Larry Summers
and the Secret "End-Game" Memo

Thursday, August 22, 2013
By Greg Palast for Vice Magazine

EXCERPT...

The year was 1997. US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game: "derivatives trading." JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as "assets."

Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws?

[font color="green"]The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet – in one single move. It was as brilliant as it was insanely dangerous. [/font color]

CONTINUED...

http://www.gregpalast.com/larry-summers-and-the-secret-end-game-memo/

an Interview with Michael Hudson for Counterpunch

October 10, 2003
By Michael

By STANDARD SCHAEFER

EXCERPT...

The Chilean experiment originated in an exchange program of economists between the University of Chicago and Chile’s Catholic University in Santiago. In August 1972, more than a year before the military coup, the CIA funded a 300-page economic blueprint which it supplied to the country’s military and some of the most ambitious business families in an effort to hasten the overthrow of Salvador Allende’s socialist government, which had been elected by a small plurality in 1970.

The Chicago-style monetary plan described efforts to privatize industry, reign in government spending to lower inflation, and to create a more active stock market financed by labor’s own forced savings in order to increase stock prices. The hope was that capital gains would suffice to pay off the loans that the government gave its supporters and cronies to buy industrial companies will little or no cash down.

Those privy to the neoliberal plan were able to use the report to make money for themselves and their allies under the military junta that seized power in 1974. Contrary to Augosto Pinochet’s avowed dream of “a nation of entrepreneurs,” their maneuvers led to a consolidation of monopoly power. This was contrary to the stated goals of his economic advisors, “The Chicago Boys,” educated at the University of Chicago and devoted to economists Milton Friedman and Friedrick Hayek. Chile became the first country subjected to “shock treatment,” starting with drastic reductions in social spending, privatization of industry and financial control on concessionary credit terms, and the deregulation of financial institutions. Most notorious of all, however, was the policy of “disappearing” labor and political opposition through the secret police, the DINA.

After Pinochet was installed, the IMF and World Bank restructured Chilean debt on much more favorable terms than those afforded Allende, and foreign banks returned almost overnight. For the economy at large, however, living standards dropped and income inequality became the worst in Latin America. From 1970 to 1987 the proportion of the population falling below the poverty line rose from 20 percent to 44.4 percent.

Despite the regime’s promise that a market economy would eliminate homelessness, the percentage of Chileans without adequate housing grew from 27 to 40 percent from 1972 to 1988. The capital city of Santiago became one of the most polluted cities in the world, while poverty-related disease such as typhoid and viral hepatitis increased. Instead of the promised “nation of entrepreneurs,” Chile got a reign of oligarchs and an unprecedented domestic debt crisis.

A Critique of the Chicago School of Economics:

CHILE: THE LABORATORY TEST

EXCERPT...

Chile's privatized pensions

One of the most trumpeted "successes" of Chile's economic miracle is the privatization of its public social security system. It's most vocal supporter is Chilean economist José Piñera, who was once Pinochet's Minister of Labor, and therefore one of the most hated men in Chile. Today he is an international salesman of sorts, selling other nations on the idea of Chile's retirement program. Journalist Fred Solowey writes:

"In his speeches and articles, Piñera credits the Chilean pension model with producing just about everything short of the second coming of Christ: pensions that are 40-50 percent higher than under Social Security; security for the old; lower costs due to the 'fact' that the private sector is much more efficient than the public; a rate of savings rivaling that in an Asian 'tiger' economy; and even the end of class conflict in Chile." (38)

Piñera is co-chairman of a $2 million war being waged against U.S. Social Security by the Cato Institute. Their goal is to privatize the program along Chilean lines. Converts to their cause include Newt Gingerich, and, apparently, Time magazine. In a cover story entitled "The Case for Killing Social Security," Time included a sidebar on "How Chile Got it Right." (39) The operative word here is right, as in right-wing — Time's article quotes all the usual conservative think tanks, but not a single dissenting voice.

The Chilean retirement system is only a success to those companies who are pulling down outrageous profits from it. For the working people of Chile, it is a disaster in the making. According to SAFP, the government agency which regulates the private pensions, 96 percent of the known work force were enrolled in the private pensions as of February, 1995, but 43.4 percent of the account owners were not adding to their funds. Perhaps as many as 60 percent do not contribute regularly. Given the rising poverty in Chile, it is not difficult to understand why. Unfortunately, regular contributions are necessary to receive full benefits.

