FW: Sachs's G-16 proposal (Who is J. Sachs?)

Arno Mong Daastøl arnomd at online.no
Mon Sep 21 10:19:03 PDT 1998


Jonathan Larson has supplied this interesting backgorun for Jeffrey Sachs' new policies.

-----Original Message----- From: Jonathan Larson [mailto:eltechno at clear.lakes.com] Sent: Monday, September 21, 1998 12:10 AM To: Arno Mong Daastøl Cc: MAI NOT Subject: Re: Sachs's G-16 proposal (Who is J. Sachs?)


>It seems like Jeff Sachs (somewhat belatedly) has learnt a lot of lessons
>from his shock therapy adventures! A very worthwhile article. Greetings!
>Arno
>
Thanks Arno for the posting!

For Jeff Sach to criticize the IMF for its failings is a little like a hog criticizing someone for their foul odor.

I am including a piece of an essay written in 1993 called "The Rot at the Top" about J. Sachs. For those who do not know the man and his work, I hope this is a helpful primer.

**************************

Ignorance is Dangerous

Jeffery Sachs must be considered, quite

legitimately, as representative of Harvard

University. In fact, he is a Harvard hotshot who was

granted a full professorship with tenure at the

still-tender age of 36. He is such a star in their

intellectual firmament that they regularly give him

time off from his other duties to advise foreign

governments on matters of public policy.

Sachs is an economist. Modern economists are ranked

by their ability to mathematically model human

behavior with highly complex equations. Modeling

specialists are called "quant jocks" for their

dedication to the highly specialized gymnastics of

advanced math. Make no mistake, if mathematic

modeling were an Olympic sport, Sachs would be a

medal contender.

For an economist, Sachs borders on hip. His writing

is not exactly exciting, but unlike most of his

peers', it can be read by the general public. He

wears his hair in the mop-top style of the 1964

Beatles and projects the persona of a caring

individual who is at ease with the responsibilities

of a public intellectual. Coming from a distinctly

middle-class background, Sachs has none of the

clenched-teeth snobbery usually associated with Ivy

League schools. He is even good on television-that

ultimate litmus test in American culture. There is

no reason to believe that he is not loved and

admired by his wife, children, students, or dog.

In spite of this, Jeffery Sachs has become one of

the most hated Americans around the world. Because

he is obviously not evil, stupid, lazy, or socially

inept, the only option for this seemingly bizarre

outcome is ignorance. And if Sachs is ignorant,

there is rot at the top of the American educational

system. Obviously, this transformation from

respected academic superstar to a person considered

to be an enemy of humanity is a case worth studying.

Sachs' first foreign adventure in public policy

formation took place in Bolivia in 1984. Bolivia was

an economic basket case caught in a debt spiral

caused by corrupt overborrowing by a succession of

military juntas. American banks had loaned billions

that had been spent on weapons or simply squandered

on payoffs that had increased the numbered bank

accounts of anyone who could get their hands on the

money.

All of this lending was based on the shaky

assumption of former Citibank Chairman Walter

Wriston who made famous the saying, "Countries do

not go bankrupt." Besides, Bolivia was a prime

source of vital natural resource-tin. Tin is used

for food packaging and electronic circuits. But in

the go-go lending days of the 1970s, so many banks

simultaneously took Wriston's advice seriously,

Bolivia's income from tin was borrowed against many

times over. Then the worst happened, the

international price of tin collapsed as consumers

around the world found substitutes-especially for

food packaging.

By 1983, it was obvious that there was no way that

Bolivia could even pay a fraction of the interest it

owed on the money it had borrowed. Not only had the

price of tin collapsed, but none of the money

borrowed had been used to create alternative sources

of income. The money had been spent or stolen-not

invested.

With money over committed for debt service,

virtually none remained to import anything. Severe

shortages of goods triggered an outbreak of

hyperinflation sometimes running as high as 1600% a

month.

Sachs' job was to bring some order out of this

chaos. His recommendations followed essentially

standard practices for such situations. In return

for modest debt restructuring, Bolivia was forced to

"rationalize" the tin mines, sell off their

publicly-owned companies, severely restrict the

money supply, and embark on a course of fiscal

austerity. By forcing the banks to take a small

"haircut" in the deal, Sachs even gained a

reputation for innovative and enlightened behavior

in the eyes of the major Western business presses.

In fact, some thought he had given the Bolivians too

good a deal.

From the point of view of the Bolivians, their chaos

was replaced by utter desperation. This is one of

the world's poorest countries. Che Guevarra was

killed in Bolivia where he had gone to export the

Cuban revolution. He had selected Bolivia precisely

because he considered social conditions so desperate

that the country was ripe for a revolution.

Fighting inflation by restricting the supply of

money obviously did nothing to increase the supply

of goods. To the average citizen of La Paz, rapidly

inflating money was better than having no money at

all.

