By William K. Black
(Cross posted at Benzinga.com)
The New York Times produces profiles of national leaders like Italy’s Mario Monti and Ecuador’s Rafael Correa. I invite readers to contrast the worshipful treatment accorded Monti with the Correa profile. The next time someone tells you the NYT is a “leftist” paper you can show them how far right it is on financial issues.
The NYT’s slant in describing Monti as a “technocrat” and Correa as a “left-leaning economist” is typical of the dominant media. Monti and Correa both have doctorates in economics from U.S. universities and both have been professors of economics. Why does the NYT treat Monti reverentially and Correa dismissively?
There are a series of factors that the U.S. media normally uses to judge relative merit among those with elite qualifications and national leaders. The media normally values most highly national leaders who demonstrate:
- A track record of success
- Courage and leadership in making the tough decisions that produce success
- Rising from humble circumstances through hard work and self-sacrifice
- Repeated success in democratic elections
- Dedication to the interests of those with the greatest needs rather than to the wealthy
- Bold, innovative policies
A track record of success
Readers of the Monti and Correa profiles would not be able to judge their relative success as economists and national leaders, but that is not because the facts are not readily available. Under Monti, Italy’s economy sank back into a serious recession because of the self-destructive austerity policies that Monti strongly supported. The “troika” forced Monti’s predecessor, Mr. Berlusconi, to adopt austerity and Monti doubled and tripled down on austerity. The largest banks then staged a de facto coup that forced Berlusconi to resign. The Troika pressured Italy to make Monti its leader without any elections. Under Monti, unemployment has risen to 11.1% and the unemployment rate for young Italians exceeds 36%. Many of Italy’s best and brightest emigrate as soon as they graduate. That means that the 36% figure substantially understates the extent of unemployment among young Italians because those that emigrate are not counted. The loss of Italy’s greatest asset, its already scarce young people will damage Italy for decades.
The Monti profile tries hard to make it appear that Monti led a successful campaign against German’s insistence on austerity. That is false. Monti did not get German approval to adopt the essential fiscal stimulus programs. Monti imposed serious austerity programs that had the effect he predicted – they increased unemployment, deepened the recession, and increased emigration.
Monti’s recent failures do not stand in distinction to much of his career. He deserves credit for his time as an anti-trust official, but his record on the key financial issues of his time is disastrous. He is a neo-liberal economist who supported Italy’s adoption of the fatally flawed euro design and financial deregulation and desupervision.
Correa’s track record is one of dramatic success. Ecuador did not fall into recession even when the financial crisis caused the Great Recession. This was a remarkable achievement, for Ecuador uses the dollar as its currency, has extensive trade with the U.S., and was harmed greatly by the fall in oil prices in 2008. Since 2008, Ecuador has demonstrated fairly robust growth of real GDP, substantially reduced unemployment, reduced poverty, and established a far more effective safety net to reduce misery for the poor. Unemployment in Ecuador (4.6%) is less than half of Italy’s rate (11.1%). Unemployment in Ecuador has been falling under Correa while it has risen in Italy under Monti.
Correa inherited a more crippling debt crisis than did Monti. He used his skills as an economist to devise a default on that debt and a buy-back of the debt at a dramatically discounted rate. He did all of this while producing robust growth. Ecuador was not frozen out of obtaining credit. Correa convinced China to loan money to Ecuador after the default to provide the credit Ecuador desired. He tossed out the World Bank (which warned him not to default) and took steps to maintain Ecuador’s reserves when the U.S. suffered the Great Recession. Ecuador lacks a sovereign currency it is potentially exposed to the bond vigilantes. This makes Correa’s success all the more impressive.
It is important to understand that Monti failed and Correa succeeded because Correa is a skilled technocrat and Monti is a believer in neo-liberal dogmas that have been repeatedly falsified. Monti is no more a technocrat than the medical quacks who continued to bleed patients in the late 19th century were doctors. Prescribing austerity as a means of “recovering” from a Great Recession is delusional – it is not economics. Paul Krugman has repeatedly emphasized this point in his NYT column, but most NYT writers cannot understand this point. Monti’s profile, for example, has this clunker about Monti’s appointment in November 2011 to run Italy: “But even the change in leadership — and a $40 billion package of austerity measures, including tax increases and a sweeping pension overhaul — has not calmed [financial] markets.” The writer is shocked that Monti’s promise to throw Italy into recession through self-destructive austerity has not “calmed markets.” It is beyond me why a journalist would think that financial markets (lenders) would be “calmed” by knowing that their borrower was about to go into recession.
The financial policies that Monti supported prior to the onset of the Great Recession were failures. His support for financial deregulation and desupervision, the euro, and the efficient market hypothesis were further examples of theoclassical economics.
The Correa profile, however, begins with multiple efforts to picture Correa as the leader peddling dubious economics.
“Rafael Correa, a left-leaning economist, took office as the president of Ecuador in January 2007, becoming one of a growing number of Latin American leaders who came to power by running against the free-market policies backed by the United States and their countries’ traditional elites.”
