The “loans for shares” scam, invented by “reformer” Anatoly Chubais, made it possible for the “oligarchs” to loot Russia. They “lent” money to the Yetsin government, which used it for an upcoming election campaign. When Yetsin & co did not pay back the loans, the oligarchs got Russia’s mineral and factory wealth at bargain prices. Such “reformers’ were lauded by the Clinton Administration and the Western press, because privatization by any means necessary was the ideological goal.

“Mostly we agree that those reforms failed, and sometimes we blame ourselves for those failures: we gave the wrong advice, we sent naive Harvard economists who should have known better, we didn’t have a Marshall Plan. Sometimes we blame the Russians: the economists didn’t follow our advice, the public was apathetic, President Yeltsin was indecisive, then drunk, then ill. Sometimes we hope that reforms will return, as many believed they might during the short reign of President Dmitry Medvedev.”

“Whatever their conclusion, almost all of these analysts seek an explanation in the reform process itself, asking whether it was effective, or whether it was flawed, or whether it could have been designed differently. But what if it never mattered at all? What if it made no difference which mistakes were made, which privatization plans were sidetracked, which piece of advice was not followed? What if “reform” was never the most important story of the past twenty years in Russia at all?”

Naïve Harvard economists? Could she be referring to Andrei Shleifer and Jonathan Hay of the Harvard Institute for International Development who went to Russia to help set up capital markets and had their US AID grant cancelled in 1997. According to AID, Shleifer and Hay had improperly used U.S.-funded staff and resources for the benefit of investment projects run by Shleifer’s wife, Nancy Zimmerman, and Hay’s girlfriend, Beth Hebert. The U.S. sued Shleifer, Hay and Harvard. They settled for at least $31 million.

Shleifer is still at Harvard because of the power of his krysha (roof), protector, Lawrence Summers who was then Harvard’s president. Hay sought reduced notoriety in London. Naïve is not the word for what they did.

Applebaum wonders if the “reform process” was flawed. Well, yes, if you send “reformers” who are crooks. Yes, Putin would continue the corruption, but the “reformers” promoting the corrupt “loans for shares” laid the groundwork. The inventor of that scam, Anatoly Chubais, went to work for Shleifer and Hay when Yeltsin fired him.

Karen Dawisha’s Putin’s Kleptocracy is not the first book to ask this question. Indeed, she makes extensive use of the work of others, both fellow political scientists as well as journalists working across the US and Europe. Some have found fault with this method, but the resulting work has a certain admirable relentlessness. For by tying all of these disparate investigations together so thoroughly, so pedantically, and with so many extended footnotes—and by tracking down Western copies of documents that vanished from Russia long ago—the extent of what has always been a murky story suddenly becomes more clear. In her introduction, Dawisha, a professor of political science at Miami University in Ohio, explains:

Instead of seeing Russian politics as an inchoate democratic system being pulled down by history, accidental autocrats, popular inertia, bureaucratic incompetence, or poor Western advice, I conclude that from the beginning Putin and his circle sought to create an authoritarian regime ruled by a close-knit cabal…who used democracy for decoration rather than direction.

In other words, the most important story of the past twenty years might not, in fact, have been the failure of democracy, but the rise of a new form of Russian authoritarianism. Instead of attempting to explain the failures of the reformers and intellectuals who tried to carry out radical change, we ought instead to focus on the remarkable story of one group of unrepentant, single-minded, revanchist KGB officers who were horrified by the collapse of the Soviet Union and the prospect of their own loss of influence. In league with Russian organized crime, starting at the end of the 1980s, they successfully plotted a return to power. Assisted by the unscrupulous international offshore banking industry, they stole money that belonged to the Russian state, took it abroad for safety, reinvested it in Russia, and then, piece by piece, took over the state themselves. Once in charge, they brought back Soviet methods of political control—the only ones they knew—updated for the modern era.

That corruption was part of the Russian system from the beginning is something we’ve long known for a long time, of course. In her book Sale of the Century (2000), Chrystia Freeland memorably describes the moment when she realized that the confusing regulations and contradictory laws that hog-tied Russian business in the 1990s were not a temporary problem that would soon be cleaned up by some competent administrator. On the contrary, they existed for a purpose: the Russian elite wanted everybody to operate in violation of one law or another, because that meant that everybody was liable at any time to arrest. The contradictory regulations were not a mistake, they were a form of control.

Dawisha takes Freeland’s realization one step further. She is arguing, in effect, that even before those nefarious rules were written, the system had already been rigged to favor particular people and interest groups. No “even playing field” was ever created in Russia, and the power of competitive markets was never unleashed. Nobody became rich by building a better mousetrap or by pulling himself up by his bootstraps. Instead, those who succeeded did so thanks to favors granted by—or stolen from—the state. And when the dust settled, Vladimir Putin emerged as king of the thieves.

To tell this story, Dawisha uses many sources, including the evidence presented in several major court cases, a number of which fizzled out for political reasons; material collected by Russian and European investigative reporters, some of which has now vanished from the Web; and Russian legal journals, many of which are now out of print. She has also conducted dozens of interviews with businessmen and bankers all over the world. As noted, some of what she digs up has been described elsewhere, not only in Masha Gessen’s emotive account of Putin’s rise to power, The Man Without a Face (2012), but also in Clifford Gaddy and Fiona Hill’s Mr. Putin: Operative in the Kremlin (2013) and Peter Baker and Susan Glasser’s Kremlin Rising (2005).1

Dawisha doesn’t, like Gessen, seek to convey the emotions of Russian politics, and she is less interested than Hill and Gaddy were in Putin’s personal biography. Instead, she turns a relentless focus on the financial story of Putin’s rise to power: page after page contains the gritty details of criminal operation after criminal operation, including names, dates, and figures. Many of these details had never been put together before—and for good reason. Cambridge University Press declined to publish this book after initially agreeing to do so for fear of violating UK libel laws. Although she soon found a US publisher—US libel laws are less constricting—Dawisha’s troubles give some hint of the difficulties faced by many who try to write about Russia, and particularly those who try to describe the corrupt practices of men with very deep pockets and very expensive lawyers on their payroll.

Using this mass of evidence, Dawisha nevertheless argues that the KGB’s return to power begins not in 2000, when Putin became president, but in the late 1980s. At that time, the then leaders of the KGB, who distrusted Gorbachev, began transferring money that belonged to the Soviet Communist Party out of the Soviet Union and into offshore accounts tended by Swiss or British bankers. At least initially, these transfers took place with the Party’s knowledge. In August 1990, the Central Committee called for measures to protect the Party’s “economic interests,” including the construction of an “invisible” structure, accessible only to “a very narrow circle of people.” KGB operatives who already had experience with managing foreign bank accounts—they’d been funding foreign Communist parties for decades—were put in charge.

By the autumn of 1991—after the KGB-led coup in August to overthrow Gorbachev had failed—almost $4 billion belonging to the Party’s “property management department” had already been distributed to hundreds of Party-, Komsomol-, and KGB-managed banks and companies that were swiftly establishing themselves in Russia and abroad. This was an enormous amount of capital in a country that had, at the time, a scarcely functioning economy and hardly any foreign currency reserves at all. In due course, these funds, and the people who managed them, were to become the real foundation for the economy of post-Soviet Russia. Again, this was not robber baron capitalism, or indeed capitalism at all: instead, a small group was enriched by the state and thereby given the means of acquiring its property.

Applebaum, who otherwise writes with detail, refers sketchily to the KBG officers who as the Soviet Union seemed near collapse in the 1980s, plotted a return to power.

“Assisted by the unscrupulous international offshore banking industry, they stole money that belonged to the Russian state, took it abroad for safety, reinvested it in Russia, and then, piece by piece, took over the state themselves.”

She writes, “That corruption was part of the Russian system from the beginning is something we’ve long known for a long time, of course.” She points out that “leaders of the KGB, who distrusted Gorbachev, began transferring money that belonged to the Soviet Communist Party out of the Soviet Union and into offshore accounts tended by Swiss or British bankers.

Why not more detail? American banks played a role. The Bank of New York was heavily involved in moving Russian money. And driving the getaway car makes one an accomplice.

Top KGB official Yevgeny Primakov oversaw sending money out of Russia. Trading companies sold state resources and put the money in Western tax havens from Switzerland to Hong Kong and from Cyprus to the Cayman Islands. Some of that money would be used to set up the new Russian banks, including Menatep, whose titular head was Mikhail Khodorkovsky.

The Russians started creating shell companies at a California post office box in the late 1980s. They liked being able to put cash in the Caribbean, perhaps the British Virgin Islands, and then move it back to Russia through the U.S. as “American” investments.

From the very beginning, Russia’s current president had a part in this process. In the late 1980s, Putin was a KGB officer in Dresden, East Germany. There are conflicting accounts of what he was doing there. In his official and unofficial biographies, Dawisha writes, quoting Putin’s German biographer Alexander Rahr, this period is covered in a “thick fog of silence.” But there is some evidence that he may have been helping the KGB prepare for what it feared could be the imminent demise of the Soviet empire. Indeed, when he became president in 2000, German counterintelligence launched an investigation into whether or not Putin had been recruiting agents who would remain loyal to the KGB even after the collapse of communism. As Dawisha explains, “the Germans were concerned that Putin had recruited a network that lived on in united Germany.”

The scale of this effort is not known, but certainly a few of his Dresden contacts have become startlingly successful in the decades since 1989. Matthias Warnig, a Stasi colleague of Putin’s, opened Dresdner Bank’s first branch in St. Petersburg in 1991, by which time Putin was living there. By 2000 he headed all of the bank’s operations in Russia. In 2003, the bank participated in the dismemberment of Yukos, the oil company owed by the jailed magnate Mikhail Khodorkovsky. Since 2006, Warnig has been managing director of the Russian–German Nord Stream pipeline project, a company that won permission to operate during the term of German Chancellor Gerhard Schröder, and that later hired ex-Chancellor Schröder to serve on its board. In 2012, among other high posts, Warnig became a member of the board of directors of Bank Rossiya, one of the Russian banks now under US sanctions.

I am especially interested in the parts about Khodorkovsky, who is described with sympathy. Applebaum writes that Dresdner Bank’s first branch in St. Petersburg in 2003, “participated in the dismemberment of Yukos, the oil company owed by the jailed magnate Mikhail Khodorkovsky, who she describes as “the most famous victim of Russia’s arbitrary justice.” She points out that he was “arrested in 2003, after which his oil company, Yukos, was liquidated. Yukos’s assets were then transferred to another company, Rosneft, which happened to be owned by another one of Putin’s friends. Khodorkovsky’s arrest was intended as a lesson to others: here is what will happen, even to the richest men, if they step out of line.”

She neglects to mention the Isle of Man transfer pricing scheme that Khodorkovsky used to siphon profits from Yukos. Not an excuse for seizing the company, but MBK was hardly an honest innocent.

The other victim she cites is William Browder, who she points out set up a Russian investment fund that invested heavily in Gazprom. Based on the complimentary tweets and other writings Applebaum and Browder have posted in recent years, they admire each other greatly.

Applebaum writes, “After he turned out to be an annoyingly activist shareholder —he kept asking why the company’s accounts were so untransparent — Browder was barred from the country in 2005. His companies in Russia were subsequently destroyed by a particularly Putinist form of corporate raiding: tax officials and police attacked their offices, reregistered them, declared them bankrupt, stole their money, and arrested and harassed their employees.”

She doesn’t point out an interesting connection between Khodorkovsky and Browder. It concerns AVISMA, a Russian titanium sponge company that Khodorkovsky obtained for kopeks on the ruble in the corrupt Yeltsin “loans for shares” scam promoted by that other “reformer,” Anatoly Chubais.

Khodorkovsky’s company Menatep bought a piece of Valmet, an offshore incorporator in the Isle of Man, which set up TMC, a phony “sales” company that would buy AVISMA’s output at fake low prices and sell it on the market at real prices, cheating minority shareholders and Russian taxpayers. (It was the same scheme he used for Yukos.)

When Browder and his partners, billionaire investor Kenneth Dart and New York investor Francis Baker, bought AVISMA from Khodorkovsky in 1997, the deal was that the corrupt profit skimming would continue. In fact, when Isle of Man middleman Peter Bond failed to turn over the purloined cash, Browder and his partners went to court in the Isle of Man declaring that they were owed that cash. Their legal papers detailed the scam. (Curiously, one of the names on the suit was Jonathan Hay. Browder et al had trades AVISMA shares for stock in a Russian firm, VSMPO. Then they put Hay and two others on the VSMPO board.) Browder and his colleagues got a settlement from Bond.

But when VSMPO’s American lawyer discovered the profit-skimming, the company sought to recover the stolen cash. Its suit pointed out that Valmet “funneled these monies through bank accounts maintained at BoNY (Bank of New York) to entities unknown.” It said accounts at the Bank of New York “were established with the assistance of a BoNY officer Natasha Gurfinkel Kagalovsky” who knew about the fraud because she was married to the vice-chairman of Menatep Bank, Konstantin Kagalovsky. She was fired when the Bank of New York money laundering scandal was exposed in 1999.

Baker acknowledged to me that the Bank of New York moved the stolen money. He said that “monies put in one end of the machine came out totally clean at the other end of the machine,” adding that, “It was not a piddling amount.” And, “When it got to our shores, there was the old Bank of New York,” he said. “They moved it through about 20 entities. The bank was very complicit with that.” VSMPO got a settlement.

After leaving Germany, Putin returned to St. Petersburg, eventually making his way, with KGB patronage, into the St. Petersburg city government, where he was responsible for “foreign liaisons”—and where he could put some of his foreign contacts to immediate use. In 1991, Marina Salye, a member of the St. Petersburg city council, accused Putin of having knowingly entered into dozens of legally flawed contracts on behalf of the city, exporting hundreds of millions of dollars’ worth of commodities—timber, coal, steel—in exchange for food that never arrived. Her attempts to censure him came to nothing: the council called for his resignation but nothing happened. At a higher level, Putin had protectors. Salye, spooked by threats, went into hiding and disappeared from Russian politics.

Not that it mattered much, since Putin and his friends had other irons in the fire. Back in this very early post-Soviet moment—when Western advisers were still streaming into the country to give lectures on the rule of law and judicial reform—Putin personally organized, or helped organize, several institutions that exist to this day. One of the best known is Bank Rossiya, which was founded in St. Petersburg in 1990, using money from the Communist Party’s Central Committee. From the beginning, according to Spanish police investigators, Bank Rossiya facilitated cooperation between Putin, other city officials, and Russian organized crime, allowing the two groups to invest together.

Rule of law? Promoted by Shleifer and Hay?

Dawisha also describes the origins of the Ozero Dacha Consumer Cooperative, a small group, again including Putin, that conducted property investments but soon branched into other businesses, making use of mysterious sources of cash. At a time when others had no access to capital, they were flush. Most of the members of the cooperative are now millionaires and several are billionaires.

The St. Petersburg Real Estate Holding Company (SPAG) was a third institution linked to Putin. In 1999, the German Federal Intelligence Agency (BND) completed an investigation into SPAG, and published a report that accused the organization of laundering money for Russian and Colombian criminals. Among other things, the BNDsaid that SPAG took money that had been sent out of Russia and was parked “offshore,” and helped its owners—among them the leaders of the Tambov gang, a part of the St. Petersburg mafia—repatriate it back into the country through the purchase of property and other legitimate assets. Notably, when Schröder became chancellor of Germany, this investigation was slowed down; Putin’s name had, in any case, been kept out of it. Several other company founders were indicted by courts in Liechtenstein. Vladimir Kumarin, the former Tambov gang leader, has been in prison since 2012.

Applebaum notes that the St. Petersburg Real Estate Holding Company (SPAG) linked to Putin, was accused in 1999, by the German Federal Intelligence Agency (BND) of laundering money for Russian and Colombian criminals. “Among other things, the BND said that SPAG took money that had been sent out of Russia and was parked “offshore,” and helped its owners—among them the leaders of the Tambov gang, a part of the St. Petersburg mafia—repatriate it back into the country through the purchase of property and other legitimate assets.

Offshore? What Western banks did that? SPAG was registered in Germany and laundered money though Liechtenstein. According to a confidential BND document I obtained, “The Liechtenstein lawyers Dr. Eugen Heeb and Rudolf Ritter participate in a network of firms in Liechtenstein, Europe and overseas. They make this network available -amongst others -to South American drug cartels, e. g. the Ochoa clan, and to the new Russian clientele.” It noted that, “Rudolf Ritter is the brother of the Vice Head of Government and Minister for the Interior, the Economy, Health and Social Matters, Dr. Michael Ritter.”

And she says, “According to Russia’s own Ministry of Internal Affairs, the Twentieth Trust received money from the budget of the city of St. Petersburg and subsequently transferred that money abroad. Abroad? How, via Western offshore banks? Worth mentioning.

And of course there was $7.5 billion allegedly funneled through the Bank of New York, in 1999 with the help of two executives of its Eastern European Division. One of them was Natasha Gurfinkel Kagalovsky whose husband just happened to be an official of Bank Menatep, run by Mikhail Khodorkovsky.

Dawisha also describes the origins of the Twentieth Trust, a “construction company” also linked to Putin. According to Russia’s own Ministry of Internal Affairs, the Twentieth Trust received money from the budget of the city of St. Petersburg and subsequently transferred that money abroad. Novaya Gazeta, a Russian newspaper, discovered that the company had purchased property in Spain where it constructed villas using Russian army labor. These kinds of reports led Spanish police to become suspicious of Russian activity in Spain, and in the 1990s they began monitoring the Russian oligarch Boris Berezovsky, as well as several well-known leaders of Russian organized crime, all of whom had houses on the southern coast of Spain. In 1999, to their immense surprise, their recorders picked up an unexpected visitor: Putin. He had arrived in Spain illegally, by boat from Gibraltar, having eluded Spanish passport control.

By the time he made this secret visit to Spain—apparently one of many—Putin had already graduated to the next phase of his career: until August 1999, he was the boss of the FSB, the KGB’s successor organization. He had moved from St. Petersburg to Moscow, taking many of his cronies and all of his criminal connections with him. At that time, they were not the only such group to have parlayed state and KGB money into wealth. President Yeltsin had also in effect given his blessing to the creation of several large fortunes, including that of Boris Berezovksy. But as Yeltsin became increasingly ill and unavailable, Putin persuaded Berezovsky and others in the Yeltsin inner circle that he and his FSB colleagues would be the guarantors of their wealth in the event of Yeltsin’s demise.

They duly anointed Putin prime minister and then president—the wishes of voters and democratic process had little to do with it. But having obtained high office, he turned the tables on them. Soon after taking over, he made it clear that he intended to remove the Yeltsin-era elite and to put a new elite in its place—mostly from St. Petersburg, equally corrupt, but loyal exclusively to him. Among others, he removed the CEO and chairman of Gazprom—the old Soviet gas ministry, now a private company—and replaced them with Dmitry Medvedev, a St. Petersburg lawyer and Putin’s colleague since his days in the St. Petersburg mayor’s office, and Aleksei Miller, his former deputy at the St. Petersburg Committee for Foreign Liaison. Very quickly, Gazprom became a source of personal funds for Putin’s projects, useful, for example, when he needed a large chunk of money to bribe the president of Ukraine. Gazprom’s new leadership grew in wealth and power, and they knew exactly who they had to thank for it. This was not the first time this kind of policy had been deployed in Russia: “Change the elite” is an old Stalinist tactic too.

But having changed the elite, having taken hold of the most important Russian companies, and having established himself as godfather to all of the other oligarchs, Putin did not change his ways. After he became president in 2000, it is true that Putin did preserve some of the language of “reform” in his public statements. He appointed “reformers” to top jobs. He kept open lines of communication with the West, particularly after September 11, 2001, when he saw the possibility of a tactical alliance with the West against Muslim radicalism in Central Asia. He remained open to relationships with NATO and with American and European leaders. In 2004, he even declared that “if Ukraine wants to join the EU and if the EU accepts Ukraine as a member, Russia, I think, would welcome this because we have a special relationship with Ukraine.” He regularly attended meetings of the G8, an organization—including the US, Canada, France, Germany, Japan, Italy, the UK, and Russia—whose rules and raison d’etre had been altered specifically in order to allow Russia to join.

He also carried off an extraordinary public relations coup, and one with far-reaching significance: for four years, between 2008 and 2012, Putin put a seemingly pro-Western, apparently business-friendly, decoy president in charge of the Kremlin. The reassuring presence of Dmitry Medvedev not only inspired Barack Obama and Hillary Clinton’s “reset” in American foreign policy, but lulled almost everyone in Europe into accepting a gangster state as a difficult but legitimate partner. During the four years of the Medvedev presidency NATO’s military readiness declined further, Western financial institutions became more dependent on Russian money, and Western politicians turned their attention to other matters.

Yet during this same period, as during his own presidency, Putin never abandoned the mafia methods Dawisha has so painstakingly described. Instead, he reshaped Russia’s political system in order to ensure that they could continue. Though Dawisha argues that Putin always intended to recreate an authoritarian, expansionist Russia, one could also argue that an authoritarian, expansionist Russia was the inevitable result of Putin’s need to protect himself, his cronies, and their money.

Either way, no one now doubts that, despite the talk of “reform,” he made no attempt to encourage truly entrepreneurial capitalism inside Russia or to create a legal system that would allow small businesses to grow. Courts became increasingly politicized and markets ever more distorted. Oligarchs and businessmen at all levels who did not play by his rules were destroyed. The most famous victim of Russia’s arbitrary justice was Mikhail Khodorkovsky, who was arrested in 2003, after which his oil company, Yukos, was liquidated. Yukos’s assets were then transferred to another company, Rosneft, which happened to be owned by another one of Putin’s friends. Khodorkovsky’s arrest was intended as a lesson to others: here is what will happen, even to the richest men, if they step out of line.

During what seemed at the time to be a golden era of Russian–Western political relations, the economic picture for foreign investors was also mixed. Some Western businesses flourished in Russia, but only so far as it suited Putin and his cronies. Westerners who annoyed the regime—or Westerners whose businesses were coveted by powerful Russians—could be destroyed with tax demands, lawsuits, and worse.

This was the fate of Bill Browder—grandson of Earl Browder, leader of the American Communist Party—who set up a Russian investment fund that invested heavily in Gazprom. After he turned out to be an annoyingly activist shareholder—he kept asking why the company’s accounts were so untransparent—Browder was barred from the country in 2005. His companies in Russia were subsequently destroyed by a particularly Putinist form of corporate raiding: tax officials and police attacked their offices, reregistered them, declared them bankrupt, stole their money, and arrested and harassed their employees. Browder’s lawyer, Sergey Magnitsky, was eventually beaten to death by guards in a Russian prison.

Browder is discussed earlier in the report of how he took over Khodorkovsky’s profit-skimming operation and cheated Russian citizens and minority shareholders (including Americans) of profits from AVISMA.

At the same time—while constantly speaking of “reform” in Western capitals—Putin was systematically destroying the nascent institutions of liberal democratic society. Whatever embryonic political movements had come to life in the 1990s were crushed in the 2000s. Refusing to tolerate any real political opposition, Putin instead sponsored phony political parties whose leaders were ultimately loyal to himself. He eviscerated independent media, especially television, which he considered to be an essential tool of social manipulation. Although he left a few very small “dissident” newspapers open, presumably in order to placate the tiny middle class, he pushed back hard when they went too far. Anna Politkovskaya, an extraordinarily brave reporter who wrote about Putin’s war in Chechnya, was one of several Russian journalists to be brutally killed in gangland-style murders.

When Applebaum says, “while constantly speaking of “reform” in Western capitals, Putin was systematically destroying the nascent institutions of liberal democratic society, I wonder what society she is talking about. Well, maybe it’s not “liberal democratic,” but Putin was using that great old Western institution, the offshore bank and corporate secrecy system, as the rest of the globalized criminal system does and as Western corporations do to cheat shareholders and taxpayers.

Anyone who thinks that Putin and the West have not had an active partnership is wrong.

(end of my comments)

With the media out of the way, Putin also took on “civil society,” meaning any charitable, educational, or advocacy organizations over which he did not exert direct control. This included the slow suffocation of apolitical groups such as Memorial, the historic human rights organization that has produced internationally admired accounts of the crimes of Stalin, the history of the Gulag, and more generally the history of repression in Russia. Because Memorial had received foreign funding—from organizations such as the Ford Foundation—it was told that it had to be registered as a “foreign agent,” a phrase that heavily implies foreign espionage. More recently, the Russian Justice Ministry has filed a lawsuit that seeks to shut down Memorial altogether, on spurious administrative grounds.2

In place of a genuine media and a real civil society, Putin and his inner circle slowly put into place a system for manufacturing disinformation and mobilizing support on a new and spectacular scale. Once the KGB had retaken the country, in other words, it began once again to act like the KGB—only now it was better funded and more sophisticated. Today’s Russian “political technologists” make use of their state-owned media, including English-language outlets such as the TV news channel Russia Today; armies of paid social media “trolls” who post on newspaper comment pages, as well as on Twitter, Facebook, and other sites; fake “experts” whose quotes can be presented with fake authority; and real experts to whom Putin’s officials have granted special access, or have simply paid. Former Western ambassadors to Moscow, businessmen who have been recruited to Russian company boards, European politicians as high-ranking as Schröder and Silvio Berlusconi—all have been well compensated, directly or indirectly, for offering their support.

Using these different sources, the Kremlin began putting out messages designed not necessarily to make Russia look good, but rather to undermine the Western establishment and Western institutions, including the European Union and NATO. Using both money and information, they seek to empower the Western far right, the anti-establishment left, and the international business community all at the same time. Thus Russia Today supports Occupy Wall Street. A Russian oligarch organizes a meeting in Vienna attended by the French National Front, Hungary’s nationalist political party Jobbik, and Austria’s Freedom Party.3 Whispering campaigns, conducted in the world’s financial capitals—especially Frankfurt and the City of London—hint at the dire things that will happen if sanctions against Russia are not lifted. In an article recently published by The Interpreter, an online publication dedicated to exposing Kremlin disinformation, the journalists Peter Pomerantsev and Michael Weiss argue that since at least 2008 Kremlin military and intelligence thinkers have been talking about information not in the familiar terms of “persuasion,” “public diplomacy” or even “propaganda,” but in weaponized terms, as a tool to confuse, blackmail, demoralize, subvert and paralyze.4

This is not a system, in other words, that has come about spontaneously, in reaction to events on Kiev’s Maidan, although to those who haven’t followed the evolution of Russian politics over the past twenty years—or to those who have followed only the narrative of “failed reforms”—it might perhaps appear that way. Indeed, in the months since Putin’s invasion of Crimea, it has become fashionable to suggest that the harder-line face that Putin has more recently shown to the world is somehow, once again, the West’s “fault,” that we have provoked Russia into autocratic behavior through our talk of democracy in Ukraine or that—once again—the “reform process” was somehow brought to a halt because the Russians felt threatened by the expansion of NATO or by Western policy in the Balkans.

But after reading Dawisha’s book, and after absorbing the implications of the stories she has so carefully pulled together from so many sources, it is simply not possible to take this argument seriously. Since 2000, Russia has been ruled by a revanchist, revisionist elite with origins in the old KGB. This elite had been working its way back to power since the late 1980s, using theft on a grand scale, taking advantage of the secrecy provided by Western offshore havens, and cooperating with organized crime.

Once in power, the new elite sought to maintain control using the same methods that the KGB always used to maintain control: through the manipulation of public emotion, and by undermining the institutions of the West, and the ideals of the West, in any way that it can. Based on its record so far, it has every reason to expect continued success.

Applebaum article on NYRB

My article about the AVISMA scam on 100Reporters. The assertions were vetted by 100Reporters’ pro bono law firm, Arnold & Porter.

The same article on The Komisar Scoop, with more links to documents.

[Mar 23, 2015] Tainted Transactions An Exchange Michael Hudson

July 25, 2000 | michael-hudson.com

From The National Interest No. 60

http://www.nationalinterest.org
http://www.ciaonet.org/olj/ni/ni_00saj01.html

A letter exchange in response to Janine Wedel’s “Tainted Transactions: Harvard, Russia and the Chubais Clan” (Spring 2000). Participants: Jeffrey Sachs, Anders Aslund, Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, Michael Hudson, David Ellerman, Steven Rosefielde and Janine Wedel.

Jeffrey D. Sachs, director of the Center for International Development, Harvard University:

Janine Wedel, for the umpteenth time, repeats her phony diatribes against me (“Tainted Transactions: Harvard, the Chubais Clan and Russia’s Ruin”, Spring 2000). Please permit me to correct the record.

Despite Dr. Wedel’s weird insinuations that I had no advisory role with the Russian government, I was an official adviser to that government, but only for two years and two months, from December 1991 to January 1994. I worked closely with Anders Åslund during this period. President Yeltsin officially designated us as advisers during a meeting with us on December 13, 1991, and we received offices in the Council of Ministers during 1992 and in the Ministry of Finance during 1993. During the period until the end of 1992, Åslund and I mainly advised acting Prime Minister Yegor Gaidar, and in 1993 we led a unit within the Russian Finance Ministry advising Deputy Prime Minister Boris Fedorov. (The most bizarre and entertaining fiction is Dr. Wedel’s additional suggestion that I somehow secretly worked with the IMF during 1992.)

During this entire period, there were notoriously heated divisions within the Russian government, and between the Russian government on one side and the Duma and Central Bank on the other. The reformers, led by Gaidar and Fedorov, did what they could to pursue needed reforms, but very often they were blocked. Unlike my experience in many other countries, such as Poland, little of what I recommended was actually enacted. It wasn’t pleasant being blamed for high inflation and other ills that resulted from the very opposite of the advice that Åslund and I were giving (such as when the Central Bank ran a disastrous hyperinflationary monetary policy in 1992 and 1993), but it was still worth the effort of supporting the brave reformers fighting an uphill battle. Åslund and I publicly resigned in January 1994, days after Gaidar and Fedorov left the government. We were concerned about the takeover of the government by the “industrial lobby”, with a foreshadowing of the mega-corruption that was to follow, especially in the disgraceful state giveaways of the lucrative natural resource enterprises, mainly during 1994–96. I was also particularly distressed by the lack of appropriate Western advice and assistance, a point that I made repeatedly in writings and speeches at that time and afterward.

Somehow in this maelstrom some people came to assume (or at least claimed to assume) that whatever happened was what I had recommended, even though I was publicly and privately critical of the lawlessness and lack of reform progress. For a few people this has continued despite the fact that I have not advised the Russian government for six years or even been to Russia for five years. Wedel writes in just this nonsensical vein. For many years I have publicly and repeatedly denounced the scandals of privatization such as the “shares for loans” deals, and published articles and books describing and criticizing the lawlessness and corruption in Russia (including The Rule of Law and Economic Reform in Russia, 1997).

Dr. Wedel deliberately and systematically mixes personal references to me, the Harvard Institute for International Development (HIID) and other Western advisers, so that she can rope me into her phony conspiracy theories. The HIID projects she refers to were directed by Professor Andrei Shleifer at Harvard, and I had no role in those projects. She seemingly can’t understand that I had a completely separate project, and that I resigned from advising the Russian government as of January 1994. One and one half years later, I became director of HIID in July 1995, and Professor Shleifer’s project was one of sixty or so ongoing HIID projects around the world. During the period in which I directed HIID (1995–99), I stayed completely away from any personal involvement in any Russian advisory work, consistent with my public resignation in 1994. Moreover, when dubious practices in Professor Shleifer’s project came to the attention of the U.S. Agency for International Development (USAID) and myself in the spring of 1997, USAID and I worked together to close the project immediately.

Dr. Wedel writes darkly that “it is unclear who paid Sachs and his team.” As I have explained repeatedly to her, and to anyone else that had the slightest interest, I received my academic salary for my work in Russia, with my leave time from Harvard University covered mainly by the United Nations University in Helsinki in early 1992, and thereafter by the advisory project supported by the Ford Foundation and the Swedish government during 1992–93. USAID supported a small amount of my summer academic salary, probably a total of a month or two. Of course, I never invested a penny in Russia, or in any other country in which I have served as an economic adviser. Nor did I engage in any consulting services for private businesses or investors involved with the Russian economy.

Dr. Wedel also accuses me of somehow improperly promoting myself to the Russians as a person “facilitating access to Western money.” As any mildly interested observer of the Russian reforms would know from my writings and speeches, I strongly believed and publicly argued in 1992 that the West should provide large-scale assistance to Russia to support the early days of market reforms and stabilization, something the West manifestly declined to do. There was nothing sinister, surreptitious or secretive about any of this: I simply believed (and continue to believe) that timely Western help in 1992 and 1993 could have played an important role in helping real reforms and democratization to take hold, but of course it did not come. The Russian reformers and I knew that the chances for the needed large-scale support were not high, but we felt the effort was worth making anyway.

Wedel’s twisting of facts and outright misrepresentations go on and on. What I find hard to understand is how The National Interest could publish this nonsense without even doing an iota of fact-checking.

Anders Åslund, senior associate, the Carnegie Endowment for International Peace:

A decade after the collapse of the communist system, history has demonstrated that those post-communist countries that aggressively pursued market economic and democratic reforms are rapidly improving the lives of their citizens. In her article in The National Interest, Janine Wedel ignores this reality and seems more intent on denigrating those who have advocated and actively promoted such radical reform. She appears to lack an analytical framework, and her assertion of facts is inaccurate.

The stars among the post-communist countries are Poland and Estonia, which are generally acknowledged as the most radical market reformers. According to the European Bank for Reconstruction and Development, they also have the least corruption. Russia attempted a radical reform, but unfortunately it stumbled. Even so, Russian citizens are better off than Ukrainians, who saw a much later reform and less privatization, not to mention the poor Belarusians, who suffer under a frightful dictatorship in a Soviet theme park. Market reform and democracy go together in the post-communist world. Russia’s problem is not too radical reform, but too little reform.

For the past decade, Janine Wedel has been going after leading advocates of radical market economic reform and privatization in former communist countries. Since the shortcomings of her gossip journalism are so obvious, nobody seems to have bothered to answer her as yet, but when a respectable magazine, such as The National Interest, publishes an article of hers, this mixture of lies, half-lies, sly allusions and sheer misunderstandings needs to be exposed.

In 1990 she started pursuing Jeffrey Sachs and David Lipton for having destroyed the Polish economy through their “ideology . . . of radical privatization and marketization”, which soon turned Poland into a stunning success. Poland’s President Alexander Kwasniewski recently bestowed a high Polish order on Sachs and on Lipton in gratitude for their services to Poland.

What is her alternative? In her book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 1989–1998 (1998), she revealed her ideological preferences by repeatedly citing the old-style Soviet communist Leonid Abalkin with sympathy in his criticism of liberal reformers. She seems to advocate U.S. assistance to such communists: “In short, donors, by equating Western-oriented Russians with reform agendas and traditionalist or communist Russians with anti-reform agendas, created stereotypes.”

Wedel is patently contradictory. She criticizes Western consultants for their “[l]ack of the understanding of the Russian cultural context”, but the particular persons she assails know Russia well. She attacks the major Western economic advisers in Russia for being both ineffective and too influential. You cannot have it both ways.

Similarly, she regrets large amounts of aid to consultants, but she has focused on one institution, namely, the Harvard Institute for International Development, which received less than 1 percent of total USAID assistance to Russia. She ignores the many other general contractors for USAID that received much more money.

The major problem, however, is Wedel’s inability to evaluate the accuracy of her sources. She mainly relies on interviews, going around talking to admittedly many people, but she only records vicious and tendentious allegations often made by single individuals. She makes no attempt to check their truthfulness, ulterior motives or even whether her interviewees can know what they say. The Soviet Union was an empire of lies, and systematic lying remains common. Wedel seems unaware of this, revealing her limited understanding of the Russian cultural context.

Sometimes, though, Wedel seems aware of her absence of evidence, but instead of retracting she adds, for instance, “. . . as well as a number of additional reports and sources in Russia, Ukraine, Sweden and Washington.”

In a review of Collision and Collusion in Comparative Economic Studies, Jozef van Brabant, an economist who has persistently opposed radical market reform, concluded: “The book is marred by all too many other inaccuracies some of which are attributable to the author’s ignorance.”

From a personal perspective, I can say that Wedel’s portrayal of my work is simply wrong. She alleges: “Åslund seemed at once to represent and speak on behalf of American, Russian and Swedish governments and authorities.” This statement is absurd. I left the Swedish foreign service in 1989. I served as economic adviser to the Russian government from November 1991 until January 1994. I have never been employed by the U.S. government. Although my employments have varied over time, they have never involved conflicts of interest, and I have always made clear what I am doing.

Wedel also complains that “he always presented himself [in op-ed articles] as an objective analyst, despite his many promotional roles.” When working with the Russian government and later the Ukrainian government, I always mentioned that. Some may disagree with me, but I have hardly ever been accused of being unclear about what I stand for.

Wedel claims: “Åslund was also involved in business activities in Russia and Ukraine”, and in her Demokratizatsiya article: “He had ‘significant’ business investments in Russia.” The truth is that while advising any government, I have never been involved in business activities or invested in that country, though I have given lectures and briefings on the state of their economies.

She complains that two of my associates, who worked for Chubais, set up an investment bank after having finished their work for Chubais. So what? High U.S. Treasury officials often come from and go to investment banks.

In her Demokratizatsiya article, Wedel claimed: “Åslund helped to deliver Swedish government monies to the [Russian Privatization Center].” I would have been happy to do so, but I did not. Wedel writes that I attended a dacha in Arkhangelskoe when the Gaidar team prepared its government program there, but I have never visited that dacha. Nor is it true that my assignment in Ukraine “explicitly included public relations on behalf of that country.”

In public appearances, Wedel has asserted that I have made a huge amount of money on USAID, but USAID has never financed any advisory work of mine. Nor have I worked for HIID, which she also has alleged. My work in Russia was financed by the Swedish government and the Ford Foundation through the Stockholm Institute of East European Economics.

This is a long list of allegations that I know to be wrong because they involve me personally. There is no reason to believe that she is more truthful about anything else, as Wedel’s text abounds with inaccuracies. Aleksander Bevz has never headed the Gaidar Institute. Maxim Boycko replaced Alfred Kokh as chairman of the State Property Committee, not the other way around, as Wedel reports. Jeffrey Sachs and David Lipton were rarely in Moscow together, and so on.

Many of these facts can be easily checked. Most of Wedel’s claims have been made three or four times in almost identical wording, as she is in the habit of republishing the same article many times, so it is not a matter of typographical errors.

In short, Wedel’s main shortcoming is that she lacks the faculty to distinguish truth.

Marek Dabrowski, former first deputy minister of finance of Poland, currently vice chairman of the Center for Social and Economic Research, Warsaw:

I found Janine Wedel’s article deeply wrong in its description and interpretation of East European and Russian transition processes, and of the role of foreign aid to this region.

My impression is that the author intentionally and consciously manipulates facts and sources of information in order to support her conspiracy theory and address far-fetched and certainly unfair personal insinuations against key Russian reformers such as Yegor Gaidar and Anatoly Chubais, and leading Western experts trying to help Eastern Europe and Russia such as Jeffrey Sachs, David Lipton and Anders Åslund. Her style of writing and methods of work remind me of the worst instances of Communist Party propaganda, which I had occasion to experience not so long ago as an East European national.

The best example of such practices is footnote 33 of her article where she quotes me as the source of the opinion that “. . . Åslund was engaged in public relations activities. His assignment in Ukraine, where he was funded by George Soros, explicitly included public relations on behalf of that country, according to other Soros-funded consultants who worked with Åslund there.”

It is true that I worked with Anders Åslund in Ukraine (and in Russia), but I did not formulate such an opinion, and, what is more important, I never gave Wedel permission to use any fragment of our two conversations as the source of quotation in her publications.

Wedel met me once in 1995 with the purported reason to ask me about a paper I had presented on foreign assistance to transition countries. It seemed a normal academic conversation. Then, she called me on the phone several months later. When she started to put her questions, I quickly realized that she was in the grip of some conspiracy theory, and she tried to provoke me to speak against Jeffrey Sachs and David Lipton. She was not ready to listen to my answers because she knew better what the “truth” was, and she wanted me only to confirm her crazy interpretation of events. At the beginning I tried to convince her that she was wrong, but when I realized that this was a hopeless task, I stopped the conversation. I asked her never to call me again, and not to use any part of our conversation in her work, a request she has not respected.

Peter Reddaway, professor of political science, George Washington University:

Janine Wedel’s powerful article focuses mainly on the negative effects of “transactorship” on Russian-Western relations. These contributed to other problems that, taken together, mean that the West has helped to create in Russia a much bigger long-term problem for our foreign policy than most observers have yet grasped.

In my view, the attempted imposition of shock therapy (or “the Washington consensus”) on Russia by Boris Yeltsin and the West has been a textbook example of doctrinaire social engineering. It has been based on a mixture of ignorance and arrogance. As I have argued since before the process began in 1991, such an approach was bound—given the legacy of Russian and Soviet history—to be, at the least, premature and dangerous. Russia is not Poland or Estonia. No matter what tricks Yeltsin and his foreign backers used, it was politically impossible to fully apply shock therapy in the Russia of the early 1990s. Any government that might have tried to do so would have provoked chaos and fierce opposition—and been thrown out. Governments do not deliberately commit suicide. The repeated complaints of people like Jeffrey Sachs and Anders Åslund that Yeltsin and Yegor Gaidar “lacked the political will to go the whole way” demonstrate, at best, political naivety. At worst, the complaints look like an attempt to divert attention from the incompetence of the advice given by these individuals to the Kremlin, the IMF and Western governments.

The second part of the tragedy is that when, by 1994, it was crystal clear that the “reforms” were not working, the imf, the G-7, Sachs, Åslund and others continued — for four more long years — to pressure Yeltsin into largely futile efforts to push ahead with them. This compounded failure. For most Russians, such doctrinaire obstinacy put an end to the hopes of better living conditions that had been aroused by the fall of communism.

The pattern was this: the West kept offering loans in return for Kremlin promises to reduce inflation and the budget deficit, privatize industry, appoint Anatoly Chubais to run the economy, circumvent the parliament through presidential decrees, and so on. However, as Dmitri Glinski and I will show in our forthcoming book, The Tragedy of Russia’s Reforms: Market Bolshevism Against Democracy (2000), not only did these Western recipes fail to stabilize the ruble, halt the steep plunge in investment, and get workers paid on time; they also created a humiliating dependency on the West’s aid and foreign policy, promoted crony capitalism, fostered massive crime, corruption and capital flight, eroded state capacity all around, and destroyed what basis remained for achieving a modicum of social justice.

The devastating effect of all this in terms of values is that the majority of Russians, who a decade ago saw democracy and free markets as beacons of hope, now see before their eyes ugly perversions of these institutions, and wonder if they just won’t work in Russia. Opinion polls repeatedly show profound doubt and even despair about Russia’s future. They also show that anti-Americanism has permeated the whole society and is probably now deeper than at any time in Russia’s history. A substantial majority believe that the United States and the West have weakened Russia deliberately, in order to exploit and humiliate it.

Encouragingly, a few of Dr. Wedel’s “transactors”—for example, Pyotr Aven, Konstantin Kagalovsky and David Lipton—have in varying degrees rethought and recanted the neo-Bolshevik social engineering that is the main cause of this tragic outcome. Others—notably Sachs and Åslund—have not. Åslund, indeed, tries to publicly ridicule people like the former chief economist of the World Bank, Joseph Stiglitz, who dare to criticize either him or the now exploded “Washington consensus.”

Also silent as regards rethinking and self-criticism are the main architects and implementers of U.S. policy toward Russia: Strobe Talbott, Lawrence Summers and Al Gore. Their successors will, tragically, be left with a major, nuclear, long-term “Russia problem.”

Igor Aristov, head of the Department for Competition Protection of the Financial Markets, Ministry for Antimonopoly Policy and Entrepreneurship Support, Russia:

It was very useful to learn the details about the Chubais Clan and its illicit activities from Janine Wedel’s article.

It is not possible to overestimate the significance of such an article. For me personally this information is also very important because Russian tycoons have used illegal financial inflows for private purposes and against the national interest of Russia. To foresee their future intentions we need to understand the structure of their informal relations. Recent scandals have revealed the importance of monitoring closely their transactions, property, money and debts to international organizations. Thank you very much for the article.