The thousands of tin miners who lost their jobs were

forced into an economy with few alternatives. Of the

ways to survive, only one held any realistic

possibilities-coca farming. In 1984, the C.I.A.

engineered a coup d'état to ensure that there would

be a government that would agree to professor Sachs'

austerity recommendations. According to Michael

Levine in his book The Great White Lie, which deals

with his work in the Drug Enforcement Administration

(DEA), the new government of Bolivia consisted

almost exclusively of known international cocaine

dealers. Whatever the validity of Levine's claim, it

is a fact that the 1984 change in the government of

Bolivia was called the Cocaine Coup throughout Latin

America. Levine suggests that the C.I.A. knowingly

installed a government of drug dealers because they

were the only folks in Bolivia who had any chance

whatsoever of servicing the debts to the

international banks. He further suggests that the

C.I.A. promised protection for drug shipments and in

some cases shipped the drugs themselves in order to

show their support for the new regime.

But such were the sordid details. Sachs was a hero

who had protected the income stream of the banks by

demonstrating that the calls for economic structural

adjustments could be flexibly applied in even the

worst-case scenario. The fact that he an author of

an agreement that would help swamp American cities

with cheap crack probably never even entered his

head. No economic model demonstrates a link between

tin mining and drug addiction so for Sachs, it

didn't exist as a possibility.

Flush with his "triumph" in Bolivia, Sachs would

take his traveling economic salvation show to

Poland. This was uncharted waters. No one had ever

converted a Communist state-run economy to a

Capitalist one before. But Sachs seemed not to have

any doubts about his prescriptions that were called

"Shock Therapy." Poland was to make its currency

convertible so that they would become part of the

international system of trade, deregulate prices and

otherwise relax state controls, privatize

state-owned industries, and close down inefficient

operations. Any or all of these suggestions sounded

perfectly logical on the face of things.

Sachs, however, insisted that all of these things

must happen together. Again, he offered the

incentive of debt restructuring and since Poland was

also so deeply in debt that even interest payments

were impossible, this convinced the otherwise

skeptical Poles who, in any case, had few

alternatives. "Shock Therapy" was implemented to the

cheers of the western financial press. And again,

the results were utter chaos.

Rents and food prices skyrocketed. Poland's shops

filled with shiny western goods but people could not

afford them. Government services that held together

the social fabric like day-care were eliminated.

Many Polish cities relied on a single industry. If

they were deemed "inefficient" and closed, whole

cities lost their very reason to exist. Forty

percent unemployment rates became common in such

areas. Massive unemployment drove people to

flee-causing immigration problems in the rest of

Western Europe. The unemployed who stayed behind

were forced to become petty black marketers or

worse. Crime became an epidemic.

None of this seemed to trouble Sachs-if he had any

awareness of the problems he had caused. More

likely, he dismissed the cries of pain boiling up

from the population as merely a sort of birth trauma

for the new order. Sachs would tell whoever would

listen that his prescriptions would lead to the

prosperity of the West. For a while, the Poles

believed him. But as the birth trauma disintegrated

into social chaos, the rumblings of discontent began

to sound pre-revolutionary. In 1992, a parliamentary

election was held and the largest party turned out

to be the Communists. Sachs' prescriptions had been

so absurd that after 44 years of Stalinist misrule,

Poland was ready to return to the "good old days."

Sachs was on a roll-by 1989 he and his advice formed

a corporation with offices in Helsinki. Yeltsin

assumed power and Sachs became an official advisor

to the fledgling Russian government. The results

were even more devastating than in Poland.

Opposition to Sachs' ideas began to solidify in the

Parliament. In 1993, Yeltsin dissolved the

Parliament and attacked his opposition with tanks.

Elections were held and the biggest vote-getter was

a 1930s-style Fascist named Vladimir Zhiranovsky. In

fact, Yeltsin's "reformers" got less than 15% of the

total vote.

Sachs was a campaign issue in this election because,

almost incredibly, he appeared on Russian television

to sell the Yeltsin version of economic reform. His

Russian counterpart, an economist named Yegor

Gaidar, was blamed for the social disintegration of

a country that had been a superpower. Following the

elections, Gaidar was forced to resign as Yeltsin's

chief economic advisor and Sachs quit his job

shortly thereafter. He went home to the USA to write

his own account of the Russian debacle in The New

Republic. He was utterly unrepentant for causing the

chaos that literally put a Hitler in line to run a

country with over 10,000 nuclear weapons. His advice

was sound, he maintained steadfastly, the only

problem was that the Russians had not acted on his

ideas quickly enough.

One can sympathize with Sachs. How could HE have

caused this chaos? By any standards he knew, he was

not wrong. He had almost never been wrong in his

life, how could he be wrong now? Every move he had

made in almost a decade had brought him nothing but

cheers from precisely the sort of people he

respected the most. He was an academic superstar at

the most prestigious university in the land and

commanded a healthy six-figure annual income. How

could he be wrong?

Yet what can one think of a person who leaves in his

wake a desperate cocaine economy in Bolivia, a

renewed Communist Party in Poland, and a Russia on

the brink of civil war with a Fascist offering to

restore order and greatness? If these are not signs

of error, what are?