I have no difficulty with using the term “left-leaning” – even in the first clause of the profile where it is obviously designed to set a defining tone of hostility. More precisely, I have no problem with it if the paper does three things: states its bias openly, acts consistently (e.g., the first line of Monti’s profile should describe him as a “neo-liberal economist”), and the article should explore analytically whether the “left-leaning” or “neo-liberal” approaches to economics has demonstrated greater predictive success in contexts that are the subject of the profile. The NYT’s profiles fail on each of these requirements for journalism.
The Correa profile then compounds its bias with false statements and an analysis-free statement of great analytical significance. It falsely claims that Correa’s “left-leaning” policies are in derogation of the “free-market policies backed by the United States and [Ecuador’s] traditional elites.” I’ll begin with the preposterous assertion that Ecuador’s “traditional elites support “free-market policies.” The profile is a fact rather than an opinion column so making asserted factual statements that would cause anyone in Ecuador to burst into snickers is particularly egregious. Ecuador is a nation characterized by immensely powerful economic and political elites who have dramatic market power and often act in a concerted anti-competitive fashion. I did a recent column on how the managers that control their four largest banks acted in concert to attempt to extort the government not to increase their taxes and restrict their compensation. The very last thing Ecuador’s wealth elites want is market competition.
Similarly, the Washington Consensus’ policies of deregulation, desupervision, and privatization do not produce a “free-market.” In the U.S. we have just run a domestic experiment in which we implemented the theoclassical economic policies of the Washington Consensus. It proved massively criminogenic. The resultant epidemic of accounting control fraud hyper-inflated the bubble and drove the Great Recession. It produced crony capitalism – the antithesis of “free markets.”
Effective financial regulation, supervision, and prosecutions are essential to “free” financial markets. When cheaters prosper honest firms are driven from the markets, a point that the Nobel Laureate George Akerlof explained in his famous 1970 article on markets for “lemons.” He described a “Gresham’s” dynamic in which bad ethics drove good ethics from the marketplace.
“[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”
The results of our domestic Washington Consensus were so disastrous that they caused most of the U.S. electorate to repudiate the policies. The same thing happened in most Latin American nations because Latin America was the (failed) test bed for the Washington Consensus. The failures of the faux free markets in Latin America caused many electorates to repudiate the policies and elect leaders who promised to oppose the Washington Consensus. This is the analytics-free clause of the first sentence of the Correa profile: “becoming one of a growing number of Latin American leaders who came to power by running against the free-market policies….” The NYT does not believe that the fact that Latin American electorates’ experience with faux “free-trade policies” produced such severe policy failures and revulsion for the faux “free-trade” policies that it led overwhelmingly to the election of leaders pledged to oppose those failed policies should lead us to reexamine the validity of the cynical label “free-market policies” and the actual impact of those policies.
Courage and leadership in making the tough decisions that produce success
The Monti profile is positively glowing about his courage and willingness to take on the powerful in order to push austerity. Here is one of key passages – see if you can spot the missing group in this supposed profile in courage.
“He said that his government of unelected technocrats was determined to force various entrenched interests — from labor unions to professional guilds to public employees — to give up their privileges, and that it was uniquely qualified to push through the changes because it had no natural constituency to protect.”
Note the not-so-broad range of “entrenched interests” Monti took on – all of them workers. Corporations, particularly the elite banks and banksters that drove the global crisis are the most destructive, most powerful, and most entrenched interests in Italy. Monti, however, is a creature of the banking industry. His father was a banker and he was a consultant to Goldman Sachs. He chose for his cabinet as his principal economic advisor the head of one of Italy’s largest banks.
Who were Monti’s key “unelected technocrats?” Monti assigned himself as the minister responsible for the economy. I’ve explained that he is the worst kind of failure as a “technocrat.” He knew better. He knew that austerity would hurl Italy into a gratuitous recession, but he imposed it pursuant to the theoclassical dogmas he venerated.
Consider the profile’s uncritical adoption of Monti’s claim that his government of (supposed) technocrats “was uniquely qualified to push through the changes because it had no natural constituency to protect.” We all understand why Monti’s press flacks pushed this meme, but I cannot understand why any sentient journalist would allow such a meme to go unchallenged. Monti ensured that his government was dominated by bankers, indeed executives and advisors of enormous banks. It is apparently credible to the NYT that bankers have no “natural constituency to protect.”
The quoted passage was written after the movie Inside Job made a mockery of the claim that neo-liberal economists are devoid of bias and have no “natural constituency to protect” even though their funding comes from the Federal Reserve, industry, or the largest banks. Even if they missed the movie, however, the journalists knew that Monti’s claim was false. Here is the key passage from the Monti profile.
“Angela Merkel, found herself facing a tenacious opponent: Mr. Monti — whom Ms. Merkel had helped to install in office.