By 1988, about one fourth of Chilean workers were contributing enough to make the program's minimum benefits: $1.25 a day! (40) Critics charge that only 20 percent of the contributors will actually receive good pensions.

Worse, much of the plan's supposedly higher benefits are projected from the surging economic growth rates of the late 80s. But this growth followed a deep economic depression in 1983, and was bound to be high for many years following. Now that actual growth has caught up to potential growth, the Chilean economy is slowing down. The pensions are therefore not going to be as profitable as their cheerleaders claim.

When the current system was created in the early 80s, the government gave the people their choice: stay in the public program, or start contributing to private pensions. Over 90 percent of the people switched over to the private plan. This was carried out, however, under a mixture of threats, coercion and short term incentives. Many employers simply switched their employees' plans for them. The cash-starved public also received short-term pay increases by switching to private pensions, whereas the cost of the public programs went up for those who stayed in them.

"With the information I now have," says Cecilia Prado, a 17-year public employee, "I never would have switched. Under a democratic government they never could have imposed it on us. And if they ever passed a law allowing people to go back, there would be a great exodus." (41)

What many defenders of Chile's current program do not reveal is that under the old public plan, workers received not only pensions, but health care, low-interest housing loans from pension funds, and many other benefits. And that program covered 75 percent of all Chileans. When the private pensions went into effect, all these other services were dropped. As a result, Chile's "welfare pensions" for the desperately needy quickly rose 400 percent — up to the legal limit.

It is also extremely telling that when Pinochet introduced the program, his army and police were allowed to keep their own generous public plans. The private plans that were suitable for the masses apparently weren't good enough for those in charge of the country.

CONTINUED...

http://www.huppi.com/kangaroo/L-chichile.htm

The Commandant of the place, who says he is obeying orders of the Chief of the Armed Forces, - Augusto Pinochet Ugarte - again told the detainees that they are not persons, they have no rights nor protection under the Constitution. -- via the great DUer Judi Lynn
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2904138

INFAMOUS EX-DINA AGENT OSVALDO ROMO DIES IN JAIL

(July 5, 2007) One of the most notorious Pinochet-era secret police (DINA) agents, Osvaldo Romo Mena, died in jail Wednesday morning. He was serving time for two human rights violations, although he was linked to the disappearance of more than 80 people during the military dictatorship.

“Savage” and “cruel” are the words that can best be used to describe Romo. A proponent of torture, Romo inflicted pain on hundreds of political prisoners between 1973 and 1975, some of the bloodiest days of Chile’s military dictatorship. He is connected to the torture, death, and eventual dumping of Lumi Videla’s body at the Italian embassy. Additionally, Judge Alejandro Solis implicated Romo in the 1974 disappearance of former MIR militant Jacqueline Binfa. (ST, May 15)

Jacqueline Binfa was detained on August 27, 1974 by DINA agents and bounced around clandestine detention facilities including the Cuatro Alamos and Jose Domingo Cañas centers. She was eventually tortured and “disappeared.” At the time of her detention, Binfa was 28 years old and single, and studied social work at the Universidad de Chile. Her mother, Julia Contreras, died in 1982 without ever knowing her daughter’s fate (ST, May 15).

With help from the DINA, Romo left Chile for Brazil in 1975. Brazilian authorities extradited him back to Chile in 1992 in connection with the disappearance of Alfonso Chanfreau. He was then incarcerated in the Santiago Penitentiary.

Even after his apprehension, Romo staunchly defended his actions. In a 1995 interview with a Miami television station, Romo was asked, in retrospect, if he would have repeated his actions with the DINA. He responded coldly, “I would have done the same thing, or perhaps even worse. I would not let one of those bastards live. I would have sent everyone to jail! This was one of the DINA’s most crucial errors, and I tried to convince my general of something until the very last minute: do not allow these people to live.”