Wayne Merry, director of the Program on European Societies in Transition, the Atlantic Council of the United States:

Janine Wedel makes a major contribution to the “Who lost Russia?” debate by pulling back some of the protective covering on how the U.S. government sought to impose its economic ideology on post-Soviet Russia. During my years in the political section of the U.S. embassy in Moscow (1991–94), I also saw close up the basic flaws of our Russia policy. First came ignorance, as purveyors of “the Washington consensus” unleashed their dogma on a country they did not understand and, worse, did not wish to understand. Then came arrogance on many levels: the belief that “the Washington consensus” embodied ultimate economic truth (its manifest failures notwithstanding); responding to any doubts about the dogma with accusations of heresy and disloyalty; the view of Russia as an economic wasteland (how it had managed to build all those missiles conveniently ignored) and as a laboratory to refine economic theory (heedless of the banners carried on the streets of Moscow by some of the laboratory animals demanding “No More Experiments”).

Next came authoritarianism, as Washington encouraged a willing group of Russian “reformers” to implement our policies by presidential decree rather than face the compromises of the legislative process, and to create extra-constitutional and clandestine structures of administration to avoid parliamentary oversight or media exposure.

Lastly came hypocrisy, as Washington officials claimed to be “shocked, shocked” when the government-sanctioned corruption and theft of public property in Russia could no longer be hidden. They then piously demanded that Russian governance be all the things the Treasury and IMF had insured it would not be: honest, accountable, transparent, law-based, public-spirited.

Thanks are due to Dr. Wedel for her efforts to document this failed policy process but, sadly, she has so far seen only the tip of the iceberg—what remains “classified” is much worse.

Michael Hudson, president of the Institute for the Study of Long-term Economic Trends:

I would like to give a perspective on Dr. Wedel’s theory of transactors as an economist who has worked most of my life for U.S. international banks and money managers, addressed the Duma on numerous occasions, and consulted for U.S. government agencies on U.S.-Russia relations.

I have observed transactorship, and the insider dealings it entails, first-hand. “Average” U.S. investors were not in a good position to profit from the corruption that underlay Russia’s stock market boom. One of the leading fund managers (for whom I worked in 1989–90 to help organize the first global sovereign-debt fund) refrained from the outset from riding this roller coaster. The firm’s managers didn’t trust the visibly corrupt investment climate and, not being insiders, they saw that “arms-length” speculation probably would end in disaster.

Institutional investors from firms that did enter the market explained to me that the safest money to be made was by those who had inside contacts. Money managers who didn’t want to invest directly in the risky Russian stock market consigned funds to companies such as Brunswick, which put on promotional shows around the country, in which Anders Åslund and others tried to convince institutional investors that they had an inside track. It was no secret that Russia’s market had no legal overseer like our sec, but that was the very point of investing in Russia!

Based on discussions I had with U.S. global investors during the 1990s, I think I am in a good position to point out why many of them preferred to see major Russian companies pass into just a few corrupt hands. If a few Russian insiders could buy out Russian oil fields and other firms at only 1 or 2 cents on the dollar, they probably would be willing to sell their takings to U.S. and other international investors for 2 to 4 cents. This would enable them to double their money, while providing foreigners with what they wanted: inexpensive ownership of Russia’s potentially lucrative mineral wealth and public utilities, as well as its real estate (or, more specifically, its land).

Thus, one reason the U.S. government welcomed the Chubais-HIID mode of “reform” was because of pressure from large investors. If Wall Street investment bankers wanted to take an investment position in Russia, they could do so most easily—and at a much lower price—if only a few “oligarchs” gained ownership of Russia’s prize assets. However, if the Russian government or other parties retained control over these assets, they would not be sold as rapidly, and probably would be sold at a higher price.

And so a symbiosis developed between the largest U.S. investors and Russian oligarchs. The largest U.S. investors realized that the kleptocrats for their part wanted to transfer their fortunes abroad. This is what all thieves want to do, for a simple reason: if they keep their money at home, it can be seized by true market reformers. Hence, Russian appropriators sought to move their money to Cyprus, Switzerland and other offshore banking centers, topped by the United States.

To do this, they needed security from Western prosecution. The traditional way to achieve this is to go into partnership with well-placed Westerners. Partnership agreements accordingly were sealed by selling part of their stock ownership to Western investors. Such sales in fact were the only way in which the privatizers were able to realize financial value for their control, for there was no purchasing power within Russia itself to buy their shares. To raise money off the shares they had obtained, Russians needed to sell abroad.

This was well recognized by international investors. It explains why they turned a blind eye to the abuses by Chubais and other insiders, for they knew that they themselves would be the beneficiaries.

Was the subsequent economic devastation directly intended, as a means of “hurting Russia” and thereby disabling it from posing a future threat to the United States and other countries? I believe not. Rather, it was the consequence of the game plan by Western investors (mainly in the United States) to get rich quickly off Russia. The shrinkage of the Russian economy in consequence was a form of “collateral damage”, not the intention of the programs themselves. It is the same sort of damage caused by IMF austerity programs imposed on hapless Third World debtors.

My conclusion is that the U.S. government is guilty of gross negligence as to the consequences of the reformers’ privatization plans it backed. It didn’t mean to kill Russia. It just wanted to take its money and property. Russia’s economy got killed in the process. I suppose you might call this second or third-degree murder, not first-degree murder. But that is all that Wedel’s article claimed, in my reading.

What is ironic is that the “free-market” strategy that has been followed excludes from the market precisely the arms-length investors that U.S. policy has claimed to attempt to attract as the mainspring in allocating Western capital funds.

David Ellerman, economic adviser to the chief economist, the World Bank:

. . . My only “problem” with Professor Wedel’s article is that it attempts to tell the story in such detail that it will allow those who intellectually sponsored what is, in my personal opinion, one of the biggest debacles of the last half of the twentieth century to continue to avoid analyzing the forest by bickering over the details of the bark on the trees.

Steven Rosefielde, professor of economics, University of North Carolina, Chapel Hill:

Janine Wedel’s “Tainted Transactions” makes an important contribution to the “Who lost Russia?” saga by investigating the nexus between “radical” economic transition theory and Western foreign assistance. . . . A few facts and comments might prove illuminating.

First and foremost, it needs to be stated bluntly that there is no scientific theory of how to transform a command economy efficiently into a well-functioning competitive market system. Theorists cannot even demonstrate the necessity of general equilibrium with a production sector under perfect competition, so there certainly isn’t a shred of justification for suggesting that Yegor Gaidar’s and Anatoly Chubais’ radical reforms should have produced good results. The policies they adopted, often called “shock therapy”, were analogous to removing the control rods from a nuclear reactor, and insisting that the ensuing chain reaction would create a better power system.

The Soviet/Russian basis for this strategy dates to the late eighties when Stanislav Shatalin, Gregory Yavlinsky and others developed their infamous 500 Days program, which promised perekhod—transition to competitive free enterprise by the end of 1993. They weren’t sincere. Shatalin disclosed his real agenda at Duke University in 1991 when he declared that, “It didn’t matter if the transition took 500 days, or 500 hundred years, as long as it destroyed Communism!” The debate between the “shockers” and the “gradualists” was never really about economic “optimality”; it was a rhetorical struggle between a generation of young Turks egged on by Gorbachev, who saw radicalism as a highway to political power, and the old reformist economic guard like academicians Oleg Bogomolov and Yuri Yaremenko, who—like Western Nobel laureates Kenneth Arrow, Paul Samuelson and James Buchanan—understood the necessity of building legal and market structures before leaping into the abyss.

The failed putsch in August 1991, and Gorbachev’s refusal to allow the military to arrest and execute Yeltsin later that fall when Russia, Belarus and Ukraine seceded from the Soviet Union, enabled the radicals to triumph, as their predecessors had during War Communism and the Stalin era. Their Luddite politics not only instantaneously brought about an economic implosion that has caused 5.4 million premature adult deaths through 1997, but opened the Pandora’s box of vicious criminality, just as anyone conversant with the history of Gulag and Soviet mafias would have predicted.

The Western transactors Wedel discusses in her article—the IMF, World Bank, U.S. Treasury, USAID, European Bank for Reconstruction and Development, OECD, EU and the Western private sector—could not have prevented this debacle, even if they hadn’t misbehaved in the ways Joseph Stiglitz describes in the April 17 & 24, 2000 issue of the New Republic. Only Chubais, Maxim Boycko and Alfred Kokh—successive chairmen of the Russian State Property Committee and members of the “transactors circle”—could have mitigated the plunder and disorder, had they not been so thoroughly corrupt.

From this perspective, it makes little difference whether some Western economic theories were partially or wholly congruent with those of Russia’s homegrown radicals. Had Jeffrey Sachs, widely considered an arch advocate of “shock therapy”, been a closet conservative, as Joseph Stiglitz now suggests, Yeltsin’s vendetta against the Communist Party still would have driven him to recklessly destroy the remnants of central planning and the ministerial system without first preparing the way for a smooth market transition.

The damage caused by Western proponents of “shock therapy” and others who misunderstood the conditions required for empowering Adam Smith’s invisible hand was less than that caused by Yeltsin’s rash decrees. It is the sum of the tens of billions of dollars that “transitionists” of all stripes coaxed Western leaders into diverting from America’s, Europe’s and Japan’s deserving poor to Kremlin thieves, plus the negative global welfare costs of consolidating Yeltsin’s system of anti-productive elite privilege. The new economic model that has emerged is similar to the regime contrived by Hjalmar Schacht for Hitler: a marketized variant of a command economy that allows leaders to utilize a broad array of regulatory instruments, including direct arms procurement contracting, to enrich a narrow clique and rearm, in whatever mix Putin desires. It is precisely in this sense that Russia has been lost, and that those found guilty by the verdict of history of abetting the process through economic myth-making, politicking and moral turpitude should feel profoundly ashamed.

Wedel replies:

Jeffrey Sachs’ and Anders Åslund’s letters contain a series of unsupported counter-assertions. Both deal in significant part with issues that are not addressed in, or material to, my National Interest article. The article presents the theory of transactorship, a mode of organizing relations among nations. Both Sachs and Åslund are stunningly silent on this central issue: neither attempt to refute either the theory or the critical body of facts supporting it. The principal point of the article is that a group of self-interested actors and advocates from both the United States and Russia, supported by Western aid and promoted by high U.S. officials to whom they were closely linked, managed to co-opt U.S.-Russian economic relations and helped to bring about the fiasco that followed. It is not at all “contradictory” to conclude that Western economic advisers in Russia were both “influential” and “ineffective.” The Harvard-Chubais transactors, including Sachs and Åslund, were most influential precisely in recommending and implementing policies that turned out to be highly counterproductive. The outcomes of their activities ran directly counter to the stated aims of the U.S. aid program in Russia.

Sachs seems not to understand that the issue is the multiple and conflicting roles that the transactors assumed (with ambiguous loyalties, ambitions and income sources), not the specific official title they held at any given time. Sachs restates that he advised Yegor Gaidar, which I do not dispute, and does not deny his other roles: his transfer of loyalty from Gaidar to Gaidar’s nemesis, Ruslan Khasbulatov, who was seen in the West as a retrograde communist; and his offer of access to Western aid to Khasbulatov, while urging, in his role as an American economist, that vast amounts of such aid be sent to Russia. Sachs seems to deny that he was in correspondence with the imf while at the same time advising Gaidar. However, one memorandum that I have in my possession was written by Sachs and David Lipton (who became a Treasury undersecretary), dated May 11, 1992, and directed to key Russian decisionmakers at the IMF. It shows that Sachs and Lipton were privy to internal discussion within the Fund and were proffering advice within that context without any mention of their role advising the Russian side.

Åslund and Sachs portray me as a conspiracy theorist “going after leading advocates of radical market reform.” On the contrary, I have been trying, as an anthropologist, to understand the roles being played by key actors involved in the aid process and in guiding economic transition. If those studies have resulted in uncovering unseemly activities, that is a consequence of what the actors have done, not of any analytical bias. I have no personal antagonism toward any of the key figures involved, nor did I approach the analysis with any ideological agenda.

As a researcher, I have pieced together the story based on hundreds of documents, U.S. General Accounting Office (GAO) reports and interviews. I have been studying Eastern Europe as the centerpiece of my professional work for more than twenty years. As an anthropologist, I am especially aware that people I interview don’t always tell the truth—and not only Eastern Europeans. I always cross check critical information and confirm key points with multiple sources.

Åslund and Sachs make a number of specific allegations. The facts are as follows:

As to Sachs/Åslund’s more general comments, former World Bank Chief Economist Joseph Stiglitz is among a growing number of economists who believe that the policies that Sachs and Åslund advocated were misconceived and harmful to Russia and to most of the other post-communist countries. Russia didn’t “stumble”, as Åslund characterizes it; it was inundated with counterproductive advice from people like himself.

With regard to Poland, although its economy has grown, this success was achieved not by following a radical transition program, but, as Harvard Professor Marshall Goldman has shown, by rejecting key parts of it. Further, high-level corruption has become so institutionalized that the World Bank has urged Poland to begin fighting it. I have not accused Sachs, as Åslund writes, of “having destroyed the Polish economy.” On the contrary, I have pointed out that Sachs’ role in the Polish transition was largely promotional, a point confirmed by the Polish government in the Financial Times (June 15–16, 1991).

Finally, Åslund manages to cite the only negative review (that I know of) to try to discredit my work. In fact, Collision and Collusion has been widely reviewed in places such as the Wall Street Journal, the Washington Post and Foreign Affairs, and the reviews have been overwhelmingly positive. Former National Security Adviser Zbigniew Brzezinski wrote of the book: “Very critical and troubling analysis of the shortcomings of Western aid policy, particularly to Russia. The implications of Wedel’s critical assessment need to be seriously taken into account.” The other letters printed above share that view, and I thank their authors for their support.

From The National Interest No. 60, Summer 2000.

[Mar 14, 2015] John Helmer Convicted Fraudster Jonathan Hay, Harvard's Man Who Wrecked Russia, Resurfaces in Ukraine by Yves Smith

Jonathan Hay ran the day-to-day operations of the Russia Project. He was found guilty of violating three counts of the False Claims Act and was debarred from serving in USAID. But he’s managed to resurface in Ukraine, working in the local operations of a Polish think tank. Nicely played.
Feb 4, 2015 | naked capitalism

Yves here. You cannot make this stuff up. One of the sorriest chapters in recent American history was how we allowed an unprecedented opportunity to assist Russia in managing the end of its Communist era to turn into a looting exercise by well-placed insiders, including advisors under contract to Harvard.

If you are unfamiliar with this fiasco, which was also the true proximate cause of Larry Summers’ ouster from Harvard, you must read an extraordinary expose, How Harvard Lost Russia, from Institutional Investor. I am told copies of this article were stuffed in every Harvard faculty member’s inbox the day Summers got a vote of no confidence and resigned shortly thereafter.

Jonathan Hay ran the day-to-day operations of the Russia Project. He was found guilty of violating three counts of the False Claims Act and was debarred from serving in USAID. But he’s managed to resurface in Ukraine, working in the local operations of a Polish think tank. Nicely played.

By John Helmer, the longest continuously serving foreign correspondent in Russia, and the only western journalist to direct his own bureau independent of single national or commercial ties. Helmer has also been a professor of political science, and an advisor to government heads in Greece, the United States, and Asia. He is the first and only member of a US presidential administration (Jimmy Carter) to establish himself in Russia. Originally published at Dances with Bears

There are about 450 think-tanks in Europe and the US currently focusing on international relations, war, peace, and economic security. Of these, about one hundred regularly analyse Russian affairs. And of these, less than ten aren’t committed antagonists of Russia. That’s barely two percent of the intellectual materiel which can be counted as non-partisan or neutral in the infowar now underway between the NATO alliance and Russia. In this balance of forces, think-tanks behave like tanks – that’s the weapon, not the cistern.

The Centre for Social and Economic Research (CASE) has been based in Warsaw since 1991. It claims on its website to be “an independent non-profit economic and public policy research institution founded on the idea that evidence-based policy making is vital to the economic welfare of societies.” In its 2013 annual report, declares: “we seek to maintain a strict sense of non-partisanship in all of our research, advisory and educational activities.” Three-quarters of CASE’s annual revenues come from the European Commission; another 9% from American and other international organizations. According to CASE, that’s “an indication of progressive diversification of CASE revenue sources.”

CASE Ukraine is a branch of this Polish think-tank, and at the same time a descendant, it claims, of a Harvard University-funded group which was active between 1996 and 1999. Registered since 1999 as CASE Ukraine, this calls itself “an independent Ukrainian NGO specializing in economic research, macroeconomic policy analysis and forecasting.” According to parent CASE in Warsaw, one of the group’s goals is “promoting cooperation and integration with the neighboring partners of Europe”. This means, not only CASE Ukraine, but CASE Kyrgyzstan, CASE Moldova, CASE Georgia, and in Russia, the Gaidar Institute for Economic Policy.

Independent is what CASE swears; independent isn’t what CASE represents. Investigate the names, the associations, the sources of money, the secret service engagements, and what you have is a family, a front, a cover, a closed shop, a mafia. Founders of CASE Ukraine like the American Jonathan Hay and operators of CASE Poland like the Balcerowiz family reveal a well-known anti-Russian alliance. So what are a director of the Gazprom board, Vladimir Mau; a professor of the Higher School of Economics in Moscow, Marek Dabrowski; and Simeon Djankov, Rector of the New Economic School in Moscow, and a protégé of First Deputy Prime Minister Igor Shuvalov, doing on the CASE side?

The latest US survey of the think-tanks in the world counted 6,826 in all as of August 2013. One-quarter (1,828) of those is located in the US; 426 in China; 287 in the UK; 194 in Germany; and 122 in Russia. In a perverse ranking, the only Russian think-tank, so called, to make it to the top 20 of the non-American batch, according to a panel of experts employed by the Think Tanks and Civil Societies Program (TTCSP) of the University of Pennsylvania, isn’t Russian at all. It’s the US-funded and directed Carnegie Moscow Centre (ranking 18th).

At the 46th rank is the first genuine Russian think-tank – the Institute of World Economy and International Relations (IMEMO) in Moscow. When US think-tanks are counted, along with the non-American ones, Carnegie Moscow slips to 28th; IMEMO rises to 32nd.

CASE ranks at the modest 58th peg of the non-American batch; 68th when the Americans are included. It does much better when ranked geographically against think-tanks in Europe. There, according to TTCSP, it’s in first place, out-classing Carnegie Moscow, which is at no. 2, and IMEMO at no. 4. Comparing think-tanks with an economic policy specialization, but counting worldwide, CASE slips again – to 16th.

CASE Ukraine starts with the name of Jonathan Hay, whom CASE lists as a member of its founding Supervisory Board. According to a 100-page judgement issued in 2006 by US District Court Judge Douglas Woodlock in Boston, Hay is a convicted fraudster, inside-trader, self-dealer, and corrupt manipulator of US Government funds for the benefit of himself, his lover, and his friends. The judgement ordered Hay to pay a multimillion dollar penalty and restitution. His Harvard University co-conspirators, Andrei Shleifer and his wife, Nancy Zimmerman, were also convicted and fined. Harvard University, Hay’s and Shleifer’s contractor, was ordered to pay $26.5 million; Hay up to $2 million. Here is the US Government’s release, after Hay’s conviction. This also claims that Hay was “debarred” from taking pay from the US Agency for International Development (USAID) in future. The full story of Hay’s profiteering from the Russian asset sale schemes of Yegor Gaidar (below right), the short-lived proponent of shock therapy in Boris Yeltsin’s first term, and his privatization director, Anatoly Chubais (left), can be read here and here.

Chubais

Before his plea bargain in the Boston court, Hay reacted by threatening Moscow reporters investigating his activities. Unbeknownst to those who researched Hay’s misconduct in Russia at the time is that Hay moved on to a similar line of business in Ukrainian privatization. CASE was one of the instruments – and USAID was paying again. At present, CASE doesn’t list Hay on its current Supervisory Board. Dmitro Boyarchuk, the executive director of CASE in Kiev, explained today that there are two empty seats on the board, and that Hay has gone. Added Boyarchuk, this was two years ago. For seven years following his conviction in the US, Hay helped run CASE Ukraine.

CASE annual reports also reveal that in 2005 Hay was working at CASE Ukraine on sponsorship of the UN Development Programme (UNDP) for teaching the “high-level” and “key” Ukrainian policymakers “problems of Ukraine’s economic and institutional reforms after the Orange Revolution and in the context of Ukraine’s strategic plans for Euro-Atlantic integration.” Helping hands with Hay that year were Gaidar and Anders Aslund, the current chairman of CASE’s Advisory Council.

On April 25, 2013, President Putin publicly identified Hay as a CIA agent. Referring to Hay’s work on Russian asset privatization for Chubais, and the subsequent US prosecution, Putin said: “we learned today that officers of the United States’ CIA operated as consultants to Anatoly Chubais. But it is even funnier that upon returning to the US, they were prosecuted for violating their country’s laws and illegally enriching themselves in the course of privatisation in the Russian Federation. They did not have the right to do this as active CIA officers. In accordance with US law, they were not allowed to engage in any kind of commercial activity, but they couldn’t resist – it’s corruption, you see.” Note Putin’s reference to when he was briefed – April 25, 2013. According to Boyarchuk of CASE Ukraine, Hay was then supervising that organization.

Funding for CASE Ukraine appears to come from governments and government banks. They include Hay’s alma mater, USAID, plus the Canadian and UK aid agencies; the European Commission and the European Bank for Reconstruction and Development; the World Bank; several Ukrainian government organs; and Freedom House, a ferociously anti-Russian think-tank based in Washington, D.C.

Marek-DabrowskiMarek Dabrowski is listed as the current head of the CASE Ukraine board, and one of the founders of both CASE Poland and CASE Ukraine. A Polish national, he is currently employed by CASE in Kiev; he is also a professor at the Higher School of Economics in Moscow. He currently lists himself as a member of the scientific council of the Gaidar Institute. The Gaidar think-tank in Moscow rates only one mention in the TTCSP report, trailing far behind CASE in the economic policy line-up. The CASE annual reports identify Dabrowski as one of Hay’s co-workers advising President Victor Yushchenko’s administration.

The Gaidar think-tank website no longer lists Dabrowski on its scientific council. A spokesman for the think-tank claims there is no association between the two think-tanks; CASE annual reports say otherwise. The current CASE website describes Gaidar as a “partner”, but identifies the think-tank by a different name, “Institute for the Economy in Transition”.

Dabrowski was asked if he regards CASE Ukraine as hostile to Russian policy and in favour of regime change in Russia. He was also asked if he views his role at CASE Ukraine as compatible with his presence in Moscow teaching economics and advocating policy change? He replied: “The short answer to your first question is NO, and to your second question – YES (i.e. there is no conflict), with the remark that I am not involved in policy advocacy or policy advising in Russia (since 1994). Nor I am longer personally involved in policy advising in Ukraine (since 2006). In CASE Ukraine I chair the Supervisory Board on behalf of the founder (CASE) and, according to the by-law of CASE Ukraine, I provide (together with other members of this body) the Executive Director with the overall guidance in respect to research projects, their academic quality, fundraising, finances, etc. The entire CASE network, including CASE Ukraine, deals with economic research agenda and is not involved in politics of any country… Furthermore, CASE and CASE Ukraine do not present institutional opinions on any topic; what they publish represents personal views of individual authors. In this context your words about supposed hostility of CASE Ukraine to Russia sound just inappropriate.”

Polish sources describe CASE Poland as having been initially financed with US and European Commission money with the intention of “guiding the Ministry of Finance in Warsaw.” The Polish finance minister at the time was Leszek Balcerowicz; Dabrowski was one of Balcerowicz’s deputy ministers. Since 2011 Balcerowicz has been an honorary professor at the Higher School of Economics in Moscow, Dabrowski’s current employer.

Balcerowicz’s wife Ewa (below right) remains on the board of CASE Poland, while Leszek advises President Petro Poroshenko. There (below left) the two of them were, face to face in Kiev last week, according to the presidential press release, “to join the reform process in Ukraine.”

trt5

Sitting on Balcerowicz’s left taking notes, Polish sources identify Pawel Kowal, a member of the European Parliament for Poland, and an advocate for anti-Russian causes. Polish media reports and sources in Warsaw claim Kowal speaks for the Polish intelligence services. What he isn’t, the sources add, is an economist or an expert on public finance.

One of the ideas which CASE Ukraine and its partner, Vox Ukraine, have been lobbying in Kiev is direct-line financing from the US and European governments for the civil war in the east. “[The Ukrainian] Ministry of Finance should consider,” says Vox Ukraine, “taking the increased defence-related spending out of the annual budgets and running it as a separate multiyear capacity-building program that would allow for direct financing from individuals, companies, and foreign governments to enable military technical assistance and technology transfer.”

KakhaVox Ukraine was financed by Kakha Bendukidze, the Russian business figure who entered Georgian politics in 2004. After the start of the civil war in Ukraine, he joined Poroshenko’s economic advisors, but died unexpectedly in November last year.

The counterpart US think-tank scheme for running $2 billion in fresh US arms to Ukraine was released this week by three US think-tanks – Brookings, Atlantic Council, and the Chicago Council on Global Affairs. The authors of this new plan for direct Pentagon funding of the civil war include two ex-US ambassadors to Ukraine; two former US officers from the NATO command staff; and Michele Flournoy, a current advisor to presidential candidate Hillary Clinton (below, with Clinton and former Secretary of State, Madeline Albright.) Together, they report that one of their Ukrainian advisors is “Major General Oleksandr Sirskiy, Commander, “Anti-Terror Operation,” Armed Forces of Ukraine.”

Hillary-Clinton

CASE and Vox call each other partners. Another of their common ideas is the replacement of local Ukrainian officials with Anglo-Ukrainians, Ukrainian-Americans and others: “The government should bring in the government, agencies, military, etc., as many Western-leaning, Western-lived, Western-trained professionals as humanely possible, and fire, without hesitation, most or all of the old guard.” This is not only an endorsement of American appointees like the new finance minister, Natalie Jaresko, and foreign investment advisor Jaanika Merilo. It is also an advertisement for the Ukrainian academics who have signed up to the advisory councils, contributor lists, and supervisory boards of think-tanks like CASE. Here they are – Kiev minister hopefuls and candidate apparatchiki, on the Vox website.

The Poles aim not to be left out of the spoils. Balcerowicz operates his own think-tank, which he calls Forum Obywatelskiego Rozwoju (FOR, Forum for Civic Development). It gathers money from foundations, corporations and banks; it’s still too small to qualify for a place on the international think-tank rankings.

Other names to appear on the CASE employment roll or on CASE Ukraine boards include Wojciech Paczynski and Luca Barbone. Paczynski was for four years chief economist at the Polish Centre for Eastern Studies (Ośrodek Studiów Wschodnich, OSW); this, a Warsaw informant charges, “is widely considered as an arm of Polish intelligence studying Russia, as well as Ukraine.” The global think-tank report rates OSW the 15th “best government affiliated think-tank” – without explaining which part of the Polish government it’s tied to. After serving at OSW, there is a missing year in Pacyzynski’s curriculum vitae before he appears for work in Germany, then at the Organization for Economic Cooperation and Development (OECD).

Luca-BarboneLuca Barbone is another of CASE Ukraine’s current board. An Italian native, he was educated in the US and then worked for the World Bank between 2000 and 2011. For four of those years he was the regional director for Ukraine, Belarus and Moldova, based in Kiev. Since his exit from the World Bank, he was employed by CASE Poland. His second wife, a Pole, was an economist working on her homeland at the World Bank. They now call Washington home. If Vox Ukraine manages a summons to Kiev, with a line of US budget money to employ him at the level to which he is accustomed, Barbone is ready to travel.

Through CASE and FOR, Balerowicz has been supporting the work of Simeon Djankov, who received the Russian Government appointment of Rector of the New Economic School in October 2013. A Bulgarian as well as US citizen, Djankov won 3rd place in Bulgaria’s annual “Most Successful Politician” in 2009; 4th place in 2010. He was also deputy prime minister and finance minister of that country until 2013.

DjankovHere is Djankov, with Mrs Balcerowicz, at one of six seminars CASE ran in Warsaw in 2013. Djankov was the speaker; his topic, according to CASE’s annual report, “Austerity revisted.”

A Russian press interview of Djankov, published last October, reports him as acknowledging personal endorsements from two Russian officials, First Deputy Prime Minister Shuvalov, and Prime Minister Dmitry Medvedev. Sidestepping questions about the conflict in Ukraine and the accession of Crimea, Djankov acknowledged the reluctance of his wife to move from Washington to Moscow. “That created, of course, a lot of problems. It was more difficult for [me] to decide as an American — my wife, my children were born in America, they have American passports. We first thought that they too will live here, but in the end [we] decided that for another, maybe this year they will stay in America, and I’ll be here.”

Djankov didn’t mention to his Moscow interviewer that his Russian job is part-time; and that he is keeping two of his paid US jobs – one at Harvard University, and one at the Peterson International Institute of Economics in Washington. Peterson calls Djankov one of its “senior research staff”. Last November, Djankov released one of his new books, a work entitled “The Great Rebirth: Lessons from the Victory of Capitalism over Communism”. Published and paid for by Peterson, and co-edited by another member of the same think-tank, Anders Aslund, Djankov wrote the summary chapters, as well as an essay on Bulgaria. Aslund wrote on Russia, while Balcerowicz authored the Poland chapter. On Georgia, the writers were Bendukidze and ex-president Mikheil Saakashvili.

PinchukPeterson is one of two Washington think-tanks financed each year by Ukrainian oligarch, Victor Pinchuk (right), whose anti-Russian operations can be followed here. In exchange for an annual cash deposit, Pinchuk occupies a seat on the think-tank’s board of directors.

The Pinchuk stipend also pays for Aslund, a public advocate of regime change in Russia. In addition to Djankov (below, left), Peterson also employs Djankov’s wife, Caroline Freund (below right).

tggtr

In Moscow Djankov was asked three questions: Does he consider that CASE is independent on policy issues involving Russia, especially the Ukraine conflict? Has he ever, or has he recently advised CASE Poland and CASE Ukraine not to pursue an anti-Russian, regime-change policy? Does he think his Russian roles conflict with his association with such a think-tank as CASE?

Djankov replied by email: “I have not had any exposure to CASE and cannot comment on their attitudes. In general, this think-tank is highly reputed in Eastern Europe.”

MauIn the latest CASE annual report, the only Russian listed as serving on the think-tank’s advisory council, under Aslund as chairman, is Vladimir Mau (right). The appointment can be confirmed at page

28 of the report. Mau isn’t exactly identified as Russian. His title, according to CASE, is “Rector of the Academy of Public Economy”. Without a location.

In fact, since 2002 Mau has been the state-appointed Rector of the Presidential Academy of National Economy and Public Administration; a member of the Economic Council Presidium appointed by Putin in October 2013; and in 2012 recipient of the Order for Services to the Fatherland IV degree. In 2011 he became a member of the Gazprom board of directors.

Mau was asked to clarify his relationship with CASE and to say if he believes there is a conflict of policy or interest in his association. Through a spokesman, Mau responded: “Vladimir Alexandrovich is not sure, but he strongly doubts that he is a member of this organization. Is it possible to send us any confirmation links of this fact.” Following the confirmation of the CASE appointment, there has been no reply.

Joe Jordan, February 4, 2015 at 2:33 pm

I don’t know of any definitive treatment of this specific era, but I would recommend taking a look at F. S. Saunders’ “Who Paid the Piper” which is about how the CIA funded numerous literary magazines, artists, and writers in a bid to subtly slant the ideology of the left away from communism during the height of the cold war.

While it does not bear directly on this situation, it is indicative of the lengths to which the government has gone in previous efforts to subvert and co-opt the intelligentsia.

Enquiring Mind, February 4, 2015 at 6:57 pm

For a historical overview about some background on related US deep state actions and policies, see J.T. Gatto’s “An Underground History of American Education”. There is extended discussion of how and why the US arrived at the current structure.

Yves Smith, February 4, 2015 at 5:51 pm

Stephen Cohen’s “Failed Crusade,” Janine Wedel’s “Collision and Collusion,” and “eXile,” by Mark Ames and Matt Taibbi.

MartyH, February 4, 2015 at 10:29 am

You would think that “plausible deniability” would involve not leaving your fingerprints and business cards all over things. I guess “Manifest Destiny on Steroids” absolves them all … or at least they hope so.

Somehow, I suspect Putin’s Russia (and friends) will be less easily wiped out than the American Indigenous Tribes.

[Jan 11, 2015] Links for 01-11-15

Economist's View

Fred C. Dobbs said in reply to anne...

(The Krugman-Sachs Feud
dates back to July 2008,
perhaps earlier.)

Deficits do matter http://www.washingtonpost.com/opinions/joe-scarborough-and-jeffrey-d-sachs-deficits-do-matter/2013/03/07/82de539a-82bd-11e2-b99e-6baf4ebe42df_story.html
Wash Post - Joe Scarborough & Jeff Sachs - March 7, 2013

I Guess It’s a Form of Flattery http://nyti.ms/12AYzMx
NYT - Paul Krugman - March 8, 2013


Previously...

Blame for the Global Crisis http://nyti.ms/1xe42BG
NYT - Jeff Sachs - March 8, 2009

Revenge of the Glut http://nyti.ms/1xSEYFt
NYT - Paul Krugman - March 1, 2009

And a year earlier...

Fareed Zakaria - GPS - CNN - July 13, 2008

ZAKARIA: Oil and food prices are sky-high, world markets are down, and the American economy seems to be slinking into a long slump. Just how scared should we be?

Well, I've gathered three of the top economists in the world to talk about all of this.

Lawrence Summers served as the United States' secretary of Treasury, then as president of Harvard University. Paul Krugman is the must-read op-ed columnist for the "New York Times." And Columbia University professor, Jeffrey Sachs, has spent years giving emergency assistance to economies around the world in the form of advice.

The first question to you, how scared should we be? In other words, are we in the phase of a crisis where the pain has been felt, and there's going to be a long, slow working out of this pain? Or are there more unpleasant surprises to come?

You know, what innings are we in?

JEFFREY SACHS, DIRECTOR, THE EARTH INSTITUTE, COLUMBIA UNIVERSITY, ECONOMIC ADVISER TO GOVERNMENTS: I don't know if Paul and Larry agree exactly, but one thing that could be added to this is the question of whether there's a way to counteract the downturn itself, not whether one should pump up the economy, and so forth. But is a recession at this point unavoidable? This is going from, you know, gloom to gloomier.

But I would say yes, and that the attempt early on in the next presidency to have a big stimulus and keep pushing, and do everything we can to avoid the downturn, would actually prove to be fruitless at this point, because there are so many imbalances that have been built into the U.S. economy in the last decade, and especially in the last few years, and now added to the -- now added on by the global markets -- that consumers really are going to have to adjust.

They've not been saving for years. The housing market is not going to be the way the economy is going to recover. There's going to have to be a lot of structural change in the U.S. economy. There's going to have to be export-led growth to an important extent, because we've been borrowing on an amount that we will not continue in the future...

ZAKARIA: So, (UNINTELLIGIBLE), a recession will actually have an effect of cleansing the system. It will take out some of these unsustainable imbalances.

SACHS: No, what I'm saying is that, the idea that there really are enough gears right now to just keep that headline measure of the total size of the economy growing at some positive, close-to-normal rate, is just not the case. We don't have tools like that, that can do that.

And there are so many problems that need adjustment right now, and such a legacy of imbalance, that I think that heroics to stop a downturn wouldn't work.

LAWRENCE SUMMERS, FORMER U.S. TREASURY SECRETARY, FORMER PRESIDENT OF HARVARD UNIVERSITY: Jeff, we've been friends for 35 years, and I've never heard you say such a fatalistic thing.

I don't disagree with you about the difficulty, the challenge. And I think, no matter how brilliantly policy is carried on, the next three or four years are not likely to be three or four particularly favorable years in American economic history.

But I think it's a serious mistake to suggest that we should somehow accept our recession like a man, and that if we just do that, we'll cleanse the imbalances...

SACHS: No, but, I didn't use the word...

PAUL KRUGMAN, OP-ED COLUMNIST, "NEW YORK TIMES": But there's a definite...

SACHS: Come on, look, Larry.

KRUGMAN: But I think, look. OK, fair enough. But that's not what you're suggesting...

SACHS: Fareed asked me that, and I said that that was not what I was saying here.

ZAKARIA: That was my Herbert Hoover...

SACHS: That was not what I was saying.

KRUGMAN: ... Andrew Mellon. Liquidate the farmers, liquidate the workers. It will purge the roughness from the system.

SACHS: What I was saying is that, after many years of heavy borrowing, low saving rates, a mess in the housing sector, a mess with the dollar, inflationary risks, and so forth, we just don't have the tools. That's all I'm -- I think I'm saying, is realistically, it's not heroism to the rescue that is going to enable us to have normalcy, or close to normalcy.

ZAKARIA: It's kind of a long...

SACHS: That's all I'm saying.

KRUGMAN: Yes. No...

ZAKARIA: What you're saying is it's a long slog.

KRUGMAN: So, there is a case -- I think there is a case for another stimulus package. The next president might very well want to do something that tries to pump up demand -- probably a better stimulus package, something that actually does some stuff that we need, like repairing infrastructure, as well as just, you know, putting checks into consumers' mailboxes.

It probably is not going to be possible to avoid a fair bit of hardship on the way. But, you know, you don't want to just be fatalistic. You don't want to -- and by the way, if things really do tip -- you know, and tip -- look like they're tipping into something much more serious, then heroic measures are called for.

I mean, it's not the case that you never want to do something very dramatic. It's not -- it's one thing to say that it's not going to be easy. It's another thing to say that we should just stand back and let this thing happen.

ZAKARIA: Larry, you've been there. The president comes in. The economy is looking very weak. The Fed is doing what it's doing.

What realistically is the president going to have at his disposal? And what would you advise?

SUMMERS: You know, it's eight months off, and it's difficult to know what the world will look like at that point.

I think there's a strong case for more fiscal stimulus, because I think more unemployed resources, more problems in the financial system isn't going to serve any constructive purpose. And as part of the transition, I favor that fiscal stimulus.

ZAKARIA: And it would be a big infrastructure...

SUMMERS: And I think infrastructure's got to be an important part of it.

You know, one of the features of the structural changes in the economy, particularly the fact that there's not going to be a lot of construction for a long time, is that a core group in our society -- men who haven't been to college -- are really bearing the brunt of this downturn. And the right kind of infrastructure program can do a lot to provide them with opportunity. And I think that's very important for the country.

I think the next president and his colleagues are going to have to take a serious look at the financial system, at the way we regulate the financial system, at the so-called government sponsored enterprises.

We're going to have to make sure -- and it is not going to be easy -- that that system has enough capital in it to support a robust flow of credit. And making sure that that happens, rather than a vicious cycle of liquidation, has got to be a crucial priority for the next president.

There's going to be more to be done to prevent foreclosures. The house prices are going to have to adjust, and we're not going to be able to stop that. But there are things we can do that prevent foreclosures and prevent the tremendous waste that's associated with the foreclosure process.

SACHS: A new president has a new chance for a longer term agenda. It would be very easy for the short run to overwhelm the next administration.

If the president comes in and says, "My God. We've got unemployment rising. We've got to do something. We're going to give another tax cut," for example, which will be very easy to be top of the agenda, fiscal policy will tie itself up in knots, we will not get to a long- term perspective, which we need to solve long-term problems in this country.

And I think an administration that starts with the desperation to avoid what is unlikely to be avoided, will not find a way to address longer term challenges, and would end up, you know, unsuccessful, I would say.

So, we've drifted so badly in this country, in this administration. Everything of seriousness for the long term, starting from a fiscal structure that takes account of the demographic changes in this country, what we're going to need in the long term, the health sector, as Larry said, the energy sector, climate change, and a host of other extraordinarily serious long-term problems have been neglected.

And yet, we will face what will be looked at as a traditional short- term business cycle problem. And it could overwhelm the administration and overwhelm our politics.

If we spend most of our time on what we're going to do immediately about the housing crisis, what we're going to do about this, what we're going to do about another tax cut, and so on, we will not get to the things that really need addressing right now.

And a lot of what needs addressing is global. And we've gotten so bad at doing anything serious with the rest of the world, that those basic linkages internationally have to be recreated, and a president is going to have to spend a lot of time seriously on that. That's also going to cut against the grain of an economy in a big slowdown, and probably in an outright recession.

SUMMERS: I think there's -- Jeff and I...

ZAKARIA: Let me ask -- yes.

SUMMERS: Where Jeff and I agree is on the ends, that we've got to address the current situation, but that there are long-run issues that are absolutely critical to address in an effective way.

Where I think we do have a nuance of disagreement is that my concern is that, if the recession is not contained to the extent possible -- and I don't think, either, that it can be fully contained -- then I think it's going to be very difficult to do anything right for the long run.

And I think the prospects of..

ZAKARIA: So, you're more scared in a way than he is.

SUMMERS: ... maintaining the United States as a force for openness, as a cooperative nation working with other nations on these global issues of energy, on these global -- on these global issues that are of such concern -- I think those chances are much greater if we're doing all we can to make the American economy work for the American people.

And so, I think it would be a mistake for any administration to lose sight of the distress that Americans are feeling, because of the things that we've discussed.

And so, I think it's a matter of finding the right balance.

KRUGMAN: Well, actually, let me -- I don't even think -- I think these things can go together. I mean, I always think of the New Deal model, FDR, where a short-term crisis acted as a justification and a stimulus for long-term reform.

And we came out of the Great Depression with Social Security. We came out of the Great Depression with the Trade Agreements Program, which paved the way for the global economy of later generations.

We can come out of this crisis, actually, with an enhanced case, enhanced prospects for health care reform, with an enhanced prospect for a rational energy policy, which could also slide into a climate change policy.

I mean, what we really want is, we want the next president to say, "We have all these big problems. Some of them are short term, but they're wrapped into a long term. And here are the things we can do to fix them."

And we come out in 2013 with a much better society, a much better thing -- partly, you know, exploiting the crisis, exploiting the crisis to do the right things.

ZAKARIA: We've had a somewhat gloomy discussion, but on that optimistic note, we're going to have to end.

Thank you, gentlemen. Thank you very much. ...

http://transcripts.cnn.com/TRANSCRIPTS/0807/13/fzgps.01.html

[Sep 02, 2014] The End of Democracy as we Knew it by Bernd Hamm

"The oligarchs of the former Soviet block have almost all grabbed their fortunes during the presidency of Boris Yeltzin who, pathological alcoholic as he was, made room for large scale privatization of state corporations and raw materials after the collapse of the socialist regime. Shock therapy was pushed through under the influence of Western advisors, especially the Harvard privatization program with Jeffrey Sachs as the leading figure, as well the International Monetary Fund (IMF). Jegor Gajdar, Anatoli Tschubais (an oligarch himself) and Alfred Koch [2] were their local executives in Russia ..."
Sep 02, 2014 | informationclearinghouse.info

This paper starts with summarizing the major theoretical elements in the definition of a global ruling class. It then examines how neoconservatives in the US took power and used regime change to install US-friendly governments in other regions. A strategy of tension is used to press the population into conformity. But the real revolution is to what extent factual politics escape any attempt to democratic control. Three case studies show how far the Deep State already goes. Democracy is on the brink of survival.

1. Theory

In an earlier paper (Hamm, B. 2010) I suggested an analytical framework for the study of power as it relates to the future of global society. This outline specifically addressed four questions:

  1. How is the global ruling class structured internally?
  2. Is it theoretically correct to use the term class for the ruling elite?
  3. What are the major instruments of power?
  4. How do these analytical insights impact on the probable future of human society?

Drawing on C. Wright Mills’ seminal work on The Power Elite (1956), recent power structure research suggests an ideal-type model of four concentric circles:

  1. In the inner circle, we find the global money trust, the richest individuals, families or clans, all with fortunes well above one billion Euros.
  2. The CEOs of big transnational corporations and biggest international financial players make up the second circle. They are mostly concerned with increasing the wealth of the inner circle, and with it their own.
  3. Top international politicians, some active in governments and international institutions, some more in the background as advisors, plus the top military, compose the third circle. This political class has assignments: organize the distribution of the social product in such a way as to transfer as much as the actual power balance allows into the pockets of the inner and second circles, and secure the legitimacy of government by organizing the political circus of an allegedly pluralistic structure.
  4. The fourth ring will be composed of top academics, media moguls, lawyers, and may sometimes include prominent authors, film and music stars, artists, NGO representatives, few religious leaders, few top criminals and others useful for decorating the inner circles. They enjoy the privilege of close access to those in power, they are well paid, and they will make sure not to lose such benefits (Hamm, B. 2010:1008-9; see also Phillips, P., Osborne, B. 2013).