Sadly, Sachs' mistakes are so common to Americans

abroad that his debacles went almost totally

unnoticed by the American media or public. Given his

cultural and educational background, he was

virtually programmed to make these mistakes. His

were simply larger and more public because he had

been granted more responsibility.

Of course, Sachs' biggest errors stemmed from the

occupational hazards of being an economist in the

late 20th century. Economics is an oddly evolved

profession that first appeared as a branch of moral

philosophy. It was not until the 19th century that

economics became a discipline unto itself. To remove

the taint of ethical dilemmas, economics became

increasingly reliant on the language of mathematics.

Math made economics appear less politically or

culturally driven. By the time Sachs learned his

trade, the great economic debates of history had

been buried beneath a tide of complex formulas and

computer printouts. This focus on math had made

economics, so economists would choose to believe,

more scientific than the rest of the social

sciences. Even the Nobel Prize committee, with

strong encouragement of the banking establishment of

Sweden, determined that economics was now scientific

enough to be included among the other science prizes

such as physics, chemistry, or medicine.

Because economics now assumes the existence of

everything else, economists tend to discount the

importance of the complexity of human experience.

With this worldview, cultural, historical, and

political motivations for human behavior are reduced

to messy but ultimately irrelevant details.

In 1945, American economists had been called on to

give advice to the utterly destroyed nations of

Japan and Germany. Judging by the post-war success

of these two economies, their advice must have been

superb. (Too damn good, in the opinion of many.)

This was the last generation of economists trained

before economics came to be considered a science.

"Quant jock" economists are caught in a trap of

their own making for they are forced by their main

assumption to translate the workings of the real

economy into the symbols of math. Reducing

everything to numbers means that such economists can

only track the flow of money, or other symbols for

wealth such as stocks and bonds. This is very

exciting for the "quant jock" because money moves so

rapidly-in fact, money now moves at the speed of

light from one point on the planet to another.

This assumption is flawed because the real economy

moves at a much slower pace. Folks can take years to

make major buying decisions like a house or car.

Moving factories requires months or years of

planning. Most importantly, the ability to invent

and build the nuts and bolts of the industrial

infrastructure takes generations to develop. For

example, Germany was unified by Bismarck in 1870 and

a conscious social decision was made that Germany

should overtake England in industrial capacity. It

took until just shortly before World War I in 1914

to pull even. Because of the destruction of two

wars, Germany's absolute superiority in European

industrial capacity did not clearly emerge until

around 1960. Ninety years is considerably more time

than it takes to wire some money somewhere. On the

quicker-than-a-hiccup time-frame of economic

assumptions, Sachs had peerless qualifications. What

did him in were the 90-year time-frame type problems

of economic development. In fairness, this problem

plagues the whole economic profession-especially in

the English-speaking parts of the globe, but Harvard

can legitimately be considered a main center of

fruit-fly-attention-span economics.

Another serious drawback to the economics of

tracking money, is that the only economic

transactions that can be tracked are at the point of

sale. According to this assumption, nothing happens

until money changes hands. That is why it is called

market capitalism. By this thinking, growing a tree

does not show up as an economic statistic worth

sending through a computer-it is only when the tree

is cut down and sent to market that it becomes

important.

This is a cultural assumption created by the

necessity of only seeing symbols. Unfortunately, an

economic worldview that can assume and then ignore

the creative natural forces that combine energy and

matter to grow a tree, is but a short cognitive leap

away from ignoring the creative forces of the people

who invent, build, and operate the real economy.

Even though Sachs had professional reasons to be

ignorant of the cultural, historical, and political

realities of the economies he was tinkering with,

his problems were made infinitely worse by the fact

that a generalized knowledge of these subjects is

not assumed to be important for the American

layperson.

For example, How could Sachs understand the Russian

comment that because of him, anti-American sentiment

had now reached heights not seen in Russia since

1921? In 1921, American troops in Russia were

assisting the White forces in their Civil War. How

could he know that?-few Americans, even history

professors, do.

Did he understand the passions involved in the tin

mining industry of Bolivia that caused Che Guevarra

to take his revolution there first? How could he?

Such news analysis does not appear on PBS, or the

New York Times.

Did Sachs understand enough of Marxism to have any

vague notion of what the Russians had been teaching

each other for the last 75 years? Of course not.

What American under the age of 50 knows anything

about Marxism? Certainly none in the Harvard

economics department. Even the parlor Marxists of

Harvard Yard have no conception of what it means to

be a Marxist while operating a coal mine or a

tractor factory.

In truth, outside of his narrow specialty of

tracking the flow of money, Sachs was utterly

unqualified to advise anyone on anything-especially

in a foreign setting. Acting with almost childlike

innocence, Jeffery Sachs caused violent chaos

wherever he traveled. In this case, the Ugly

American had been replaced by the Utterly Ignorant

American. Sadly, the damage done may last a

generation. And if the historic opportunity of 1989

is lost in Russia and the world becomes more

dangerous, the ignorance of Jeffery Sachs must be

considered a significant reason.

----- regards jon

web page at: http://clear.lakes.com/~eltechno/



More information about the lbo-talk mailing list