CONTINUED (original link busted, robots at the Wayback yadda yadda)...

via Judi Lynn: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2904138

Theory: The Shock Doctrine

Contributed by Mark Engler

“Only a crisis — actual or perceived — produces real change.” -- Neoliberal economist Milton Friedman

In Sum: Pro-corporate neoliberals treat crises such as wars, coups, natural disasters and economic downturns as prime opportunities to impose an agenda of privatization, deregulation, and cuts to social services.

Origins: Naomi Klein’s 2007 book The Shock Doctrine: The Rise of Disaster Capitalism.

The shock doctrine is a theory for explaining the way that force, stealth and crisis are used in implementing neoliberal economic policies such as privatization, deregulation and cuts to social services. Author Naomi Klein advanced this theory in her 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism.

By way of metaphor, Klein recounts the history of electroshock therapy experiments conducted by Scottish psychiatrist Ewen Cameron for the CIA in the 1950s. Cameron’s “shock therapy” sought to return troubled patients to a blank slate on which he could write a new personality. Klein argues that a parallel “shock therapy” process has been used at the macro level to impose neoliberal economic policies in countries around the world.

The shock doctrine posits that in periods of disorientation following wars, coups, natural disasters and economic panics, pro-corporate reformers aggressively push through unpopular “free market” measures. For more than thirty years, Klein writes, followers of Milton Friedman and other market fundamentalists have been “perfecting this very strategy: waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock, then quickly making the ‘reforms’ permanent.”

One of the earliest examples of the shock doctrine is the case of Chile. In 1973, Chile’s democratically elected socialist President Salvador Allende was overthrown in a coup d’état led by army general Augusto Pinochet, with support from the United States. Amid lingering turmoil created by the coup and tensions caused by the ensuing economic downturn, Milton Friedman suggested that Pinochet implement a “shock program” of sweeping reforms including privatization of state-owned industries, elimination of trade barriers, and cuts to government spending. To implement these policies, the Pinochet regime appointed to important positions several Chilean disciples of Friedman. Additionally, to squash popular movements that opposed these changes, the regime unleashed a notorious program of torture and “disappearances,” which ultimately led to the deaths of thousands of dissidents.

CONTINUED...

http://beautifultrouble.org/theory/the-shock-doctrine/

Shock Jock

By TYLER COWEN | October 3, 2007
Book Review
The Shock Doctrine: The Rise of Disaster Capitalism
by Naomi Klein

EXCERPT...

Ms. Klein's rhetoric is ridiculous. For instance, she attaches import to the fact that the word "tank" appears in the label "think tank." In her book, free market advocates are tarred with the brush of torture, because free market advocates often support unpopular policies, and torture also often supports unpopular policies. Clearly, by her tactic of freewheeling association, free market advocates must support torture. Often Ms. Klein's proffered connections are so impressionistic and so reliant on a smarmy wink to the knowing that it is impossible to present them, much less critique them, in the short space of a book review.

Rarely are the simplest facts, many of which complicate Ms. Klein's presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation in the world, including in America, and it hardly seems that a far-reaching free market conspiracy controls much of anything in the wealthy nations. Second, Friedman and most other free market economists have consistently called for limits on state power, including the power to torture. Third, the reach of government has been shrinking in India and China, to the indisputable benefit of billions. Fourth, it is the New Deal — the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein — that was imposed in a time of crisis. Fifth, many of the crises of the 20th century resulted from anti-capitalistic policies, rather than from capitalism: China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms; New Zealand and Chile abandoned socialistic policies for freer markets because the former weren't working well and induced economic crises.

But the reader will search in vain for an intelligent discussion of any of these points. What the reader will find is a series of fabricated claims, such as the suggestion that Margaret Thatcher created the Falkland Islands crisis to crush the unions and foist unfettered capitalism upon an unwilling British public.

The simplest response to Ms. Klein's polemic is to invoke old school conservatism. This approach, most prominently represented by classical liberal Friedrich Hayek, rejected the idea of throwing out or revising all social institutions at once. Indeed the long history of conservative thought stands behind moderation in most matters of social and economic policy. That tradition does advise a scaling down of free market ambitions, no matter how good they may sound in theory, and is probably our best hedge against disasters of our own making. Such a simple — indeed sensible — point would not have produced a best-selling screed, however. And so we return to charging Friedman as an enabler of torture. The clash between democratic preferences and policy prescriptions is, if anything, a problem for Ms. Klein herself. Ms. Klein's previous book, "No Logo" (2000), called for rebellion against advertising and multinational corporations, two institutions which have proved remarkably popular with ordinary democratic citizens. Starbucks is ubiquitous because of pressure from the bottom, not because of a top-down decision to force capitalism upon the suffering workers in a time of crisis.