It appears that the degree of internationalization of the powerful correlates with their status on the ring hierarchy. The two inner circles have always been international. The third and fourth rings, however, tend to be much more nationally bound (by ownership and by elections) than the first and the second. The inner circle is not static but relatively solid. It builds on financial and social capital often accumulated by former generations (steel industry, banking, weapons, or oil barons). The major source of power is being borne to a family of the inner circle (for example, the Rockefellers, the Rothschilds, the Morgans, the DuPonts, the Vanderbilts, the Agnellis, the Thyssens, and the Krupps, to mention a few) [1].

There are also the nouveaux riches. Names like George Soros, William Gates, Warren Buffet, Marc Zuckerberg, Sheldon Adelson, or the Koch brothers come to mind (Smith, Y. 2013), and the Bush-Clan might also be mentioned here (Bowles, W. 2005);

Russian or Eastern European oligarchs like Alisher Usmanov, Mikhail Chodorkowski, Boris Beresowski, Mikhail Fridman, Rinat Ahmetov, Leonid Mikhelson, Viktor Vekselberg, Andrej Melnichenko, Roman Abramovich; then there are Carlos Slim Helu, Lakshmi Mittal, Mukesh Ambani, Jorge Paulo Lemann, Iris Fontbona or Aliko Dangote from the so-called less developed countries.

These parvenus tend to be politically more active, at least on the front stage, than the old rich families: George Soros with his Open Society Foundation and his permanent warnings of the evils of unregulated capitalism is the best known for his liberal leanings, while the Koch brothers, Sheldon Adelson or Robert Murdoch are aggressively right-wing (Heath, T. 2014; Snyder, M. 2013; Webster, S.C. 2013). The oligarchs of the former Soviet block have almost all grabbed their fortunes during the presidency of Boris Yeltzin who, pathological alcoholic as he was, made room for large scale privatization of state corporations and raw materials after the collapse of the socialist regime. Shock therapy was pushed through under the influence of Western advisors, especially the Harvard privatization program with Jeffrey Sachs as the leading figure, as well the International Monetary Fund (IMF). Jegor Gajdar, Anatoli Tschubais (an oligarch himself) and Alfred Koch [2] were their local executives in Russia (Vaclav Klaus in Czecholovakia, Leszek Balcerowicz in Poland, etc.).

The strategy for the creation of oligarchs and social polarization is easy to understand since it has been practiced by the IMF time and again to this very day as part of their structural adjustment policy (later cynically referred to as “poverty reduction strategy”). What it amounts to is the abolition of all price controls and public subsidies, laying-off civil servants, limiting wages, devaluing currencies, and privatizing public corporations and infrastructure (the so-called Washington Consensus). Widespread poverty is the immediate result, and the other side of the coin is extremely concentrated wealth in just a few hands. If the number of victims multiplied by the gravity of damages done to each of them is used as an indicator, the IMF is certainly the most criminal organization on earth (Chossudovsky, M. 2001).

Michael Hudson The New Cold War’s Ukraine Gambit naked capitalism

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.” This article is from a new book, Flashpoint in Ukraine, edited by Stephen Lendman. It is currently available from Clarity Press as an e-book, and soon to be printed.

Finance in today’s world has become war by non-military means. Its object is the same as that of military conquest: appropriation of land and basic infrastructure, and the rents that can be extracted as tribute. In today’s world this is taken mainly in the form of debt service and privatization. That is how neoliberalism works, subduing economies by indebting their governments and using unpayably high debts as a lever to pry away the public domain at distress prices. It is what today’s New Cold War is all about. Backed by the IMF and European Central Bank (ECB) as knee-breakers in what has become in effect a financial extension of NATO, the aim is for U.S. and allied investors to appropriate the plums that kleptocrats have taken from the public domain of Russia, Ukraine and other post-Soviet economies in these countries, as well as whatever assets remain.

In a recent interview in The New York Review of Books, George Soros outlines what he thinks should be done for the Ukraine. It should “encourage its companies to improve their management by finding European partners.”[2]

This means that kleptocrats should sell major ownership shares in their companies to Westerners. This would give the West a stake in protecting them, pressuring their government to tax labor rather than the wealthy, and helping them cash out and keep their takings in London and New York to finance Western economies, not that of Ukraine.

The West’s Ideological Conquest of the Post-Soviet Economies

That is not how replacing Soviet communism with a free market was supposed to work out – at least, not for the Soviet side. Mikhail Gorbachev and his supporters hoped that ending the Cold War would enable Russia to dismantle the arms race whose costly military overhead prevented the Soviet Union from devoting resources to produce consumer goods and adequate housing. In addition to the peace dividend, the aim was to establish a price feedback system that would raise industrial productivity and living standards.

The West’s ideological victory – or more to the point, the neoliberal anti-labor, anti-government and pro-Wall Street game plan – was sealed at the Houston summit in July 1990. Russian Prime Minister Gorbachev and other Soviet leaders endorsed the World Bank/USAID plan for shock therapy, privatization, deindustrialization and a wipeout of domestic personal savings (characterized as an “overhang”) to start by impoverishing the population at large and vesting an overclass with the most unequal distribution of wealth in the Northern Hemisphere.

U.S. Cold War advisors urged Russia and other post-Soviet states to give hitherto public assets and property to individuals, preferably to plant managers and political insiders. The cover story was that it did not really matter who got them, because private ownership in itself would lead the new owners to re-organize production along the most profitable lines. Pinochet’s Chile was held out as a shining success story, and a right-wing Pinochetista movement started in Russia.

The Communist Party nomenklatura, Komsomol leaders such as Mikhail Khodorkovsky and Red Directors were excited by these neoliberal promises to turn over natural resources, real estate, infrastructure and factories to themselves. The sanctimonious pretense was that property has its own logic of self-interest, which serves the social good because wealth will trickle down to uplift the population at large. In practice the neoliberal “free market” turned out to be a euphemism for looting. Subsidized by U.S. support and imposed by Yeltsin’s presidential fiat (unconstitutionally, over the objections of the Duma), ownership of hitherto public investment and natural resources were given to managers who made their fortunes by selling their takings to Western investors.

Already before 1990 billions of dollars in roubles already were being siphoned off via Latvia (Grigory Loutchansky and Nordex played a major role), while co-op leaders KGB and army leaders already were creating proto-predatory financial structures. U.S. bankers, officials and academics went to Russia and other former Soviet republics to explain that the most practical path was to create joint-stock companies and sell shares to Western buyers to bid up the price. Western banks helped kleptocrats keep the proceeds from these sales abroad so that they didn’t have to reinvest it at home (or pay taxes). The tax burden was placed on labor and consumers, not on the windfall gains and natural resource rents, land rent or monopoly rent being siphoned off.

Instead of bringing about Western European or American-style industrial capitalism with their heavily subsidized technology and protected agriculture, the effect has been to de-industrialize Russia and other post-Soviet economies, except for East Germany and Poland. In effect, the former Soviet Union was colonized in the world’s largest resource grab since Europe’s conquest of the New World five centuries ago.

As in the other former Soviet republics, Ukraine embraced the neoliberal plan to make kleptocracy the final stage of Stalinism. As Mikhail Khodorkovsky described: “Decent people get out of the system, leaving ‘idiots and lowlife’ – great material for building up the machinery of state. And yet that is indeed our state.”[3]

[Feb 23, 2014] Stanley Fischer’s record of reckless neoliberal reforms should sink his appointment.

February 23, 2014 at 7:19 am

Al

Interesting:

How the Fed’s Would-Be No. 2 Helped Wreck Russia
Stanley Fischer’s record of reckless neoliberal reforms should sink his appointment.

http://www.theamericanconservative.com/articles/how-the-feds-would-be-no-2-helped-wreck-russia/

James Carden served as an advisor to the U.S.-Russia Bilateral Presidential Commission at the State Department from 2011-2012.

[Jan 16, 2014] How the Fed’s Would-Be No. 2 Helped Wreck Russia by James Carden

In the early 1970s, Fischer worked as an associate professor at the University of Chicago. He served as a professor at the MIT Department of Economics from 1977 to 1988.
Jan 9, 2014 | The American Conservative
The news that President Obama will nominate former Israeli Central Bank Chairman Stanley Fischer to be the next vice chairman of the Federal Reserve was greeted with a chorus of approbation from the media. A Forbes headline exclaimed: “The Markets Should Celebrate Stanley Fischer as Number Two at the Fed, A Perfect Ten Strike.” With the addition of Fischer to the Fed leadership “it’s almost like a central bank hall of fame” gushed a Stanford economist to Bloomberg News, while a former colleague of Fischer’s noted, “The only area I can imagine where Stan will be attacked will be his roughly four-year period 10 years ago as a vice-chair of CitiBank.”

Fischer certainly brings impressive credentials to the job. An MIT-trained economist, Fischer served as the Chief Economist at the World Bank in the late 1980s before going on to serve as First Deputy Managing Director of the IMF from 1994 to 2002. But Fischer’s tenure in the latter position merits more scrutiny than we thus far have seen in the largely rhapsodic reaction his nomination has garnered in the media.

As the Center for Economic and Policy Research noted back in 2011, when Fischer was floated as possible replacement for the disgraced Dominique Strauss-Kahn, “the IMF’s intervention in Russia during Fischer’s tenure led to one of the worst losses in output in history, in the absence of war or natural disaster.” Indeed, one Russian observer compared the economic and social consequences of the IMF’s intervention to what one would see in the aftermath of a medium-level nuclear attack.

Yet the IMF’s role in helping to create the conditions that pushed Russia into crisis in the 1990s seems to be missing not just from the recent coverage of Fischer’s nomination but from his own analysis during that period. In a speech to the U.S.-Russian Investment Symposium at Harvard in January 1998, Fischer painted a rather rosier picture of the situation in Russia than was warranted at the time. “Six years after the start of the Russian economic reform process, much has been achieved and the continued progress of the economy towards economic normalization is not in doubt.”

While Fischer noted that “output is still well below the levels of six years ago, it has begun to grow again; inflation has been reduced to near single-digit levels.” He concluded his address with an upbeat assessment: “up to this point, the optimists on Russia have been more right than the pessimists. There is good reason to believe the optimists will continue to be right.” [emphasis added]

That speech was simply magical thinking disguised as policy analysis in light of the following. A mere six months after Fischer predicted the “optimists” would win out, the Russian government devalued the ruble, defaulted on its debt, and declared a moratorium on payment to foreign creditors. By August the Russian stock market lost 75 percent of its value and inflation jumped over 80 percent. The following month saw Russia’s GDP collapse by 50 percent, while capital investment and meat and livestock herds fell by around 75 percent. By the time the decade was out some estimates had anywhere between 50 and 75 percent of Russians living below—or barely above—the poverty line.

The recovery was long in coming. In 2003—fully five years after Fischer’s speech—Russia’s GDP remained almost 30 percent below what it was in 1990 while capital investment remained a mere 10 percent of what it was then.

Neither the IMF’s performance—nor Fischer’s confidence in happy outcomes—were altered by the events in Russia, if his remarks to the Argentine Banking Association in June 2001 are anything to go by. Touting “the impressive developments in the Argentine economy over the past decade,” Fischer acknowledged some of the economic difficulties that were facing Argentina but noted that the “situation is a result of the dependence of growth on too large fiscal deficits.” And so the answer lay in cutting the budget because “fiscal tightening can be expansionary—can lead to a virtuous circle…by producing a sustained reduction in the risk premium and domestic interest rates.”

Not long after, the Argentine government, acting on Fischer’s advice, imposed austerity measures with unsurprising results. By the time 2001 came to a close, the official unemployment soared to around 20 percent; protests rocked the country which forced President Fernando de la Rua out; and the government defaulted on $155 billion in foreign debt, which remains, to this day, the largest debt default in history. Argentina’s poverty rate increased by about 50 percent, while its GNP fell by 11 percent by the end of 2001.

And so the question remains: is there any reason to believe Fischer is the right person to help steer the Fed in light of the ongoing jobs crisis here in the United States? As the Roosevelt Institute’s Jeff Madrick has pointed out,

“His resume suggests that in his bones he is an austerian. Although he cut rates sharply during the crisis as head of the Israeli central bank, this is not proof he can manage an economy that is struggling to recover.”

If you consider the following, the U.S. economy still has quite a long way to go. There are, as of this writing, three unemployed people for every available job; the long-term unemployed (those who have been out of work for 27 weeks or more) account for well over a third of all unemployed; the labor force participation rate—at around 63 percent—is the lowest it has been since 1978. To make matters worse, on December 28th 1.3 million people lost their unemployment benefits.

In the final analysis, the trouble with the Fischer appointment stems not so much from the issue of his dual citizenship, which is an objection others have made, but from his long track record of implementing neoliberal economic “reforms” without paying due attention to their consequences for people of ordinary means. At base, the problem with the Fischer/IMF approach to political economy is that, as with ideologies generally, they are teleological in nature; the assumption that history or the “laws of economics” are on your side is a dangerous one, especially to people who aren’t in power, which is to say, almost everyone else.

President Obama would do well to reconsider the wisdom of this particular appointment.

James Carden served as an advisor to the U.S.-Russia Bilateral Presidential Commission at the State Department from 2011-2012.

[May 01, 2013] US experessed doubts that Chubais advisors were CIA operatives

Vzgyad

American experts have doubts that Andrei Shleifer and Jonathan Hay who served as consultants of the Russian government on the privatization in the 1990s, for close circle of advisors to Anatoly Chubais were CIA agents

Experts who worked for Chubais ( current head of RUSNANO), who are now suspected by Russian government to be CIA agents could be Shleifer and Hay, professor of economics and former associate at Harvard University, respectively. That was anonymous source from the Chubais team told RIA Novosti.

According to U.S. media reports, in 1990 Shleifer and Hay worked in Moscow in the Russian assistance program for the transition to a market economy, funded by the U.S. Agency for International Development.

The U.S. Justice Department estimated the damage caused by the activities of Shleifer and Hay to the USA government in the amount of 34 million dollars.

The trial of Shleifer and Hay took place in the mid-2000s in Boston after a three-year investigation - both were charged with abuse of official position for personal gain.

However, as stated to RIA "Novosti" one expert, Janine Wedel, who wrote two books about the role of the Americans in the privatization process in Russia, "in order to make blunders, you do not have to be the CIA agent."

She noted that that she never came across any evidence that two men were linked to U.S. intelligence.

Journalist David Warsh, who covered the history of Shleifer and Hay, and who specializes in economic and finance issues also expressed doubt that the consultants could be linked to the CIA: "Unless Putin has direct evidence, it will be very difficult to convince anyone that these people were working for the CIA, "- he said.

Yesterday during a "straight line" with the Russian President Vladimir Putin said that in the 1990s, CIA personnel was working in the team of the main ideologist of the country's privatization Anatoly Chubais.

"As we recently discovered some advisers working in Chubais team were actually CIA agents. But the most funny thing is that on their return to the United States they had been prosecuted for corruption as they in violation of the USA enriched themselves during Russia's privatization but have no rights to do so as acting intelligence officers ", - Putin said, but did not specify persons involved.

Alexander Aleksandrov, Ekaterinburg:

Chem. Assad weapons - YES ... Chubais CIA connection - NO ... Oh, those US experts.. They probably write and then laugh what was written...

Creepy Gomofob:

This ambivalent statement of Putin about Chubais is a very curious fact. Any high level government official who personally or his team has had such advisors and he does not know that -- is a candidate for an immediate sacking from the office. And when such an opinion was expressed about a person who was at the highest positions in government -- then this is a covert way to cut him any opportunity to return.

And other statements were also very curious - for example an ambivalent position about GDP How long Putin can walk on this tightrope remains to be seen.

Michael Stekolschikov:

Putin would not say this, if he had no facts. Let them refute his statement in court. And with whom Putin can work? The independence of the Russian Federation is illusive. There are untouchable people assigned in '91. There are rules of conduct imposed by the neighbors (NATO). As in the saying "NATO, Fyodor, NATO".

[Feb 09, 2013] Did Privatization Increase the Russian Death Rate

Sachs way too late remorse abut his cruel and disastrous shock therapy...
January 15, 2009 | NYTimes.com

robertdfeinman

Sachs has a long history of minimizing the negative side effects of his policy recommendations.

When all else fails, try to refute statistics. It would be useful to see historical trends of trade between Russia and the EU and US over the period compared to similar statistics for the other former Soviet states.

I looked around, but I didn’t find any, perhaps someone who is more of an expert knows where to look.

Wonks Anonymous

Poland got massive aid. The Czech Republic was already among the richest of Eastern European countries and Slovenia had most of Yugoslavia’s capital and a standard of living that was comparable to that of Italy.

Meanwhile privatization in the Soviet Union was handled by Boris Yeltsin, a bumbling alcoholic who hoped to curry favor with the US, which he did not.

But the real meaning of this study is this. Privatization did not create any real wealth or increase efficiency. It just concentrated wealth in the hands of a few Robber Barons and destroyed the social safety net – which in Eastern Europe was linked to the firms.

Which is why the Russians love us so much. I am sure that they have a special place in their hearts for Mr. Sachs.

Maybe he should give a speech in Moscow defending shock therapy?

Arsen Azizyan

I grew up cold and hungry in the former Soviet republic of Armenia during the shock therapy years of the 90′s; my grandfather was one of the 3 million who died prematurely during those days (incorrect medication and power outages did him in).

I would very much like to tie Mr. Jeffrey Sachs to a chair and slowly force-feed him every worthless page of every idiotic policy paper he’s ever written.

I believe that would justly mirror the diet that I had to subsist on for a number of years during my childhood and adolescence.

Reality Based

Sachs knows nothing about health and diet and has not earned the right to dismiss findings of qualified researchers. If he wants to do the research to prove that the disasters in Eastern Europe after the adoption of laissez faire (including the obvious: oligarchy and criminal gangs) were not caused by “unfettered capitalism,” he can do the research. His unsubstantiated denials are not worthy of being quoted.

And, while we are at it, what about the failure of “unfettered capitalism” in this country, which has had higher morbidity and lower life expectancy than the rest of the developed and some of the underdeveloped world. And that was before the “market forces are God” nonsense led to the latest disaster.

Tom Wilde

Jeffrey Sachs was merely the ’90′s propagandistic mouthpiece for this “shock therapy,” whose use is always strictly limited to the poor and defenseless. And he’s certainly no different from any other of the many “free market” court jesters costumed as academics. The corporate court kings told him what to say, he said it in the usual inane and convoluted academy-speak, and he then profited quite handsomely from this same “shock therapy.” Just as some medical doctors seek to prescribe medicine that will raise the value of their stock, Sachs wrote “free market” prescriptions for the masses of the Russian population while knowing he would reap huge profits when his corporate kings forced this population to take this medicine. It’s important to bear in mind, too, that like these doctors, he had no hand in actually making this medicine; his duty was simply to prescribe it widely in his guise as a “professional economist”—when in fact he was a paid corporate shill. Arsen Azizyan’s comment above is no doubt the voice of thousands of others who greatly suffered (or died) from Sach’s “shock therapy” prescriptions.

Alexandre Abbas Rizvi

To Mr Sach’s and his ideological master Milton Friedman’s achievements through shock therapy I would add Chile, Bolivia, and Argentina where suffering of the general populations was similar to the Soviet Union. However, I do not know whether there is any data on the death rates resulting from the shock therapy in South America. I suppose the effect of shock on the general population in the Soviet Union from the social safety net abruptly degrading to a brutal system of dog eat dog was worse than any we can think of.

Bernice Vetsch

The editor of The Progressive Manazine (January 2009) discusses Naomi Klein’s take on how the Shock Doctrine affected Russia when Lawrence Summers was chief economist for the World Bank “when it was foisting structural adjustment policies on developing nations.”

From Klein’s book:

“The momentum for Russian reform must be reinvigorated and intensified,” Summers said after the [Russian] parliament had refused to go along. Shortly after that comment, the International Monetary Fund threatened to withhold a $1.5 billion loan. So Boris Yeltsin dissolved and attacked parliament, abolished the constitution, and bowed to the IMF’s and Summers’s demands” for “privatization, stabilization, and liberalization.”

“Russia’s ‘economic reforms’ can claim credit for the impoverishment of seventy-two million people in only eight years.”

The IMF and World Bank have demanded similar “reforms” from many poor countries needing aid. Poverty and LACK OF UNIVERSAL, TAX-SUPPORTED HEALTH CARE both result in a less healthy population and earlier deaths. I believe the study’s analysis to be accurate.

Lewis Siegelbaum

To argue, as Jeffrey Sachs and Nathaniel Knight do, that the increase in death-rates in post-Soviet Russia began long before privatization does not necessarily invalidate the findings of the British researchers. Were the increases in death rates before privatization of the same magnitude as after the collapse of the USSR? Did they stem from the same reasons cited by the British researchers as responsible for increased death rates in general, viz., a worsening of social services, the weakening of and withdrawal from civic life, etc.? Were there increases in death rates elsewhere in eastern Europe in the 1970s and ’80s?

Seems to me that there is a lot of clinging to ideologically-derived shibboleths here. —

williambanzai7

In today’s NYT Thomas Friedman makes a persuasive argument for a self imposed shock therapy solution to cure the current economic collapse. Unfortunately there are many unpleasant parallels between the situation in the former Soviet Block in the 1990s and America today. Large numbers of workers have been and will continue to be displaced. There is no medical safety net for those who have been laid off. Banks don’t know how to lend and the economic pillars that support the old model no longer apply. It will be extremely difficult for Americans (particularly the middle aged) to adapt to Mr. Friedman’s flat world.

In the 1990s many wondered how the millions of jobless workers in Russia and Central Europe would adapt to capitalism. There were millions of lost souls wandering the streets of Moscow, Katowice, Kiev and East Berlin. The cynics short answer was those who can’t adapt will have to die off. Now it appears such statements rang true.

These studies highlight the challenges that must be addressed by President Obama’s administration. Is America ready for Shock Therapy?

Lancet Authors

As the authors of the Lancet study that has provoked this debate, we regret that some commentators have resorted to personal attacks. We wish to stress that we hold Dr Sachs in high regard, not least for his leadership of the Commission on Macroeconomics and Health, even if we disagree with him on this issue. Similarly, we hope that those who criticise our methods and conclusions will read our paper. Papers published in the Lancet undergo an extremely rigorous peer review process so perhaps those commentators who believe that we have got it wrong will help us by identifying specific criticisms, rather than issuing blanket condemnations. Specifically, we find the suggestion that we are unaware that correlation does not equate to causation patronizing in the extreme. Turning to the proposed explanations of the post-Soviet mortality crisis, we fear that some commentators fail to understand that death rates in a population reflect factors acting at many levels. In the present study we have focused on underlying social and economic factors, showing that while unemployment is clearly a factor linking privatization and mortality, it does not explain all of the association. However, our present study builds on a substantial body of previous research (including over 70 papers published by one of us, in association with colleagues from the former Soviet Union) looking at the immediate factors in the fluctuating mortality post transition as well as the long term problems dating from the 1960s. These show how alcohol, in particular, plays a major role in the former (we might take this opportunity to clarify that the poor diet in this region is indeed a factor in the high overall mortality but not in the fluctuations). We welcome the interest in this region that our study has stimulated but we hope that, in the longer term, it will encourage more people to gain a deeper understanding of what happened in the early 1990s rather than use a superficial reading of our findings to fight other battles.

Alex

I can relate and so can everyone in my Russian/Ukrainian community to Arsen Azizyan comment above.

I wonder if these researchers, professors, economists would write the same papers if they actually had lived there, seen it, experienced it on their own hides. In my country we call these types of papers “заказуха” or “zakazuha” meaning that someone placed an “order” for facts or theory and the order was delivered. There are many for hire in the academia.

Thank you Dr.’s thank you for making us understand why so many of our people suffered, died, and are still suffering the consequences of your theories.

[Feb 09, 2013] Jeffrey Sachs's lifepath

Russia

HIID eventually collapsed in scandal, when it was revealed that the principals of its Russian project, Andrei Shleifer and Jonathan Hay, along with their wives (who happened to be mutual fund managers), had been buying Russian stocks and dickering for the privilege of getting the country's first mutual fund license, while dispensing advice to the Russian government. (Shleifer was one of the trinity of so-called Harvard Wunderkinder who were to Russia what the Chicago Boys were to Pinochet's Chile; the other two were Lawrence Summers - and Sachs.) The U.S. government sued, and Harvard shuttered the institute. Sachs, who was not involved in the scandal, decamped to Columbia (it's said there was no going-away party from his Harvard colleagues). At Columbia, he was appointed to head its new Earth Institute, an interdisciplinary enterprise that would bring together physical, health, and social scientists to promote sustainable economic development.

Sachs admits to no responsibility for the Russian catastrophe. When I interviewed him in November 2002, I asked him to comment on the (incontrovertible) fact that he's viewed by scores of millions of Russians, as one journalist has put it, as either an emissary of Satan or of the CIA. He answered that he found this question "disgusting," "perverse," and like nothing he's ever been asked before. The global elite leads a very insulated life.

Regrouping, to dissuade him from hanging up, I asked how he justified the tearing apart of the USSR and forcing the country headlong into capitalism when there was little popular support for such a strategy. He responded, illogically, by saying he "wanted to support...the democratization of the Soviet Union." He sung the praises of "transparency and honesty in government," even though the Yeltsin regime he was advising was opaque and corrupt. Asked to comment on published reports that he supported creating an inflation, so as to wipe out the savings of Russians (part of the shock therapists' attempts to start post-Soviet Russia with a clean slate), he bristled further, denouncing the quote as "phony," the question as "indecent," and the interview itself as not being in "good faith."

In his academic work, however, Sachs argued that since China was only very lightly industrialized, it could afford to take its transition slowly. Russia, however, was burdened with the bad inheritance of Soviet industry, which was hopeless and had to go.

Yet...

...His father, who died in 2001, was a long-time Detroit labor lawyer and general counsel to the Michigan AFL-CIO. That puts his passion to destroy worker power in eastern Europe in an interesting Oedipal light - and might even explain some of the contradictions of Sachs's politics. But that would be speculative psychoanalysis of a suspect sort, so enough of that.

Harvard's 'Best and Brightest' Aided Russia's Economic Ruin By Sam Husseini and Janine R. Wedel

January/February 2000 | FAIR

Harvard's 'Best and Brightest' Aided Russia's Economic Ruin Institute that advised 'reform' fed corruption

A 1992 front-page story in the Boston Globe (9/22/92), "Red Square Turns to Crimson," announced proudly that Harvard experts were advising Russia in its conversion to capitalism. "Privatization stands as the centerpiece of Russia's economic-reform program," wrote the Globe. It was an equation the "best and brightest" from Harvard would drum home again and again to the media: privatization equals reform. The piece quoted the head of the Harvard Russia project, Andrei Shleifer: "Once you work with Russians for two weeks, you become a free-market enthusiast."

As more becomes known about the laundering of Russian money in Western banks, many in the United States will likely try to hide behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that country's sorry conditions--with the Harvard Institute for International Development's Russia project (HIID) playing a major role.

Among those under investigation for criminal activity in both the west and Russia is longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia's economic "reforms." In the mid-'90s, Chubais and his clique of political and financial power brokers, known as the "Chubais Clan," were the darlings of the U.S. Treasury and international financial institutions--and of the U.S. establishment press.

HIID, together with the Chubais "dream team," as the Treasury Department's Lawrence H. Summers called it, presided over Russia's economic "reforms," many of them U.S.-funded, including privatization. But the so-called reforms were more about wealth confiscation than wealth creation. Privatization, which had substantial input from U.S.-paid Harvard advisers, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption and funneling of monies to Western banks.

Chubais was briefly on the HIID payroll, and he is currently head of Russia's electricity monopoly. In 1995, the Economist magazine (4/8/95) projected that Chubais would be president of Russia by 2010. But by 1998, the New York Times (3/24/98) conceded that he "may be the most despised man in Russia" since "his early efforts at privatization were widely viewed as vast federal gifts to inside operators at the expense of millions of workers who got nothing but promises they cannot redeem."

HIID was in the unique position of recommending U.S. aid polices in support of market reforms while being a chief recipient of the aid--as well as overseeing other aid contractors, some of whom were HIID's competitors. HIID, Chubais and their associates played a major role in promoting themselves and the "reforms" in the Western media; for example in a 1993 Washington Post piece (5/7/93), Shleifer complained that the Clinton administration was allowing privatization efforts to "fall through the cracks."

A New York Times "Economic Scene" column (4/20/95) led thus:

Is Russia poised for economic takeoff? After three years of on-again, off-again reforms and with the Pyrrhic military victory in Chechnya still fresh in the news, skepticism comes easily. But little by little, wary analysts are abandoning their caution. "Russia is a real market economy now," says Andrei Shleifer, an economist at Harvard who has advised the Russian government on privatization.

Some of those associated with HIID allegedly profited directly from it. HIID helped established Russia's Federal Commission on Securities, roughly the equivalent of the SEC in the U.S. It was officially established by Yeltsin proclamation, and funded by the U.S. government through institutions run by those around the Harvard-Chubais coterie. The first mutual fund licensed by the Commission was headed by Elizabeth Hebert, who was the girlfriend of Jonathan Hay, Harvard's manager and point man in Moscow.

Harvard appears to have benefited from HIID's Russia connection. Harvard Management Company, the university's endowment fund, was allowed to participate in choice auctions of Russian government property, despite the fact that foreign investors were supposed to be excluded under auction rules.

In 1996, the GAO found that U.S. oversight over Harvard was "lax," and, following allegations in 1997 that Shleifer and the other Harvard principals used their positions and inside knowledge as advisers to profit from investments in Russia, the U.S. government canceled the last $14 million earmarked for Harvard. Shleifer, now under investigation by the Justice Department, was dismissed by HIID. (Still, Shleifer, who is a protégé of Treasury Secretary Summers, received the Clark Award from the American Economic Association this year, an award that Summers, who has been the architect of economic policy toward Russia, received in 1993. The association's president-elect, Dale Jorgenson, said Shleifer's scandal "was not even mentioned" in their considerations--New York Times, 4/26/99.)

In Privatizing Russia, co-authored by Shleifer with Chubais associate Maxim Boycko, they acknowledge that "aid can change the political equilibrium -- by explicitly helping free-market reformers to defeat their opponents." Richard Morningstar, U.S. aid coordinator for the former Soviet Union, concurred (Collision and Collusion, Wedel):

If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais.

Leonid Krutakov, Russian investigative reporter for the publication Moskovsky Komsolets, noted that throughout the Yeltsin years, "both the foreign and domestic press created a central deception--a false set of 'alternatives.' The idea was pushed on both sides of that Atlantic that if you didn't support Chubais, you were supporting the Communists." Krutakov, who has broken many of the scandal stories, noted (eXile, 10/23/99):

Obviously it's difficult to come into a country blind and just evaluate the situation instantly. You draw your conclusions from people you meet. Western reporters came in and talked to Chubais, and Chubais tossed words around like "market," "profit," "openness"--all the right words. And this was the only view point of view they heard that made sense, as far as they knew.

[Sep 08, 2012] A "Complete Straw Man Mischaracterization of Keynesian Views"

I'm getting tired of Jeff Sachs acting like he is the only one telling the truth about the economy, the problems are all structural we are told despite considerable evidence to the contrary, and -- surprise!!! -- his "truthtelling" somehow leads him to advocate the same pet projects he's been pushing for years.

El Cid said...

Hey, Sachs knew EXACTLY what to do for Russia as it transitioned from the Soviet Union! He and the Harvard Institute for International Development got everything there PERFECTLY correct, no? And Russia's economy was, like, super-smooth after that! So this guy clearly knows.

Goldilocksisableachblonde said...

I could handle Sachs a lot better if he had come forth with a sincere mea culpa for the significant role he played in spreading neoliberal supply-side pathologies around the globe. It's commendable if he's now trying to help undo some of that damage , but without the confession , he remains a sinner , one entirely lacking in credibility. He's not the only one , however. This page is littered with the names of his co-conspirators , if to lesser degrees. How hard would it be to say : " I was mistaken , badly. I'm sorry. Here's where I went wrong......" ? It would help to legitimize the debate , a lot.

Joe Smith said...

Is that the same Jeffrey Sachs who told the Russians to hand their economy over to organized crime?

Leroy Dumonde said...

I'm mystified as to why anyone is still listening to the man. He many years ago made utterly obvious that he is nothing but a shameless self promoter. Like Bono...

[Jun 04, 2012] total_truth_sciences Google Groups

"The few who understand the system, will either be so interested from it's profits or so dependent on it's favors, that there will be no opposition from that class." -- Mayer Amschel Bauer Rothschild
The modern power elites thrive by forgetting any regrettable past. This amnesia is easy at Harvard, where the legal fiduciaries operate in secret and need not answer for their acts. They are the antipodes of the selfless institutional servants who built Harvard and other great American enterprises, and they bear close watching. (Harry R. Lewis Larry Summers, Robert Rubin Will The Harvard Shadow Elite Bankrupt The University And The Country)

Perhaps their worst crimes have been committed against their students who are indoctrinated rather than taught. In the middle of the 19th century, Mayer Amschel Bauer Rothschild prophetically said "The few who understand the system, will either be so interested from it's profits or so dependent on it's favors, that there will be no opposition from that class."

[May 19, 2012] Anders Aslund Undergoes Emergency Petulance Bypass Expected to Recover Fully, Says Doctor

Aslund is a pretty petty neocon functionary. But that fact that he managed to keep himself afloat while being completely ignorant about Russia tells us something about profitability of this kind of prostitution. Here I am not taking about shock therapy which he advocated. Let's assume that shock therapy was a special operation to weaken already weakened Russian state converting is with the help of shock therapy into neo Latin America state with huge unreality child labor, prostitution, etc). Everything about him should be qualified with the work "limited". The only unlimited are his own ambitions and self-respect. Recently he try to sell himself as a political commentator. While the field is new the level of ignorance is the same.
May 19, 2012 | The Kremlin Stooge

Doctor Nils:

As my former prof. of Russian economy once said: Aslund is like the Bard in Asterix and Obelix, he thinks he is great and talented whilst everybody else thinks he is an idiot.

marknesop:

Hey, Nils – long time no see!! Ahhh… if only that were true. Not so much about Aslund being an idiot, with which I agree, but that everybody thinks so. Unfortunately, he still has a lot of eager listeners in the incestuous Washington think-tank loop who think he’s a great as he himself thinks he is. And based on the perception that economics is a mercurial thing that never stays still for long, he sees no conflict in, for example, slamming Tymoshenko in 2006 for her “dalliance with wholesale privatization” – which he assessed decimated investment and growth – and spanking her again a year later because her reluctance to privatize the biggest enterprises, instead keeping them under state control, smacked to him of “state socialism“.

Basically, unless you follow the economic course prescribed for you by Anders Aslund, Anders Aslund writes that you are a fool. If you do follow his direction and your whole economic policy collapses, he writes that it was a success. When he thinks the heat has died down enough that nobody will remember whose idea it was, he writes that it was a failure, but only because you did it wrong; the concept was sound. That he is able to bamboozle so m any political figures is testament to their fondness for hearing what pleases them rather than the way things are.

He’s lucky the present figures are in charge of the Russian government and not me, or he’d be the next one to find out at the airport that he was persona non grata in Russia.

Kievite:
he thinks he is great and talented whilst everybody else thinks he is an idiot.

I would respectfully disagree. I think that as a neoclassical economist he is closer to Mafiosi then to the idiot although those two notions are not completely mutually-excluding. My take of this sleazy figure is that he specialize in getting some scraps from the table of financial oligarchy. That does not mean that he is completely stupid. He is trying to write what they want to hear and as such he is concerned with earning a good living, not with the search for truth and other high academic goals. So instead of branding him an idiot I would respectfully suggest to brand him as completely amoral criminal or semi-criminal figure. Economic hired gun to be exact. I suspect that he understands perfectly well what he is doing, but money does not smell…

I would be interesting to compare his with Andrei Shleifer a much brighter guy, protégé of Summers. They both share what can be called a classic variant of “academic extortion”: betrayal of trust and academic principles. Typical for all members of neoclassical economics sect. While both guy were/are just a pawns in a big game (and in Russia puppets of Summers), the issues of criminality of neoconservative economists (and some universities economics department ;-) and relevance of RICO statute against such offenses is a much bigger issue.

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of “racketeering activity.” RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

The rent seeking behaviors of those individuals resembles mafia 100% as a typical Mafioso family is a criminal (and highly profitable) enterprise in which is an ethnic core (Jewish in case of neoconservative economists) and a hierarchy, with higher-ranking members making decisions that trickle down to the other members of the family. And the key mafia policies are always about oppression, self-enrichment, power and hegemony above and against all others, and especially weaker parties.

From purely theoretical standpoint neocon policies (that our “hero” advocates) failed by-and-large because they failed to recognize that the conditions in Post-WWII America (America in 60th), that they assumed to be natural, were a direct result of government interventions, strong government regulation of corporations, high taxes, heavily subsidized education (including college education), and massive government investment in infrastructure and scientific research (with trickle-down to private sector).

Neoclassic economics stooges advocated about aggressively dismantling these interventions at the request of financial oligarchy and eventually succeeded. After that the system collapsed back into its natural state — Robber barons capitalism. That’s what we have today.

kirill:

On the subject of Aslund during the 1990s. It is quite interesting that Yeltsin’s regime could not reform the the tax system and criminal code for the whole duration of his presidency. The ridiculous tax system facilitated the growth of the mafia because companies were taxed on gross revenue and not net revenue. So in order to survive they had to cheat and were instantly exposed to extortion. Why did all the shock therapy witchdoctors fail to have the regime change the tax code: you would think that this is one of the first targets for reform.

At the same time Yeltsin was sending Russians to serve hard time for stealing a loaf of bread because they were hungry. The current liberast swine would have you believe that the 1990s were some heady days of democracy and not the crude tyranny they actually were. It was “fascist dictator” Putin that oversaw sweeping reforms of the tax code and the legal system. Putin’s legal reforms included the introduction of probation and jury trials. Thanks to him, about 200,000 Russians were released from prison. Again, none of the liberasts cares to acknowledge this fact and the only metric of freedom in Russia is whether or not gangster oligarch Khodorkovsky is behind bars.

Misha:

These points serve to note that non-Russians like Aslund and Sachs aren’t the only ones to be faulted for what happened in the 1990s.

There’s plenty of blame to go around. Hind sight is a great thing – although at times, some existing fault-lines aren’t always so difficult to immediately identify and follow-up on.

kievite:

Misha,

Sachs and Aslund were enablers of the most destructive forces that the Russian revolution pushed to the surface. This is the general role that Harvard mafia played with its “shock therapy”. So he can be credited as an architect of the gangster capitalism in Russia in late 90th. If you take into account this simple fact, then any his critique of Putin or modern Russia in general raises only one question: why this genius is not in jail along with Sachs, Shleifer and other members of Harvard mafia.

Also referring to your earlier comment there is a big difference between “political economist” and propagandist (or “propagandon”, as they more correctly call it now in Russia . IMHO Aslund is nowhere close to being political economist…

Here is a funny quote from our another hero McFaul:

The central paradox about contemporary Russia is why capitalism has taken root, but democracy has not. Anders Aslund provides a crisp, comprehensive, and compelling answer. Russia s Capitalist Revolution will become a classic overnight, the standard by which all future books on the last two decades of Soviet and Russian history will be judged.

–MICHAEL McFAUL, director, Center on Democracy, Development, and Rule of Law, Stanford University

Yeltsin and the Rape of Russia

Lounge Chicken

The excerpt below summarizes the most fundamental truth about Russia today that informs anything else we might know about the country and how it arrived in 2007. The sums handed over to “the oligarchs” defy comprehension. Cold Wars, Hot Wars, Wars on Terror be damned….that place is run on pure greed and brutality with far less attempts to conceal it than in our own greedy brutal backyard. Bicyclemark is keeping his CitiJo eye on Russia here, and if interested in more here is gripping 1999 congressional testimony from Anne Williamson, author of Contagion: The Betrayal of Liberty, Russia, and the United States in the 1990s, outlining the brutal details.

Or just read the rest of Matt Taibbi’s “Death of a Drunk” from Rolling Stone. A fitting obit for the drunken thug, including a hilarious Cheers/Norm reference you don’t want to miss. The audacity of spinning this shitbag to follow the familiar tone of the generally ridiculous “Great Man Theory” is eclipsed only by its success. Thankfully, Mr. Taibbi and Rolling Stone had the balls to go non-fiction:

What we were calling “reform” was just a thinly-veiled mass robbery that Yeltsin perpetrated with American help. The great delusion about Yeltsin was that he was a kind of democrat and an opponent of communism. He was not. He was, like all politicians who grew up in that system, an opportunist. He read the writing on the wall and he threw his weight behind a “revolution” that turned out to be a brilliant ploy hatched by a canny group of generals and KGB types to privatize Soviet assets into the hands of the country’s leaders, while simultaneously cutting the state free of its dreary obligations toward the rank-and-file Russian people.

Read the full article here

[Apr 27, 2012] Mass privatization ‘road to bankruptcy and corruption’ Cambridge, Harvard sociologists claim by Brian Kenety

Study slams neoliberal policy of rapid mass privatization, claims proof of ‘direct link’ to its implementation with economic failure and graft
18.04.2012 | Czech Position

The aim was to guarantee a swift — and irreversible — transition to capitalism for the countries formerly behind the Iron Curtain. But rather than ushering in a new era of prosperity, the mass privatization programs advocated by an army of Western-trained neoliberal economists — and backed by local fans such as former Czech finance minister, prime minister, and curent head of state Václav Klaus — helped bankrupt Russia and other former Soviet bloc countries.

So say sociologists from the University of Cambridge and Harvard University who have published a study that they claim is the first to trace a “direct link” between the mass privatization programs of the early 1990s — adopted by approximately half the post-communist countries after the collapse of the Soviet Union — and the “economic failure and corruption that followed.”

Based on their comparisons of the fortunes of 25 post-communist countries (between 1990 and 2000) and World Bank survey data of managers from more than 3,500 firms within 24 of them, the researchers say they have compelling evidence that the more faithfully countries adopted the mass privatization policy advocated by Western economics and international financial institutions, the worse off they became: Mass privatizing states experienced an average dip in GDP per capita of more than 16 percent after implementation above those of states that didn’t follow the policy.

“Mass privatization programs, where implemented, created a massive fiscal shock for post-communist governments, thereby undermining the development of private-sector governance institutions and severely exacerbating the transformational recession,” write Lawrence King and David Stuckler of the University of Cambridge, and Patrick Hamm, a doctoral candidate at Harvard University, in the study, “Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries,” published in the April issue of the American Sociological Review. ‘This paper shows the most radical privatization in history failed the countries it was meant to help.’

The researchers say that their work, which is “directly at odds with neoliberal explanations,” builds on the findings a decade ago of a “small group of scholars who criticized mass privatization for its potential to obstruct governance,” including Gerald A. McDermott of the University of Pennsylvania, but while “consistent with institutionalist corruption-centered perspectives goes beyond them by arguing that mass privatization itself damaged existing state institutions and increased corruption.”

Apart from documenting the past, the study also carries a warning for the modern age: As recently as 2008, Egypt considered implementing a mass privatization program, distributing public company shares to some 40 million Egyptian citizens. Morocco and Tunisia contemplated similar policies following the 2011 Arab Spring and invited the European Bank for Reconstruction and Development (EBRD) to consult on the process.

“Rapid and extensive privatization is being promoted by some economists to resolve the current debt crisis in the West and to achieve reform in Middle Eastern and North African economies,” King said in a press statement, calling for the safeguarding of government revenues and state capacity to be a priority. “This paper shows the most radical privatization in history failed the countries it was meant to help.”

‘Shock therapy’ a bitter pill – and no cure

Among the champions of “shock therapy” prescription for the post-communist world — those calling for rapid mass privatization, liberalization of prices and trade, and fiscal and monetary austerity — was American economist Jeffrey Sachs, who advised a number of post-communists countries on implementing reforms. “The need to accelerate privatization is the paramount economic policy issue facing Eastern Europe,” Sachs wrote in 1992. “If there is no breakthrough in the privatization of large enterprises in the near future, the entire process could be stalled for years to come.”

Neoliberals like Sachs advanced a rationale of political expediency for radical change because “they believed that a period of ‘extraordinary politics’ following the collapse of communism gave elites a brief window of opportunity to implement reforms, after which managers and workers of state-owned enterprises might seek to halt, or even roll back, privatization and liberalization efforts in order to prevent layoffs and other social costs,” King, Stuckler, and Hamm write.

