At lunch in College today we had an interesting discussion with a visiting Iranian journalist about the hypocrisy of Western countries trying to deny to some countries (e.g. Iran) the right to developments that the Western democracies take for granted for themselves. And then I came home and found this riveting piece by Joseph Stiglitz. One passage in particular caught my eye:
Among critics of American-style capitalism in the Third World, the way that America has responded to the current economic crisis has been the last straw. During the East Asia crisis, just a decade ago, America and the I.M.F. demanded that the affected countries cut their deficits by cutting back expenditures—even if, as in Thailand, this contributed to a resurgence of the aids epidemic, or even if, as in Indonesia, this meant curtailing food subsidies for the starving. America and the I.M.F. forced countries to raise interest rates, in some cases to more than 50 percent. They lectured Indonesia about being tough on its banks—and demanded that the government not bail them out. What a terrible precedent this would set, they said, and what a terrible intervention in the Swiss-clock mechanisms of the free market.
The contrast between the handling of the East Asia crisis and the American crisis is stark and has not gone unnoticed. To pull America out of the hole, we are now witnessing massive increases in spending and massive deficits, even as interest rates have been brought down to zero. Banks are being bailed out right and left. Some of the same officials in Washington who dealt with the East Asia crisis are now managing the response to the American crisis. Why, people in the Third World ask, is the United States administering different medicine to itself?
Many in the developing world still smart from the hectoring they received for so many years: they should adopt American institutions, follow our policies, engage in deregulation, open up their markets to American banks so they could learn “good” banking practices, and (not coincidentally) sell their firms and banks to Americans, especially at fire-sale prices during crises. Yes, Washington said, it will be painful, but in the end you will be better for it. America sent its Treasury secretaries (from both parties) around the planet to spread the word. In the eyes of many throughout the developing world, the revolving door, which allows American financial leaders to move seamlessly from Wall Street to Washington and back to Wall Street, gave them even more credibility; these men seemed to combine the power of money and the power of politics. American financial leaders were correct in believing that what was good for America or the world was good for financial markets, but they were incorrect in thinking the converse, that what was good for Wall Street was good for America and the world…
This kind of double-thinking hypocrisy pervades all areas of our public life now. Think of Tory MPs claiming for moats and duck houses while taking a stern line on public-sector pay increases. A particularly vivid example is provided by a prominent Irish banker who was eventually shown to be ‘warehousing’ huge (€80 million plus) loans extended to him by the bank of which he was CEO and (later) Chairman. And then some enterprising journalist found a recording of a radio interview this guy had given a few months before being exposed, in which he sternly talked about the need for working people to accept the need to live within their incomes. The whole system stinks.
There’s a nice cartoon accompanying the Stiglitz article. It lists the Four Horsemen of the financial apocalypse: mendacity, stupidity, arrogance and greed.