If nothing else, Ms. Klein's book provides an interesting litmus test as to who is willing to condemn its shoddy reasoning. In the New York Times, Nobel Laureate Joseph Stiglitz defended the book: "Klein is not an academic and cannot be judged as one." So nonacademics get a pass on sloppy thinking, false "facts," and emotional appeals? In making economic claims, Ms. Klein demands to be judged by economists' standards — or at the very least, standards of simple truth or falsehood. Mr. Stiglitz continued: "There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification." Have we come to citing the failures of one point of view to excuse the mistakes of another?

With "The Shock Doctrine," Ms. Klein has become the kind of brand she lamented in "No Logo." Brands offer a simplification of image and presentation, rather than stressing the complexity, the details, and the inevitable trade-offs of a particular product. Recently, Ms. Klein told the Financial Times, "I stopped talking about (the campaign against brands) about two weeks after ‘No Logo' was published." She admitted that brands were never her real target, rather they were a convenient means of attacking the capitalist system more generally. In the same interview, Ms. Klein also tellingly remarked, "I believe people believe their own bulls---. Ideology can be a great enabler for greed."

CONTINUED...

http://www.nysun.com/arts/shock-jock/63867/

The Pitfalls of Peace

The Lack of Major Wars May Be Hurting Economic Growth

Tyler Cowen
The New York Times, JUNE 13, 2014

The continuing slowness of economic growth in high-income economies has prompted soul-searching among economists. They have looked to weak demand, rising inequality, Chinese competition, over-regulation, inadequate infrastructure and an exhaustion of new technological ideas as possible culprits.

An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace.

The world just hasn’t had that much warfare lately, at least not by historical standards. Some of the recent headlines about Iraq or South Sudan make our world sound like a very bloody place, but today’s casualties pale in light of the tens of millions of people killed in the two world wars in the first half of the 20th century. Even the Vietnam War had many more deaths than any recent war involving an affluent country.

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.

War brings an urgency that governments otherwise fail to summon. For instance, the Manhattan Project took six years to produce a working atomic bomb, starting from virtually nothing, and at its peak consumed 0.4 percent of American economic output. It is hard to imagine a comparably speedy and decisive achievement these days.

SNIP...

Living in a largely peaceful world with 2 percent G.D.P. growth has some big advantages that you don’t get with 4 percent growth and many more war deaths. Economic stasis may not feel very impressive, but it’s something our ancestors never quite managed to pull off. The real questions are whether we can do any better, and whether the recent prevalence of peace is a mere temporary bubble just waiting to be burst.

Tyler Cowen is a professor of economics at George Mason University.

SOURCE: http://www.nytimes.com/2014/06/14/upshot/the-lack-of-major-wars-may-be-hurting-economic-growth.html?_r=0

Tired Of Inequality? One Economist Says It'll Only Get Worse

by NPR STAFF
September 12, 2013 3:05 AM

Economist Tyler Cowen has some advice for what to do about America's income inequality: Get used to it. In his latest book, Average Is Over, Cowen lays out his prediction for where the U.S. economy is heading, like it or not:

"I think we'll see a thinning out of the middle class," he tells NPR's Steve Inskeep. "We'll see a lot of individuals rising up to much greater wealth. And we'll also see more individuals clustering in a kind of lower-middle class existence."

It's a radical change from the America of 40 or 50 years ago. Cowen believes the wealthy will become more numerous, and even more powerful. The elderly will hold on to their benefits ... the young, not so much. Millions of people who might have expected a middle class existence may have to aspire to something else.

SNIP...

Some people, he predicts, may just have to find a new definition of happiness that costs less money. Cowen says this widening is the result of a shifting economy. Computers will play a larger role and people who can work with computers can make a lot. He also predicts that everyone will be ruthlessly graded — every slice of their lives, monitored, tracked and recorded.