They also believed, of course, that shock therapy was the correct treatment, though a bitter pill to swallow. The EBRD 1999 Transition Report summarizes the consensus of foreign advisors and post-communist elites at the start of the transition:

“Private ownership would ensure profit-oriented corporate governance, while liberalization of trade and prices would set free the competitive market forces that reward profitable activities. Firms would have therefore both internal and external incentives to restructure.”

From the beginning, however, gradualist voices stressed the importance of state-guided institutional reform, arguing that in the absence of a supportive institutional environment, “radical reforms would be damaging: privatization might lead to asset-stripping rather than investment, and rapid reforms might create economic winners who would subsequently engage in predatory behavior,” King, Stuckler, and Hamm note.

Nonetheless, shock policy advocates won the policy debate in most countries. As Lawrence Summers put it in 1994, after stepping down as World Bank chief economist, “Despite economists’ reputation for never being able to agree on anything, there is a striking degree of unanimity in the advice that has been provided to the nations of Eastern Europe and the former Soviet Union. … [P]rivatization, stabilization, and liberalization … must all be completed as soon as possible.”

The Cambridge and Harvard researchers say that as for mass privatization, neoliberal advocates of shock therapy clearly did not expect the fiscal shock to be particularly devastating, for two reasons:

‘To avoid a state fiscal crisis as a result of mass privatization, the enterprise sector would have to grow and be taxed effectively. … mass privatization accomplished precisely the opposite: worse enterprise performance coupled with the state’s declining capacity to tax firms.’

“We argue that a post-socialist country’s choice to rapidly privatize its enterprise holdings immediately reduced that state’s financial capacity, due to high budgetary dependence on the earnings of state-owned firms,” write King, Stuckler, and Hamm, with the result being a vicious cycle of mutual reinforcement between a failing state and a failing economy.

“To avoid a state fiscal crisis as a result of mass privatization, the enterprise sector would have to grow and be taxed effectively. … mass privatization accomplished precisely the opposite: worse enterprise performance coupled with the state’s declining capacity to tax firms.”

Mass privatization, mass delusion

Mass privatization (known as “coupon privatization” in the Czech Republic) was implemented by roughly half the post-communist world. It involved distributing vouchers to ordinary citizens who could redeem them as shares in national enterprises. It was adopted largely by countries that saw foreign investment as unlikely, exclusive insider ownership undesirable, but rejected management and employee buyouts as stand-alone options.

The policy proved to be the most difficult to implement of the “shock therapy” package and also yielded the greatest variance in outcomes, according to the Cambridge and Harvard researchers, who say they policy failed far and wide, for two main reasons:

Furthermore, in most cases, newly mass privatized firms were cut off from state subsidies, but unlike firms privatized to strategic owners, “they did not have access to resources such as investment capital, new managerial talent, or marketing networks … Faced with this situation, owners, managers, and workers, unable to work cooperatively for the betterment of their firms, tended to pursue short-term parasitic strategies to accumulate wealth, such as asset-stripping.”

The Czech ‘outlier’

Between the collapse of the Soviet Union in 1991 and 1996, 14 countries adopted mass privatization programs leading to a combined total over 30,000 medium and large companies privatized through such policies. In Russia, over 15,000 large and medium companies were privatized within just two years. In the Czech Republic — where asset-stripping became so commonplace the country gave the world a new term for it, “tunneling” —over 1,800 were privatized in four years. In the Czech Republic — where asset-stripping became so commonplace the country gave the world a new term for it, “tunneling” — over 1,800 firm were privatized in four years.

King, Stuckler, and Hamm say, however, that the Czech Republic was a statistical “outlier” as it was one of a handful of countries that implemented the policy yet overall enjoyed economic growth and attracted a large amount of foreign direct investment (FDI). But that had more to do with its relatively strong starting point and geographical location, they say — and the relative success was not to last.

“The Czech Republic was the second-richest country in the region, owed little external debt, had a long and celebrated history of industrial production stemming from its time as the economic powerhouse of the Austro-Hungarian Empire, had a readymade pre-communist legal tradition of contract and property rights, and had a privileged location bordering Germany.

“Still, by 1999, the Czech Republic recorded the worst scores in Central and Eastern Europe on protection of property rights, government effectiveness, and rate of growth. Moreover, case-study data demonstrate that companies privatized through vouchers experienced substantial governance problems … and many voucher-privatized firms were renationalized before ultimately being sold to foreign investors.”

Furthermore, the researchers cite McDermott of the University of Pennsylvania as having demonstrated in 2002 that in the Czech Republic mass privatization greatly complicated corporate governance, causing assets to go unutilized because of ambiguous ownership situations that discouraged foreigners from investing. “Well-functioning regulatory and credit rating agencies or an independent business press might have mitigated the violation of shareholder rights, yet these institutions did not exist,” King, Stuckler, and Hamm write.

What went wrong?

Why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others? King, Stuckler, and Hamm say scholars have advanced three main arguments:

  1. successful countries rapidly implemented neoliberal policies;
  2. failures were not due to policies but to poor institutional environments;
  3. and policies were counterproductive because they damaged the state.

“Gradualists and shock therapy advocates both claimed that the facts vindicated their original positions. Shock therapists, however, made one important concession: institutions and other initial conditions mattered more than they had previously acknowledged,” the researchers say.

Or as the famed monetarist and neoliberal economist Milton Friedman put it in 2002 when reflecting on post-communist Russia, “It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use your property as you want to?” ‘Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use your property as you want to?’

Two years earlier, Nobel laureate Joseph Stiglitz had argued in his seminal paper “Whither Reform? Ten Years of the Transition” that prioritizing privatization over establishing a proper institutional framework promoted widespread corruption and asset-stripping, with these tendencies exacerbated by the liberalization of capital accounts, which facilitated transferring money abroad, King, Stuckler, and Hamm note.

The researchers say there is now consensus between gradualists and shock therapy advocates on another key point: some countries — like the Czech Republic — were more predisposed to restructure their economies more effectively and achieve competitiveness in globalized markets because of their particular historical and cultural legacies.

“Despite this concession, shock therapists continued to assert that faster and more extensive reforms lead to better performance. They therefore claimed their initial theories were not in need of fundamental revision. Instead, they argued that variation in performance could be explained by a combination of initial conditions and insufficient implementation of reforms,” the researchers say.

For example John Nellis, a senior manager in the World Bank's Private Sector Development Department, argued in 2008 that countries are “better off after the flawed privatizations they carried out than they would have been had they avoided or delayed divestiture.”

According to the Cambridge and Harvard researchers, however, countries that proceeded more gradually in creating a private sector, such as Poland and Slovenia, are now much closer to the “Western capitalist ideal,” enjoying a relative separation of politics and economics rather than “crony or political capitalism.”

“To be sure, we are not claiming that mass privatization is the only path to post-communist patrimonialism (Bulgaria, for instance, constitutes a clear case of patrimonial capitalism but did not implement a mass privatization program). Yet by contributing to a fiscal crisis and creating severe governance problems, mass privatization certainly provided a fertile ground for activities conducive to patrimonialism (e.g., funneling assets, official corruption, solicitation of kickbacks, and privatizing the means of administration).”

Selected comments
Akita Inu | 18.04.2012 - 18:08 Let me get it straight
So, only now these "researchers" come up with something that every citizen of the victim countries has known for over two decades?

The study blames neoliberals like Sachs but ignores to uncover the link between Sachs & Co. and an economic attack by the West, banks and certain think tanks in particular, on those countries to assure themselves of being "strategic owners" with quick profits and that the countries "go Western capitalist ideals" to provide markets to the West. In the process, common people were forgotten.

Even now, the study talks about theories,methods, frameworks, governance, taxation, assets, etc. But nothing of what should really count - people's lives.

Worse yet, this "lessons learned" study documents certain faults of how everything was done but it fails in several important aspects: (1) it does not acknowledge that, without the attack by the West, the affected countries would have employed some development models resembling the much more successful Chinese model and the outcome would have been totally different and (2) even as a warning to various countries yet to transition from the current regimes, it fails to provide alternatives to those failed "capitalist ideals".

As such, it is useless.

[Feb 5, 2012] Seven things I learned about the transition from communism by Andrei Shleifer

Member of the Harvard gang about his experience of raping the country... Mostly face-saving nonsense. It's really sad that he escaped jail time. Of course he was just a patsy, but that does not remove his responsibility. In any case this article suggests that he learned nothing from the experience and still try to sell old neo-classical just forgetting the scars his criminal privatization left.
5 February 2012 | vox

...Fourth, economists and reformers overstated both their ability to sequence reforms, and the importance of particular tactical choices, e.g., in privatization. In retrospect, many of the theories that animated the discussion of reform – whether institutions should be built first, whether companies should be prepared for privatization r mutual fund privatization is better, whether case by case privatizations might work – look quaint. Reformers nearly everywhere, including in Russia, had a vastly overstated sense of control. Politics and competence frequently intervened and dictated to a large extent most of the tactical choices. Still, most countries, despite different choices, ended up with largely similar outcomes (notable and sad exceptions are Belarus, Uzbekistan, and Turkmenistan). In various forms, all had privatization and macroeconomic stabilization as well as legal and institutional reform to support a market economy. Lesson learned: do not over-plan the move to markets, but, more importantly, do not delay in the hope of having a tidier reform later.

[Oct 10, 2011] Russian Ripoff

"...the financial sector in America basically has become a criminalized sector. My colleague at the University of Missouri, Kansas City, Professor Bill Black, calls it a criminogenic environment. "
Michael Hudson

September 20, 2011

Michael was recently interviewed on the Renegade Economists following his visit to Medvedev’s Global Policy Forum.

Listen here

Transcription

Karl Fitzgerald: Michael Hudson, our old friend here on the Renegade Economists, from the University of Missouri in Kansas City, has just returned from Russia speaking at the Global Policy Forum. Michael, tell us about the GPF.

MH: well that’s organized by President Medvedev more or less as an anti-Davos. Whereas the Davos invites many of the financial people to figure out how to run the West further into debt the subject of this forum was Russian poverty and how to overcome the fact that in the last 20 years the neo-liberal program that promised that Russia and the rest of the soviet republics would get rich has simply driven them all into debt and impoverished them.

KF: And so 30 years on from glasnost there must be quite some sense of concern about where the Russian economy has ended up.

MH: there certainly is. It’s been losing not only capital flight of $25 billion a year to the west but its people have been emigrating and President Putin, now Prime Minister Putin, has said that the demographic effect of just privatizing Russian real estate, and industry and following western advice has lost maybe 30 million Russians from what the normal demographic growth would be to 2050. So the effect of neo-liberal financial policy has been more devastating to Russia than WW2.

KF: 30 million people have gone due to neo-liberal policies?

MH: that’s right. The birth rate has fallen, life spans are shortening, and this is throughout the former Soviet Union. People of working age are emigrating. Instead of getting rid of the old Stalinist bureaucracy the neo-liberals simply privatized it and the result of course is corruption. Now public officials that used to be in charge of handing out public policies and administering them -- not very efficiently its true – simply say give us a bribe or we won’t work.

In Latvia, for instance, people who go to doctors are expected to pay the doctors under the table in a little white envelope…but most notorious of all is the real estate debt they’ve taken on. What’s unique is that, just imagine, 20 years ago when there was the revolution that turned over power to Yeltsin in Russia and broke up the Soviet Union there wasn’t any debt at all. Families had all been living in their homes without paying rent and getting a free public education, public services were free and employers provided lunch, vacations and pensions, cultural and all of these connections were pulled up. And all of a sudden instead of just turning over the property to the people who lived in the homes and the businesses that used the offices the government said, okay, we are going to put it all up for sale and let the banks, usually the foreign banks, lend you the money, to buy it.

And the result was the biggest real estate bubble in the world in the mid 90’s and this is what started the whole real estate bubble- certainly what catalyzed it in the west because all of a sudden Russians, Latvians, Estonians and other people had to take on a lifetime of debt in order to get the homes that they’d been living in and not be thrown out on the street. So essentially they were told your money or your life – that’s neo- liberalism.

KF: And they’ve turned over from quite a stable society to one based on volatility, and oil price volatility. The after effects of the 2008 meltdown must have shocked a lot of people in the Russian government. What was the talk along those lines – what were people thinking about?

MH: Very little because they’d already in 1991 dismantled their industry. They were told that the way to get rich was to become a raw materials exporter or what the American protectionists and the bible called “hewers of wood and drawers of water”. So Russia simply dismantled its industry. The west said, oh, you’re not competitive and what the Russians didn’t realize is that all of this was very self serving to the west. The West, especially the American planners -- the Harvard boys that went over said, well, we really don’t want is for Russia ever to be a military threat. We’d like to conquer it, to break it up, let’s now just slam them at the end of the cold war.

So without an industrial, manufacturing base there can’t really be much of a military. So the first thing they did was say – get rid of your manufacturing, get rid of your engineering, begin charging for your schooling, close down the schools – you don’t need engineers all you really need to do is make a hole in the ground.

But none of this export revenue from the hole in the ground should really be turned over to the state – we want to make sure that you only tax labor and tax business, but don’t tax natural resources – let it all be privatized. And so Russia thought, gee this sounds like a funny way to get rich but that’s what they did. And so they followed the Harvard advice to give away the oil, the nickel companies, the mineral resources, and that’s how they got the money to begin sending it all to the west. There wasn’t any Russian money to buy these companies because the IMF and World Bank wiped out Russian savers with a hyper inflation by getting rid of all the capital controls and letting the rouble float. So it was just one bad advice after another and now the Russians realize they’ve been taken.

And they’re trying to figure out how on earth do we get out of this mess following the West’s advice. They thought, and the Baltics thought, that they were been told how to develop in the way that the West did. Neo-liberalism is the exact opposite of how Britain and the United States, Germany, Japan, and now China, got rich by progressive taxation, and having public infrastructure provided at much lower cost than privatized infrastructure and a resource fund tax, basically a land tax which is how Europe and America – states and localities – have been financed all throughout their history.

KF: So what was the sentiment at this GPF? Was there much discussion along those lines or are they tinkering at the edges with Tobin taxes and the like?

MH: Mostly tinkering at the edges. For instance Paul Krugman was invited and most of the focus was on the US and western financial meltdown. And he pointed out that while the problem of the post 2008 bubble was caused by private sector banking -the financial bubble – the solution is focusing on fiscal policy and particularly cutbacks in social security, Medicare and social spending and so the government’s response to the crisis that the banks have caused is to reduce living standards for labor all the more by taxing labor. There was no discussion by the Americans or by anybody that there was another fiscal policy that would have prevented the bubble in the first place, namely taxing the land and taxing real estate, and having a resource rent tax that wouldn’t have left all of this free lunch income available to be pledged to the banks and paid out as interest.

KF: I just can’t understand this austerity mentality that’s going on. Have Western economies lost the understanding of the multiplier effect? Can you explain to us what the multiplier effect is and why it’s no longer relevant under today’s neo liberal agenda?

MH: The basic idea is that if there is a decline in purchasing power – what we’re in right now in the West is debt deflation – people have to pay so much more money every month to pay their mortgage debt, their bank debt, their education loans and other bank loans, that they don’t have enough money to spend on goods and services. Now without spending on what labor produces – the goods and services – the businesses are not going to employ more labor to produce goods and services and they’re not going to invest in capital.

So the idea is if there’s a shortfall in the demand for goods and services the government should step in and run a budget deficit to rebuild the infrastructure because that’s what governments have always provided – roads and everything – in order to keep the economy solvent. But the bankers and the neo-liberals don’t want this.

When you have a poverty imposed on a country decade after decade, somebody is benefiting from all this and people are saying isn’t it too bad that economies are getting poor. Well it’s not too bad at all if you’re a banker because now these countries like Greece and Ireland are broke and now the bankers get to go to them and say, well, you have to finance your government spending not by government running a deficit – but sell us your real estate, sell us your mines.

So the bankers of the European central bank have gone to Greece and said in order for us not to plunge you into anarchy and just destroy your banking system you have to sell us your prime tourist land, ports, water and sewer systems so we can begin to charge people for water and sewers – you have to sell us your roads so that we can put up toll booths, but most of all give us your land, give us the Parthenon and if you don’t we will wreck your economy.

So what most people think is a policy mistake isn’t a mistake at all by the bankers. This is where they say foreclosure time has arrived and we’re going to get rich. This is where we put on the squeeze and the effect of finance under these conditions is very much like a military invasion but it’s a military attack without anybody losing their life except for the people who commit suicide, who die early and emigrate for the whole thing. So people don’t realize that the poverty for the many and the austerity is how the wealthy 1% of the population gets to clean up.

KF: surely though in Russia they’ve seen these huge property bubbles in Moscow, they’ve seen the oligarchs fly around the world buying up soccer teams all over the place and on the other side they’ve got their lead ice hockey team die in a plane crash and the average person on the street is not even surprised that planes fall out of the sky like anybody’s business over there. So how much can the people in Russia handle before they get really serious about looking at deep seated economic reform?

MH: nobody knows. There are the oligarchs and while Russia is known for the fact that much of the population is in poverty the fact is that they’ve created an awful lot of billionaires, almost more than anywhere else by giving them all of the land, resources, oil and the gas. So all the billionaires do what they do in other countries. They pretty much control the government and they’ve convinced the government to stop providing schooling and to close down many of the schools, especially in engineering, and they control the media so people really aren’t discussing the kind of thing that we’re discussing here.

That came out pretty clearly. The head of the economics section of the Academy of Sciences did ask me to write up most of these ideas to put them into discussion but the discussion has been almost entirely censored by the neo-liberal advisers who they brought over, ever since Jeffrey Sachs and the Harvard boys all came over and said don’t follow any advice but ours – there was a choice and they don’t realize in Russia that there was a choice.

For instance in 1991 my friend Ted Gwartney went over to St Petersburg in Moscow and offered to make a land map for them and said, look, if you make a land map and the price of real estate goes up, if the rental value of these homes goes up this should be your tax base and you’ll have the money to continue to spend on infrastructure – you won’t have to tax your labor and you can make your industry into a world competitive force.

Well he was told by the World Bank that’s not our plan. Our plan is to have a flat tax – to tax labor, not to tax land and resources because we want the West to buy up these resources. We want to buy it all and we don’t want to be taxed. We want the Russians to pay the tax and then we want all of their skilled labor to go to the West and that will cripple them. Russia’s poverty is the West’s benefit in this case and the result was that Russia became the world’s leading stock market from 1994 to 1997 and made enormous fortunes for Wall Street speculators while essentially emptying out Russian capital, labor, industry and the same thing happened in the Baltics.

KF: and now we have David Cameron in Russia spruiking up the support for Russia to join the WTO.

MH: I can’t understand that. Nobody discussed that in policy. We just talked about how Russia could overcome the poverty that it’s in and what they could do.

KF: so it’s interesting what’s happening on the world trade frontier we’re seeing this new age of protectionism becoming more and more prevalent with currency devaluation and recently the Swiss franc had a cap placed on it. Of course the Chinese Reminibi has always been undervalued there to assist their exports. What you are seeing now that America has all sorts of public-private contracts written in where there’s local procurement policies in place where you to buy a certain amount of steel from a local manufacturer for example.

MF: that’s been the case for the last 100 years. America has always been the most protectionist country in the world. This is where the theory of protectionism was really refined in the second half of the 19th century and when the WTO and international trade agreements – the GATT- were being formed after WW2 the US grandfathered in its protectionism. It said we’re going to have free trade except for countries that already have agricultural price supports and other subsidies – they get to continue what they’re doing and so America has always been the most protectionist country in the world and that’s what I wrote about in (my books) “Global Fracture” and “Super Imperialism”.

KF: Well so many countries are looking to protect their own backyard because of the short electoral cycle, because of the failure of these neo-liberal policies to deliver the so called wealth bonus for everyone and now the story keeps growing – let’s blame the banks for it was all to do with their corrupt lendings. Well I was very interested the other week to see the FHFA lawsuits against 17 banks in America been launched, and it was stated that Goldman Sachs were employing property valuers or appraisers who would overstate the value of the land that they were lending against and I was just wondering – you say you worked with a few land valuers, Ted Gwartney you mentioned – how they have been incorporated into this giant bubble ponzi scheme we are stuck within?

MH: the financial sector in America basically has become a criminalized sector. My colleague at the University of Missouri, Kansas City, Professor Bill Black, calls it a crimino-genic environment. He was one of the heads of the Federal Savings and Loans Bank board back in the 1980’s when the Savings and Loans were going bust on crooked loans to real estate and he points out at that time 2000 executives were sent to jail for financial fraud. In this bubble nobody has been sent to jail not even the big perpetrators such as Angelo Mizzello of Countrywide and the reason is that the banks bought immunity from politics by backing politicians who agreed not to regulate – not to do anything about the financial fraud that the FBI itself warned about. Basically you’re going to have criminals going to where all the money is – you know – where the wealth is.

The economy’s richest sector isn’t industry – it’s actually real estate – and the largest element of real estate is land. So most of the criminals all said here’s where all the money is, here’s where we can get rich in real estate lending. So in America they had no documentation loans so in other words the banks said we have got to begin … here’s this huge market and we make money making loans – let’s fuel a real estate bubble. They fueled it by easier and easier loan terms.

In the past in America a local bank would make a loan to somebody they knew – families that put 30% down and they would pay off with their income and the bank would use this income to pay part of it out as interest to depositors. Well in the last 15 to 20 years banks have begun to package them and sell them to other people. So the crookedness and the fraud took place in having mortgages way above the property value at a very high interest rate and then selling them to pension funds, to German banks, and to foreigners and essentially selling them property for much more than it was actually worth.

For instance the FBI found that 80% of the mortgage loans in these packages were fraudulent and in the worst of the liar’s loans – the AAA rated packages- the average actual price of the property in America happened to be the same value as in Ireland – 22 cents on the dollar. In other words 4/5 of these loans were just way beyond the value. Well that’s why all of a sudden, now that the banks are no longer fueling property by credit – and they’ve withdrawn their loans – that’s why property prices have fallen by about 30% in America and you walk down the street and there are “For Sale” signs everywhere and there are empty shops in the big shopping streets.

KF: so I just want to get this straight. Are you saying that it’s the packaging up of mortgages and on-selling them in these exploding interest type mortgages was that what caused the great recession that we are in now in or was there a deeper part?

MH: well the deeper cause is the fact there was a real estate bubble to begin with and the reason people wanted to take out mortgages now was that they thought that we had better buy a home now before the price rises even further and they didn’t realize that the reason prices were rising were because the banks were making easier and easier credit. They thought that homes were worth what the rental value was or what people could afford to pay when actually what a home is worth is whatever a bank is going to lend against it. So if somebody goes out to buy a home they’re bidding against other people for the same house and the winner is the person who can get the biggest bank loan and that’s the person who says I’m going to pledge all the rental value to the bank so the bank gets all the rent as if it were the landlord.

So three years ago, for the first time in American history, the average home equity relative to bank loan fell below 50%. And now, just 3 years later, for the USA as a whole, homeowners own only 1/3 of their home, 2/3 are owned by the banks and that it is despite the fact that about 20% of homes are owned without any mortgage at all- free and clear.

It’s basically a financial bubble that is based on what the banks can squeeze out of people who are trying to buy houses on credit and the price of credit – the debt service – absorbs all of the rental value. So in the past people used to criticize landlords for squeezing workers living standards but now that you’ve democratized land ownership it’s the banks that are doing the squeezing. But obviously there has to be the rental value there and in America about 40% of a blue collar worker’s income goes to pay for housing. Now that’s an enormous percentage. You don’t have a bank bubble in Germany so that there you only have 20% of income going to pay labor. So you talked about protectionism and trade earlier and people think, gee. German labor must be highly productive so that it can afford to undersell everyone else although the reality is that German labor doesn’t have to pay as much of a mortgage as American labor so of course Germany can undersell Americans using the same technology.

KF: what I’m trying to get at though is because the tax system penalizes us for working and rewards speculation in property, surely, that has given the big heads up to the powers that be to invest in real estate, to speculate, in that area and that’s what has forced the land prices up so high that its forced all these people to become sub-prime mortgagees – you know they wouldn’t have had that home credit stress if the price of land was lower due to the tax system but you’re saying, listen, that its only due to what the banks can lend. Isn’t that secondary?

MH: now wait a minute – there’s a connection between the two. By not taxing land the government has left all of this rental value free to be pledged to the banks. People think that land tax actually increases the overall burden of homeowners and workers but its just the opposite. If this rental value that’s been pledged to the banks as mortgage interest were taxed then the banks wouldn’t be able to capitalize the rent into a large mortgage loan. Housing prices would be much lower if we had the old fashion land tax like we used to have and also by taxing the land you wouldn’t have to have all of these heavy taxes that are put on labor. For instance in Latvia in 2 weeks they’re having a national election. In Latvia there’s a set of flat taxes on employment that add up to 59% of the wage budget and there’s only a 1% tax on the value of property. So here you have money going into real estate which is untaxed – people will borrow against it – and instead of the government getting this rental value which is created by nature and by the community building roads and infrastructure the banks get it and the government has turn to somewhere else to tax – namely on to employment.

KF: I’m pleased you clarified that Michael because a lot of people blame the 70’s recession and stagflation period on the oil bubble but few remember there was a monstrous land price bubble that happened back then. I’m seeing that this era we’re going through now, we’re going to blame the wrong thing – we’re going to say listen it was the banks and all of their dodgy lending strategies that caused this whereas really to look right at the root cause it would be fairer to say, look, it’s the land problem and we’ve got to tax the right things.

MH: the banks lending strategies are part and parcel of fiscal policy. Financial reform and fiscal reform are two sides of the same coin because banks lend against whatever the tax collector doesn’t collect. If you don’t tax a free lunch then it gets pledged to the banks just like when the Russians gave away their oil and gas, the kleptocrats borrowed, mainly from the west, to buy these things, so that the government didn’t get the revenue. There’s a tradeoff between either taxes or interest but one way or another somebody’s going to pay the rental value of the mines, of homes, and of office buildings – of all of these things – so the whole economy is turned from a real estate toll booth into a financial toll booth.
KF: so essentially you’re seeing that the world economy is going to splutter along for another 5 or so years in this recessionary mode with everyone on the edge of our seats worrying about share markets?

MH: it will continue to shrink. Nobody can see how industrial profits can grow if they’re not able to sell. In America 40% of recorded corporate profits are made by the banks. Now when that happens – these are not factories, these are not employment figures – I think the Bank of America said yesterday that it’s firing 30,000 people – the banks are downsizing because the economy is all loaned up – there’s no one else they’re going to make loans to. The economy is shrinking steadily, I think, over the next 5 years, and it will continue to shrink as far as the eye can see until people write down the debts and change the tax policy.

Additional un-published commentary:

KF: Michael Hudson – fantastic to have you on the show. On a finishing note, 1/3 of Australia’s corporate profits just announced this profit reporting season were from the mining sector.

MH: uh ha – well that means that all of these profits could have been taken by the government which used to own all the sub-soil wealth and that means that money that used to be paid in taxes, so that they wouldn’t have to tax employment, instead is been paid out to the financial sector and in fact when I met with the central bankers down in Australia in 2009 they said Australia doesn’t need any industry, it doesn’t even need employment, all it really needs is to make money off the mines’ mineral exports – to make holes in the ground. So I’m not sure what the Australian’s are hoping to get out of all this.

KF: yeah well we’re just a giant quarry, a quarry economy that seems to be what’s happening around the world and quite interesting to see that in Brazil that they’re talking about a 4% royalty on iron ore rates – just 4% – and of course the ‘poor’ miners there are screaming about it. You beat your head against a wall wondering how much easy money these guys have to make before they realize how some of this commonwealth should be paid back to the government.

MH: well that’s what we call wealth addiction. Their demands are infinite and they are willing to sacrifice billions of dollars in the economy just to make 10 or 20 dollars more for themselves. That’s the financial mentality.

KF: Michael I hear you’ve been writing a book. What topics are you covering?

MH: well I’m putting together most of my economic essays and the economic model that has described all of this. I’m explaining that there are two approaches to the economy. One is the sort of neo-liberal free trade approach that’s taught almost censorialy today in the text books and the other is the classical economics approach that made a distinction between earned income and unearned income, between the rentiers getting a free lunch and the industrial economy. And I’ve been publishing this for about 20 years. So I’m putting it all into more or less a history of economic thought and application to today’s bubble economy to explain it all.

KF: fantastic Michael – we’ll keep an eye on michael-hudson.com for more on that.

Reply to “The Harvard Boys Do Russia”

August 3, 1998 | The Nation

Letters SOROS FUNDS RUSSIA

New York City Janine Wedel’s article “The Harvard Boys Do Russia” [June 1] makes several false statements concerning my activities in Russia. For the past decade I have been deeply committed to helping Russia make the transition from a closed to an open society, and the philanthropic organizations I established for that purpose have spent hundreds of millions of dollars toward that end. Beginning in 1994, the funds I advise also became investors in Russia, but they have made only investments that were available to others on equal terms. That remains my self-imposed rule. As for the specific activities mentioned in the article, the funds I advise did participate in Sputnik Funds with Harvard Management Company and others. However, it is the Sputnik Funds that became a significant shareholder in Novolipetsk and Sidanko. The funds I advise are passive investors. Wedel also errs in her characterization of the Sviazinvest auction — Russia’s first genuinely contested public auction for a company undergoing privatization. The funds I advise participated in the syndicate that made the winning bid for Sviazinvest. The syndicate won the auction by offering a higher payment than any other bidder and for no other reason. While I am distressed over the course events have taken since the collapse of the Soviet system, I have nothing to be ashamed of with regard to my own activities. I have derived no special benefits or abused my position as a philanthropist, as the article implies.

George Soros

WEDEL REPLIES Washington, D.C. The facts on these points presented in my article were scrupulously researched by journalist Anne Williamson, as detailed in her forthcoming book, How America Built the New Russian Oligarchy. I do not dispute George Soros’s statement that the investments referred to were made by funds he “advises” and not by him individually. Given the fact that advisers both control and have large financial stakes in the funds they advise, this seems to be a distinction without a difference. With respect to the two issues Soros disputes, the facts are as follows: Soros’s investments via the Sputnik Fund were not equally available to others. Williamson explains that Soros and the Harvard Management Company were the only foreign entities allowed to participate in a program known as “loans for shares,” in contradiction of the program’s own guidelines. She details the transactions through which the Sputnik Fund made Soros’s “passive” investors the beneficiaries, along with Harvard Management, in the auctions of Novolipetsk and Sidanko.

Soros’s characterization of the Sviazinvest auction as one in which competition among bidders was genuine is misleading. The sequence of events was corroborated by Veniamin Sokolov, the elected head of Russia’s Chamber of Accounts (the rough equivalent of the US General Accounting Office), several weeks ago in Washington. Sokolov said that a Cyprus-based company created by Uneximbank (Soros’s Sviazinvest partner) to bid on Sviazinvest had only $10,000 in declared capital and yet managed to find $1.3 billion from an undisclosed source to pay into the Cyprus account shortly before the auction.

Soros has admitted that a week before the Sviazinvest offering he made a personal loan of “several hundred million” (Russia’s former privatization minister has specified $700 million) to the Russian government. But Sokolov said that auditors can find no trace of that loan in government accounts. Since Uneximbank did not disclose the origin of the $1.3 billion as Russian law requires, according to Sokolov, auditors are investigating whether the “loan” was used to fund Uneximbank’s winning bid for Sviazinvest and for another firm. In sum, these deals with which Soros is associated in Russia were not “available to others on equal terms.” Although Soros is to be praised for his well-known philanthropies, the activities detailed here and in my article are also part of the record. Janine R. Wedel

[Sep 25, 2011] On Anatol Lieven's 'Introduction' to his book about Chechnya (JRL, 2263) by Victor Kalashnikov

"Goldman Sachs' fees (GKO-Eurobonds conversion lead manager) will exceed by several times the level usually paid for such duties." As expected, Goldman Sachs did not miss the orgy of looting Russia
Jul 16, 1998 | Johnson's Russia List

...Rulers' motivation is, of course, crucial for commenting on their deeds. Mr. Lieven's sarcasm is well-founded when he writes about persisting habit to deduce policy-making from particular ideologies. Let be Bill Clinton other people's issue. In Russia, Boris Yeltzin is since long, for absolute majority of population, personification of greed, corruption and cruelty of his regime. He is deservedly one of the most despised and hated personalities at the top.

I reckon, regular Russia observers could not have been mislead by 1996 election results. The reading of that campaign was an unequivocal intimidation: 'Vote, or you will lose!' In a broader context, the message was: those, who seized nation's wealth will not give it away, be that at cost of another mass-bloodshed. They had army, and the KGB, and the West at their side - so, the acting of many Russian voters was quite 'pragmatic' - yet another time in Russia's history!

Did some Western observers really miss that key element in the 1996 campaign? Yet, it outlined so clearly both the character of the situation and the combination of forces ready to maintain it by whatever means.

What we have in this country today is, in the first line, a typical class-division, with upper classes enjoying absence of organised unions or parties protecting labour interests (nothing new under the sun - alas!). Here lies, in fact, the major source of instability in Russia. Given criminal, reckless nature of the ruling clique, there are no guarantees against further social deterioration and unrest.

Recent crises in mining areas have showed once again: organised criminality (well-armed and extremely savage) is, at the end, on this government's side. They share basic economic interests as well as common values. They are also very similar in their styles. And they cooperate.

This explains why it so difficult, almost impossible, to set up, say, an effective union somewhere in Kemerovo region. The repression will follow immediately. It will, in fact, preclude any such actions due to well-established FSB- observance.

An ordinary Russian (a miner, a farmer, an oil-worker) is not so simple as not to see who and how have stolen his salary (no parasitism-impregnated 'Who's to blame?' in those places - that's why so few contacts to Moscow intelligentsia). But one is well aware from his daily practice where the hard-defined limits for counter-acting are. Present regime in Russia is based on terror.

I admit, it's all somewhat prosaic and so remote from meditations on 'Russia's fate' and on 'Russian idea'. But this is the local reality without which global relationships wouldn't work either.

Globally, I prefer to see what happened during 80-90-s and what is going to continue from a perspective broader than 'the end of the cold war', and 'the collapse of communism'. The USSR was swept by the wave of market liberalisation which earlier reached most Western countries and China. The expanding financial markets, equipped with all necessary hard- and soft-ware, were in need of new play- grounds. Privatisation, changes in policies and in propaganda followed. Today, all what is reported on Moscow-IMF deals, on 'stabilisation', on tax reforms is being performed within segments of Russian economy - and of Russian life altogether - which happened to get involved into those games. Everything beyond these segments appears for many irrelevant, almost inexistent: it doesn't fit into schemes compatible to IMF balances.

The posture of 'transition' - criticised by Mr. Lieven as by many other authors now - has its origins within international finances as well. An 'other-people's-money' manager has to impose upon his creditor's minds the idea of debtor's proceeding in a 'per aspera ad astra' mode. So that he will

be able to pay back some time in future. The rest of the story should be known to the JRL regular contributors better than to myself.

For those interested in 'financial anatomy' and in what happened at recent IMF-Chubais meetings - please read 'Kommersant-Daily' July 15 report (p. 7). You can learn here, i.a., that:

Now, you could hardly have this system running without certain conditions being kept at Kemerovo and at Vorkuta. The task is twofold: to bring labour cost below zero (while destroying general living conditions), and to neutralise those who disagree. This local-global link is fundamental for most Third-world countries and clearly outweighs in its explanatory value all what is usually said about today's Russia in terms like national character and historical predestination.

The war in Chechnya was evidently the major accelerator towards situation we're now in. It drained Russia's resources till effective bankruptcy broke out last fall.

As to the Chechnya war itself, it was fought not to be won at all. One's always puzzled a bit by reading analysis confined to the martial side of the event. Who cared about winning or losing battles, of maintaining Russia's territorial integrity? Look into faces of Grachev of Soskovetz to realise what I mean. Go deeper into their backgrounds and 'motivations' as far your stomachs will sustain.

Many would recall virtual gold-rush mood in Moscow during that war-time. $millions transaction and deals effected through bombings, advancing/retreating, selling & reselling arms, taking hostages, letting soldiers and civilians (Russian citizens) get killed. The record, well-documented, is plentiful and mostly accessible due to usual compromat- warfare. Chernomyrdin himself admitted publicly that there was a CURRENT COORDINATION between Chechen commanders and Moscow magnates. And - what?

To extract the essence - simply look what happened next. All but nothing! One business was over, others were to get started. No political or personal consequences. No moral assessments. Not a word from Russian priests. Except for 'Soldiers' Mothers' movement, 'motivated' through pain and desperation, no noticeable reaction or repentance whatsoever. No signs of public solidarity as well. That's the real area for reflections and for examination!

I guess, the Chechnya case implies clearly enough what I hold of all US and Jewish 'conspiracies', mentioned, in passing, by Mr.Lieven.

To show transcendent nature of some of Russia's phenomena - the Afghanistan war was, essentially, isomorphic to Chechnya war which followed shortly after.

There also was a business-like agitation and enthusiasm, during the entire decade, at every spot endowed with supply, distribution and promotion. That artificially provoked crisis has brought a relief to wide parts of VPK and to army bureaucracy plagued by the 70-s stagnation, and by arms control in Europe.

The Afghanistan enterprise appeared more than welcomed. Was the war fought for access to Indian ocean? For preaching Marxism-Leninism to Beludshi nomads? All to easy explanations deriving directly from propaganda of that time.

Yet, Afghanistan war may have absorbed part of energies and discontent within nomenklatura (and within younger officers' ranks) which otherwise may have been channelled into a different direction. In this sense, NATO-policy during the 80-s was reasonable. No one knows, what kind of Warsaw-Treaty 'defence initiative' could have otherwise overtaken Central Europe. Supplying those army-groups with mounts of hardware was maybe the most lucrative sort of business mankind ever saw. Accidentally, no international investors had opportunity to join at that time.

Summarising, I only again can praise Mr.Lieven's effort to go beyond usual 'Russian historical instincts' and 'Russians' inherited strivings' patterns. Even if the 'cultural' barrier allegedly dividing East and West so safely acquires then some new breches.

[Sep 25, 2011] The Masque of Democracy: Russia's Liberal Capitalist Revolution and the Collapse of State Power

Some interesting tidbits about Russian compradors
Jul 16, 1998 | Johnson's Russia List

Date: Thu, 16 Jul 1998 From: Anatol Lieven <lieven@iiss.org.uk>

Subject: The Masque of Democracy: Russia's Liberal Capitalist Revolution and the Collapse of State Power.

Dear David - at risk of overloading your list with my outpourings - here is another piece culled from the book which tries to put Russia today in the context of the development of liberal capitalism over the past two centuries in countries with weak states and civil societies. From Anatol Lieven

[This is a condensed version of Chapter 4 of my book, “Chechnya: Tombstoneof Russian Power”, which was published by Yale University Press in May.]

The Masque of Democracy: Russia's Liberal Capitalist Revolution and the Collapse of State Power.

"Ivan Vasilich the Terrible with his valiant retinue is feasting tirelessly near Mother Moscow.
A row of tables glitters with golden jugs; the dissolute oprichniki are sitting at the tables.
From Vespers onwards wines flow onto the Tsar's carpets, from midnight spirited minstrels sing to him;
They sing of the joys of war, of the battles of olden times, of the capture of Kazan and the conquest of Astrakhan.But the voice of former glory does not gladden the Tsar; he bids his cupbearer hand him a mask.
Long live my officers, my oprichniki! And you bards, you nightingales, pluck the strings more loudly!Let each of you, my friends, choose himself a mask; I will lead off the gay dance myself!"
...(From "Prince Mikhail Repnin", by Count Alexey Tolstoy, 1817-75.)

The Russia that went to war in Chechnya in December 1994 was and remains both a weak state and one in the throes of a liberal capitalist revolution - part of the second great wave of such revolutions that the world has seen over the past 200 years. The first wave, in the 19th Century, shattered the old ruling trinity of monarchy, church and nobility (while also co-opting elements of all three), and also destroyed or severely undermined the social and economic forms and traditions of the peasantry and the urban artisanate.

This was the true modernising revolution of the modern era, and it has been repeated in our own time in the active or passive revolutions against Communism: in China since 1979 by a state-led process, and in the former Soviet bloc since 1989 by a mixture of elite-led changes and upsurges from below. However, it is perfectly obvious that the first wave of liberal revolutions had very different results for different countries and cultures, and different regions within the same country. The striking economic success stories usually occurred either where existing social and cultural trends strongly favoured this, or - as in Russia in the 1890s and China in the 1980s - where a strong state threw its power behind reform.

Elsewhere - in much of Italy and Spain, and most of Latin America - liberal economics was to produce only weak, unstable and unbalanced economic growth; while for much or even most of the population it led to increased poverty, disinheritance, social oppression backed by the police, intense social, moral and geographical dislocation, the establishment in power of corrupt and unproductive comprador elites, and severe damage to the environment.

Most of the world in the 1990s after all lives neither under totalitarianism nor under a prosperous Western style capitalist democracy. Most people on this earth live under political systems more akin to the anarchic quasi-feudalism - with political and criminal "clans", including armed retainers, following particular magnates or bosses - incisively described by Vladimir Shlapentokh. However, rather than the Medieval feudalism Shlapentokh uses as a model - which was at its height a formal, recognised system enshrined in law, contract, religion and culture - a closer historical analogy might be the "cacique" system of liberal Spain and much of Latin America in the later 19th and early 20th Centuries - a system admittedly with certain analogies to a kind of "bastard feudalism" . It was a time when Spain's governments never ceased to trumpet their allegiance to constitutionalism, law, and enlightened progress, but in which real power on the ground was held by corrupt local political chieftains (cacique comes from the Caribbean Indian word for a chief), who distributed patronage and government contracts, fixed or "made" elections on behalf of their patrons in Madrid, and occasionally bumped off inconvenient political opponents, critical journalists, trades unionists and so on.

Another key difference between the two traditions, all too applicable to Russia today, was incisively remarked on by Gerald Brenan:

"The defects of the Spanish upper classes are sometimes put down to their having a feudal mentality. I do not think this word has been well chosen.: feudalism implies a sense of mutual obligations that has long been entirely lacking in Spain..."

Such systems can prove remarkably stable and long-lasting, and even generate considerable economic growth. To their better-off inhabitants, and those with some form of "protection", they offer major personal freedoms and opportunities. They also however tend to be characterised by very high levels of organised crime, personal insecurity, atrocious public health, bad public education, rampant bureaucacy and bureaucratic corruption, and vicious exploitation of the poor and the environment. Their states are generally far too weak and corrupt to enforce the law, raise taxes efficiently and fairly, and protect the weaker sections of society. In extreme cases, like Columbia and to an increasing extent Mexico in the 1990s, the state itself may be largely taken over by criminal forces.

As will be apparent however from the succeeding chapters - as indeed is blindingly apparent from the evidence - the nature of the new order rules out any serious mobilisation of this wealth, via revenue, for the armed forces or indeed any other major state tasks. The Soviet Union used to be cited by political scientists as an extreme version of the "strong state", contrasted to "weak states" like India for example. This was always partly illusory, but at least the illusion could be maintained, though only by ultimately crippling military spending. Today, the privatisation - indeed, the virtual hollowing-out - of Russian state structures by the new elites, combined with a collapse of the ideology of patriotsm and state service, has left Russia as a classically weak state, unable even to raise enough revenue to pay her soldiers, or enough patriotism to motivate them to fight without pay.

While in recent decades some of these countries have escaped from these syndromes, a good many others have remained to a considerable extent stuck in them. Even periods of "miraculous" economic growth, as in Mexico, have not been enough to raise the bulk of society to a high, stable, and secure economic plane - if only because of the way that economic distribution was skewed.

The truth of this for the modern world was brought out in a sober and perspective series in the Washington Post over the New Year 1996/97, entitled "For Richer, For Poorer". With regard to Mexico - a country which in recent years has carried out a full programme of economic reforms, and attracted vastly more foreign investment than Russia - Molly Moore wrote that,

"Now, Mexico stands as a prime case study for critics who argue that globalisation...is proving not to be a reliable mechanism for raising the Third World out of poverty...

"Billions of dollars of capital flowed into Mexico during the past 10 years...But Mexico, like many of its Latin American neighbours, has two almost separate economies, divided by geography, technology and by ethnicity - and only one of them has benefited from the new money. [The] proportion of Mexicans considered 'extremely poor' has increased sharply."