CONTINUED with link to the audio...

http://www.npr.org/2013/09/12/221425582/tired-of-inequality-one-economist-says-itll-only-get-worse

President Clinton and the Chilean Model.

By José Piñera

Midnight at the House of Good and Evil

"It is 12:30 at night, and Bill Clinton asks me and Dottie: 'What do you know about the Chilean social-security system?'” recounted Richard Lamm, the three-term former governor of Colorado. It was March 1995, and Lamm and his wife were staying that weekend in the Lincoln Bedroom of the White House.

I read about this surprising midnight conversation in an article by Jonathan Alter (Newsweek, May 13, 1996), as I was waiting at Dulles International Airport for a flight to Europe. The article also said that early the next morning, before he left to go jogging, President Bill Clinton arranged for a special report about the Chilean reform produced by his staff to be slipped under Lamm's door.

That news piqued my interest, so as soon as I came back to the United States, I went to visit Richard Lamm. I wanted to know the exact circumstances in which the president of the world’s superpower engages a fellow former governor in a Saturday night exchange about the system I had implemented 15 years earlier.

Lamn and I shared a coffee on the terrace of his house in Denver. He not only was the most genial host to this curious Chilean, but he also proved to be deeply motivated by the issues surrounding aging and the future of America. So we had an engaging conversation. At the conclusion, I ventured to ask him for a copy of the report that Clinton had given him. He agreed to give it to me on the condition that I do not make it public while Clinton was president. He also gave me a copy of the handwritten note on White House stationery, dated 3-21-95, which accompanied the report slipped under his door. It read:

Dick,
Sorry I missed you this morning.
It was great to have you and Dottie here.
Here's the stuff on Chile I mentioned.
Best,
Bill.

Three months before that Clinton-Lamm conversation about the Chilean system, I had a long lunch in Santiago with journalist Joe Klein of Newsweek magazine. A few weeks afterwards, he wrote a compelling article entitled,[font color="green"] "If Chile can do it...couldn´t North America privatize its social-security system?" [/font color]He concluded by stating that "the Chilean system is perhaps the first significant social-policy idea to emanate from the Southern Hemisphere." (Newsweek, December 12, 1994).

I have reasons to think that probably this piece got Clinton’s attention and, given his passion for policy issues, he became a quasi expert on Chile’s Social Security reform. Clinton was familiar with Klein, as the journalist covered the 1992 presidential race and went on anonymously to write the bestseller Primary Colors, a thinly-veiled account of Clinton’s campaign.

“The mother of all reforms”

While studying for a Masters and a Ph.D. in economics at Harvard University, I became enamored with America’s unique experiment in liberty and limited government. In 1835 Alexis de Tocqueville wrote the first volume of Democracy in America hoping that many of the salutary aspects of American society might be exported to his native France. I dreamed with exporting them to my native Chile.

So, upon finishing my Ph.D. in 1974 and while fully enjoying my position as a Teaching Fellow at Harvard University and a professor at Boston University, I took on the most difficult decision in my life: to go back to help my country rebuild its destroyed economy and democracy along the lines of the principles and institutions created in America by the Founding Fathers. Soon after I became Secretary of Labor and Social Security, and in 1980 I was able to create a fully funded system of personal retirement accounts. Historian Niall Ferguson has stated that this reform was “the most profound challenge to the welfare state in a generation. Thatcher and Reagan came later. The backlash against welfare started in Chile.”

But while de Tocqueville’s 1835 treatment contained largely effusive praise of American government, the second volume of Democracy in America, published five years later, strikes a more cautionary tone. He warned that “the American Republic will endure, until politicians realize they can bribe the people with their own money.” In fact at some point during the 20th century, the culture of self reliance and individual responsibility that had made America a great and free nation was diluted by the creation of [font color="green"] “an Entitlement State,”[/font color] reminiscent of the increasingly failed European welfare state. What America needed was a return to basics, to the founding tenets of limited government and personal responsibility.

[font color="green"]In a way, the principles America helped export so successfully to Chile through a group of free market economists needed to be reaffirmed through an emblematic reform. I felt that the Chilean solution to the impending Social Security crisis could be applied in the USA.[/font color]

CONTINUED...

http://www.josepinera.org/articles/articles_clinton_chilean_model.htm