This was also true during a previous period of rapid Mexican economic growth in the 1950s and 60s, when the economy grew by an average of sixpercent a year - an impressive period, even for that period, and one whichRussia today can only yearn to achieve. Even so, however, this did notcreate a breakthrough to first world standards of living and economicstability - least of all for the poor, whose share of national incomedeclined. Typically, the wealth generated was also disproportionatelyconcentrated in the capital and one or two other great commercial centres;thus Moscow's economy is estimated to have grown by ten per cent or more inthe mid-1990s, even while the economy as a whole has declinedprecipitously, and Moscow may now account for as much as 35 per cent ofRussian GDP - something which also facilitates the concentration ofpolitical power in the hands of a metropolitan oligarchy. In some cases - including, it increasingly appears, that of Mexico inthe 1990s - the condition of these countries, and especially of theirpoorer classes, has been made even worse by a mushrooming of organisedcrime, and its increasing hold on the state and "legitimate" economy. It is for the optimistic ideological free marketeers - the Aslunds,Layards and others - to explain why they do not think that this is a realand serious long-term prospect for Russia.

Yegor Gaidar declared in 1992 that:

"the choice is not between Anglo-Saxon and Scandinavian models of capitalism; it's between the European and the African."

But this disguises far more than it reveals. Russia is not a failed state, and the Russian economy and infrastructureare far too developed, Russian society is far too modernised and well-educated ever to fall to African levels; but there are a vast range of possible paths somewhere between that and becoming a fully developed partof the capitalist West.

Privatisation as Enclosure of the Common Land.

Leaving aside the absence of mass violence and the links between liberalism and nationalism, in another respect there is rather a close parallel between the Russia of today and Italy - and other liberal-ruled states - of the 19th Century; this is in one of the processes by which the new elites acquired their wealth: in Russia, through privatisation of state property; in Italy, Spain, Mexico and elsewhere, though "land reform"; in both cases, with the help of massive corruption, and under the ideological umbrella of a triumphalist liberal capitalism.

We have seen all this before, and not once but many times. The land reforms which in Italy, Spain, Mexico and else wherere distributed the lands of the Church, of the village communes, and of some of the great feudal landowners, have a very familiar ring to anyone who knows Russian privatisation. They were supposed to be equitably and justly conducted, to lead to the creation of a class of small but efficient capitalist peasant farmers, to break the power of the Church and other anti-liberal forces, and to help the peasants themselves escape from the twin traps - as seen by the urban liberals - of traditional peasant culture and traditional peasant agriculture.

That is what was supposed to happen - and in a few places did happen. In England, the dissolution of the monasteries and the enclosure of the commons (much older processes of course than the 19th Century liberal landreforms) undoubtedly contributed greatly to the eventual development of efficient modern agriculture in England, though they were deeply socially unjust, destructive of ancient communities and traditions, destructive oft he environment, and hated by the poorer peasantry. What happened elsewhere can be summed up in a few examples: in Mexico, for example, where the liberal reformers, the so called "cientificos" (because of the positivist claim of these US-trained Mexican economists to represent "scientific" solutions to Mexico's problems - very reminiscent of Gaidar, Chubais et al ) set out to break up the lands of the Church and the common lands of the Indian villages, in the name of economic efficiency and progress. An initial limit of 2,500 hectares was supposed to prevent the accumulation of new vast haciendas (great estates), but this was ignored from the start.

As a result, "the 1880s and 1890s witnessed a land grab of unprecedented proportions." By 1910 more than half of rural Mexicans lived on haciendas. Local magnates, political bosses or military men, with links to the regime, simply used the law to seize the land of the peasants, after declaring that they were baldio, or lacking private title. Where the Indios and peasants resisted, they were shot down and driven off by the army, the police or privately hired pistoleros.

A million acres of Yaqui Indian land went to the Torres family alone. In a majority of cases, the improvement in economic efficiency was very limited (inevitably, on estates of such an unmanageable size and given the lack of new capital), and certainly did not begin to offset the resulting immiseration of large sections of the peasantry and especially the indigenous Indian population. Moreover, thanks to the weakness and corruption of the Mexican state, as with privatisation in Russia, the state treasury received only a derisory proportion of the money that the land being privatised was actually worth.

In Benito Juarez's sale of "vacantlands" in the 1860s, for example, the state received about $100,000 for 4.5 million acres, or about two and a half cents per acre. Under PorfirioDiaz, a fifth of the country was given away for three and a half cents an acre, compared to a market price which averaged two dollars. The social, political and economic consequences are with us to this day in Chiapas and other regions. And as in the case of Russia in recent years, both local reformers and their foreign backers and advisers resolutely turned their eyes from the reality of what was happening, and justified privatisation not for any goods it was producing, but as an absolute good in itself. This was coupled with an obsession with the stability of the currency and the government's credit rating - and Mexico under Diaz was in fact judged a very good bet by international financiers - rather than with economic fundamentals, let alone with the lives and conditions of ordinary people.

In southern Italy, where the regimes of Joseph Bonaparte and Joachim Murat introduced legislation to end feudalism and break up the great latifundias, the result was the same. Most of the peasantry was effectively excluded from participation by legal chicanery and high registration fees, and were also stripped of the common village land which they had held under the great estates. The result was that the great bulk of the land was acquired by a small number of great magnates, whether the old feudatories themselves or new bourgeois proprietors - often civil servants of the Bonapartist government, like the two greatest owners in Calabria, who between them gained control of almost half the province. Once again, this very notoriously did absolutely nothing to improve agricultural efficiency, let alone the general well being of the population, which in many areas declined sharply as a result.

In other words, there is nothing very new about the way in which Russian public property was grabbed in the course of "privatisation" (and if the result is only continued incompetence, exploitation of existing resources rather than new investment, and general economic stagnation, that will not be new either). It is exactly what has always happened over the past 200 years when a ruthless liberal capitalist ideology, which is prepared to justify almost anything in the name of "progress", combines with a corrupt bureaucracy and a weak legal order. For to be fair to Chubais, it would be wrong to see personal corruption as the root of his approach to privatisation. He did receive a $3 million ,five year interest-free loan from Alexander Smolensky's Stolichny Bank (part of the Group of Seven) even while that bank was acquiring enormous Russian state assets at a knock down price, but he is by all accounts absolutely and genuinely convinced of the rightness of his cause. In his interviews, Berezovsky too presents himself articulately as a force foreconomic and even moral progress - an "ideologist for cash", perhaps, as Ostap Bender described himself. One factor which is connected to this and very reminiscent of the 19thCentury liberal movements is the contempt of the "cientifico" liberal reformers and the New Russians for their poorer, older and less dynamic compatriots. This attitude is composed of two elements:

It would be wrong to rule out the possibility that in future, privatisation will lead to increased efficiency and stable economic growth benefiting the mass of the population - but it would also be impossible to argue that this has happened so far. Belief in wonderful future results (as held by Layard, Aslund et al) are therefore as of the time of writing a matter of faith, not of evidence. What should also be clear from this chapter is that evenif economic growth does occur, it will be very unevenly distributed and will mostly benefit only a small proportion of the population. The Russian population is well aware of this, and the way in which public property has been shared out under Yeltsin, though it has not led to revolt or a desire to return to Communism, has created what I would call a deep moral wound, an offence against the moral economy of ordinary Russians.

If this feeling is combined with economic misery for the mass of the population over a long period of time, this may eventually lead to serious long-term consequences for the legitimacy of the new Russian order - akin to the feelings of Spanish, Italian and Mexican peasants about the new liberal order in the 19th Century. As in many of the pseudo-liberal states of the past (and some in the present), Post-Soviet Russia suffers an added burden because of the comprador nature of its new elites. That is, businessmen, bankers and the officials who are their clients and allies, and who are overwhelmingly dependent for their wealth on the export of raw materials, and only to an extremely limited extent on manufacturing, or on "adding value" in some way to Russia's products. This perhaps is inevitable, given the intense wastefulness and incompetence of Soviet industry, many of whose sectors, as is now notorious, were actually value-reducing - that is to say that the raw materials would have earned more if sold on international markets than the shoddy and useless finished product. Nonetheless, dependence on the export of raw materials could well represent a trap for Russia, of a kind that has closed around many other countries in the past. It enables the Russian state to support basic services and buy off important parts of the population without having to conduct truly deep reforms; and more importantly, it allows many Russian big businessmen and officials to become fantasically wealthy simply by using existing Soviet equipment to extract various substances from the ground and then ship them abroad, and pocket the proceeds - and move a large part of them abroad as well - without having to re-invest a kopek in the much riskier business of capital investment in new production and plant. There is simply no need to "add value".

Thus the move of Boris Berezovsky from the motor industry first to banking and then to oil extraction (not by founding a new company, but by using state connections to seize an existing state one) is both typical and from his own financial point of view, entirely logical. It is not however in any way beneficial for Russia. Equally important is the way in which abusiness world concentrated on the struggle for control of strategic raw materials will tend to resist or ignore the kind of new mentalities, business practices and legal norms so crucial to true economic progress. By their nature, oil and minerals can also be controlled by a small number of men or of big corporations - which can create the political domination of a narrow, corrupt and unproductive oligarchy, as latin America found for so many decades.

The comprador nature of the Russian oligarchy under Yeltsin is at its most blindingly obvious in Vladivostok in the Russian Far East. This is an area which for several years has been undergoing an acute economic crisis, due to the collapse of local industries and the cost of shipping fuel and materials from Russia. In terms of infrastructure and manufacturing, it makes a pitiful comparison with the East Asian states (except of course for North Korea). The Far East has been the scene of some of the most dreadful stories of contemporary Russian poverty and hunger, and in the winter of1 996-97, thousands of local workers were on strike because their wages wereup to six months in arrears. Yet the crumbling, potholed roads of Vladivostok, where most of the street lights have long since failed or been turned off to save electricity, are jammed with second-hand Japanese cars (many of them admittedly originally stolen), and the casinos and night clubs are crammed with very prosperous-looking types and their women. The wealth to buy these comes purely from the export of raw materials - timber, fish, oil, gold, metals, even tiger skins. As long as these last - and the tigers and the trees are admittedly going pretty fast - and there is anything of the old Soviet pie to carve up, the local elites will have no interest in manufacturing, let alone outside investment.

In the bitter words of a local journalist, "Why should they care about any of that? Half the wealth of Siberia passes through their hands!" This is one key difference from the American robber barons of the 19thCentury, or indeed the pioneering Russian capitalists of the same period, the Morozovs and Putilovs. These were true pioneers, who built from scratch. With extremely rare exceptions, the contemporary Russians have exploited existing Soviet plant. Equally importantly, the gains made by the great American magnates were mostly ploughed straight back into American production, or were at least spent at home. They were not sent out of America on a massive scale to Swiss or other bank accounts.

In Russia, by contrast, capital flight was estimated by Western experts to have reached a total of between $60 billion and $73 billion between 1992 and 1996, with little sign of it returning. This would be more than four times Russia's borrowing from international financial institutions, and around five times its direct foreign investment in those years. The World Bank estimated the "unexplained residual" at 88.7billion since 1992, but that would presumably include the huge number of cash dollars that Russians were keeping within Russia and using on the black and grey markets. Moreover, with rare exceptions, the new Russian compradors have proved deeply hostile to outside strategic investment - for after all, they are quite happy as it is, and what could Western control of companies bring them but extra competition? This hostility has been especially clear and overt in the case of the banks, but in a more muted way it is true of the extraction industries as well (for example, in the support of most Russian owners in this field for the rule which bars non-Russian companies from owning more than 15 percent of oil companies; the privatisation process was then rigged so that the blocks of shares auctioned at a time were invariably more than 15 percent, thereby excluding Western participation altogether). This, on top of the general insecurity of the investment climate, the contempt for contractual obligations, and the dreadful tax situation, kept new direct foreign investment between 1989 and 1996 to a mere $5.3 billion, a third of that in Hungary which has one fifteenth of Russia's population.

The possession of abundant raw materials can thus prove a curse and not a blessing; firstly because they spare both the state and many of its people from having to make hard choices and take real risks until it is too late; secondly, because it encourages the creation of small, wealthy but unproductive elites; thirdly, because the interests of these elites lie far more in keeping their foreign markets open than they do in stimulating domestic consumption or investment; and finally, because the raw materials eventually run out - and if a state, or its businessmen, have not reinvested the profits from them in some form of other production or infrastrcuture, then the country will eventually find that from all this it has gained precisely nothing.

The behaviour of the present Russian elites has been the typical one for such groups over the past 150 years. In the words of one critic of the Porfirian elite in Mexico:

"The owners of our spinning and weaving mills do not wear the shirtingor the cashmeres which their factories produce. They generally dress themselves in European texiles, they use European or American hats, they lay out money for European or American carriages, they decorate their homes with European art objects, and prefer, in short, everything foreign over the national; even the painting, the literature and the music with which they satisfy their desires and divert their leisure time have to carry theforeign seal..."

The only difference of course lies in the grotesque idea of the New Russians diverting their leisure time with painting or literature.

[Jul 22, 2011] Naomi Klein on Iraq’s “Shock Therapy” « From the Margins

There’s an article by Naomi Klein in Britain’s Guardian entitled Iraq is not America’s to Sell, taking a look at the illegal move by the CPA (“Coalition Provisional Authority”) to make Iraq’s economy, except for oil, 100% foreign owned. Well, I should say they’re allowing for this to happen, but there’s nothing stopping Iraqis from buying up what foreigners would want to buy up. Except lack of money, perhaps. From what I hear, it’s not something many Iraqis have at the moment. It reminds me of a scathing article I read back in August called Shock the Monkey by Matt Taibi. The article was written in response to the CPAs hiring of Yegor Gaidar as a consultant to the CPA in the development of Iraq’s post-war transition economy. Taibi’s says:

“Gaidar, former Prime Minister under Boris Yeltsin, is not the most despised man in Russia. That title belongs to the man who succeeded him as the chief architect of the Russian privatization effort, Anatoly Chubais. There is no way to talk about the meaning of this decision to invite Gaidar to Iraq without mentioning Chubais, because in inviting Gaidar, what the U.S. almost certainly was trying to say to the world was: At least we didn’t invite Chubais.”.

He goes on to describe a method of plunder they called “Shock Therapy”, a policy probably directly responsible for the creation of the new Russian oligarchy. Here’s how it goes:

“First, stealing money from people’s pockets. In 1992, Gaidar began implementing a program known as “Shock Therapy” (yet another cruel irony of this business: first Shock and Awe, now Shock Therapy?). Shock Therapy was the brainchild of another Harvard villain, Jeffrey Sachs. In the early phase, this took the form of Gaidar’s move to free the ruble before the end of state-controlled prices. This resulted-as even a child could have predicted it would-in hyperinflation. By the end of 1992, prices in Russia had increased by a factor of 26. Money from 1991 became worthless overnight. Families that had been stuffing mattresses since the siege of Stalingrad saw their life savings disappear in a few weeks.”

By making the ruble worthless overnight, there were only a few people around who could take advantage of the privatisation phase of shock therapy – “the banks that had been licensed by the state to handle currency exchange operations”. The end result was the “…crown jewels of the Russian economy were handed over to a small group of thugs and gangsters at fractions of their actual cost..

This is an incisive and possibly prophetic article (though I understand it was probably not a huge leap on Taibi’s part), written before it was announced by the CPA that Iraq’s entire economy except for oil would be open to 100% foreign ownership. Now, Naomi Klein discusses how this is actually an illegal act under International Law, and that because of this, companies who would like to take part in this plunder cannot be insured because if a duly elected government did come in power in Iraq, there would be nothing stopping them from taking back what was rightfully Iraq’s to begin with. The Haliburton’s of the world need not worry, however, since this is where the US Export-Import Bank comes into play. They’ll insure companies like Haliburton at the expense of the US taxpayer, and if Haliburton loses what it buys in Iraq, it’ll be at the cost of the US taxpayer. She points this out in an depth discussion at Democracy Now!.

A revolution has been taking place over the past 10 years, and its got nothing to do with workers and everything to do with a kind of capitalism that regards theft as a right. As Taibi puts it, “Lenin preached communism but created a dictatorship: This crew preached laissez-faire economics but created a corporate oligarchy in which the state replaced the market.”.

While the Russian oligarchs got away with their version of plunder, it isn’t likely the US-led CPA will get away with their actions, so long as Iraqis manage to live in the democracy they were promised (I know, fat chance that will materialize). They have obligations under the Geneva conventions and Hague regulations as occupying powers. Lets hope Iraqis will eventually get back what is being stolen from them….

[Jul 22, 2011] Shock the Monkey

September 23,2003

Shock the Monkey
Yegor Gaidar brings his heavy bag of instruments to Iraq.
http://www.nypress.com/16/38/news&columns/cage.cfm

By Matt Taibbi

I interrupt my campaign diaries to bring the people of New York a startling Holy-Shit-O-Gram from Moscow.
Early last week it was announced that the U.S., in the person of L. Paul Bremer III, had invited one Yegor Gaidar to Baghdad to assist in the development of Iraq’s postwar, "transition" economy.

Gaidar, former Prime Minister under Boris Yeltsin, is not the most despised man in Russia. That title belongs to the man who succeeded him as the chief architect of the Russian privatization effort, Anatoly Chubais. There is no way to talk about the meaning of this decision to invite Gaidar to Iraq without mentioning Chubais, because in inviting Gaidar, what the U.S. almost certainly was trying to say to the world was: At least we didn’t invite Chubais.

This was, in fact, how most Russia-watchers interpreted the news. Harvard’s Marshall Goldman, one of the big heavies in the Russia-watching business, said as much to the Moscow Times in response to the Gaidar announcement: "If they had invited Chubais, that really would have set off a firestorm. That would have really been too much."

Chubais, a William Weld lookalike and towering genius of sleaze, was, with Gaidar, part of a group of beady-eyed intellectuals known in Russia as the "St. Petersburg Mafia." They were revolutionaries whose style of public address was purely Leninist: relentless, zealous, arrogant and heavily reliant on maximalist expressions like "absolutely and completely eliminate", "wipe out", "monster and vile scoundrel." They appealed to academics and intellectuals for the same reasons that Marxism/Leninism once did: Their political vision consisted of using obscure, nerdy theorems to ruthlessly dictate the fate of millions.

The only difference was that their revolution was an ironic variation of Bolshevism. They wanted to smash the state and create a neoliberal laissez-faire paradise. Lenin talked about workers and collectives: The St. Petersburg Mafia talked about markets, prices, goods.

Gaidar and Chubais are both affiliated with Harvard. Their ascension to power in the early 1990s–with the enthusiastic backing of the U.S.–willed into being an expression that now comprises the three most-feared words in the Russian language: Harvard-trained economist. That’s because the economy they created was not capitalism, but a cruel parody of it. Lenin preached communism but created a dictatorship: This crew preached laissez-faire economics but created a corporate oligarchy in which the state replaced the market. Their legacy was the wholesale theft of Russia’s riches from the population, and their delivery into mafia and foreign control.

The theft was a surprisingly quick and brutal process. If Iraq is in for the same treatment, here are some of the things Iraqis have to look forward to.

First, stealing money from people’s pockets. In 1992, Gaidar began implementing a program known as "Shock Therapy" (yet another cruel irony of this business: first Shock and Awe, now Shock Therapy?). Shock Therapy was the brainchild of another Harvard villain, Jeffrey Sachs. In the early phase, this took the form of Gaidar’s move to free the ruble before the end of state-controlled prices. This resulted–as even a child could have predicted it would–in hyperinflation. By the end of 1992, prices in Russia had increased by a factor of 26. Money from 1991 became worthless overnight. Families that had been stuffing mattresses since the siege of Stalingrad saw their life savings disappear in a few weeks.

The benficiaries? The banks that had been licensed by the state to handle currency exchange operations, which naturally became lucrative as Russians fled to foreign currencies. This small group of bankers, hand-picked by the Gaidar government, would become the first bidders on public properties in the next phase, privatization. After all, who else could bid? Nobody else had any money.

There is not enough space here to detail the many obscene nuances of the privatization effort, but roughly speaking it came down to one thing: The crown jewels of the Russian economy were handed over to a small group of thugs and gangsters at fractions of their actual cost. In some cases the Chubais/Gaidar clan actually lent state money to friends to help them buy properties.

Auctions were often openly rigged. In the notorious "loans-for-shares" tenders in 1995-96, the bidding banks were often put in charge of holding the auctions, allowing them to exclude other bids. In one famous instance, a bank excluded a rival on the grounds that its application to participate was 24 minutes late for the auction. In a cruel wink to observers of the process, another bank subsequently also excluded a rival for being 24 minutes late.

The privatization schemes enacted by Gaidar and Chubais were created in close consultation with American aid officials. Much of the legislation and legal infrastructure for the effort was designed by such pseudo-governmental organizations as the Russian Privatization Center (RPC) and the Harvard Institute for International Development (HIID), the latter organization owning the USAID contract for Russian economic reform. The chief figures here were Chubais and Gaidar on the Russian side and Harvard economists Sachs, Andrei Shleifer and Jonathan Hay on the American side. (Hay and Shleiffer were subsequently investigated by a grand jury for investing in privatized properties through their wives). There was no question that the grossly regressive effects of privatization were enacted at the express will of the U.S. government.

Why? What was the point? The point was to seize control of a country’s valuable property–in Russia as in Iraq, primarily oil. Then you hand it over to the right six people, so that you can plunder the country and dictate its politics. The U.S. kept the Gaidar/Chubais clan in pocket by lavishing hundreds of millions of dollars in aid money on their private reform organizations; it kept the new Russian tycoons in pocket by making them dependent upon state tribute, administered by their puppets; and it kept Boris Yeltsin in pocket by making him politically reliant upon the financial support of the tycoons it created.

Gaidar last week noted the "similarities" between the post-Soviet economy and Iraq, and the World Bank has noted that the Ba’athist party "modeled its economy on Eastern European communism," hinting that similar reforms might be needed. Anyone who’s lived in those places knows what this means: privatization, mass layoffs, the gutting of healthcare and education and the creation of a super-rich class of ruthless, America-friendly dickheads.

Gaidar today is a ranking member of a right-wing, neo-liberal political party called the SPS, which stands for the Union of Right Forces. SPS types have their own peculiar esthetic, and the ess-pe-es-ovet is a roundly loathed, popularly derided figure in modern Russia. If the early Bolsheviks were alive today, this is what they would look like: pale, skinny, dressed in yellow-tinted glasses and ribbed turtlenecks, humorlessly blowing stolen oil profits on apple martinis in shitty techno clubs.

If some version of this person appears soon in Iraq–think Sprocketts with a bushy mustache–then we’ll know what went down. We’ll have figured out a way to steal everything in Iraq and leave a bunch of effete neoliberal desk clerks in charge. People today assume that the chief problem we face in Iraq is securing a peace so that we can build a happy, market-based democracy. But freedom and markets mean different things in different places. Just ask the Russian teacher who makes 40 bucks a month, and watches some Harvard-trained asshole techno-dance down Tverskoi Boulevard, on his way to his next revolutionary assignment.

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[Apr 06, 2011] It's The Plutocracy, Stupid by MJ Rosenberg

Political Correction

I received an email from a Capitol Hill aide who thinks my criticism of AIPAC, the powerful pro-Israel lobby, is overly simplistic. He doesn't dispute the fact that AIPAC has a disproportionate influence on our Middle East foreign policy. He argues, however, that AIPAC is no different than other powerful special interest lobbies.

I think his whole email is worth a read:

I work on Capitol Hill and I disagree with you about AIPAC. You make it seem as if AIPAC is the only lobby that gets what it wants through threats of cutting off campaign contributions, as if only AIPAC dictates legislation through intimidation.

WRONG! My colleague who handles the Israel issue confirms your analysis. But it's no different on the domestic issues I cover. The issues of jobs, health, taxes, the environment, regulation to protect kids' health, oil drilling, workers' safety, education, guns...they are all dictated by lobbies just as overbearing as AIPAC. All we do up here is cater to rich, selfish people and their special interests. And their interest is cutting all social programs so we can keep cutting taxes to make them even richer.

True, most of them don't brag as much as AIPAC but that doesn't make them any better or worse, just smarter (AIPAC gets more negative attention because of its swagger). Big deal. The public is getting screwed eight ways to Sunday by special interests and AIPAC is just one of them. Don't mislead your readers into thinking it is unique. Not only is it not unique, it's insignificant in the sense that it's not the guys robbing the poor to put money in their own pockets. They own US Middle East policy. But the real fat cats own everything else.

I agree with everything my correspondent writes. The American democracy we learned about in school no longer exists. It's been sold to the highest bidders. And the highest bidder is not, as the Tea Partiers like to say, "We The People."

Bill Moyers, the highly respected longtime PBS commentator and President Lyndon Johnson's lieutenant in creating Great Society legislation like Medicare and the Voting Rights Act, calls the American political system of today a "plutocracy" — that is, one that is governed by the few and for the few.

Last November, Moyers delivered a speech at Boston University (the Howard Zinn Memorial Lecture) explaining how this plutocracy was created. Suffice it to say that it was no accident. (You should read the Moyers speech here or watch it here. It is simply the best explication by anyone of how we got to this miserable moment in our history.)

Moyers explains the loss of American democracy like this:

The Gilded Age returned with a vengeance in our time. It slipped in quietly at first, back in the early 1980s, when Ronald Reagan began a "massive decades-long transfer of national wealth to the rich." ... The trend continued under George W. Bush — those huge tax cuts for the rich, remember, which are now about to be extended because both parties have been bought off by the wealthy — and by 2007 the wealthiest 10% of Americans were taking in 50% of the national income. Today, a fraction of people at the top today earn more than the bottom 120 million Americans.

Over the past 30 years, with the complicity of Republicans and Democrats alike, the plutocrats, or plutonomists ... have used their vastly increased wealth to assure that government does their bidding. ...

Moyers concluded:

Everyone knows millions of Americans are in trouble. As Robert Reich recently summed it the state of working people: They've lost their jobs, their homes, and their savings. Their grown children have moved back in with them. Their state and local taxes are rising. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

Why isn't government working for them? Because it's been bought off. It's as simple as that. And until we get clean money we're not going to get clean elections, and until we get clean elections, you can kiss goodbye government of, by, and for the people. Welcome to the plutocracy.

Moyers, not surprisingly, is spot-on. And so is my correspondent who complains about my emphasis on AIPAC. My only defense is that my job is limited to foreign policy issues. If my job description were different, I'd be happy to write about the undue influence that the Chamber of Commerce and the Koch Brothers have within the halls of Congress. It's just that on the Middle East issue, the big foot money lobby is AIPAC, and it has no competition.

But I am not going to argue that AIPAC, or any foreign policy lobby, does anything like the damage done to this country by corporate interests. The "greed lobby" at the national and state levels has successfully implemented policies that take money from the poor and middle class and put it in the pockets of their friends (the rich and super-rich). AIPAC, for all its faults, does not lobby for legislation to make its members rich. (They don't get a kickback from the Israel aid package.)

None of this, however, makes me feel any friendlier to AIPAC and its satellite organizations. The policies they inflict on America are deeply damaging to our national interests. It is just that, right now, AIPAC is part of an infinitely larger problem: a thoroughly corrupted political system.

But it is far from alone. There are hundreds of AIPACs, many infinitely more powerful than AIPAC itself, and they are turning the American dream into an American nightmare. From now on, I'll be more careful about putting AIPAC's sins in their unholy context.

[Jan 22, 2011] Mankiw’s Ten Principles of Economics, Translated by Yoram Bauman, University of Washington, Seattle, Washington

2003 | Improbable Research

The cornerstone of Harvard professor N. Gregory Mankiw’s introductory economics textbook, Principles of Economics, is a synthesis of economic thought into Ten Principles of Economics (listed in the first table below). A quick perusal of these will likely affirm the reader’s suspicions that synthesizing economic thought into Ten Principles is no easy task, and may even lead the reader to suspect that the subtlety and concision required are not to be found in the pen of N. Gregory Mankiw.

I have taken it upon myself to remedy this unfortunate situation. The second table below summarizes my attempt to translate Mankiw's Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.

------------------------------------------------------------

Mankiw’s Principles

#1. People face tradeoffs.
#2. The cost of something is what you give up to get it.
#3. Rational people think at the margin.
#4. People respond to incentives.
#5. Trade can make everyone better off.
#6. Markets are usually a good way to organize economic activity.
#7. Governments can sometimes improve market outcomes.
#8. A country’s standard of living depends on its ability to produce goods and services.
#9. Prices rise when the government prints too much money.
#10. Society faces a short-run tradeoff between inflation and unemployment.

------------------------------------------------------------

Yoram’s Translations

#1. Choices are bad.
#2. Choices are really bad.
#3. People are stupid.
#4. People aren’t that stupid.
#5. Trade can make everyone worse off.
#6. Governments are stupid.
#7. Governments aren’t that stupid.
#8. Blah blah blah.
#9. Blah blah blah.
#10. Blah blah blah.

------------------------------------------------------------

Explanations and Details

At first glance, the reader cannot but be impressed by the translation’s simplicity and clarity. Accessibility, however, should not be mistaken for shallowness: further study will reveal hidden depths and subtleties that will richly reward the attentive student. Indeed, a moment’s reflection will identify any number of puzzles and mysteries. Chief among them is probably this: Why do Principles #8, #9, and #10 have identical translations?

The immediately obvious explanation is that these are macro-economic principles, and that I, as a micro-economist, am ill equipped to understand them, let alone translate them.[2] As is often the case in this complex world we live in, this immediately obvious explanation is also wrong. The true reason I have provided identical translations of “Blah blah blah” for Principles #8, #9, and #10 is that these principles say exactly the same thing, namely, “Blah blah blah.” Sometime when you’ve got a few hours to spare, go and ask an economist -- preferably a macro-economist -- what he or she really means by “standard of living” or “goods and services” or “inflation” or “unemployment” or “short-run” or even “too much.” You will soon realize that there is a vast difference between, say, what Principle #10 says -- “Society faces a short-run tradeoff between inflation and unemployment” -- and what Principle #10 means: “Society faces blah between blah and blah.” My translations are simply concise renderings of these underlying meanings.

Having cleared up that issue, let us go back to Mankiw’s

PRINCIPLE #1
People face tradeoffs.
TRANSLATION: Choices are bad.

The reasoning behind this translation is obvious. For example, imagine that somebody comes up to you and offers you a choice between a Snickers bar and some M&Ms. You now have a tradeoff, meaning that you have to choose one or the other. And having to trade one thing off against another is bad; President Truman supposedly asked for a one-armed economics advisor because his two-armed economics advisors were always saying, “On the one hand...but on the other hand...”

People who have not received any economics education might be tempted to think that choices are good. They aren’t. The (mistaken) idea that choices are good perhaps stems from the (equally mistaken) idea that lack of choices is bad. This is simply not true, as Mancur Olson points out in his book, The Logic of Collective Action: “To say a situation is ‘lost’ or hopeless is in one sense equivalent to saying it is perfect, for in both cases efforts at improvement can bring no positive results.”

Hence my translation of Mankiw’s first principle of economics: Choices are bad. This concept can be a little difficult to grasp -- nobody ever said economics was easy -- but the troubled reader will undoubtedly gain clarity from Mankiw’s

PRINCIPLE #2
The cost of something is what you give up to get it.
TRANSLATION: Choices are really bad.

Beyond transforming Mankiw’s semantic deathtrap into simplicity itself, this translation has the advantage of establishing a connection between Principle #1 (Choices are bad) and Principle #2 (Choices are really bad).

To continue to deepen the reader’s understanding of why choices are bad -- really bad -- let’s return to our previous example, in which somebody offers you a choice between a Snickers bar and a package of M&Ms. Suppose, for the sake of argument, that you take the M&Ms. According to Mankiw, the cost of those M&Ms is the Snickers bar that you had to give up to get the M&Ms. Your gain from this situation -- what economists call “economic profit” -- is therefore the difference between the value you gain from getting the M&Ms (say, $.75) and the value you lose from giving up the Snickers bar (say, $.40). In other words, your economic profit is only $.35. Although you value the M&Ms at $.75, having the choice of the Snickers bar reduces your gain by $.40. Hence Principle #2: Choices are really bad.

Indeed, the more choices you have, the worse off you are. The worst situation of all would be somebody coming up to you and offering you a choice between two identical packages of M&Ms. Since choosing one package (which you value at $.75) means giving up the other package (which you also value at $.75), your economic profit is exactly zero! So being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered nothing.

Now, a lay person might be forgiven for thinking that being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered a single package of M&Ms. But economists know better. Being offered a single package of M&M effectively means having to choose between a package of M&Ms (which you value at $.75) and nothing (which you value at $0). Choosing the M&Ms gives you an economic profit of $.75, which is $.75 more than your economic profit when you are offered a choice between two identical packages of M&Ms.

At this point it is worth acknowledging that (1) there may be readers who have failed to grasp the above subtleties in their entirety, and (2) such readers may well be beginning to wonder whether they are, in a word, stupid. Any lingering doubts should be eliminated by the Mankiw’s

PRINCIPLE #3
Rational people think at the margin.
TRANSLATION: People are stupid.

One point that is immediately obvious to the most casual observer with the meanest intelligence is that most people do not think at the margin. For example, most people who buy oranges at the grocery store think like this: “Hmmm, oranges are $.25 each. I think I’ll buy half a dozen.” They do not think like this: “Hmmm, oranges are $.25 each. I’m going to buy one, because my marginal value exceeds the market price. Now I’m going to buy a second one, because my marginal value still exceeds the market price...” We know most people don’t think like this because most people don’t fill their shopping baskets one orange at a time!

But we are now led inexorably toward a most unhappy conclusion. If -- as Mankiw says -- rational people think at the margin, and if -- as we all know -- most people do not think at the margin, then most people are not rational. Most people, in other words, are stupid. Hence my translation of the third principle of economics: People are stupid.

Before sinking into despair for the fate of the human race, however, the reader would be wise to consider Mankiw’s

PRINCIPLE #4
People respond to incentives.
TRANSLATION: People aren’t that stupid.

The dictionary says that incentive, n., is 1. Something that influences to action; stimulus; encouragement. SYN. see motive.

So what Mankiw is saying here is that people are motivated by motives, or that people are influenced to action by things that influence to action. Now, this may seem to be a bit like saying that tautologies are tautological -- the reader may be thinking that people would have to be pretty stupid to be unmotivated by motives, or to be inactive in response to something that influences to action. But remember Principle #3: People are stupid. Hence the need for Principle #4, to clarify that people aren’t that stupid.

Only truly stupid people can fail to understand my translation of Mankiw’s

PRINCIPLE #5
Trade can make everyone better off.
TRANSLATION: Trade can make everyone worse off.

But, the reader may well be asking, isn’t the translation of the fifth principle the exact opposite of the principle itself? Of course not.

To see why, first note that “trade can make everyone better off” is patently obviously: if I have a Snickers bar and want M&Ms and you have M&Ms and want a Snickers bar, we can trade and we will both be better off. Surely Mankiw is getting at something deeper than this? Indeed, I believe he is. To see what it is, compare the following phrases:

A: Trade can make everyone better off.
B: Trade will make everyone better off.

Now, Statement B is clearly superior to Statement A. Why, then, does Mankiw use Statement A? It can only be because Statement B is false. By saying that trade can make everyone better off, Mankiw is conveying one of the subtleties of economics: trade can also not make everyone better off. It is a short hop from here to my translation, “Trade can make everybody worse off.” (A numerical example can be found in Note #3, below.)

The subtlety evident in Principle #5 is even more clearly visible in the next two principles.

PRINCIPLE #6
Markets are usually a good way to organize economic activity.
TRANSLATION: Governments are stupid.

and

PRINCIPLE #7
Governments can sometimes improve market outcomes.
TRANSLATION: Governments aren’t that stupid.

To see the key role that Principle #5 plays in both of these statements, note that the original phrasing of Principle #5 (“Trade can make everyone better off”) leads to Principle #6 (“Governments are stupid”). After all, if trade can make everyone better off, what do we need government for? But the translation of Principle #5 (“Trade can make everyone worse off”) leads to Principle #7 (“Governments aren’t that stupid”). After all, if trade can make everyone worse off, we better have a government around to stop people from trading!

Like the first five principles, Principles #6 and #7 demonstrate the fine distinctions inherent in the economic way of thinking. People are stupid, but not that stupid; trade can make everyone better off, but it can also make everyone worse off; governments are stupid, but not that stupid. Exploring, refining, and delineating these distinctions is the subject matter of upper-level economics classes, doctoral dissertations in economics, and the vast majority of papers in the American Economic Review and other scholarly journals. Should the reader decide to follow this path, the fundamental principles described on the first page of this article will provide invaluable guidance.

[Jan 21, 2011] "Greg Mankiw's Thinking Cap"

I can't let this go without comment, but being short on time, I'll turn it over to Ezra Klein:

Greg Mankiw's thinking cap, by Ezra Klein: Here's an interesting mixture of callousness and accidental truth lurking within Greg Mankiw's satirical proposal to reduce the budget deficit:

The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Like health-care reform, Greg Mankiw's plan really would reduce the budget deficit. That's been contested, so I'm glad to see Mankiw admit it. But Mankiw's broader point is that giving Greg Mankiw a billion dollars to write misleading political commentary would be a poor use of resources. And I agree. But he is analogizing giving Greg Mankiw a billion-dollar check to giving health-care insurance to 32 million people who, in the vast majority of cases, can't get it themselves. I know that Harvard University offers insurance to its employees and they do that because their employees, like Professor Mankiw, would be quite angry if they didn't. They don't think of insurance as an absurd extravagance or a billion-dollar check from the sky. They think of it as something much more like a necessity, something that their workers wouldn't be willing to go without. Something that I'd bet Mankiw himself doesn't go without. Maybe I'm wrong. If not, there's a real callousness to this post.

Now for the accidental truth: Mankiw's analytical claim is that it's somehow peculiar to believe a bill reduces the deficit because it raises more money than it spends. After all, the spending doesn't reduce the deficit. His apparent belief that the "revenues and spending cuts" side of legislation has nothing to do with the "new spending or tax cuts" side helps explain why he joined the Bush administration's Council of Economic Advisers in May 2003, the same month that the Bush administration's second set of unpaid-for tax cuts was passing through Congress, and a few months before the Bush administration's completely unpaid-for Medicare Prescription Drug Benefit was signed into law. That's a creative way to look at legislation, and I'm sure it came in handy when defending the Bush administration's economic policies.

Here's the thing about the thinking Mankiw is criticizing: It actually reduces the deficit, and it does it while mostly ending the days when Americans would find themselves involuntarily uninsured. You can't say that for the thinking that drove the fiscal policies of the administration he served in, or that led him to analogize a billion-dollar check for himself to health-care coverage for the poor. It's another example of the ACA's opponents conveniently omitting the uninsured from the discussion and developing a new and inconsistent definition of fiscal responsibility.

Selected Comments

Jim :

Mankiw is a shill for the plutocratic python; little attention should be paid to most of what he says. I marvel that he is even seen as a respected colleague of most first rate economists.

Jesse :

Mankiw is like Mother Teresa compared to the parade of think tank economists and Lafferites that Bloomberg Television is trotting out each day for their commentaries.

The big debate today centered around whether to end the interest rate on primary mortgage deduction, AND to add a VAT on housing sales, or just end the deductions and cut the corporate tax rates with the proceeds.

endorendil:

Greg's thinking cap is about the size of a thimble, so don't take any of this too seriously.

Matt:

"Apparently he doesn't have a plan to accomplish the same good for less or he would have told us about that instead of trying to add fog to the debate."

Oh, I'm sure he's got a plan - but it's not currently acceptable to articulate the "let the poor die in the streets for the sin of not being rich" plan that's popular amongst conservatives out loud.

RN :

Greg Mankiw never ceases to amaze.

The biggest liar and master of disingenuity in all of supply-side economics.

That he got tenure at Harvard is a colossal black mark on Harvard's reputation.

RW:

When even an intellectual star of the right-wing can barely muster an argument above the level of sophomoric sophistry it is little wonder that right-wing commentators and legislators cannot generate an argument that rises above the level of incoherent babble.

Those the gods would punish they first drive mad.

[Jan 19, 2011] Guest Post Most Economists Fall Back Into Neoclassical Stupor …

January 18, 2011 | naked capitalism

Susan:

When are these econo-pontificator jobs going to get outsourced to Mexico, India and China? When? When?

Justicia :

You don’t expect the “theoclassical” economists to recant, do you? Why, you might as well wait for the Pope and the College of Cardinals to become atheists.

scraping_by:

Joining the upper class by serving the upper class. Economists as a tribe of rhetorical footmen.

While reality-based economics would be jobs in a sustainable system, it’s faith-based explanations that tell us the best in the best of all possible worlds.That’s what brings in the money.

Status and wealth, a heck of a combination.

Tom Stone:

They know which side their bread is buttered on. That is all they need to know.

Hugh:

I echo lambert’s and scraping by’s sentiments. The economics profession is not about an analysis of our economy that can make reasonable predictions about it. Economics and economists are enablers of the con and validators of kleptocracy. They say the many must make do with less and do not say that the result of this policy will be the few will have more.

These are not innocent, unworldy types tied to outdated and obsolete ideas. They are abettors and apologists for the greatest economic crimes in human history. We should call and treat them for what they are: criminals. Kleptocracy is not a some time thing. It is not a label you apply occasionally. Kleptocracy is a system. The looters can’t function without corrupt politicians, a complacent propagandizing media, or complicit enabling academics. With kleptocracy, there is no middle ground. You either stand with the looters or their victims. I think this is the critical choice we all must make.

[Dec 27, 2010] Academic economists as new type of mafiosi

December 24, 2010 | Economist's View

Posted by Mark Thoma on Friday, at 10:00 AM in Economics, Financial System, Regulation | Stumble, Digg, del.icio.us, Reddit, Tweet, Share, Like | Permalink Comments (8)

Goldilocksisableachblonde:

Gerald Epstein , of the SAFER project at PERI , has been calling for institution of more effective codes of ethics. See this , for example :

http://www.truth-out.org/ethics-and-credibility-american-economics-association66120

He discusses the problem in this paper , noting that even in those econ depts with established ethics codes , all the bases aren't covered :

http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP239_revised.pdf

"Those conflicts of interest that the academic economist might not be limited to those between the university and the other job but could well be between the private job and their role as public expert. Furthermore, even when these conflicts of interest are reported to the university it does not signify that they are reported to the public. Thus, university conflict of interest codes, although important for the university, do not alleviate the problem academic economists face who occupy a concurrent role in the private sector and as a public expert."

Here's a page from the SAFER site , where you'll find a list of some of the economic "good guys" ( by my standards , at least ):

http://www.peri.umass.edu/about/

Glen:

I think we all underestimate the pervasiveness of the ethics problem. As an engineer for the last thirty years, I've noticed the same attitude towards corruption slowly invade my own profession. It's become a real problem.

I honestly don't think teaching ethics is a viable solution, it's a bandaid stuck on a heart attack. Making people live with the real economic consequences of their actions is a must. Wall St banks needed to go under, and Wall St bankers needed to go to jail. Until that starts happening, we will not have the necessary reform required to fix our economy, and in an even larger picture, our society.

Goldilocksisableachblonde:

What I liked best about this video was the title of the segment starting at the 2:26 mark :

"The Corruption of Academic Economics"

Clear and succinct use of the English language. I admire that.

You'll never find this phrase used in a MSM piece discussing this topic , because they're complicit in the corruption. Try it. Google "Corruption of Academic Economics" (in quotes) and you'll not likely find a link to a mainstream source , unless it's through a blog commenter's post.

Defining and describing the problem in clear and compelling language is the first step to a solution to that problem , but it's the one we seem to consciously avoid in this case.

I wish I'd thought of it sooner , but a DVD of "Inside Job" would've made for a great Christmas present. Oh well , maybe next year.

Happy Holidays , everyone , and cheer up . Remember , things can get worse only until 12/12/2012 , and not beyond.

Shadow Elite: How the World's New Power Brokers Undermine Democracy, Government, and the Free Market by Janine R. Wedel

"J. R. Wedel analyzed superbly the privatization of Russian State assets under B. Yeltsin. A small group of insiders from Harvard and from PM A. Chubais's office sold a major chunk of State assets for token sums to seven (!) preselected bank chiefs. Free marketeers created a new authoritarian State. "

5.0 out of 5 stars A murky ghost government, October 29, 2010

This review is from: Shadow Elite: How the World's New Power Brokers Undermine Democracy, Government, and the Free Market (Hardcover)

With truly in depth investigations (the notes are excellent), Janine Wedel discovered disturbing facts about how the US is actually governed. The loud call for a `small government' is for her pure rhetoric. The de facto US government is in fact growing rapidly, albeit in a very peculiar manner.
The real story behind the `shouting façade' is the `redesigning of government', its privatization.

Actually, three-quarters of the work of the federal government (measured in terms of jobs) is contracted out (a multi-billion dollar business). This outsourcing of governmental tasks created a new power system, a kind of parallel (shadow) government.
This parallel power base consists of a small set of players (the author is naming names) who are acting inside or outside the government and who are all the time changing jobs between the government itself, private companies, consulting firms, NGOs or think tanks. They always follow their own agenda or the orders of their masters.

Result
Hiding behind their `grand narratives of democracy and freedom', those who forced the merging of State and private businesses, created less competitive markets and less accountable governmental services. The fusion even eroded national sovereignty. `Ambiguous institutional arrangements are making it difficult to establish where authority resides.'
Moreover, the government is `emasculated' because the eventually gathered information stays in private hands, which gives contractors an edge over government overseers.

Russia
J. R. Wedel analyzed superbly the privatization of Russian State assets under B. Yeltsin. A small group of insiders from Harvard and from PM A. Chubais's office sold a major chunk of State assets for token sums to seven (!) preselected bank chiefs. Free marketeers created a new authoritarian State.

The author is not really optimistic that all the players `who operate largely above public input, knowledge and visibility' can be reined in.

This superbly researched book with an excellent index is a must read for all true democrats and for all those who want to understand the world we live in.

[Oct 27, 2010] 'Inside Job' rampant conflicts of interest cronyism led to 2008 crisis Charles Ferguson says

Economic profession were thoroughly penetrated by financial services industry. Many prominent economist earn majority of their money from cooperation with financial services industry not from teaching so they are just PR arm of financial industry. That compromises their integrity, their research and especially their policy advice. Those conflict of interest in academia are pervasive and universities does not require any disclosure of outside contract and universities never collect information on outside income received from those contract.
Ferguson is astonished by the lack of regulation demanding financial disclosure of all academics and is now pushing for it. “At a minimum, federal law should require public disclosure of all outside income that is in any way related to professors’ publishing and policy advocacy,” he writes. “It may be desirable to go even further, and to limit the total size of outside income that potentially generates conflicts of interest.”
Yahoo! Finance

In his new documentary Inside Job, filmmaker Charles Ferguson spoke to some of the biggest names from Wall Street to Washington to academia to get a first hand account of what caused the 2008 financial meltdown and how the financial system reach its breaking point.

Ferguson points to 20 years of deregulation, rampant greed (a la Gordon Gekko) and cronyism. This cronyism is in large part due to a revolving door between not only Wall Street and Washington, but also the incestuous relationship between Wall Street, Washington and academia.

The conflicts of interest that arise when academics take on roles outside of education are largely unspoken, but a very big problem. “The academic economics discipline has been very heavily penetrated by the financial services industry,” Ferguson tells Aaron in the accompanying clip. “Many prominent academics now actually make the majority of their money from the financial services industry, not from teaching or research. [This fact] has definitely compromised the research work and the policy advice that we get from academia.”

Example after example of this revolving door between Academia and Wall Street and academia and Washington are brought to light in Inside Job. Ferguson showcases this unspoken problem by actually interviewing a number of academics with ties to the government and/or financial sector. To wit:

Academics at 20 Paces

This last example is probably the most notable in Inside Job. Mishkin became combative and seemingly uncomfortable at some of Ferguson’s questions – especially regarding the report commissioned by Iceland’s Chamber of Commerce.

After the premiere of the film this month, Mishkin wrote a piece in the Financial Times accusing Ferguson of ambush journalism.

“In July 2009, I agreed to be interviewed on camera for a film that was presented to me as a thoughtful examination of the factors leading up to the 2008 global economic collapse," Mishkin writes. "About five minutes after the microphone was clipped to my lapel, however, it became clear that my role in the film was predetermined - and I would not be wearing a white hat.”

Feguson tells Aaron there is little truth to what Mishkin contends. “I conducted an interview with professor Mishkin that lasted over an hour and touched on many subjects. I certainly did ask him his views on the crisis, but it did turn out that professor Mishkin did have a number of things to conceal and he became very uncomfortable during the interview.”

Since our interview, Ferguson wrote a response to Mishkin in the FT. “Professor Frederic Mishkin misrepresents both his own activities, including his interview for my film, and the widespread conflicts of interest which have distorted academic economics and its role in the financial crisis,” Ferguson writes. “The only reason we now know of Prof Mishkin’s payment for the Iceland report is that he was later forced to disclose it when he was appointed to the U.S. Federal Reserve Board.”

Feguson is astonished by the lack of regulation demanding financial disclosure of all academics and is now pushing for it. “At a minimum, federal law should require public disclosure of all outside income that is in any way related to professors’ publishing and policy advocacy,” he writes. “It may be desirable to go even further, and to limit the total size of outside income that potentially generates conflicts of interest.”

It should be noted that Ferguson himself has ties to academia. He spent many years as a visiting scholar at M.I.T. and U.C. Berkley.

Inside Job is currently playing in theatres nationwide.

A Yahoo! User:

Criminals do not tend to investigate themselves, file charges against themselves or sentence themselves to prison. Hence nothing has been done.

Truth Detective:

BRAVO! Unless you are an American, on the congressional gravy train, a finer reform could not be devised. Everyone should push the President to implement these changes via executive order, until the Congress polices itself; which will never happen. Please refer to this re-posting & forward to the White House. Thanks to the honest Americans who are able to still see the greatness of our system:

The time has come to get past the democrat/republican blame game.

Congressional Reform Act of 2010. We need to get a Senator to introduce this bill in the US Senate and a Representative to introduce a similar bill in the US House. These people will become American heroes

1. Term Limits. 12 years only, one of the possible options below.. A. Two Six-year Senate terms B. Six Two-year House terms C. One Six-year Senate term and three Two-Year House terms

2. No Tenure / No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

3. Congress (past, present & future) participates in Social security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people.

4. Congress can purchase their own retirement plan, just as all Americans do.

5. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

6. Congress loses their current health care system and participates in the same health care system as the American people.

7. Congress must equally abide by all laws they impose on the American people.

8. All contracts with past and present Congressmen are void effective 1/1/11.

The American people did not make these contracts with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, serve your term(s), then go home and back to work.

If you agree with the above, pass it on. If not, don't. This is America, you have choices\

Stephen:

Academics have been shills for the bogus arguments supporting globalization for decades. This enabled congress to sell out the American middle class in return for huge bribes from corporations who wanted tax breaks to move their operations to slave wage countries and bring products into the US market tariff free.

A Yahoo! User

Unfortunately, experience and connections beget experience and connections, and everyone wants someone in the post with both experience and connections. Thus the revolving door.

Academics get by making money in the financial services industry because it serves as "real-time research". And (yes, the truth hurts...) how difficult would it be to criminalize the money center bank executives when all of their skullduggery was blessed by the ratings agencies and guaranteed by Fannie Mae and Freddie Mac at the insistence of the Democrats in Congress and over the negligence of GW Bush's head of the SEC? The banks should have been split up and required to hire new management. Given we didn't do that we are doing the next best thing which is ousting as many people as we can from elected government.

Al

Feguson is astonished by the lack of regulation demanding financial disclosure of all academics "

It should have been obvious, since Big capital, and its 35000 lobbyists, writes the bills for their politcal cronies in Washington, and the state level, which often times is not read by the politician...

Who says we live in a democracy? And now, corporatations, aka capitalist elites aka rich and super rich, can throw unlimited money (bribes) at this process so... It will definitely not get any better, that is certain.

[Oct 01, 2010] Jeffrey Sachs - Wikipedia, the free encyclopedia

One of Sachs' strongest critics is William Easterly, a professor of economics at New York University. Easterly reproached The End of Poverty in his review for The Washington Post, and Easterly's 2006 book White Man's Burden is an even more thorough rebuttal of Sachs' argument that poor countries are stuck in a "poverty trap" from which there is no escape, except by massively scaled-up foreign aid, though Sachs himself has clearly emphasized the need for a complex, multi-faceted, clinical and unique approach to economic development, of which increased and responsible foreign aid is nearly always a necessary but insufficient part.[10] Easterly presents statistical evidence that he claims proves that many emerging markets attained their higher status without large amounts of foreign aid as Sachs proposes.[11] This point is also echoed by the economist Dambisa Moyo who points out that when Sachs was her lecturer at Harvard it was he himself who taught that "the path to long-term development would only be achieved through private sector involvement and free market solutions".[12] She continues "Perhaps what I had not gleaned at that time was that Mr. Sachs' development approach was made for countries such as Russia, Poland and Bolivia, whereas the aid- dependency approach, with no accompanying job creation, was reserved for Africa."[12]

Another Sachs critic is Amir Attaran, a scientist and lawyer and currently the Canada Research Chair in Law, Population Health and Global Development at the University of Ottawa. Sachs and Attaran have worked closely as colleagues, including coauthoring a famous study in The Lancet documenting the dearth of foreign aid money to fight HIV/AIDS in the 1990s, which led to the creation of the Global Fund to Fight AIDS, Tuberculosis and Malaria. However, Sachs and Attaran part company in their opinion of the Millennium Development Goals, and Attaran argued in a paper published in PLoS Medicine and an editorial in the New York Times that the United Nations has misled people by setting specific, but immeasurable, targets for the MDGs (for example, to reduce maternal mortality or malaria).[13] Sachs dismissed that view in a reply to PLoS Medicine by saying that only a handful of the MDGs are immeasurable, but Attaran then cited the United Nations' own data analysis (which the UN subsequently blocked from public access) showing that progress on a very large majority of the MDGs is never measured.[14]

Sachs has also been criticized by leftists for having an overly neoliberal perspective on the economy. Nancy Holmstrom and Richard Smith pointed out that, in advising implementation of his shock therapy on the collapsing Soviet Union, Sachs "supposed the transition to capitalism would be a natural, virtually automatic economic process: start by abandoning state planning, free up prices, promote private competition with state-owned industry, and sell off state industry as fast as possible…". They go on to cite the drastic decreases in industrial output over the ensuing years, a nearly halving of the country's GDP and of personal incomes, a doubling of the suicide rate, and a skyrocketing unemployment rate.[15] The Lancet [16] has recently reported that rapid privatization of the Soviet Union caused a 12.8% death rate increase among males in just two years,[17] a claim that The Economist attributed to alcoholism, though The Lancet article attributed the rise in alcoholism to changes in the economy.[18] Canadian activist Naomi Klein argues in her 2007 book The Shock Doctrine: The Rise of Disaster Capitalism that Sachs' Bolivian "success" is not true. In her analysis, the radical reforms pushed by Sachs were neither democratically agreed upon nor achieved without violent state repression and left the majority of Bolivians in worse circumstances.[19]

[Sep 16, 2010] Guest Post Harvard Lobotomies And The Disgrace Of The Economics Profession by Damon Vrabel

"Well let me take a moment to congratulate the few Harvard, LSE, Princeton, Chicago, MIT grads serving Wall Street, the Fed primary dealer cartel, the IMF, and the World Bank (Larry Summers deserves extra credit). These economists drive the field, and they've brought it to a point that has taken us back to the days of medieval feudalism. "
Sep 16, 2010 | zero hedge

Harvard Lobotomies And The Disgrace Of The Economics Profession

It's worth stepping back on occasion to consider the progress that has been witnessed in particular academic fields. Astronomy took a giant step forward centuries ago when it finally realized the sun was at the center of the solar system. Geology adapted to the fact of a round earth. The continuous evolution of Physics boggles the mind. Engineering perpetually pushes into new frontiers.

And how does Economics compare?

Well let me take a moment to congratulate the few Harvard, LSE, Princeton, Chicago, MIT grads serving Wall Street, the Fed primary dealer cartel, the IMF, and the World Bank (Larry Summers deserves extra credit). These economists drive the field, and they've brought it to a point that has taken us back to the days of medieval feudalism. The field is now more primitive than flat-earth Geology and Ptolemaic Astronomy. Congratulations economists!

Of course it's not entirely the economists' fault. They were taught from day one in Economics 101 that they will undergo a moral lobotomy. Economics goes to great lengths to indoctrinate new recruits that it's a positive vs. normative "science." Oother to do that because the fact is there should be no conflict between the positive and the normative. Why is Economics the only field that does this? Because it wants to avoid the questions that good students interested in true progress would otherwise ask. It knows it's hiding something in its content that conflicts with the normative and it doesn't want students to search for and find the truth. Just remember this helpful indicator in your next life--anything that goes to such lengths to admit upfront that it's morally bankrupt might be something around which you should NOT build your life!

The truth is that Economics has been designed to completely hide the monetary system that hovers above the economy. Economics assumes money is just a medium of exchange floating through the economy to facilitate a free market and generate wealth. At times that has been true, but today it's probably the biggest lie of modern history. The current system does not generate wealth and freedom for most people. It generates debt and servitude. And it is not a free market. Today's money flows from a top-down imperial power system expanding globally. It creates a master-servant relationship because all money comes from privately held debt.

Let me say that again. ALL MONEY COMES FROM DEBT (for those of us who suffered the most indoctrination by attending schools like Harvard, let's pause here for a moment so we can catch up to the rest of the class). This means in order for governments, businesses, and people to have the liquidity necessary to live, they must agree to sign over a claim on their assets to banks. As the banking system inflates over time passing out credit, which makes everyone feel good with more digits in their accounts, it gathers claims on all the assets in the system for its private capital holders. Admittedly, this is one way of facilitating development (good students would've figured out a better way had they not been stifled). But it's also the method for transferring everyone else's assets to the balance sheets of the capital holders behind the banks once deflation sets in.

This is what we're facing today. The global banking system has a claim on most assets in the world (except those in places like Iran, so it's no surprise we're fanning the flames of war so the military can eventually conquer the region for JP Morgan Chase and its Harvard employees...of course Chase was one of the first corporations to move in on the mineral assets seized in Afghanistan because it's the primary bank that pays the military-industrial complex to conquer territory for it...they're giving us an obvious lesson in how the world really works today).

Once the system has gathered all the claims it wants, senior capital will be removed, kicking off the next phase of deflation and a transfer of assets from the people to the banks. At that point we'll probably see JPM Chase CEO Jamie Dimon, another Harvard lobotomy victim (there's a high correlation between Ivy League lobotomies and billionaires), on CNBC threatening Americans to pay up as his firm jacks up their rates and takes their homes like he did in early 2009.

In this transfer process, the people's equity will be eliminated. And this means, they will be returned to the life of a feudal servant to the capital holders behind the banks. This is not rhetoric, but the unarguable math and accounting of the banking system. It's very simply a mechanism to transfer assets/equity from the balance sheets of the many to the balance sheets of the few.

So a final word for all the top economists out there:

Congrats again! It didn't take much to buy you off. Today's financial elite, those who control the global debt machine, have rewarded you with some meager paychecks and the status of the high priests of old. Sad. Do you have any pride, or is it really that easy to co-opt you with retreats in Jackson Hole, hobnobbing in Davos, and membership in the CFR?

Come on. Rise above it. You are obligated to fix this immediately:

1) Develop an interim solution in concert with the old time-tested bondage/jubilee, growth/rest cycles which gave the people, communities, land a breath of fresh air in the midst of empire growth. (if you're writing that off as religious romanticism, ask yourself what top athlete doesn't live by training/rest cycles...over-training results in deterioration, not progress)

2) Then develop and advocate a humane money system that facilitates the rebuilding of real community as opposed to one based on debt servitude that parasitically sucks the life OUT of communities.

We know the debt holders have a lock on Harvard and LSE (my days at Harvard were marked by professors preaching the benevolence of Enron finance and Wall Street derivatives, so most Harvard grads are probably beyond recovery). But what about the rest of you? It's time to step up and work toward progress like your colleagues in other fields. It's time to move beyond the dark ages.

[Feb 10, 2010] From "You'll Work for Us" to Only Short-Listed: Underappreciating Harvard by Ken Houghton

Feb 10, 2010 | Angry Bear

While several good people—including several of my wife's relatives and one of our bloggers—graduated from Pravda-on-the-Chuck, I am saddened to note that their faculty's efforts in creating the Global Financial Crisis (GFC) has been muted.

Such, at least, can be fairly concluded by the nominees and final ballot for The Dynamite Prize in Economics, being held at the blog of the Real-World Economics Review.

Consider that N. Gregory ("Greg") Mankiw was not even nominated. The man who shepherded and shilled for the 2003 tax evisceration* in specific, and author of the textbook that corrupts more Econ 101 people than any other was not even nominated.

Then Michael Jensen—whose theories (purely by coincidence, to be sure) are used to justify shifting corporate profits on a massive basis from the company that makes them to the CEO who "runs" it—did not make the final ballot.

Even more than the damage done to their endowment—at least the guy who did that is on the final ballot, though for his general U.S. work, not his Endowment-during-his-divorce work—not being cited as responsible for the GFC, and therefore not being seen as Masters of the Universe, is saddening.

The remaining nominees are Very Worthy, to be certain (excepting Paul Samuelson, with whom people much have confused Robert). Vote early and often.

*It is remotely possible to make the argument that the 2001 cut was based on semi-legitimate (though silly) projections of surpluses. There is no such excuse for the 2003 abomination.

[Jan 18, 2010] Chicago GSB News Inaugural Initiative on Chicago Price Theory Conference - Buffett Is Wrong Money Managers Are Worth Big Paychecks

“And that’s where we are today: A record portion of the earnings that would go in their entirety to owners—if they all just stayed in their rocking chairs—is now going to a swelling army of helpers,” Buffett said in the letter. “Particularly expensive is the recent pandemic of profit arrangements under which helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses—and large fixed fees to boot—when the helpers are dumb or unlucky (or occasionally crooked.)”

... ... ...

Hedge fund managers can lock in investors for longer periods, said Nancy Zimmerman, principal at the hedge fund Bracebridge Capital. This allows for a greater scale on returns and a better alignment of interests between investors and managers. She questioned why all investments aren’t managed by people who are better aligned with the interests of their clients.

Zimmerman said she started her hedge fund 12 years ago with $55 million; it now manages $3 billion. She said she is as proud of her firm’s exponential growth as she is of its more low-key investments.

[Dec 11, 2009] Matt Taibbi- Obama’s Big Sellout By Edward Harrison

Dec 11, 2009 | naked capitalism

Taibbi assumes intent and damns the actors as a result. He writes as if Froman and Geithner openly colluded in some way to favour Citi. But you don’t need to prove intent, you only need to prove motive. I don’t care if Froman or Geithner ‘intended’ to favour Citi over other institutions; I care whether they were mentally predisposed to helping Citi and other large institutions at the expense of others because they ascribed unwarranted and disproportionate importance to them. Unfortunately, cognitive regulatory capture leads to crony capitalism just as outright corruption would do.

Selected Comments

earthtodc:

“cognitive regulatory capture leads to crony capitalism just as outright corruption would do”

WTF is the difference? This is not rocket science. There is a guy running from a burning building with arm fulls of cash, now on the phone calling his buddies to tell them to “get down here” and you want to worry about the intent of the original act of arson. All of the evidence is being destroyed anyway by the firefighters pumping gasoline into the fire.

charcad:

"Taibbi assumes intent and damns the actors as a result."

Nope. Taibbi knows the actors well. He’s seen them peform in person before. So have I.

Matt Taibbi had the best possible apprenticeship for this kind of MSM journalism: several years on the eXile.ru e-zine in Moscow in the 1990s during the Yelt$in era. There is no one who can do it better now.

Most of the same personalities who were on the USA end then are central players now in the Obama Administration. Taibbi knows this. Yves’ old alma mater at Harvard, Lawrence Summers and the whole Rubin gang were integral players, then and now:

http://en.wikipedia.org/wiki/Andrei_Shleifer

During the early 1990s, Andrei Shleifer was an advisor to Anatoly Chubais, the then vice-premier of Russia, and was one of the engineers of the Russian privatization. During that time, Harvard University was under a contract with the United States Agency for International Development, which paid Harvard and its employees to advise the Russian government. The results of privatization in Russia were criticized widely in Russia and western academic circles. Under Anatoly Chubais, privatization led to valuable Russian business assets being acquired at extremely cheap prices amid accusations of rigged auctions.

Boy, does this sound familiar! Real deju vu. Public assets flowing into private pockets. Subsequent lawsuit against Harvard University over Schleifer’s activities obligingly settled by one Lawrence Summers…

http://en.wikipedia.org/wiki/Michael_Froman

“Froman…spent much of his career within the United States Department of the Treasury,[2] where he served as Chief of Staff between January 1997 and July 1999, having previously held the role of Treasury Deputy Assistant Secretary for Eurasia and the Middle East. As Deputy Assistant Secretary his work related to economic policy towards the former Soviet Union and Central and Eastern Europe”

Taibbi (and I) were privileged to watch this entire gang’s work up close earlier. And if you missed 1990s Moscow then I’m sorry for you. It’s like having missed late 1920s Berlin. Definitely material for a “Cabaret” remake there. Gonzo journalism was the only kind able to effectively mirror gonzo times.

Well, don’t worry. All coming soon to your neighborhood for a live performance. Question is whether you’ll be able to afford to enjoy the show.

[Aug 4, 2009] "Mr. Bailout"

I think that calling his a clown is underestimation of his vast abilities. My God, is there any nonsense that a crooked market fundamentalists can't say or do ?

[Aug 4, 2009] "Mr. Bailout"

That's a hardly appropriate level of thinking for a Treasury secretary, of even for a freshman in college ;-). But in taking out a competitor end justifies the means...

[Jul 19, 2009] "The Most Misunderstood Man in America"

Academic Mafiosi is still a Mafiosi :-). "Stiglitz, more than anyone on the Washington scene, was the biggest fly in the ointment of "free-market fundamentalism" pressed on the world in the '90s by Summers, Geithner and their mentor, former Treasury secretary Robert Rubin—advice that has now contributed to the worst financial crisis since the Great Depression"

Michael Hirsh wonders why the Obama administration hasn't consulted Joe Stiglitz more often on economic policy issues, and suggests the answer is an ongoing feud with Larry Summers:

The Most Misunderstood Man in America, by Michael Hirsh, Newsweek:

...Even in the contentious world of economics, [Joe Stiglitz] is considered somewhat prickly. And while he may be a Nobel laureate, in Washington he's seen as just another economic critic—and not always a welcome one. Few Americans recognize his name... Yet Stiglitz's work is cited by more economists than anyone else's in the world... And when he goes abroad—to Europe, Asia, and Latin America—he is received like a superstar, a modern-day oracle. ...

... ... ...

... Stiglitz's defenders say one possible explanation for his outsider status in Washington is his ongoing rivalry with Summers. ... Since the early '90s, when Summers was a senior Treasury official and Stiglitz was on the Council of Economic Advisers, the two have engaged in fierce policy debates. The first fight was over the Clinton administration's efforts to pry open emerging financial markets, such as South Korea's. Stiglitz argued there wasn't good evidence that liberalizing poorly regulated Third World markets would make any one more prosperous; Summers wanted them open to U.S. firms.

The differences between them grew bitter in the late 1990s, when Stiglitz was chief economist for the World Bank and took issue with the way Treasury Secretary Robert Rubin, and Summers, who was then deputy secretary, were handling the Asian "contagion" financial collapse. After World Bank president James Wolfensohn declined to reappoint him in 1999, Stiglitz became convinced that Summers was behind the slight. Summers denies this...

Selected comments

Chris Rich says...

I'm increasingly convinced that this is the outcome of a deal with the Clintons. Obama's economic team is mainly the Clinton government in exile with Volcker as a kind of garnish.

Maybe he was insecure over the inexperience accusations during the campaign.

My hope is he'll eventually get rid of them by mid term. Summers is still widely despised over at Harvard. Last month I was doing a paint job on the edge of the campus and overheard a facilities manager in a huddle with two contractors.

The manager was treating them to juicy details about Harvard presidents, past and present. The current one is liked but when talk turned to Summers the guy's voice dropped to a near whisper as if the trees were bugged.

Larry once made a complete pest of himself during a routine fire drill where he demanded to return to his office before the drill was finished in some spoiled brat outburst of exceptionalism.

The undergrad alumni is still seething over the aggressive risk investment policy Summers introduced after years of staid careful investing.

The outcome was a multi billion dollar endowment haircut and craters in lower Allston where there were supposed to be new buildings in a campus expansion.

[Jul 3, 2009] Those Who Think the "Left of Center" is Too Tough on N. Gregory Mankiw

Gregory Mankiw is another "interesting" Harvard professor of economics ;-)

should read Sensible Centrist J. Bradford DeLong on the difference in forecasting between the current Administration and the CEA under N. Gregory Mankiw.

Romer/Bernstein/Kreuger et al., 2008-9 edition:

As I understand matters, last December the median private-sector forecast had the unemployment rate topping out at 9% in the second half of 2009. The incoming Obama administration simply adopted that forecast. At the time I thought that was a mistake: (I thought that was a mistake: I thought they should have made a bifurcated forecast with a "good case" 80th-percentile scenario and a "bad case" 20th-percentile scenario; they should then have stressed that in the bad case we would need a large stimulus indeed to prevent high unemployment, and that in the good case we could restrain inflation via monetary policy.)
Mankiw et al., 2003 edition:
it would make it extremely difficult for things to happen like what happened to the Mankiw CEA over the winter of 2003-2004, when high politics appears to have reached down into the forecast, changed the table for payroll employment (and only payroll employment: the rest of the forecast is not out of line with contemporary professional forecasts), and produced an estimate for December 2004 (a) inconsistent with the rest of the forecast, and (b) high by 2.3 million in its estimate of payroll employment--all because Karl Rove and company thought it important to avoid headlines like "Bush administration forecasts 2004 payroll employment to be less than when Bush took office." (link from original)
The positive-spin version is that Mankiw plays politics better than the Obama Team.

[Apr 25, 2009] Why We Should Banish Larry Summers From Public Life - by Naomi Klein

April 19, 2009 | washingtonpost.com

I vote to banish Larry Summers. Not from the planet. That wouldn't be nice. Just from public life.

The criticisms of President Obama's chief economic adviser are well known. He's too close to Wall Street. And he's a frightful bully, of both people and countries. Still, we're told we shouldn't care about such minor infractions. Why? Because Summers is brilliant, and the world needs his big brain.

And this brings us to a central and often overlooked cause of the global financial crisis: Brain Bubbles. This is the process wherein the intelligence of an inarguably intelligent person is inflated and valued beyond all reason, creating a dangerous accumulation of unhedged risk. Larry Summers is the biggest Brain Bubble we've got.

Brain Bubbles start with an innocuous "whiz kid" moniker in undergrad, which later escalates to "wunderkind." Next comes the requisite foray as an economic adviser to a small crisis-wracked country, where the kid is declared a "savior." By 30, our Bubble Boy is tenured and officially a "genius." By 40, he's a "guru," by 50 an "oracle." After a few drinks: "messiah."

The superhuman powers bestowed upon these men -- and yes, they are all men -- shield them from the scrutiny that might have prevented the current crisis. Alan Greenspan's Brain Bubble allowed him to put the economy at great risk: When he made no sense, people assumed that it was their own fault. Brain Bubbles also formed the key argument Greenspan and Summers used to explain why lawmakers couldn't regulate the derivatives market: The wizards on Wall Street were too brilliant, their models too complex, for mere mortals to understand.

Back in 1991, Summers argued that the subject of economics was no longer up for debate: The answers had all been found by men like him. "The laws of economics are like the laws of engineering," he said. "One set of laws works everywhere." Summers subsequently laid out those laws as the three "-ations": privatization, stabilization and liberalization. Some "kinds of ideas," he explained a few years later in a PBS interview, have already become too "passé" for discussion. Like "the idea that a huge spending program is the way to stimulate the economy."

And that's the problem with Larry. For all his appeals to absolute truths, he has been spectacularly wrong again and again. He was wrong about not regulating derivatives. Wrong when he helped kill Depression-era banking laws, turning banks into too-big-to-fail welfare monsters. And as he helps devise ever more complex tricks and spends ever more taxpayer dollars to keep the financial casino running, he remains wrong today.

Word is that Summers's current post may be a pit stop on the way to the big prize, Federal Reserve chairman. That means he could actually make "maestro."

Mr. President, please: Pop this bubble before it's too late.

The Shock Doctrine: The Rise of Disaster Capitalism."

Selected comments

Lariokie wrote:

If you have not read "Shock Doctrine" by Naomi Klein, you will not fully understand how critical her plea to get rid of Summers really is. Summers is no different from Phil Graham, whose disdain both as a Senator from Texas and the Uber-lobbyist for USB in Switzerland, for the middle class and common working people has driven the US and world economies into the ground.

Kevin Phillips' book, Wealth and Democracy precisely foresaw the financial sector coup that has taken place. In fact, every vibrant national economic power for the past four centuries has been co-opted and off shored by the extra-national financial elite who know no national boundaries and revere no government or constitution. They simply go where the resources and labor can most easily be exploited and expropriated, and the national governments most easily manipulated. They will usurp power at virtually any cost. They represent the greed that has become the world's most potent form of terrorism, from slavery to dictatorships around the globe. Alas, Obama is either oblivious to, or part of the scheme. Either way, we lose.

It was bound to happen to America sooner or later. The only true upside is the potential for this nation settling into a more humane, laid back, economic lethargy much as "old Europe" has since America donned the mantle of world economic and military hegemony. We can only hope.

rhideokim1 wrote:

This article goes hand in hand with Prof. Fukuyama's calling for an end to tenure. Summers is not the only economist with a "brain bubble," which an accurate, clever, and concise characterization. I would like to add: Ken Lay, Phil and Wendy Gramm, Alan Greenspan, and Ben Stein. Check out Steve Keen's "Debunking Economics."

jhough1 wrote:

The Summers quotations in the early 1990s came as he said that Russia should introduce pure markets, have shock therpy, decimate all government expenditures (including health care in a socialized medicine country), and postpone all industrial investment for five years until new market mechanisms and personnel (those produced by voucher privatization) were in place. It was not brilliance, but the most obviously foolish ideological nonsense. Absolutely obvious stupidity when China had been showing the way for 15 years on how to make a transition in a Communist country. Plain stupidity. It literally killed millions of people in places like Russia and Ukraine--literally as male life expectancy fell to 57 as a result. Read Stiglitz's first book on globalization. Stiglitz had Russian right and Summers was his bete noire.

Because the press will not cover the Administration accurately, it downplays Summers' power and the nature of policy. In gutting Sarbanes-Oxney, the Administration has de-regulated, not regulated. As economists as opposed as Paul Krugman and Martin Feldstein agree, Summers has induced the President to have a tiny stimulus. All the money has gone to a non-productive buying of bad debts at a time when people and business do not have confidence or creditworthiness to seek new loans in the next year or so--and should not. His top foreign economic policy adviser was a Citi VP under Robert Rubin with a big bonus last year. In the early 1990s privatization, this official was Summers' top man in charge of Russia and then in 1997 Rubin's undersecretary for foreign relations.

As a political scientist and a former supporter of Obama, I think it is unbelievably frightening. Read Hoagland, Ignatius, and Herzenhorn's article on the front page of the NYT Times, all today. They all say the same thing. The President has not shown the ability or willingness to make a hard economic decision standing up against even the Larry Kudlow's of this world who think we have a great President. He did not make a single major appointment that would be criticized by the right. Hoagland and Ignatius are talking about his failure to make a single decision in foreign policy except those on Iraq, Afghanistan, and defense spending that suggest a right-wing orientation. He has had his people create trying to create a feeling of euphoria about an economic upturn this fall--and has succeeded in producing a market bounce that Soros says flatly is a sucker rally.

If it all works out, fine. But what happens if it doesn't? I think a third party financed by someone like Soros and led by someone like Spitzer is the benign scenario. It is easy to imagine those that are worse.

twforg wrote:


When Summers was president of the World Bank, he asked: “Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]?”

Europeans are doing just that — dumping toxic and radioactive waste in Somalia. It is reported that “it costs European companies $2.50 per ton to dump the wastes on Somalia's beaches rather than $250 a ton to dispose of the wastes in Europe.”

Europeans and Asians are estimated take fish out of Somalia valued at more than $450 million annually—EU alone takes out more than five times the value of its aid to Somalia every year.

Somalia’s complaints to the United Nations have not been heeded.

Gatsby1 wrote:

You are so right, Naomi.

Obama made a huge mistake in hiring Summers. The man's ego is uncontrollable.

Besides, his ties to Wall Street are so obviously a conflict of interest that it is a disgrace that this man has the capability to continue throwing god money (ours) after bad to keep his Wall Street cronies from ever being accountable for ruining our financial system.

By the way, Geithner also has to go. Like Sumers, he is wedded to the welfare princes of Wall Street, particularly Goldman Sachs. In fact, it looks like Treasury exists purely to serve Goldman Sachs.

I cannot believe that Obama made the mistake of hiring that crew. It's not as if there were no other brilliant minds around (Nobel Prize Stiglitz comes to mind), with beter ideas than plundering Treasury coffers to ensure that (likely) insolvent monsters such as Citi and B of A continue to sc*ew up as usual.

Inner Workings » Blog Archive » What did Larry Summers do at D. E. Shaw By David Goldman

April 6th, 2009

Larry Summers traveled to Asia in the summer of 2007, just as the storm clouds gathered over the banking system, trying to sell AAA-rated structured securities to sovereign funds and other investors. Whether he was trying to unload D.E. Shaw’s assets or pitching a soon-to-be-busted D.E. Shaw strategy, I do not know — although the collapse of a Bear Stearns hedge fund engage in that strategy makes the latter surmise less likely.

Louise Story reports in this morning’s New York Times:

A spokesman for Shaw said Mr. Summers’s main job was not to act as a salesman. But in the fall of 2007, as the financial crisis simmered, Mr. Summers traveled to Dubai for a series of meetings with Shaw’s marketing staff and potential investors. Bankers from across the region flew in for the event. Mr. Summers spoke at several lavish dinners and met with local parties involved in Shaw’s real estate investments in the area, people briefed on his trip said.

The account adds, “A White House spokeswoman says his actions supporting hedge fund regulation prove he is not biased.” Not quite true: regulation benefits the very large funds who can (for example) access non-recourse leverage from the Treasury, and makes it very difficult for challengers to overtake them. In a market in which returns are sparse unless one has a connection to a government, $5.2 million seems like a very reasonable price to pay for access. The TImes added:

At Harvard and at Shaw, Mr. Summers cultivated a small circle of financial professionals — particularly hedge fund managers — to serve as an informal brain trust. He consults with them on policy matters from his perch in the White House.

Among these insiders are Kenneth D. Brody and Frank P. Brosens, the founding partners of another hedge fund, Taconic Capital Advisors, for whom Mr. Summers did consulting work from 2004 to 2006.

Mr. Summers reached out to Mr. Brosens in December to discuss the Obama administration’s economic priorities. This year, he campaigned to have him run the federal office overseeing the $700 billion bailout program. Mr. Brosens withdrew his name from consideration last month.

Others in this inner circle include Nancy Zimmerman, a longtime friend and hedge fund manager in Boston; Laurence D. Fink, the chairman and chief executive of BlackRock, a large money management company that hopes to play a potentially lucrative role in the administration’s bank rescue plan; H. Rodgin Cohen, the chairman of the law firm Sullivan & Cromwell, who was briefly considered for a senior Treasury post; and three other top fund managers, Orin S. Kramer, Ralph L. Schlosstein and Eric M. Mindich.

And poor Sheila Bair gets beaten up in the blogs. Nobody said life was fair.

[Mar 29, 2009] Welcome to America, the World's Scariest Emerging Market - By Desmond Lachman

washingtonpost.com

Back in the spring of 1998, when Boris Yeltsin was still at Russia's helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to "emerging markets" throughout Asia, Eastern Europe and Latin America, and I thought I'd seen it all. Yet I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time.

Selected comments

KathyWi wrote:

It's too bad that Mr. Lachman works for the American Enterprise Institute. It weakens his credibility.

He might have mentioned the Lawrence Summers - Andre Shleifer scandal which contributed in no small way to Summers' stepping down from the presidency of Harvard University. A bit of raping and pillaging, economically speaking, done by Mr. Shleifer. Shleifer cost Harvard a substantial sum (a million dollars or more, I believe) when he was convicted of fraud, while doing work for them in Russia and essentially lining his own pockets. He was 'advising' the Russian government and being mentored by Summers.

Did Mr. Summers know what his protege was up to? Don't know. The public relations effort to minimize this story has been pretty successful, despite it first appearing in a magazine. It is never mentioned as a reason for his leaving Harvard. Silly. Such a big mistake as making a few 'sexist' remarks is cited instead. Articulately expressed sexist remarks. In fact, those remarks turned out to be a convenient exit stragegy and deflected attention from what was a serious 'steal big' strategy on the part of Mr. Shleifer, in my opinion.

Google 'Shleifer' AND 'Schleifer' (since that seems to be another spelling of his name) 'Harvard' and 'Summers' and see how 'hot' this topic is (that is to say, not very).

3/26/2009 9:01:56 AM

[Mar 28, 2009] Letters Comparing the U.S. to Russia and Argentina - Salon

Actually, Our Corrupt U.S. Brain Trust of Neo-Market-Worship Ideology Helped Make Post-Soviet Russia What It Is

Since we're in the national mood for retrospection about the insanely deregulatory and shock treatment environment of 10-15 years ago, how about a look back at the Nation covering how the U.S. and the Harvard Institute for International Development did all it can to screw up the emerging Russian economy and grab all they could when they could?

We funded and encouraged yet another set of market worshiping, non-overseen arrogant twits to help screw over that developing country, in moves beginning under the Bush Sr. administration but increasing under Clinton, led by Larry Summers and Jeffrey Sachs. The Harvard Institute for International Development was the agency, and it was later sued by the U.S. government in a case settled in 2005.

The Harvard Boys Do Russia

By Janine R. Wedel | June 1, 1998 edition | The Nation | May 14, 1998

After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically.

The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.

The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According to The New York Times, he "may be the most despised man in Russia."

Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development.

Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved.

With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism."

Luzhkov was referring to H.I.I.D...

...The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest."

Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future.

Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades.

...H.I.I.D. had supporters high in the Administration. One was Lawrence Summers, himself a former Harvard economics professor, whom Clinton named Under Secretary of the Treasury for International Affairs in 1993. Summers, now Deputy Treasury Secretary, had longstanding ties to the principals of Harvard's project in Russia and its later project in Ukraine.

...H.I.I.D. projects were never adequately monitored by U.S.A.I.D. In 1996, a General Accounting Office report described U.S.A.I.D.'s management and oversight of H.I.I.D. as "lax." In early 1997, U.S.A.I.D.'s inspector general received incriminating documents about H.I.I.D.'s activities in Russia and began investigating.

In May [HIID's] Shleifer and Hay lost their projects when the agency [USAID] canceled most of the $14 million still earmarked for H.I.I.D., citing evidence that the two managers were engaged in activities for "private gain."

The men had allegedly used their positions to profit from investments in the Russian securities markets and other private enterprises. According to sources close to the U.S. investigation, while advising the Russian government on capital markets, for example, Hay and his father allegedly used inside information to invest in Russian government bonds...

...In early 1996, after [Chubais] was temporarily removed from high office by Yeltsin because he represented unpopular economic policies, H.I.I.D. came to his rescue by placing him on its U.S.A.I.D.-funded payroll, a show of loyalty that former U.S.A.I.D. assistant administrator Thomas Dine says he supported.

Western policy-makers like Morningstar and Dine have depicted Chubais as a selfless visionary battling reactionary forces. In the spring of 1997, Summers called him and his associates a "dream team." With few exceptions, the U.S. mainstream media have promulgated this view...

[Excerpted. Follow link for full text at Nation site.]

http://tinyurl.com/Harvard-Boys-Do-Russia

What's funny is that simultaneously we were allowing these same "best & brightest" to attack the long-term stability of U.S. economic interests domestically in the name of arrogant market boosterism.

So, at least a few people in Russia must feel better now that they know they weren't being singled out, that the same types of people and ideologies were also being unleashed upon the same U.S. which was foisting it upon them.

-- El Cid

The Summers Conundrum By Mark Ames

November 10, 2008 | Nation

And yet so far the debate over Summers has been largely confined to two outrageous moments in his career: his 1991 World Bank memo calling Africa "UNDER-polluted," and his more recent declarations, while serving as president of Harvard, about women's genetic inferiority in math and science. By themselves, these two incidents might be dismissed as merely provocative in a maverick-moron sort of way, as many of Summers' supporters argue; but in the context of Summers's track record, in which he oversaw the destruction of entire economies and covered up cronyism and corruption, his Africa memo and sexist declarations aren't exceptions but rather part of a disturbing pattern.

From the start, Summers has been on the wrong side of Obama's supporters. In 1982, while still a graduate student at Harvard, Summers was brought to Washington by his dissertation advisor Martin Feldstein, the supply-side economist, to serve on Ronald Reagan's Council of Economic Advisors. Those first years in the Reagan administration were crucial in the right-wing war against New Deal regulation of the banking system and financial markets--a war that Reagan's team won, and that we're all paying for today. Although Summers eventually identified himself with the Democratic Party--albeit the right wing of that party--nevertheless, as the New York Times's Peter T. Kilborn wrote in 1988:

He worked for 10 months as a top analyst in President Reagan's Council of Economic Advisers when his mentor, Martin S. Feldstein, was running it, and his colleagues don't recall him venting anti-Reagan heresies then....

"One of the ironies of this business is that Summers's economics are quite close to Feldstein's," said William A. Niskanen, who was a member of the Feldstein council.

It's ironic if you expected Summers to be a liberal Democrat--but par for the course in the context of Summers's real record. Some fifteen years after Summers's stint in the Reaganomics war room, he reappears as one of the key villains fighting to suppress the regulatory efforts of a top official, Brooksley Born, who was trying to call attention to the dangers of the unregulated derivatives, such as credit swap defaults, which today are considered the key to the current economic crisis.

But let's return to the Summers timeline. After his stint in the Reaganomics brain trust, he returned to Harvard to serve as one of the university's youngest professors. In 1988, he was Michael Dukakis's chief economic advisor, but when that campaign failed to bring Summers to power, he turned to America's great rival, the former Soviet Union, to try out his economic experiments. In 1990, Lithuania, a restive Soviet republic seeking independence, hired Summers to advise on that country's economic transformation. Poor Lithuania had no idea what it got itself into. This was Summers's first opportunity to tackle a country in economic crisis and put his wunderkind theories into practice. The results were literally suicidal: in 1990, when Summers first arrived, Lithuania's suicide rate was 26.1 per 100,000 and falling. Just five years after Summers got his hands on Lithuania's economy, life became so unbearable under the economic transition that the suicide rate nearly doubled to 45.6 per 100,000, worse than any other ex-Soviet republic in transition. In fact, it was the highest suicide rate in the world, suggesting something particularly harsh and brutal about the economic transition in that country as opposed to the others, where suffering and pain were common. Things got so bad that in 1992, after just two years of Summers-nomics, the traumatized Lithuanians voted the communist party back into power, the first East European nation to do so--even though just a year earlier Lithuanians actually died on the streets fighting communism.

Fresh off his success in Lithuania, Summers moved to the World Bank, where he was named the chief economist in 1991, the year he issued his famous let's-pollute-Africa memo. It was also the year that Summers, and his Harvard protégé Andrei Schleifer (who worked with Summers on the Lithuania economic transformation), began their catastrophic "rescue" of Russia's crisis-ridden economy. It's a complicated story involving corruption, cronyism and economic devastation. But by the end of the 1990s, Russia's GDP had collapsed by more than 60 percent, its population was suffering the worst death-to-birth ratio of any industrialized nation in the twentieth century, and the financial markets that Summers and Schleifer helped create had collapsed in what was then the world's biggest debt default ever. The result was the rise of Vladmir Putin and a national aversion to free markets and anything associated with Western liberalism.

But that's not all. Summers, through Schleifer, was also tainted with some of that country's corruption, which resulted in a US Justice Department lawsuit against Schleifer and others. While Schleifer was being paid by US taxpayers to advise the Russians on capital markets in the 1990s, his wife, Nancy Zimmerman, bought and traded Russian equities for a Boston hedge fund she ran--they even used Schleifer's US taxpayer-funded offices to run Zimmerman's Moscow-based hedge fund operations.

How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer "were among each other's best friends," and Summers taught Schleifer "as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation."

In 2000, the Justice Department sought $102 million in damages from Schleifer, one of Schleifer's Harvard associates and Harvard University in a conflict-of-interest suit resulting from Schleifer's role as the lead US adviser to Russia's economic reforms--questioning the way Schleifer and his wife profited from his position. Schleifer's Harvard team in Moscow was funded by USAID in a no-bid contract, and supported by Summers as soon as he moved into the Treasury Department in 1993. So Schleifer benefited from his relationship with Summers twice: first, by getting a choice contract as the US government's man in Moscow in the 1990s when Summers was in power in the US government, one that benefited his wife's hedge fund (earlier this year, Portfolio suggested that the Schleifers' hedge funds made them billionaires ). Then after Schleifer returned to Harvard to face the lawsuit, Summers, now president of Harvard, presided over a controversial settlement that all but let his protégé off the hook. Thanks to pressure by Summers, Schleifer kept his chair at Harvard, where he continues to teach today.

Summers's other favorite man in Russia was Anatoly Chubais--who consistently ranks at the top of Russia's " most hated man" polls. Chubais was executor of the Russian government's privatization program, in which state companies worth tens of billions of dollars were handed over to insiders for a fraction of their worth in blatantly rigged auctions. Summers praised Chubais as a "demigod" and called Chubais and his free-market cohorts "the dream team." In September 1998, after Russia's capital markets collapsed, along with billions in US-taxpayer-backed loans, Chubais boasted to a Russian newspaper, "We swindled them." By "them," he meant the Western and American aid institutions that funded his reforms.

In light of all of the corruption, cronyism and devastation that have marked his career, Summers' statements about an under-polluted Africa or intellectually-inferior women no longer seem like provocative eccentricities but part and parcel of the Summers shtick. And now there's talk that President-elect Obama may hand the keys to national treasury to Summers--meaning that he'll be in charge of overseeing a trillion-dollar taxpayer bailout of the entire financial industry, a process already rife with conflicts of interest, cronyism and corruption--as detailed by Naomi Klein.

The bailout, as currently implemented, threatens to devastate America's economy much as Russia's and Lithuania's were devastated before. The idea that this is exactly the right time and place to put Larry Summers in charge of our economy's future is so frightening that it makes the Sarah Palin vice presidential choice seem almost quaint by comparison. Let's hope the rumors are wrong.

Naomi Klein Joins Anti-Summers Campaign by: Matt Stoller

Nov 07, 2008 | Open Left

( - promoted by Chris Bowers)

As part of her campaign to stop the bailout profiteers, Naomi Klein has put our petition on her home page, joining 2800 of you who have signed up to protest Larry Summers as Treasury Secretary. It came out today that Larry Summers warmly embraced deregulation as Treasury Secretary, as Dean Baker notes. Summers fought aggressively against pro-regulatory elements within the Clinton administration to do the industry's bidding, so it's no surprise he's now a managing director at hedge fund and private equity group DE Shaw.

Kim Gandy of NOW has issued a critical statement bringing up a point I hadn't before considered.

Matt Stoller :: Naomi Klein Joins Anti-Summers Campaign

"I'm torn on the subject. Part of me thinks his opinions on women's capacities for math and science don't have relevancy to financial markets. On the other hand, economics is a very math-heavy field. Does that mean he'd be less likely to include women in his own circle of advisers? I don't know the answer to that question; I don't know him. But I do wonder whether if his comments about women's lack of aptitude for math and science had instead been a comment or an opinion about African Americans having less capacity for math and science, would he be on anybody's short-list. That's a fair question to ask."

Summers certainly did this when pushing to keep derivatives free from regulations. He was part of a gang of free marketeers which included Alan Greenspan, industry lobbyists, and Robert Rubin to keep a steel-spined lawyer, Brooksley E. Born, head of the Commodity Futures Trading Commission, from regulating derivatives even after the collapse of long-term capital management.

Born didn't back off on derivatives, either. On May 7, 1998, two weeks after her April showdown at Treasury, the commission issued a "concept release" soliciting public comment on derivatives and their risk.

The response was swift and blistering. Within hours, Greenspan, Rubin and Levitt cited their "grave concerns" in an unusual joint statement. Deputy Treasury Secretary Lawrence Summers decried it before Congress as "casting a shadow of regulatory uncertainty over an otherwise thriving market."

At least one major progressive group has plans to come against Summers shortly. This possible appointment is a travesty. As Ian Welsh notes, Obama should pick someone who got this right.

Sign the petition here.

... Crooks and Liars has more.

Andrei Shleifer Billionaire - Market Movers - Portfolio.com

Shleifer also reveals the sheer size of the funds which were founded by Shleifer and his wife, Nancy Zimmerman. Zimmerman's hedge fund, he says, now has $3 billion in assets under management, while LSV Asset Management, which was co-founded by Shleifer, has an astonishing $66 billion in AUM.

Which makes Warsh's tentative stab at Shleifer's net worth extremely modest: "together the pair, through their start-ups, may have amassed net worth of $40 million or more," he writes. Going on those AUMs alone, my guess is that the Shleifer-Zimmerman family has a net worth of vastly more than $40 million, and quite possibly something in the billion dollar range.

In fact, the $3 billion number for Bracebridge Capital, Zimmerman's fund, is two years old; if she's merely performed in line with other $3 billion funds circa 2006, my guess is she might well be at double that level right now.

Zimmerman founded Bracebridge in 1994 with $55 million; she's been in there since day one, collecting what we can reasonably assume to be 2-and-20. We can also assume, from the 50-fold increase in AUM, that her investment returns have been very good. And since she's the founder, we can assume too that the vast majority of her wealth has been (re)invested in Bracebridge.

The reason that hedge fund managers can get so magnificently wealthy is that they take their enormous fees, reinvest them in their own funds, earn high returns, and get paid even greater fees the next year. By the time a fund reaches $3 billion, it's not uncommon for the founding partner to be a billionaire. But in any case, if Bracebridge is at $3 billion and is making 2-and-20 on, say, 12% returns, then that works out at $132 million per year in performance fees. Even if less than half of that goes to Zimmerman personally, it's likely to have compounded to something in the billion-dollar range by now: after all, she's been in the business for 14 years, which is a long time to be compounding alpha.

As for Shleifer himself, Warsh reports that he sold his share in LSV "for a large but undisclosed sum several years ago". How large is that sum likely to have been? Well, LSV probably didn't have $66 billion under management back then, but on the other hand it was probably growing quite fast. Let's say that Shleifer had a 30% stake in the company, that when he sold out there was $30 billion of funds under management, and that he sold at a valuation of 4% of AUM. That would mean he received $400 million for his stake. (It's also fair to assume that the proceeds were invested well, and have grown substantially since then.)

The real numbers might be lower than that - or they might be higher, we don't know. But between Zimmerman and Shleifer, it's probably reasonable to assume that they could quite easily lose $40 million down the back of the sofa and not notice. These guys are rich

Harvard's role in US aid to Russia - The Boston Globe

WHEN LAWRENCE Summers resigned the Harvard University presidency last month, his action was attributed in large part to difficulty in human relations. Whatever the true reason, when Summers's legacy is examined, he should be held to account for his role in a scandal with which he was intimately involved, both as a Treasury official and at Harvard. Yet the strange ... (Full article: 710 words See: harvard_boston_globe)

Harvard-Russia Aid Case

BACKGROUND INFORMATION
on the Harvard-Summers-Russian Aid Case

Omitted Material from:
"Harvard's role in US aid to Russia,"
The Boston Globe, March 25, 2006.

The following two paragraphs that appeared in my original article but (for space reasons) were mostly cut from Saturday's Boston Globe piece may provide further clarification:

"The system is virtually incapable of dealing with such players' infractions and lack of transparency in a timely fashion. It is not for lack of inquiries. A series of governmental and business investigations into the handling of U.S. assistance for Russian economic reforms entrusted to Harvard began as early as 1996. That year the Government Accountability Office published a report calling USAID's oversight over Harvard's Russia project "lax." (GAO staff entrusted to me a copy of their original draft report, which is even more critical.) The following year the Justice Department embarked on its investigation. Yet another case charging Harvard University, Shleifer, and another Harvard principal with fraud was brought by The Forum Financial Group, a Portland, Maine-based mutual funds firm working in Russia. That case was settled out of court in 2002. Only recently has Harvard opened an investigation.

While these probes were in process, Shleifer's star, like that of many such players, was steadily rising, not falling. Remarkably, Shleifer has continued to testify before congressional committees and publish articles in reputable journals as an expert on corruption, work with a World Bank anti-corruption unit, and write for Foreign Affairs on the supposed success of Russian "reforms"--without disclosing his role in crafting them. He was awarded the American Economic Association's prestigious John Bates Clark Medal in 1999. And, of course, he remains a tenured full professor at Harvard."

The Rape of Russia, by Anne Williamson

Academic Pigs at the Public Trough

"The new paradigm" economy concocted by the Harvard-connected Clinton Administration appointees in the U.S. Treasury, was designed to extend the federal government’s meddling hand worldwide through its control of the multilateral and bilateral public lenders, enabling government a free ride on the back of a re-structured U.S. economy grown vigorous and ever more innovative on account of the benefits the Reagan era’s low taxation, moderate inflation, reduced regulation and expanding world trade had delivered. The overall scheme works as follows:

Sell assistance programs on an alleged "free market" and "humanitarian" basis by awarding government grants to those academics who can be relied upon to supply the intellectual camouflage politicians and journalists then repeat ad nauseum to a distracted public, move the IMF and the World Bank to target, induce target to raise taxes, fine tune target’s central banking operations, encourage borrowing and debt creation through the target’s government and its national banks, allowing IMF lending to pay yields if necessary; induce target to privatize national property while building a flimsy, artificial "infrastructure" for an equities market good enough to attract high risk foreign investors. Once the target nation’s government flounders, step back and watch speculators assert discipline through a run on the target’s currency. The subsequent devaluation delivers, in turn, a flood of cheap imports to American manufacturers and producers.

The finishing touch on the swindle is to confiscate more money from G-7 citizens (the lion’s share from Americans) to pay for what is said to be an "essential" IMF bailout; thereby allowing Uncle Sam’s IMF minions to entrench themselves more deeply in the target’s government. Taxes are raised, the population struggles beneath indebtedness, government funding demands and the inevitable domestic inflation a devaluation delivers. Western neo-colonialists then bully the target over its rapidly compounding debt in order to extract yet more property. Once successful, the world’s insiders then turn around and deliver cheap shares from privatizations and initial public offerings into the maw of U.S. mutual funds and portfolio investors. US taxpayers get hit coming (foreign aid) and going (bailouts) and innocent foreigners’ property is finagled away either from, or on account of, inattentive and corrupt leaderships. The big winners are the world’s increasingly corrupt and cozy governing class, international bureaucracies and global banks.

What U.S. policy has wrought across much of the post-cold war landscape is a moral, political and financial abomination based on fraud, theft and deceit. In Russia the results of the Clinton Administration’s policies are the perpetuation of the longest depression of the 20th century in what is increasingly an unpoliced deadly weapons dump, the biggest swindle of national property since Vladimir Lenin muscled the country early in the century and the discrediting of the ideas of free markets and democracy.

The Chickens Come Home

But as the old saying has it, what goes around comes around. Unfortunately, all those dollars the Fed printed to get Bill Clinton re-elected in return for Alan Greenspan’s third appointment as central bank chief, are now returning to the United States in the form of manufactured goods and commodities with which U.S. producers can not compete on price.

When exchange rates fluctuate against one another as they do now, some countries will inflate more quickly than other countries. The G-7 are the only nations that try to co-ordinate their monetary policies and the effort usually ends up a failure over time. When one country inflates too quickly, the value of its currency will decline.

Some governments - especially those with an election on the horizon - actually want to devalue since national exporters, their goods now being cheaper, sell more goods. Global lenders like the IMF are also fond of devaluations because a rising national income from bargain exports leaves plenty in the national kitty for principal and interest payments to them. (Global direct investors who stick to the dollar, quasi-"good guys", fear devaluations, because their profits calculated in a devalued domestic currency buy fewer dollars for repatriation.)

But when exchange rates depreciate rapidly the specter of capital flowing out of a country appears. Foreigners and residents put their savings elsewhere. The currency goes into free fall, its value plummets, more investors flee and at the end of the cycle, interest rates skyrocket. This is exactly what happened in Asia in 1997, in Russia in 1998 and in Brazil in 1999.

One World, One Currency, One Tax Collector

Yet to curse the speculators is useless; since the 1973 collapse of Bretton Woods that broke the international link between the dollar and gold, the fear of the syndrome described above is the only remaining bit of discipline in the international system. How much better, the globalists reason, if there were to be one central bank and one fiat currency for everyone so that then national leaderships (and the financial oligarchies they sustain) could inflate and rob their own populations in unison.

In time, U.S. corporate profits will decline as a consequence of the IMF-induced deflation and share prices of all but premiere multinational corporations will follow suit. Alas, those Americans up to their necks in credit card debt may well be the next class of debtors to be rolled, and American farmers are already suffering serious losses from the collapse of farm commodities prices. In time, credit will dry up, government receipts will dwindle, the national debt will skyrocket and unemployment will increase. Eventually the government will inflate its way out of its accumulated debt.

Camdessus & Fischer: the Inmates Run the Asylum

Before concluding my remarks, I would like to recall one curious and mostly unremarked detail from 1994, that sticks out in this sad story like a boy’s unruly cowlick. In mid-July 1994 - at the very moment dollar-based Mexican tesobonos were being oversold to prosperous clients of Goldman Sachs and other U.S. investment banks, which, in turn, would lead to the 1995 Mexican bailout and the introduction of moral hazard into the world’s financial system - Michel Camdessus told a press conference that he intended to press for the creation of a new IMF facility to give members resources with which to defend themselves against speculative attacks in financial markets.

In other words, long before bailouts of entire countries became routine Camdessus wanted a new loan program to feed the last disciplinarians in the world’s financial system - currency speculators - so that national governments might become even more unaccountable to their citizens. At the time, The Economist slammed the proposal, saying it was "absurd and almost certainly unworkable," since Camdessus "bizarrely" was assuming the IMF would know more about economic fundamentals than the markets. And that assumption, The Economist noted, was the very assumption which had been the undoing of the USSR’s centrally planned empire. But Camdessus’ 1994 plan is the very one the Clinton Administration implemented and seeks to institutionalize.

So who wags the tail of the money dog? Citizens who labor to create wealth for themselves and their families or folks like IMF chief Michel Camdessus, a French socialist and lifetime bureaucrat, and his deputy, Stanley Fischer, who together are quite possibly the two most incompetent people on the planet? Sadly, it appears a once free people are slowly but surely being enserfed to globalism’s useless hors d’oeuvres eaters and incompetent lenders.

It doesn’t take a conspiracy theory to observe that the downward arc of citizens’ liberties, independence and civic competence and of American culture generally parallels the declining value of the U.S. dollar, which has lost 99 percent of its value since the founding of the Fed, and 75 percent of that debasement has occurred since the last link with gold established by Bretton Woods collapsed in 1971. From that perspective, it’s really not very surprising that at the end of the century, not quite a century after America instituted the Federal Reserve and thereby began the process that would deliver the power of creating unlimited debt to the political class, the White House is occupied by a couple who share not so much a marriage as they do a collection of felonies.

Throughout the 1990s, finance capitalism’s shills have been a "new paradigm" economy so glorious one might have thought Beatrice awaited us each and every one at the very lip of Heaven itself. Their brassy tune celebrated the defeat of the business cycle by globalization, productivity gains and computer technology. Inflation was tamed, the golden horns sounded, and we were to dwell eternally in lush fields of full employment, low interest rates and a booming stock market. And, insiders winked, foreign money once mugged by speculators would have nowhere else to go but directly into Wall Street’s money machine.

But what if - instead of Beatrice - what waits over our collective shoulder down Purgatory way is a repeat of the European currency instabilities of the 1930s, which culminated in the most vicious and widely-fought war in world history?

Mother Russia

From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading Wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

But where, in a land in which today more of the people die each year than are born, lies the gain? History’s yardstick will measure out the answer, and I suspect it will not suit us.

[Jun 2, 2008] Andrei Shleifer, Billionaire?

David Warsh has a great piece on Andrei Shleifer this week. Shleifer is known as a first-rate economist, and is also notorious for some shenanigans in Russia in the 1990s; Warsh makes a strong case that it's time "to close the book on Andrei's Shleifer's role at the center of Harvard's Russia scandal".

Shleifer also reveals the sheer size of the funds which were founded by Shleifer and his wife, Nancy Zimmerman. Zimmerman's hedge fund, he says, now has $3 billion in assets under management, while LSV Asset Management, which was co-founded by Shleifer, has an astonishing $66 billion in AUM.

Which makes Warsh's tentative stab at Shleifer's net worth extremely modest: "together the pair, through their start-ups, may have amassed net worth of $40 million or more," he writes. Going on those AUMs alone, my guess is that the Shleifer-Zimmerman family has a net worth of vastly more than $40 million, and quite possibly something in the billion dollar range.

In fact, the $3 billion number for Bracebridge Capital, Zimmerman's fund, is two years old; if she's merely performed in line with other $3 billion funds circa 2006, my guess is she might well be at double that level right now.

Zimmerman founded Bracebridge in 1994 with $55 million; she's been in there since day one, collecting what we can reasonably assume to be 2-and-20. We can also assume, from the 50-fold increase in AUM, that her investment returns have been very good. And since she's the founder, we can assume too that the vast majority of her wealth has been (re)invested in Bracebridge.

The reason that hedge fund managers can get so magnificently wealthy is that they take their enormous fees, reinvest them in their own funds, earn high returns, and get paid even greater fees the next year. By the time a fund reaches $3 billion, it's not uncommon for the founding partner to be a billionaire. But in any case, if Bracebridge is at $3 billion and is making 2-and-20 on, say, 12% returns, then that works out at $132 million per year in performance fees. Even if less than half of that goes to Zimmerman personally, it's likely to have compounded to something in the billion-dollar range by now: after all, she's been in the business for 14 years, which is a long time to be compounding alpha.

As for Shleifer himself, Warsh reports that he sold his share in LSV "for a large but undisclosed sum several years ago". How large is that sum likely to have been? Well, LSV probably didn't have $66 billion under management back then, but on the other hand it was probably growing quite fast. Let's say that Shleifer had a 30% stake in the company, that when he sold out there was $30 billion of funds under management, and that he sold at a valuation of 4% of AUM. That would mean he received $400 million for his stake. (It's also fair to assume that the proceeds were invested well, and have grown substantially since then.)

The real numbers might be lower than that - or they might be higher, we don't know. But between Zimmerman and Shleifer, it's probably reasonable to assume that they could quite easily lose $40 million down the back of the sofa and not notice. These guys are rich.

[Jun 1, 2008] A Normal Professor by David Warsh

Economic Principals

First, a reminder of the outlines of the story. A kid, newly emigrated with his family from Russia, turns up at Harvard, still learning English, and is assigned J. Bradford Delong as a roommate. (Today DeLong is professor of economics at the University of California at Berkeley, where, among many other pursuits, he maintains a popular blog.) A year later, he is adopted as research assistant by MIT assistant professor Lawrence Summers, and begins a meteoric rise. He earns his PhD at MIT, demonstrating the advantages of an innocent eye with a remarkable thesis titled “The Business Cycle and the Stock Market.” He spends a year teaching at Princeton (where he acquires a disciple in Edward Glaeser, then an undergraduate, today a Harvard professor), then goes on to Chicago. He meets and marries Zimmerman. Five years out of graduate school, Andrei Shleifer returns to Harvard and goes to Russia as head of Harvard team advising President Boris Yeltsin on behalf of the US government.

In 1997, he is discovered to be investing in Russia, along with his wife, deputy, deputy’s girlfriend, and their in-laws. He and Harvard are fired by the State Department, the project collapses, and its failure used to discredit both Yeltsin and US ambitions in Russia. He maintains that he was within his rights. In 1999, Shleifer wins the John Bates Clark Medal, awarded every two years to the most influential economist under forty. And, in 2000, the US Department of Justice abandons its criminal investigation of him and instead files a huge civil suit. Harvard and Shleifer dig in their heels and begin a protracted battle. Summers, soon after president of Harvard University, stands by his protégé throughout.

In 2005, the government finally wins its case, including the return of $25.2 million from Harvard. Shleifer capitulates, paying $2 million in fines. Harvard deprives him of his endowed chair. The Russia case is closed. But not before, in 2006, his handling of it helps cost Shleifer’s old friend Summers the presidency of Harvard.

So what’s changed?

First of all, Shleifer’s defenders, at least those who followed the case, now acknowledge he shouldn’t have been investing in Russia while officially advising its government. Moreover, most recognize the negative effect when a Russian expatriate with close links to the US Treasury Department (and, in anti-Semitic Russia, a Jew), is seen to be running a family business out of his USAID-financed Harvard office in Moscow.

A little more attention has been paid to the role of wife may have played in egging him on. Shleifer’s long-promised defense of his actions has not materialized.

[Oct 15, 2006] Economist Andrei Shleifer demoted by Harvard

It appears, now that his best friend, Larry Summers, is no longer Harvard president, that Harvard has finally slapped the wrist of superstar economist Andrei Shleifer for costing the university $26 million in fines, plus enormous legal fees. The Boston Globe reports:

Harvard strips economist of title for violating ethics rules
By Marcella Bombardieri. Globe Staff

Star Harvard economist Andrei Shleifer has been stripped of his honorary university title, following an investigation into whether he violated the university's ethical rules while advising the Russian government.

This morning, the entry for Shleifer in the on-line campus directory changed from "Whipple V.N. Jones Professor of Economics," to simply "Professor of Economics." A Harvard spokesman confirmed that the new title was accurate.

[By the way, that's a great name for an Old Harvard Man: Whipple VanNess Jones. He was founder of the Aspen Highlands ski mountain. (Does that make him a mogul mogul?) The name "Whipple Jones" was borrowed for a character on the soap opera The Bold and Beautiful]

The title, known as a "named chair," is an honor bestowed upon a distinguished senior professor. However, at Harvard, named chairs are generally not tied to salary, so the loss of the title doesn't mean that Shleifer will be penalized financially. The title "professor," indicates that he will retain tenure.

"I was a Professor of Economics last week, and I am a Professor of Economics this week," Shleifer said in a written statement. "My students, my colleagues and my work are what matter to me."

It is unclear if he faces other punishments. Shleifer was found by a judge to have conspired to defraud the federal government by making personal investments in Russia while advising the country on the United States' behalf. In a settlement with the U.S. Department of Justice, he agreed to pay $2 million. Harvard agreed to pay $26.5 million, and a former Harvard staff member, Jonathan Hay, agreed to pay between $1 million and $2 million.

Harvard's interim dean of the Faculty of Arts and Sciences, Jeremy R. Knowles, acknowledged this week that the university had concluded its investigation, and said "appropriate action" had been taken. But he said Harvard would not comment on the nature of the action. Shleifer issued a brief statement Thursday saying he was "delighted" to have the matter behind him.

Controversy over Shleifer hurt former President Lawrence H. Summers, because some professor suspected he had intervened on behalf of his fellow economist, a close friend, even though Summers recused himself from the case.

Neither his critics nor his supporters were pleased by the change in Schleifer's title.

"Does that place him in an extraordinarily embarrassing position? I don't think so," said mechanical engineering professor Frederick H. Abernathy, who has denounced Harvard's handling of the case. "If students put two or three lines in a paper without a proper quote, they are hauled before a [disciplinary] board and they are often given six month off."

Economics professor Lawrence F. Katz called the disciplinary action gratuitous.

"Andrei Shleifer is one of the finest social scientists on the planet, a huge magnet for students and a wonderful colleague," he said. "I don't think we should be playing games with names of chairs.

So, will the economics profession ever discipline Shleifer for his role in the looting of Russia, or is he too connected? In 2003, in the middle of the scandal, he was appointed editor of the by the American Economics Association. Fellow big name Harvard economist Edward Glaeser denounced prominent investigative journalist David McClintick's Institutional Investor report on Shleifer as "a potent piece of hate creation—not quite 'The Protocols of the Elders of Zion,' but it's in that camp."

[Mar 25, 2006] Harvard's role in US aid to Russia - The Boston Globe

By Janine R. Wedel |

March 25, 2006

WHEN LAWRENCE Summers resigned the Harvard University presidency last month, his action was attributed in large part to difficulty in human relations. Whatever the true reason, when Summers's legacy is examined, he should be held to account for his role in a scandal with which he was intimately involved, both as a Treasury official and at Harvard. Yet the strange saga of Harvard's involvement in US aid to Russia in the 1990s is more than a scandal about Summers and Harvard. The case illustrates the overall failure of the US accountability system.

Ten years ago my article about the role of the US-funded Harvard advisers in Russia's economic reforms exposed their maze of networks. I analyzed the web of interconnections that enabled Harvard economist Andrei Shleifer, a friend of then Treasury official Lawrence Summers, and a close-knit group of Russians and Americans to largely shape US economic aid policy and Russian economic ''reforms" while managing virtually the entire nearly $400 million US flagship economic aid project. Summers helped Shleifer and Harvard gain noncompetitive government awards through arrangements that were highly unusual in foreign aid contracting at the time, according to US officials.

This maze of networks guaranteed the Harvard players their success in the 1990s. It also enfeebled the multiple investigations of their activities during the same period. Although the US Justice Department filed suit in 2000 (following a three-year investigation), alleging that Shleifer and Harvard had conspired to defraud the US government, the case came to a head only last summer with a negotiated settlement that required the university to pay $26.5 million in fines and Shleifer to pay $2 million. And despite being versed in Summers's entanglements, in 2001, the Harvard Corporation, with sole authority to hire and fire the Harvard president, appointed him the university's president.

The Harvard case points to the failure of modern democracy to adapt its monitoring and accountability systems to a new breed of players exemplified by Shleifer. These peripatetic players have gained influence in the reorganizing, networked world in which authority has been diffused by the profusion of government outsourcing contracts and the end of the Cold War.

The result is that accountability has been undercut by relationships between governments and contractors that are too tenuous, flexible, and ambiguous to be genuinely monitored. Shleifer, for example, played sometimes indistinct and overlapping roles as he lobbied in favor of his projects and advised both the United States and Russia while making investments for his own personal gain, all the while presenting himself as independent analyst and author. The endowment funds of both Harvard and Yale gained access to valuable investments through networks inhabited by Shleifer and/or his currency-trading wife. His investments in Russia, which he does not deny, included securities, equities, oil and aluminum companies, real estate, and mutual funds -- many of the same areas in which he was being paid to provide impartial advice.

Shleifer's defense in the Justice Department's lawsuit is revealing: Although US prosecutors charged that his investments violated federal conflict-of-interest regulations, defense lawyers maintained that he was a ''mere consultant," and thus not subject to these rules. Yet as director of the project, the buck stopped with him.

The system is virtually incapable of dealing with such players' infractions and lack of transparency in a timely fashion. It is not for lack of inquiries, including a 1996 Government Accountability Office investigation and a lawsuit brought by a US mutual funds firm working in Russia, which was settled out of court in 2002.

Traditional accountability frameworks are no match for the ways in which today's diffused authority provides new opportunities for players to brandish influence, evade culpability, and gain deniability, while writing the new rules of the game. While Shleifer must pay a settlement and legal fees, it is too late for the Russian people, who, instead of wise guidance, got corruption and a system wide open to looting. Until the United States devises better ways to track the networks and activities of these new players, it is destined to have an ever more untransparent and unaccountable system, with grave implications for democracy.

Janine R. Wedel, professor of public policy at George Mason University, is author of ''Collision and Collusion: The Strange Case of Western Aid to Eastern Europe."

© Copyright 2006 Globe Newspaper Company. ...

LaurenceJarvikOnline How Harvard Lost Russia

How Harvard Lost Russia

Author David McClintick, writing in Institutional Investor, details the intricate web of corruption, fraud, and abuse, paid for by the US government through USAID, that eventually cost America Russia's friendship--an NGO called the Harvard Institute for International Development (ht Johnson's Russia List):

Since being named president of Harvard University in 2001, former U.S. Treasury secretary Lawrence Summers has sparked a series of controversies that have grabbed headlines. Summers incurred the wrath of African-Americans when he belittled the work of controversial religion professor Cornel West (who left for Princeton University); last year he infuriated faculty and students alike when he seemed to disparage the innate scientific abilities of women at a Massachusetts economic conference, igniting a national uproar that nearly cost him his job; last fall brought the departure of Jack Meyer, the head of Harvard Management Co., which oversees the school's endowment but had inflamed some in the community because of the multimillion-dollar salaries it pays some of its managers.

Then, in quiet contrast, there is the case of economics professor Andrei Shleifer, who in the mid-1990s led a Harvard advisory program in Russia that collapsed in disgrace. In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government.

Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of Summers.

In the following pages investigative journalist David McClintick, a Harvard alumnus, chronicles Shleifer's role in the university's Russia Project and how his friendship with Summers has protected him from the consequences of that debacle inside America's premier academic institution.

ff duty and in swimsuits, the mentor and his protégé strolled the beach at Truro. For years, with their families, they had summered together along this stretch of Massachusetts' famed Cape Cod. Close personally and professionally, the two friends confided in each other the most private matters of family and finance. The topic of the day was the former Soviet Union.

"You've got to be careful," the mentor, Lawrence Summers, warned his protégé, Andrei Shleifer. "There's a lot of corruption in Russia."

It was late August 1996, and Summers, 42, was deputy secretary of the U.S. Treasury. Shleifer, 35, was a rising star in the Harvard University economics department, just as Summers had been 15 years earlier when he had first taken Shleifer under his wing.

Summers' warning rose out of their pivotal roles in a revolution of global consequence -- the attempt to bring the Russian economy out from the ruins of communism into the promise of Western-style capitalism. Summers, as Treasury's second-in-command, was the architect of U.S. efforts to help Russia. Shleifer's involvement was more intimate. Traveling frequently to Moscow, he was directing key elements of the reform effort under the banner of the renowned Harvard Institute for International Development.

Working on contract for the U.S., HIID advised the Russian government on privatizing its economy and creating capital markets and the laws and institutions to regulate them. Shleifer did not report formally to Summers but rather to the State Department's Agency for International Development, or AID, the spearhead of the U.S.'s foreign aid program.

Personal affection as much as official concern prompted Summers' admonition. He had come to know that Shleifer and his wife, Nancy Zimmerman, a noted hedge fund manager, had been investing in Russia. Though he didn't know specifics, he understood just enough to worry that the couple might run afoul of myriad conflict-of-interest regulations that barred American advisers from investing in the countries they were assisting.

Summers did not restrict his warnings to Shleifer.

"There might be a scandal, and you could become embroiled," Summers told Zimmerman. "You should make sure you're clear with everybody. People might want to make Andrei a problem some day. The world's a shitty place."

Summers' warnings proved at once prophetic and ineffectual. Even as Shleifer and his wife strove to reassure their friend, they were maneuvering to make an investment in Russia's first authorized mutual fund company. Within eight months their private Russian dealings, together with those of close associates and relatives, would explode in scandal -- bringing dishonor to them, Harvard University and the U.S. government. The Department of Justice would deploy the Federal Bureau of Investigation and the U.S. Attorney's Office in Boston to launch a criminal investigation that would uncover evidence of fraud and money laundering, as well as the cavalier use of U.S. government funds to support everything from tennis lessons to vacation boondoggles for Harvard employees and their spouses, girlfriends and Russian pals. It would, in the end, be an extraordinary display of an overweening "best and brightest" arrogance toward the laws and rules that the Harvard people were supposed to live by.

Says one banker who was a frequent visitor to Russia in that era, "The Harvard crowd hurt themselves, they hurt Harvard, and they hurt the U.S. government."

Mostly, they hurt Russia and its hopes of establishing a lasting framework for a stable Western-style capitalism, as Summers himself acknowledged when he testified under oath in the U.S. lawsuit in Cambridge in 2002. "The project was of enormous value," said Summers, who by then had been installed as the president of Harvard. "Its cessation was damaging to Russian economic reform and to the U.S.-Russian relationship."

Reinventing Russia was never going to be easy, but Harvard botched a historic opportunity. The failure to reform Russia's legal system, one of the aid program's chief goals, left a vacuum that has yet to be filled and impedes the country's ability to confront economic and financial challenges today (see box, page 77).

Harvard vigorously defended its work in Russia, but in 2004, after protracted legal wranglings, a judge in federal district court in Boston ruled that the university had breached its contract with the U.S. government and that Shleifer and an associate were liable for conspiracy to defraud the U.S. Last August, nine years after Summers and his protégé took their stroll along that Truro beach, Harvard, Shleifer and associates agreed to pay the government $31 million-plus to settle the case. Shleifer and Zimmerman were forced to mortgage their house to secure their part of the settlement.

Russia's struggles today certainly don't result entirely from Harvard's misdeeds or Shleifer's misconduct. There is plenty of blame to share. It is difficult to overstate the challenge of transforming the economic and legal culture, not to mention the ancient pathologies, of a huge, enigmatic nation that once spanned one sixth of the earth's land surface, 150 ethnicities and 11 time zones. The Marshall Plan, by comparison, was simple.

Summers wasn't president of Harvard when Shleifer's mission to Moscow was coming apart. But as a Harvard economics professor in the 1980s, a World Bank and Treasury official in the 1990s and Harvard's president since 2001, Summers was positioned uniquely to influence Shleifer's career path, to shape U.S. aid to Russia and Shleifer's role in it and even to shield Shleifer after the scandal broke. Though Summers, as Harvard president, recused himself from the school's handling of this case, he made a point of taking aside Jeremy Knowles, then the dean of the faculty of arts and sciences, and asking him to protect Shleifer.

Months after Harvard was forced to pay the biggest settlement in its history, largely because of his misdeeds, Shleifer remains on the faculty. No public action has been taken against him, nor is there any sign as this magazine goes to press in late December that any is contemplated.

Throughout the otherwise voluble university community, there has been an odd silence about the entire affair. Discussions mostly have taken place sotto voce in deans' offices or in local Cambridge haunts, such as the one where a well-connected Harvard personage expressed deep concern, telling II: "Larry's handling of the Shleifer matter raises very basic questions about the way he governs Harvard. This is fraught with significance. It couldn't be more fraught."

The silence is now beginning to break, thanks to the leadership of academic worthies like former Harvard College dean Harry Lewis, who is finishing a book about the university to be published in the spring by Perseus Public Affairs. Lewis agreed to show II the manuscript, in which he asserts, "The relativism with which Harvard has dealt with the Shleifer case undermines Harvard's moral authority over its students."

Russia Monitor

The Gang That Couldn’t Do Capitalism Straight

The Wall Street Journal Europe

March 2, 2001

The Gang That Couldn't Do Capitalism Straight

By Paul Klebnikov

Big Biznis, Russian-style, functions according to some strange rules. If you have a market rival who threatens you, you can simply murder him. If you want to take over a big state-owned company, you bribe the relevant official to give it to you. Then, instead of investing in this company and growing it, you soak it of all the cash flow and park the money in your personal offshore account.

Why did Russia go wrong? How did Russians get such a warped conception of capitalism? Westerners pondering this mystery may find some answers by looking at the people who taught Russian businessmen what it means to be a capitalist.

One of their first and most important modern role models was Marc Rich. The fugitive American commodities trader -- most recently of Clinton pardon fame -- traded Soviet oil and aluminum for years. But he really hit his stride after 1989, when the Soviet Union began falling apart and corrupt Communist Party bosses and unscrupulous young traders from the Communist Youth League began staking their claims to Russia's most valuable assets.

Russian officials, including former trade minister Oleg Davydov, have asserted to me that Mr. Rich's companies set a bad example of how to set up shell companies in obscure offshore tax havens, how to open Swiss bank accounts, how to buy Russian commodities at the domestic price (5% or 10% of the world market price) and resell them abroad at a huge profit. Mr. Rich's commodity business boomed: In the early 1990s, he sold billions of dollars of Russian oil, and thanks to his purchase of Russian aluminum, he came to control a third of the world spot market of this metal.

The corruption of Russia's new business class stems from much more than one person's influence, of course. The deeper problem is that the Russians have long had a completely perverted understanding of capitalism and the West. Indeed, news of the Marc Rich pardon was received with little surprise in Russia. I suspect that the tycoons see this is as just a routine example of the corruption rampant in America.

Over the past decade, whenever I asked Russian tycoons why their market was so penetrated by organized crime, they always argued that capitalism in the United States had been violent and lawless initially too. Many Russian businessmen related to some fantasy image of modern America, too. In 1993, having heard that a dozen bank presidents had been assassinated in the mob war raging in Moscow, I asked the head of Aeroflot Bank if he was nervous being a banker. "Why should I be?" he replied. "There is nothing unusual in this. Bank managers get killed in the West all the time."

Such references can come from the most sophisticated people; even Anatoly Chubais, the architect of Russian privatization. "During the formation of capitalism in the United States, there was a phenomenal amount of killing, bloodshed and lawlessness," Mr. Chubais pontificated to me.

The difference, obviously, is that in the U.S., gangsters and criminals operated on the fringes of society and usually ended up in jail. In the new Russia, they came to dominate the nation's business and politics.

Why was the democratic government of Boris Yeltsin so deeply corrupt? In 1996, I posed the question to Boris Berezovsky, a car dealer who had acquired Russia's premier television, airline and oil companies and become the country's most influential businessman. He also offered a familiar excuse for the triumph of organized crime in Russia: "I, for one, know that a mass of people in the West are corrupted," he said. "There are incessant denunciations of high-ranking functionaries in the United States, in France . . . Mayors of major cities are being thrown in jail."

Where did the Russian oligarchs get such twisted ideas? All of Russia's big businessmen were members of the communist establishment and received the best Marxist-Leninist education the Soviet Union had to offer. This upbringing

left an indelible imprint on them. Mr. Berezovsky, for instance, loves to say that he and other oligarchs are engaged in the "primary accumulation of capital." Marx used the term to describe the most primitive stage of capitalism -- the way a medieval baron would loot and pillage his way to his first fortune.

Often I tried to disabuse the biznismen of the notion America's early capitalists were simply crooks or gangsters who had made good. Their success was due to innovation, hard work and steady reinvestment in their businesses, I pointed out. They had earned their money honestly, had paid their taxes and had succeeded in a market that gave all participants an equal chance. I was met with disbelief, and smirks, by my Russian acquaintances. Surely I was smart enough to understand that any successful human endeavor was accompanied by intrigue and double-cross?

At any rate, the new Russian kapitalisty are a completely different species from the pioneers of American capitalism. The Robber Barons of the 19th century presided over the biggest economic boom the world had ever seen. Rockefeller created the world's largest oil industry. Carnegie built the world's largest steel company. J.P. Morgan mobilized American capital to fuel the country's industrial boom and made Wall Street a more honest marketplace. They all created something out of nothing.

Russia's tycoons, by contrast, are almost without exception mediocre businessmen. They have not created a single noteworthy business enterprise. The big state-owned companies they have taken over with their inside deals have almost all languished under their management. Not surprisingly, the Russian economy has been ravaged by the crony capitalism of the Yeltsin years (GDP contracted by 41% between 1990 and 1999). Russia has suffered the biggest catastrophe -- economically, socially and demographically -- since the Nazi invasion in 1941.

The tragic irony of Bill Clinton's pardon of Marc Rich is that it confirms Russians' worst suspicions of how the president of the United States colludes with the schemes of big businessmen. You can skip your high-minded principles, they say, we know that America is just a slightly more polished version of, well, Boris Yeltsin's Russia.

(Paul Klebnikov, 02.03.01)

From RIA Novosti
Nezavisimaya Gazeta
August 19, 1998
CHUBAIS ADMITS THAT RUSSIA IS ON BRINK OF POLITICAL CATASTROPHE
By Natalya KONSTANTINOVA

There is reason to believe that the Russian leaders will
soon overcome the psychological taboo which prevented them for
several weeks to admit the terrible but obvious fact that at
least during the past five days Russia was not only on the
brink of bankruptcy and budget collapse, but also political
catastrophe. All that time the highest-ranking Russian
bureaucrats, let alone the President, whose Friday statement in
Novgorod that there would be no devaluation of the ruble drove
all his economists, financiers and negotiators with the
International Monetary Fund into a corner, refused to admit the
obvious thing for fear of causing panic among bankers, foreign
investors and ordinary Russians, whom constant surprises had
already driven crazy. Kiriyenko, Zadornov and Livshits did not
say what everyone else kept saying all the time because Yeltsin
did not allow them to.
That argument, as might be expected, fired back:
fortunately, it has only upset the IMF and has not caused a
protest march to the Government Building. As a matter of fact,
Government officials do not preclude this possibility.
Although "we have not made any serious blunders", as a
high-ranking source in the Russian Government has told this
correspondent, and it is mostly the external factors that are
to blame, the Government lost in that critical financial
situation from the viewpoint of the reaction to the
developments, that is psychologically. This does not matter now
anyway, because in private the premier, Sergei Kiriyenko, and
Russia's chief negotiator with the IMF, Anatoly Chubais, and
some analysts close to the Government depict the present
situation in Russia in the following way.
Until the last moment the authorities had realised that
the sign of change in Russia's relations with the IMF and the
main psychological indicator would be in the long run the
admission of the fact that Russia was fulfilling its
obligations and the IMF trusted its Government.
For three days the Government also hoped that the
situation in the world and Russian markets would change for the
better, but the market did not believe us and confronted the
Government with an almost hopeless choice: realising the
disastrous reality, the Government had either to make decisions
that would have extremely serious consequences for the economy
or continue to pretend that nothing happened. In both cases (to
a lesser extent in the second case), according to Chubais, the
country would face a collapse of the banking system, the
failure of many big banks and, finally, inflation with all its
social and political concomitants and aftereffects.
In addition, the situation was compounded all the time by
the lack of unity in the IMF leadership on the night of Sunday
to Monday. At about 3 a.m. Moscow Time a high-ranking IMF
official told Chubais that the IMF was severing all relations
with Russia. Two hours later when Moscow made the decision on a
new ruble/dollar exchange rate band, which had not yet been
announced, the IMF demanded that this decision be cancelled and
that the State Duma convene immediately to approve tight fiscal
measures. According to eye-witnesses, the whole affair looked
like a conversation of a deaf person with a madman.
At 7 a.m. the Government discussed such possibilities as
urgent talks between Yeltsin and Clinton or Yeltsin and
Camdessus, but Chubais assumed the responsibility for just
waiting.
It may seem at first sight that the devaluation and other
tough economic measures such as the moratorium on debt payments
to foreign creditors and the freeze on the treasury-bill market
are illegal, because they mean, in effect, confiscation of
property and capital, but the people who are linked with the
Government's Monday decisions reject this view and claim that
there have been no violations of law.
In any case, there have been no complaints or legal suits
from any victims of the new economic policy. Although the
number of such victims is growing, bankers are sticking to some
strange gentleman's agreement and this may only please the
Government and negotiators with the IMF.
However, there is a question that can't be ignored: who is
to blame? "If there are no culprits, they must be found by all
means," the same sources involved in the elaboration of the
climacteric decisions told this correspondent.
Yesterday in the afternoon Boris Yeltsin accepted the
resignation of his top economic advisor Alexander Livshits. No
other resignations and dismissals have been announced yet.
According to Yeltsin's spokesman, Sergei Yastrzhembsky,
personnel changes in the Government are possible, but there
will be no immediate shake-up.
As a matter of fact, Anatoly Chubais is categorically
against replacing Sergei Dubinin and Mikhail Zadornov, because
the replacement of the Bank of Russia Chairman and Finance
Minister is "fantastically dangerous" now.
No one can say how and when the President's "effective"
personnel policy will manifest itself and in what form.

Research Topics

Date: Thu, 20 Aug
From: Stefan Lemieszewski <stefanl@direct.ca>
Subject: Comment on "Why Call It Reform? (Stephen Cohen)

Stephen Cohen legitimately raises the question of "Why call it reform?" (The Nation; 1Sep98; JRL #2316) but does not provide an answer as to why it is called "reform." Seems to me "reform" is a very effective propaganda term--both for the West and for Eastern Europe.

For the West, reform connotes change and when used with "free markets," "democracy" and "capitalism" implies that the change in Eastern Europe is for the better, away from the evil enemy of Communism of the Cold War to something more familiar, less threatening, and preferable as a common goal. The change is anticipated to become something like us Westerners.

This deflects criticism and makes the approval for various foreign aid program funding much easier. "Reform" labelled policies can be much more easily portrayed in the media and government circles as irrefutable common sense. There is a ring of congruence to common Western values.

To the Eastern Europeans, initially "reform" connoted a change to become like the West--more opportunity, more prosperity, more freedom and thus very desirable. This hope made their citizens patient and willing to go along with the changes initially. However, after the disastrous results of a serious decline in the standard of living during the past several years, citizens of the former Soviet Union have lost much hope and are beginning to blame "reforms" and their associated reformers for the demise as their patience runs out. The latest devaluation and default in Russia only adds fuel to their fires of dissatisfaction.

Cohen speaks of "demodernization" and observes that the Russian economists are now trying to distance themselves from the "the 'neoliberal' monetarist orthodoxies of the State and Treasury departments, the IMF, World Bank and legions of Western advisers, which have done so much to abet Russia’s calamity."

The failure of these IMF/World Bank/State/Treasury programs should not come as a surprise. Economists such as Michel Chossudovsky (University of Ottawa) go further and suggest that they are by design. In his book, "The Globalization of Poverty: Impacts of IMF and World Bank Reforms" Chossudovsky writes:

"The IMF-Yeltsin reforms constitute an instrument of "Thirdworldisation"; they are a carbon copy of the structural adjustment programme imposed on debtor countries in Latin America and sub-Saharan Africa. Harvard economist Jeffrey Sachs, advisor to the Russian government, had applied in Russia the same 'macro-economic surgery' as in Bolivia where he was economic advisor to the MNR government in 1985. The IMF-World Bank programme adopted in the name of democracy constitutes a coherent programme of impoverishment of large sectors of the population. It was designed (in theory) to 'stabilize' the economy, yet consumer prices in 1992 increased by more than one hundred times (9,900 per cent) as a direct result of the "anti-inflationary programme". As in Third World 'stabilisation programmes', the inflationary process was largely engineered through the 'dollarisation' of domestic prices and the collapse of the national currency. The 'price liberalisation programme' did not, however, resolve (as proposed by the IMF) the distorted structure of relative prices which existed under the Soviet system."

Chossudovsky forewarns of these programmes and goes on to describe the collapse of civil society in Russia.

Research Topics

Date: Wed, 19 Aug 1998 09:45:47 -0400
From: Anne Williamson <awilliamson@mcione.com>
Subject: "Sdyelka", Adil Rustomjee? [JRL #2300, August 6]

Hey! You in the Yale beanie, yeah you! Adil Rustomjee! Come on down! We’ll be mighty glad to have you join the Truth Brigade, even if you are about six years too late. Why’ve you been so long in the tall grass? Nevermind, you don’t have to answer that! Honest, it’s not as if we’ve got so many recruits here we can afford to start giving them interrogatory buzz cuts upon induction.

After reading that mighty fine plea for an economic treatise cum literary masterpiece on Russian privatization you cranked out for the JRL, I gotta hand it to you, Adil. You were the clever one to hold off sounding a clarion call until after the bondsmen had swallowed their commissions, the bankers their underwriting profits, the bondholders their giddy yields, the consultants their yummie fees, the Big Six their tax-payer subsidies for their foreign start-up costs, the academics their grants and fees and the multilaterals, well, gee, like those ingenious parasites modern science has developed to eat oil spills; they just swallow and swallow and swallow and go on swallowing and now it turns out they’ve swallowed an entire people, culture, nation! Holy Moses, Adil, how we gonna wipe those whiskers clean? But sure a fella like you knows, there’s no glory amongst that crowd for letting cats outta bags.

But first, you gotta catch the cats.

So your secret decoder ring is in the mail along with your first personally-tailored assignment, as follows:

Why has the Academy stood by in silence while a single, foreign "scholar" with broadly-based financial interests in Russia, a hefty file at the Russian Federation’s Interior Ministry, a long history of pumping sunshine within the conference rooms of global investment banks, of shilling behind closed doors at the US Treasury and NSA on behalf of a certain billionaire speculator philanthropist moralist and one perky Harvard University public relations genius masquarading as an economist in pursuit of yet more US taxpayers’ cash, while posing under cover of well-known think tanks as an "objective" analyst? Hmmm?

Oh, and while you’re at it, why don’t you drop round the editorial offices of the NYT, the FT and the Weekly Standard and ask why they publish regularly said "scholar’s" analytical pieces and letters-to-the-editor written to perfume a dubious role in formulating self-serving, boneheaded policies without - here’s the unique part - informing their readers of that fact? I say we need a slew of truth-in-scholars or maybe truth-in-byline regs, Adil! That way we could clear up some of those pesky CONFLICTS-IN-INTEREST.

Oh, and Adil, since a certain allegedly heroic Russian "reformer" advised certain well-connected Russian Washingtonians that same said "scholar" is his personal emissary, don’t you think it best to check to see if this diplomatic retread has complied with US legislation and registered as a lobbyist for a foreign power? Oh, I almost forgot, see if you can get the rundown on exactly why a nascent Moscow investment bank, which said "scholar" advises, aced out the august Kleinwurst Benson in getting the particularly handsome mandate of handling Gazprom’s new 5% foreign share offering? That wouldn’t be some kind of pay-off to an accomodating mouthpiece, would it? Do you think? Could it be?

Like I said, Adil, we acolytes of the great god Shoe Leather, are just thrilled you’ve thrown your beanie in the ring. And I for one am bursting with anticipation of the literary triumph that you - "in all probability" - will spin "from basic documents found at the World Bank, Harvard, and USAID". How could the finished product be otherwise with gripping primary sources like that?

Best of luck, Adil. (Fake ruby on ring is a 2-way radio, just twist.)

Role of foreign advisers in the Russian Privatization Program. by Adil Rustomjee

From: Arustomjee@aol.com (Adil Rustomjee)
Date: Thu, 6 Aug 1998 13:18:14 EDT
Subject: Role of foreign advisers in the Russian Privatization Program.

From: Adil Rustomjee, Yale University, 135 Prospect Street, New Haven, CT 06511
Email: adil.rustomjee@yale.edu

Dear David,

Many thanks for your superb news service. Johnson's Russia List is fast becoming an excellent resource for those who work, who have worked on, or who just share a fascination with that disturbing country. I am writing this letter to humbly suggest a research topic that should be of great interest to JRLs readers. It is a subject that deserves better treatment than that received to date. The topic itself is the exact role of foreign advisers in
the Russian Privatization Program.

It is a marvelous tale waiting to be plainly told. The Russian Privatization Program, despite its subsequent vilification, ranks as one of the great experiments at social engineering in the twentieth century. It attempted an authoritative allocation of property rights - and consequently of power - within society on a scale never attempted before. It is therefore a very significant historical process, more significant in the long reach of events than even Stalin's collectivization campaigns of the 1930s. It deserves its own Robert Conquest.

The process itself went through two distinct phases - the voucher phase, and what for want of a better word, we call the "loans for shares" phase. It is the "loans for shares" phase of the program that has attracted the most attention, primarily because of its spectacular abuse by Russia's oligarchs. The real story is in the first voucher stage of the process and the dubious principles it was based on.

The entire voucher program was a product of foreign economic advice. Consider the basic timeline. The Soviet Union itself was dissolved in December 1991. In June 1992, the crucial document governing the voucher privatization effort came out - the State Privatization Program. This seminal document outlined the basic concepts behind the voucher phase of the program. It also rationalized what became a state sponsored giveaway of Russia's national patrimony to the country's managers. The implementation of the State Privatization Program document took a little over two years. By June 1994, Anatoly Chubias , Russia's privatization chief, was announcing the end of the voucher program. In a scant two years, Russia had gone from a communist country with no private sector, to a country with a private sector - that on paper at least - was larger than Italy's !!! Such progress could never have been possible without substantial foreign economic advice. It is a commonplace that privatization is essentially a "learning by doing" process.

Russia could never have gone through a learning curve in such a short time span. Its reformers basically rubberstamped a scheme conceived by Western economists in the crucial 6 month period between December 1991 and June 1992.

Yet despite this, the precise story of the economists behind the entire effort has not been told. Good attempts have been made by Janine Wedel and Anne Williamson - and I will discuss them later - but from a technical standpoint, the story has yet to be told well.

Who were these advisors and what did they achieve? Three groups of actors may be identified - academic economists, bureaucrats from the World Bank, and Western consulting firms. A close examination of the interaction between these three groups itself will offer interesting insights into the birth and dissemination of ideas. For the major ideas behind the Russian program came from a group of academics - many associated with Harvard. These ideas were picked up in the early years and became established "transition economics"
orthodoxy at the World Bank. The substantial implementation of the basic ideas was carried out by consulting firms like the Big Six working (often) on USAID contracts.

This is as it should be. Academia is usually the source of the most original thinking on economics. International bureaucrats - particularly those associated with the World Bank - are surprisingly timid and cautious people. They are institutionally incapable of boldness - and great audacity was called
for in the Russia of 1992.

Was this boldness misplaced? I believe it was. A rational examination of the process will, I suspect, lead to a damning indictment of Russia's foreign advisors. They created desolation and called it reform. The defining feature of the program was based on remarkably dubious ideas. Foremost among these was the belief that privatization was a series of payoffs - or bribes, as one of its leading advocates, Harvard's Andrei Shleifer, called it - to various " stakeholders" in the program. Given an uncertain legal environment and some
appropriation of state assets by these stakeholders, - euphemistically referred to as "spontaneous privatization" - , better to legalize what was believed to be a trough feeding frenzy. This was the program's dominant idea.

There is little empirical evidence from the early years about the exact extent of " spontaneous privatization". Anecdotal evidence abounds, especially from many near - hysterical accounts of the early 90s but the actual empirical evidence is slender. The decisions to sell a great nation's patrimony - a one shot historical phenomenon with irreversible long range implications - were basically conceived within a six month time frame by a bunch of frightened foreigners, using dubious assumptions, with little basis in empirical understanding. Astonishing.

The actual privatization was accomplished through basically giving away large segments of Russian assets - and consequently cash flows - to these stakeholders. The most notable insider stakeholders - the managers - ended up the biggest winners. They ended up owning most of Russian industry. This august group, more often than not, makes the Marx Brothers seem like models of German efficiency. For a variety of reasons, insider-owned firms are very inefficient, and indeed a long list of papers from the Bank - Fund complex testifies to this. Consequently, Russia is today reaping the whirlwind of its privatization policy. The long delayed supply-side response of the economy, that is supposed to be led by these insider-owned firms, simply refuses to happen.

To round out this stupidity ( and to make it theoretically neater), the advisors had to deal with the problem of insider ownership. They dealt with it in time honored economist fashion - they assumed it away. This was done by trotting out that most venerable of economic propositions - something called the Coase Theorem. In a series of seminal papers written at Chicago in the thirties, Ronald Coase reached a blindingly obvious conclusion on property rights. He proved that the initial allocation - or misallocation - of property rights would not matter as long as those rights could be traded till they found their highest valued end use. In other words, the advisors told the Russians, "Sure, we're making second-best or third-best policy choices on privatization , but hey guys, it doesn't matter. Through the magic of Coase, even if we misallocated the rights, they'll trade up to their highest valued end user, and we'll all live happily ever after ". Consequently, nothing mattered except getting the assets away from the government (depoliticization) and into the "private sector", thereby allowing
the Coase Theorem to work its magic.

The Russians believed this nonsense. The problems with using Coase as a rationale were commonsensical : too much monopoly power in the Russian economy and the fact that Coase himself never had anything remotely resembling Russia in mind, when he formulated the theorem. More crucially, capital markets which would be needed to trade property rights to their highest valued end use, were nonexistent or nascent, and continue to be so. One marvels at the Russians' own capacity for advice of this nature. My comfort is philosophical : It has often been said of the Russians, that they exhibit in extreme form, certain universal characteristics of the human condition.

Perhaps this tendency to extremes applies to their propensity for social engineering too.

In response to critiques of their advice, the foreign advisors resort to a "burden of proof " defense. In other words, they say, " What a pity it's a mess and had to be this way, but you'll have to prove it could have been otherwise". It is this "proving otherwise" that is a key issue. " Proving otherwise" would require a person with substantial economic expertise. Unfortunately most of the critiques of the advisors in Russia have come from people outside the economics community, which on Russia is quite tight knit.

Janine Wedel and Anne Williamson have made good first attempts . But given the enormity of the catastrophe in Russia that the advice has wrought, the definitive account will have to be from a person with some economic stature.

Who were these people anyway ? They include, Wedel and Williamson point out, Andrei Shleifer a Harvard economics professor, Jonathan Hay a freshly minted Harvard Law graduate, and Makim Boycko who was their man in Moscow. Shleifer, a Russian йmigrй who remains a tenured professor at Harvard, must have possessed the great advantage of speaking native Russian. In December 1991, Shleifer on a World Bank consultancy authored a paper titled Privatization in Russia - First Steps. It is, I believe, the first systematic attempt at outlining the program's defining feature - privatization as a series of payoffs (or bribes as he called it) to key stakeholders in the process.

Later explications of the basic idea may be found in articles he co-authored with Robert Vishny on the process. Both the unpublished document and later articles remarkably parallel the basic philosophy of the State Privatization Program of June 1992.

A sense of moral outrage over the effects of their policies - while a great temptation - has to be avoided at all costs. This is especially difficult when one considers that the principal protagonists - Andrei Shleifer and Jonathan Hay - are under investigation for alleged insider trading and conflicts of interest in Russia. [ GAO and USAID having found that they "abused the trust of the US government " etc ]. The temptation might therefore be to focus on that entire shabby episode as Wedel and Williamson have done ( in part, but only in part). There is no need for this. The charges are unproven. Besides the amounts Shleifer and Hay are accused of improperly dealing in, are a pittance, compared to the wholesale thievery their ideas sanctioned. The real story is in the voucher scheme they designed and implemented. Told coldly, rationally, and solely concerned with the truth, it will still be a great story. Behind the story after all, loom the long shadows of the millions of Russians whose lives were effected by these disastrous policies. They deserve the truth.

Will the story be told with integrity. I am afraid not. There are too many reputations and too much credibility at stake. The usual candidate would be someone of stature in academia. This is not really an option. The old Kremlinologists have been largely rendered irrelevant by the pace of events and are struggling to retool themselves. The younger economists who work on Russia, who have access to the data and hands-on experience, are the least likely candidates given the devastating outcomes of the policies they advocated. Self serving rationalizations with little intellectual integrity are all that can be expected from this group. Witness for example, Anders Aslunds' comic absurdity "How Russia became a Market Economy". If Russia is a market economy, then I, sir, am a monkey's uncle ! Finally it would be too much to expect the protagonists themselves - Shleifer and his collaborators - to say " We were wrong, terribly wrong". An old man named Robert McNamara looking back on his life, said that about a war that ended twenty five years back, and look at the condemnation that brought him. It would be too much to expect Shleifer and the others - all reportedly in their late thirties and early forties - to make such an admission.

The World Bank is another candidate, but they will distort the tale. The Bank's division that does such studies - the Operations Evaluation Department - will use the standard bureaucratic boiler plate it excels at. Besides the Bank itself picked up the substantial ideas and policies from the Harvard group, and has its own credibility at stake. While some hand wringing can be expected, so can a less than zealous concern for the truth. Besides, even if it is honest, the drama of the story will be lost in the telling.

Source material may not be a problem. The basic documents, in all probability, can be found at the World Bank , Harvard, and USAID. A whistle blower might be necessary at the Bank and at Harvard. Interviews with the key protagonists would also help. The problem is none of them are talking much - either to the press or to a potential researcher (legal concerns raised by GAO or USAID investigations may be a reason). They might talk some years later - as MacNamara did after Vietnam - but that would entail a long wait.

The effort calls for a person with the technical acumen of a Milton Friedman, the long historical sweep of a Jim Billington, and the aloofness of a Padma Desai. It also calls for substantial intellectual integrity. While on the subject of the ideal candidate, it would not hurt if the person had something of a literary touch - just a touch ( this is Russia after all)!!!!! Consider for example, Tolstoy as the supreme example. In War and Peace , he looks at the Teutonic military advisors who advise Napoleon at Borodino. How Tolstoy mocks them - these pedants who reduce war in all its fog and chaos to absurd geometric theorems and matrices. Were Shleifer and gang a little like that too? Perhaps. Russian privatization will after all, prove as significant to Russia's future, as Borodino was to Russia's past, and the fog of economics hangs thick on the country. If Tolstoy could analyze and mock Napoleon's foreign advisors, and reveal them for what they were, why can't our ideal candidate do the same for Chubias' ??

Is there such a person out there?

I'd appreciate a discussion.

Russia: Reform Program's Success Critical To Global Economy By Robert Lyle

Washington, 5 August 1998 (RFE/RL) - The U.S. government's top official
dealing with international finance says the success of the Russian
government in carrying out its reform program is of the "utmost
importance economically and politically" to the global economy.

Deputy U.S. Treasury Secretary Larry Summers says Russia's continuing
structural problems have been exacerbated by "contagion effects" from
the Asian crisis. However, he says, these problems raise serious
questions about the future because Russia's troubles have the
"potential" to become those of Central Europe and the world.


Summers spoke to the Association of U.S. State Governors meeting in
Milwaukee, Wisconsin Tuesday. He noted the increasing effects on the
American economy of the Asian financial crisis -- such as dramatically
falling exports of farm products from some U.S. states -- and underlined
how important it is that other countries, like Japan and Russia, do
their part to deal with their own problems.

Summers said national financial crises have elements of a
"self-fulfilling prophecy," like bank runs, where everyone expects
failure or everyone expects everyone else to expect failure which leads
to a rush to be the first one out and thus causes failure.

That is where temporary, conditioned international support provides a
"bridge" to overcome this self-fulfilling prophecy, said Summers, and
provides a vehicle for countries to get their policies in order and to
strengthen their financial systems.

He said it is important that international assistance packages, like
those put together for Asia and Russia recently by the International
Monetary Fund (IMF), maintain a balance between building confidence and
avoiding bailouts for investors and bankers who should have known
better.

While the rescue package must not protect those who willingly assumed
serious risks, said Summers, it is "imperative to create confidence and
to avoid disaster (which) in some circumstances compel actions that do
benefit some creditors."

This shows, said the Deputy U.S. Treasury Secretary, that the role of
the IMF is "essential" in dealing with financial crises.

To abandon the fund now, he said, would be "like canceling your life
insurance when you have just gotten sick."

Summers called again on the American congress to approve the U.S. share
of the IMF's quota, or member's fee increase, as a necessary step to
assure that its capital base remains large enough to deal with the
current global economy.

The U.S. Congress has balked at approving the $14.5 billion American
share of the quota increase, as well as a U.S. contribution of $3.5
billion to a special fund for lending to the IMF when its own resources
run short.

Most congressional opposition has come from Republican party members who
either object to all international organizations or who believe IMF
assistance is a short-term panacea and eventually only makes things
worse for a national economy.

Summers said, however, that this failure to act, combined with the
refusal of Congress to pay back dues owed the United Nations, leads to
the conclusion "that we are fighting another swing of the pendulum into
perilous isolation."

Summers said America's success and economic strength is not in question,
but what is in doubt in the country's "ability to invest that success
wisely."


[Aug 06, 2005] American Chronicle Multi-Million Dollar Harvard University Scam

Jim Kouri, CPP

Jim Kouri, CPP is fifth vice-president of the National Association of Chiefs of Police and served in law enforcement for over 25 years. He writes for many police magazines such as Police Times. He's appeared as on-air commentator for over 100 TV and radio news and talk shows including Oprah, McLaughlin Report, CNN Headline News, MTV, Fox News, etc. His book Assume The Position is available at Amazon.Com. His website is located at http://jimkouri.us

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Jim Kouri, CPP August 06, 2005 Harvard University is ordered to pay back over $20 million to the US government as part of a settlement deal resulting from a multi-million dollar scam. Two Harvard employees are also ordered make restitution bringing the total settlement to $31 million.

Two senior Harvard University advisors, Andre Shleifer and Jonathan Hay were paid under a US Agency for International Development grant to lead a project to provide advice to the nascent Russian economy on privatization following the fall of communism and the creation of fair and open markets and the rule of law. The US Attorney's Office alleged that instead, Shleifer and Hay used their positions and substantial influence over Russian officials at this pivotal time in Russian history to advance their own and their spouses' private financial interests.

Under a settlement, the total repayments will exceed $31 million by Harvard University and it's two advisors. Specifically the settlement calls for Harvard to pay $26.5 million; Shleifer to pay $2 million; and Hay to pay between $1 million and $2 million. Also factored into the settlement amount total is $1.5 million already paid to the United States by FFIA, formerly known as Farallon Fixed Income Associates, LP, a company owned by Shleifer's wife, Nancy Zimmerman. In addition, Shleifer and Hay have agreed to be debarred by USAID.

The defendants were entrusted with the important task of assisting in the creation of a post-communist Russian open market economy and instead took the opportunity to enrich themselves. Such conflict of interest activities only serve to undermine important development programs, according to officials.

As evidenced by the hard fought five-year litigation of this matter, the US Attorney's Office is committed to protecting federal funding from misuse and ensuring the adherence to the requirements of government contracts.

Improper use of federal grant programs for the purpose of self-enrichment will not be tolerated," said Peter D. Keisler, Assistant Attorney General for the Civil Division. "[This] settlement demonstrates our commitment to fighting fraud and abuse against the United States wherever we find it."

The United States' case provided extensive evidence that, despite the clear terms of the agreements, Shleifer and Hay were making prohibited investments in Russia in the areas in which they were providing advice. The United States government further demonstrated that Shleifer and Hay were self-dealing by using their positions, as well as USAID-funded resources, to advance their own personal business interests and investments and those of their wives and friends.

Their self-dealing activities included using their influence over the Russian Securities Commission to which they were key advisors to secure for themselves and their wives the first ever launched and licensed mutual fund in Russia. The terms of the USAID grant strictly prohibited any investments in Russia by American advisors funded under the grant.

The Civil Complaint alleged, and the Court found, that while they were being paid by USAID, the two Harvard employees engaged in the following prohibited investments and businesses in Russia:

The United States alleged and demonstrated that Shleifer, Hay and Harvard University never disclosed any of these prohibited personal business activities and/or investments to USAID.

The Civil Complaint alleged that as a result of the misconduct of the defendants, USAID funds expended on the Project were diverted, abused and wasted. As a result of the defendants' misconduct, USAID suspended and ultimately terminated the HARVARD project in Russia.

Conflicts of interest and corruption attack at the core of what USAID strives to achieve for developing nations throughout the world and are certainly two of the most serious threats to the success of USAID sponsored programs," stated Acting USAID Inspector General Bruce Crandlemire.

Eight years of intensive investigation and tireless litigation on this case represents a firm and dogged commitment by the offices charged with the protection of federal dollars to the principle that power and influence does not provide a free pass to those who would attempt to exploit their positions of public trust for private gain."

After extensive summary judgment briefings, US District Judge Douglas P. Woodlock, in a one hundred-page opinion, found liability against Shelifer and Hay under the False Claims Act, and against Harvard University for breach of contract with USAID. At a federal civil trial, a jury found additional liability against Shleifer for his violation of the conflict of interest policy in USAID's contracts with Harvard.

Harvard's Best and Brightest Aided Russia's Economic Ruin By Sam Husseini & Janine R. Wedel

February 2000

Harvard's "Best and Brightest" Aided Russia's Economic Ruin

Institute that advised "reform" fed corruption

A 1992 front-page story in the Boston Globe (9/22/92), "Red Square Turns to Crimson," announced proudly that Harvard experts were advising Russia in its conversion to capitalism. "Privatization stands as the centerpiece of Russia's economic-reform program," wrote the Globe. It was an equation the "best and brightest" from Harvard would drum home again and again to the media: privatization equals reform. The piece quoted the head of the Harvard Russia project, Andrei Shleifer: "Once you work with Russians for two weeks, you become a free-market enthusiast."

As more becomes known about the laundering of Russian money in Western banks, many in the United States will likely try to hide behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that country's sorry conditions--with the Harvard Institute for International Development's Russia project (HIID) playing a major role.

Among those under investigation for criminal activity in both the west and Russia is longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia's economic "reforms." In the mid-'90s, Chubais and his clique of political and financial power brokers, known as the "Chubais Clan," were the darlings of the U.S. Treasury and international financial institutions--and of the U.S. establishment press.

HIID, together with the Chubais "dream team," as the Treasury Department's Lawrence H. Summers called it, presided over Russia's economic "reforms," many of them U.S.-funded, including privatization. But the so-called reforms were more about wealth confiscation than wealth creation. Privatization, which had substantial input from U.S.-paid Harvard advisors, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption and funneling of monies to Western banks.

Chubais was briefly on the HIID payroll, and he is currently head of Russia's electricity monopoly. In 1995, the Economist magazine (4/8/95) projected that Chubais would be president of Russia by 2010. But by 1998, the New York Times (3/24/98) conceded that he "may be the most despised man in Russia" since "his early efforts at privatization were widely viewed as vast federal gifts to inside operators at the expense of millions of workers who got nothing but promises they cannot redeem."

HIID was in the unique position of recommending U.S. aid polices in support of market reforms while being a chief recipient of the aid--as well as overseeing other aid contractors, some of whom were HIID's competitors. HIID, Chubais and their associates played a major role in promoting themselves and the "reforms" in the Western media; for example in a 1993 Washington Post piece (5/7/93), Shleifer complained that the Clinton administration was allowing privatization efforts to "fall through the cracks."

A New York Times "Economic Scene" column (4/20/95) led thus:

Is Russia poised for economic takeoff? After three years of on-again, off-again reforms and with the Pyrrhic military victory in Chechnya still fresh in the news, skepticism comes easily. But little by little, wary analysts are abandoning their caution. "Russia is a real market economy now," says Andrei Shleifer, an economist at Harvard who has advised the Russian government on privatization
Some of those associated with HIID allegedly profited directly from it. HIID helped established Russia's Federal Commission on Securities, roughly the equivalent of the SEC in the U.S. It was officially established by Yeltsin proclamation, and funded by the U.S. government through institutions run by those around the Harvard-Chubais coterie. The first mutual fund licensed by the Commission was headedt man in Moscow.

Hao have benefited from HIID's Russia connection. Harvard Management Company, the university's endowment fund, was allowed to participate in choice auctions of Russian government property, despite the fact that foreign investors were supposed to be excluded under auction rules.

In 1996, the GAO found that U.S. oversight over Harvard was "lax," and, following allegations in 1997 that Shleifer and the other Harvard principals used their positions and inside knowledge as advisers to profit from investments in Russia, the U.S. government cancelled the last $14 million earmarked for Harvard. Shleifer, now under investigation by the Justice Department, was dismissed by HIID. (Still, Shleifer, who is a protégé of Treasury Secretary Summers, received the Clark Award from the American Economic Association this year, an award that Summers, who has been the architect of economic policy toward Russia, received in 1993. The association's president-elect, Dale Jorgenson, said Shleifer's scandal "was not even mentioned" in their considerations--New York Times, 4/26/99.)

In Privatizing Russia, co-authored by Shleifer with Chubais associate Maxim Boycko, they acknowledge that "aid can change the political equilibrium--by explicitly helping free-market reformers to defeat their opponents." Richard Morningstar, U.S. aid coordinator for the former Soviet Union, concurred (Collision and Collusion, Wedel): "If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais."

Leonid Krutakov, Russian investigative reporter for the publication Moskovsky Komsolets noted that throughout the Yeltsin years, "both the foreign and domestic press created a central deception--a false set of 'alternatives.' The idea was pushed on both sides of that Atlantic that if you didn't support Chubais, you were supporting the communists." Krutakov, who has broken many of the scandal stories, noted (eXile, 10/23/99):

Obviously it's difficult to come into a country blind and just evaluate the situation instantly. You draw your conclusions from people you meet. Western reporters came in and talked to Chubais, and Chubais tossed words around like "market," "profit," "openness"--all the right words. And this was the only view point of view they heard that made sense, as far as they knew.

See FAIR's Archives for more on:
Russia

The real Larry Summers scandal?

I've written maybe 10,000 words in defense of Harvard President Lawrence Summers's much-denounced speech last year on why women haven't achieved gender equality with men in elite universities' math, science, and engineering departments. But that doesn't mean he's without flaw. Indeed, it looks like Summers was peripherally involved in the Scandal of the Century, the looting of post-Soviet Russia, or at least he dragged Harvard through the legal mud in a misguided attempt to protect a close friend who had gone over to the dark side.

Back in 1993, my elderly father would rant that those Harvard consultants who were advising the Yeltsin government on liberalizing the post-Soviet economy were ripping off the Russian people. Being a true believer back then in the Magic of the Free Market, I pooh-poohed his concerns.

Well, my dad was right and I was wrong. We all understand the superiority of the free market these days, but in any kind of market, it still matters very much who owns what. The "reform" of the Russian economy turned out to be one of the great larceny sprees in all history, and the Harvard boys weren't all merely naive theoreticians. Veteran economics journalist David Warsh's EconomicPrincipals.com reported in 2004:

The US government's long-running wrangle with economist Andrei Shleifer and Harvard University over Harvard's ill-fated Russia Project in the 1990s was resolved last week, in the government's favor.

A Federal judge ruled that, by quietly investing on their own accounts while advising the Russian government, Harvard professor Shleifer and his Moscow-based assistant Jonathan Hay had conspired to defraud the US Agency for International Development (USAID), which had been paying their salary.


Harvard had to pay $26 million and Shleifer $2 million in fines.

The Russian-born 45-year-old Shleifer is a superstar of the economics profession. Like Summers, he is the winner of the Clark Medal, the award for top economist under 40. Shleifer became the editor of Harvard's Quarterly Journal of Economics at the age of 28, and is now editor of the American Economic Association's Journal of Economic Perspectives.

Warsh's website reported in 2003:


"Then, too, Shleifer's oldest friend in economics is Lawrence Summers -- who, first as Undersecretary of Treasury for International Affairs, then as Deputy Secretary, was to all intents and purposes his ultimate boss during the period of the alleged transgressions, even though they were separated by several layers of governmental hierarchy."


Summers and Shleifer have vacationed together each year.

Recently, Institutional Investor printed a long expose by investigative reporter David McClintick (author of Indecent Exposure on movie executive/criminal David Begelman, who forged actor Cliff Robertson's name on checks) that begins:


How Harvard lost Russia
Source: Institutional Investor Magazine, Americas and International Editions
David McClintick

The best and brightest of America's premier university came to Moscow in the 1990s to teach Russians how to be capitalists. This is the inside story of how their efforts led to scandal and disgrace.

Since being named president of Harvard University in 2001, former U.S. Treasury secretary Lawrence Summers has sparked a series of controversies that have grabbed headlines. Summers incurred the wrath of African-Americans when he belittled the work of controversial religion professor Cornel West (who left for Princeton University); last year he infuriated faculty and students alike when he seemed to disparage the innate scientific abilities of women at a Massachusetts economic conference, igniting a national uproar that nearly cost him his job; last fall brought the departure of Jack Meyer, the head of Harvard Management Co., which oversees the school's endowment but had inflamed some in the community because of the multimillion-dollar salaries it pays some of its managers.

Then, in quiet contrast, there is the case of economics professor Andrei Shleifer, who in the mid-1990s led a Harvard advisory program in Russia that collapsed in disgrace. In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government.

Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of Summers.

In the following pages investigative journalist David McClintick, a Harvard alumnus, chronicles Shleifer's role in the university's Russia Project and how his friendship with Summers has protected him from the consequences of that debacle inside America's premier academic institution.


Summers's enemies within the Harvard faculty circulated copies of this article just before his resignation. (And here's another article by Warsh on Summers's costly defense of Shleifer.)

Warsh writes:


How did the defendants in the Russia project --Harvard, Shleifer, Hay and, though he was not charged with wrong-doing in the matter, Summers -- convince the [New York] Times, the [Washington] Post and the Financial Times that the collapse of [Harvard's] Russia Project was not a worthy story? What did they say, and how did they say it? To whom, and how often? Let me stress that there is absolutely no question of actual money ever changing hands -- of bribery. At the pinnacles of capitalism, the influence exchange is so deep and liquid that cash is almost never required, except, perhaps, within organizations, in the form of golden handshakes and the like.

Instead, the informal economy of capitalism is one of deference and respect, of favors today and the implicit promise of favors later, of jobs and dinner invitations and admissions to exclusive kindergartens.... Anyone who doubts that this informal economy extends to newspapers knows nothing about how newspapers work.

For at its heart, the Shleifer matter has always had less to do with the failure to export American values to Russia than with the inadvertent importation of Moscow rules to institutions in the United States. That's why Harvard's cockeyed defense is so alarming, why Shleifer's elevation to positions of ever-greater authority in the economics profession is worrisome. No one doubts that he is an original and productive economic thinker. The good news is that it was Shleifer who, as editor of the Journal of Economic Perspectives, published McMillan and Zoido's article on Montesinos [the corrupt Peruvian spymaster who paid much higher prices to suborn media owners than judges or politicians]. That's the bad news, too, since the editorship confers vast and global favor-trading power.

The worst thing of all is that, starting with his long-time mentor Larry Summers, Sheifer's friends don't seem to understand that they failed the young Russian émigré in the first instance, that they in turn have been betrayed and embarrassed. It is true, as Edward L. Glaeser and Claudia Goldin write in their introduction to the forthcoming "Corruption and Reform: Lessons from America's Economic History" that the United States "changed from a place where political bribery was a routine event infecting politics at all levels to a nation that now ranks among the least corrupt in the world." But it is also true that American aid-giving abroad in the 20th century (Herbert Hoover, George C. Marshall, Creighton Abrams) has been remarkably free of high level corruption -- until now.


Why didn't the press do a good job of covering Russian corruption and the Harvard scandal? Well, who was disproportionately involved in the corruption at both the Russian and Harvard ends? I, for one, had no idea until I read Amy Chua's 2003 book World on Fire about "market dominant minorities," that six of the seven "oligarchs" who paid for Boris Yeltsin's 1996 re-election in return for the privilege of buying ex-Soviet properties at absurdly low prices (e.g., Mikhail B. Khodorkovsky was put in charge of auctioning off Yukos Oil, which owns about 2% of the world's oil reserves -- he sold it for $159 million to ... himself) were Jewish. (Five Jewish on both sides of the family, one on one side). And that's in a country where the Jewish population is about one percent.

For some reason, the American media hadn't been very enthusiastic about publishing that highly interesting fact in the seven years following the 1996 Russian election. We all saw what happened to Gregg Easterbrook in 2003 over a triviality, so you can understand why the reticence about this gigantic story.

As I've said before in the context of exploring how Scooter Libby could serve as a mob lawyer for international gangster Marc Rich on and off for 15 years and then move immediately into the job of chief of staff to the Vice President of the United States, the problem is not that Jews are inherently worse behaved (or better behaved) than any other human group, but that they have achieved for themselves in America in recent years a collective immunity from anything resembling criticism. And being immune to criticism doesn't make human beings behave better.

Now, Warsh's website writes:

Gangsta-nomics

Clarifying the impact of Harvard University's Russia scandal and the Andrei Shleifer/Lawrence Summers affair on the economics profession (generally) and on Harvard (in particular) will take years. The outlines of one mechanism, however, already can be discerned. Tracing its workings through offers clues to what may be the controversy's ultimate resolution.

Just as opening the St. Lawrence River to the Great Lakes produced both great economic benefits (the North American Midwest could export grains, iron ore, machinery to the world on ocean-going ships) and some undesirable side effects as well (the introduction into the lake system of lamprey eels and zebra mussels), so sending a team of Harvard University experts to advise the Russian government of Boris Yeltsin in the 1990s improved markets in the former Soviet republic, but at the cost of importing to Harvard certain unattractive Russian folkways.

The most obvious of these is the tendency to view anti-Semitism as a powerful explanatory variable in the resignation of Harvard president Lawrence Summers.

Anti-Semitism was a puissant force at Harvard and most other American universities well into the 1950s, but has diminished dramatically in the past half-century, along with most other social concomitants of religious conviction/association. In Russia, it remains virulent. Harvard economic professor Shleifer, who grew up in Russia, often has been the victim of prejudice there. It has not harmed him in the US, nor his co-religionist Summers, especially in this instance.

Yet as Boston Globe columnist Alex Beam noted last week, Harvard professors Alan Dershowitz (law), Ruth Wisse (literature) and former lecturer Martin Peretz were quick to cite Summers' strong defense of Israel as a factor in what Dershowitz termed an "academic coup d'etat... by the die-hard left of the Faculty of Arts and Sciences." "The question I'm being asked," Wisse told Beam, (before praeteritio-otically dismissing it), "is, 'Was anti-Semitism the driving engine of the coup?'"

The traveler furthest down this road was Professor Edward Glaeser (economics), Shleifer's former pupil, long-standing friend and dogged defender, who told The Harvard Crimson that the act of circulating among the Harvard faculty an article in Institutional Investor by investigative reporter David McClintick was "a potent piece of hate creation -- not quite 'The Protocols of the Elders of Zion,' but it's in that camp.""

So far-fetched was that comparison that Glaeser spent the week apologizing to all and sundry -- especially after an article in The New York Times acknowledged the generally high regard in which the McClintick article is held by asking rhetorically, in its headline, "Did an Exposé Help Sink Harvard's President?"

I vaguely suspect, judging from the title "Gangsta-nomics" that Warsh might be trying to hint at something beyond what he explicitly says: that pro-Semitism was a motivating factor among many of Summers's most prominent advocates and may have had something to do with the mainstream media's reluctance to touch the issue of Harvard's role in Russian corruption.

Steven Pinker, who has become much more objective about Jewish issues in this decade, is an honorable exception -- he was clearly outraged by the ludicrous controversy over Summers's statements about sex differences.

But sex differences between men and women just aren't a strongly motivating political factor for most people -- lesbians being the main exception. We almost all have loved ones of the opposite sex, so the corruption of feminist academics who rip off universities isn't all that motivating -- after all, if Larry Summers has to promise $50 million worth of gender preferences for women to make up for his faux pas, well, who knows, maybe your sister or wife or mom or daughter or daughter-in-law will get a job she doesn't really deserve under the Summers Reparations, so it's hard to get too worked up over it.

In contrast, ethno-racial politics are less likely to divide families into payees and payers the way gender preferences do, so they tend to elicit a lot more organized passion. Thus, many of Summers's most adamant defenders were most outraged not, like Pinker and myself, because he was getting railroaded for telling the truth about women and higher math, but because he told an arguable untruth about supporters of Harvard disinvesting in Israel -- that the movement is motivated by anti-Semitism. (In reality, many of the supporters of Harvard divesting investments in Israel are Jews themselves. Personally, I think Israel divestiture is a bad idea, but then I was against South African divestiture, too, and for the same reasons.)

Further, Warsh's elaborate analogy about zebra mussels coming up the St. Lawrence Seaway might not really be about American intellectual life being mildly tainted by the Russian Jewish rational tendency to blame anti-Semitism for their troubles, but about something much more serious: that American intellectual life might have been corrupted by the vast amounts of money the mostly Jewish Russian oligarchs had to toss around to American academics and public intellectuals.

We American intellectuals cannot be bought, but our affections can be rented for a lot less than, say, a second rate soccer player.

Jake Rudnitsky writes in the eXile about how cheaply American politicians can be bought:

American politicians prove that they can be bought for a song compared to their Russian counterparts, in spite of the fact that the US economy is about 5000 times larger.

While [Jack] Abramoff and his cohort Michael Scanlon have nothing to be ashamed of, thanks to their Abramovich-esque lavish spending habits, the amounts that the politicians were bought with are downright laughable. The highest netting congressman was Arizona's J.D. Hayworth, who came away with just $101,000 for his war chest: and now he's got to give it all back, meaning it was little more than an interest-free loan. More typical were the pols who netted somewhere in the mid-30s, including reps from NY, Michigan and Ohio. Now all that money - totaling about $4.5 million - is making its way to neutral charities. Bush, for example, picked the American Heart Association.

What else do they have to show for it? The memory of watching the Redskins or the Wizards endure another losing season from Abramoff's skyboxes? A few nice meals at one of his fancy-pants restaurants or, for DeLay, Abramoff's favorite, a weekend golf trip to Scotland? Golfing in Scotland! Can you imagine a Russian politician agreeing to so much as show up for a cup of coffee if the payoff is a *** golfing trip to a rain-soaked dump! It begs the question, what's the point of being corrupt if it doesn't make your life much better?

Compare, for a moment, Republicans' woeful attempt at abusing power with another corrupt politician currently in the headlines: Leonid Reiman, Russia's IT and telecommunications minister. The Wall Street Journal wrote him up about a week ago after they got an insider close to Reiman to admit that he's worth about a billion dollars.

If Duke Cunningham's the most corrupt politician in federal history (although I doubt it), think about how far you can get with public intellectuals for even less money!

A reader writes:


I will not be surprised if in fifty years historians judge Clinton/Summers/Harvard/Yeltsin/Oligarchs as a worse (more damaging) scandal than Bush/Oil/Texas/Enron.

Recommended Links

Economic rape of Russia

Shleifer

Andrei Shleifer
Degree A.B. 1982
High Point Esteemed Harvard economics professor and advisor to the Russian government, Cambridge, Mass., and Moscow
Now Chairless Harvard professor, Cambridge, Mass.
The Charges International insider trading
The Story When Harvard was given a government grant to help the nascent post-Soviet Russian economy, star economist Shleifer, his wife Nancy Zimmerman, and fellow Harvard staffer Jonathan Hay set up a scheme to invest heavily in companies and entities on which they were advising.
The Hubris Thinking you can take advantage of the people who beat the Nazis and produced Ivan Drago. Shleifer was one of the most cited economists in the world and an oft-mentioned candidate for the Nobel, but will forever be remembered for puerile miscalculation.
The Penance Harvard paid back $26.5 million; Shleifer and Hay repaid $2 million each. Both were also disbarred from the U.S. Agency for International Development.
By Any Other Name Shleifer is still on the payroll of the Economics Department, though he was demoted from “Whipple V.N. Jones Professor of Economics” to plain-old “Professor of Economics.”

Larry Summers

Rubin

Recommended Books

The Blood Bankers: Tales from the Global Underground Economy (Paperback) by James S. Henry

by James S. Henry, Bill Bradley

See also

Product Description

Like tentacles on a vast octopus, the firsthand investigations in The Blood Bankers all lead to one core. A financial detective of sorts, investigative journalist Jim Henry analyzes a range of scandals, including the looting of the Philippines by the Marcos family and the financial collapse of nations throughout the developing world.

A rogues’ gallery of international criminals owes its existence to the dramatic growth of the underground global economy over the last two decades. Our world is being reshaped, often in sinister fashion, by wide open capital markets and an international banking network that exists to launder hundreds of billions of dollars in ill-gotten gains.

Here is an inside look at globalization’s dark side—the new high growth global markets for influence-peddling, capital flight, money laundering, weapons, drugs, tax evasion, child labor, illegal immigration, and other forms of transnational crime.

About the Author

Former Chief Economist for McKinsey & Co. and VP Strategy for IBM/Lotus, James S. Henry has written for many publications, including The New York Times, The Washington Post, and U.S. News & World Report.

One of the original "Nader's Raiders," he is founder and managing director of the Sag Harbor Group, a strategy consulting firm with a special focus on technology strategy and business development. He has managed projects on a wide variety of competitive strategy issues for many prominent global companies. His clients have included AT&T, Chase Manhattan, GE, GM, IBM, Lucent, Merrill Lynch, the Samsung Group (Korea), Xerox, the Joint Caribbean Task Force for Scotland Yard and the FBI, the Rockefeller Foundation, the Swedish Power Board, and the government of Extremadura (Spain). --This text refers to an out of print or unavailable edition of this title.


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3 books cite this book:

christine andrews: The Blood Bankers Made Me See Red, December 18, 2003 This review is from: The Blood Bankers: Tales from the Global Underground Economy (Hardcover)

The Blood Bankers:Tales from the Global Underground Economy is a non-fiction financial thriller/whodunit that illuminates the sordid, self-serving, elitist international money trail and the greedy creatures who travel shamelessly on it. Mr. Henry courageously lifts the veil of monetary indecency and carefully guarded fiscal secrecy as he takes the reader on an insider's guided tour of global corruption and greed. Truth is indeed, stranger than fiction and The Blood Bankers is a shocking account of unbridled greed, run wild in plain sight around the world. It features a virtual perp walk of duplicitous international bankers, beyond-corrupt politicans and heads of state, and a whole supporting cast of money launderers, corporate con men and underworld predators. If you're ready to lose your intellectual virginity, read this book. The world will never look the same.

RClark: Really interesting new material about Latin America, ME, January 1, 2004

I'm a Latin American scholar. Henry's well-written book manages to get below the surface, and deliver some amazing new revelations about Mexico, Brazil, Argentina, Venezuela, and Nicaragua, in particular. I was also interested to find out exactly where Paraguay's General Stroessner, the Phillipines' Marcos, Pakistan's Bhutto, Zaire's Mobutu, and quite a few other Third World thugs kept their foreign loot -- and not only in Switzerland! Not easy reading, but it will definitely change your perspective on the global economy....




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Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least


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Last modified: November 27, 2015