Mr. Monti has emerged as the uncontested leader of the “pro-growth” forces, and he has persuaded Ms. Merkel to take perhaps one of the largest steps toward European integration since the euro crisis began.
Mr. Monti came to Brussels with a simple plan based on the knowledge that Europe’s leaders could ill afford to come away from the summit meeting empty-handed. Italy and Spain, as he eventually made clear to Ms. Merkel, would block all agreements — including a growth pact that they fully supported — until European leaders agreed to allow Europe’s new bailout funds to directly recapitalize ailing banks, rather than going through the governments.”
What a series of pro-Monti myths concocted by his press flacks and accepted as divine truth by the NYT reporters. Consider first the implications, ignored by the reporters, that the bond vigilantes forced out Italy’s elected leader and Germany determined his replacement. That is a remarkable and outrageous indication of Italy’s crippled democracy (Berlusconi and the power of the elite banks and bankers. Merkel chose Monti because Monti was German bankers’ favorite ally. (A nation that elects Berlusconi its leader already has a severe democratic deficit.)
Consider next the epic terms in which Monti is described in his NTY profile. He is the “tenacious opponent” of Merkel’s austerity policies and the “uncontested leader” of “pro-growth” forces. The obvious problem with this Monti myth is that Monti imposed austerity on Italy and told the nation that there was “no alternative” to it. The reporters are using an Orwellian definition of the term “tenacious opponent.”
There is no “growth pact” – unless the reporters are adopting an Orwellian definition of “growth.” Merkel insists on austerity and insists that there is “no alternative” to throwing the Eurozone back into a gratuitous recession through her anti-growth policies. The reporters cite only a single achievement of Monti’s supposed tenacity: “European leaders agreed to allow Europe’s new bailout funds to directly recapitalize ailing banks, rather than going through the governments.” The reporters describe this in heroic terms as “one of the largest steps toward European integration since the euro crisis began.”
Inept “European integration” – the euro – put nations that adopted the euro at the mercy of the bond vigilantes, so there is no reason to assume that increased integration is desirable. Note that the “increased integration” is not a pro-growth measure. It is a measure to bail out banks. Indeed, it is a measure designed to bail out banks rather than provide funds to the nations that are suffering from the recessions. It turns out that Monti’s supposed act of valor was getting a more direct way for the Troika to bail out banks. The Troika had been using the member nations to launder the bail out proceeds to the banks. The Troika would lend money to a distressed nation with the understanding that the nation would use the proceeds to bail out the banks. The banks would then use much of the proceeds to buy the distressed nation’s sovereign debt. The Troika, the banks, and the distressed nations would then pretend that all was well and austerity was a great success. Monti’s monumental accomplishment is that the Troika can lend directly to the banks, pretend that all is well, and proclaim austerity a great success. Transformative! No?
But the Monti myth’s hype is not the critical analytical point that can be derived by Monti’s efforts to make it easier to bail out banks. The central point is that when one dispels the hype it turns out that the NYT reporters knew that Monti’s act of faux bravery was making it easier to bail out banks. This means that the same credulous reporters, who accepted the Monti myth that Monti’s unelected government of bankers could be trusted to act solely in Italy’s national interest because they had “no natural constituency to protect” knew the claim was a lie. The reporters knew that the Monti’s paramount strategy was protecting his “natural constituency” – bankers – by making it easier to give them public bailouts.
Correa followed the opposite policies – successfully. He took on the wealthiest entrenched interests in Ecuador, particularly the banks.
Correa took enormous political and safety risks when he took on these entrenched interests. Whether or not the U.S. fomented the coups in Venezuela and Honduras, it has demonstrated its support for coups designed to remove democratically-elected leaders from power in Latin America if they oppose the Washington Consensus. The U.S. pro-coup policy has placed the lives of a number of Latin American leaders, including Correa, at great risk. Correa was the target of what he and many observers believe was an attempted coup by police officers. Correa was cut off, badly outnumbered, and surrounded by a large force of police officers. He responded to the police officers’ action by demonstrating exceptional courage. In order to defeat the attempted coup, Correa personally confronted the most aggressive officers and dared them to murder him in public. His courage helped defeat the coup.
One might think this pattern would lead the NYT to laud his courage. Instead, the passage describing the event in his profile appears to be written to imply that the critical fact was that he gratuitously chose to engage “in a shouting match” with the police.
“That array of paradoxes reached a climax in September 2010 after the Socialist president proposed a raft of benefit reduction measures, setting off an uprising of police officers that nearly took his life.
The searing image left by the uprising was not that of the protesters but of Mr. Correa, who waded into the angry scrum of protesting officers at the police barracks in the capital, engaged in a shouting match with the police, opened his shirt and dared the officers to kill him. They nearly did.”
Rising from humble circumstances through hard work and self-sacrifice
Americans love rags-to-riches stories. Our elected politicians brag of their humble origins. Monti was born with the silver spoon. He was the son of a banker with the connections and wealth to attend top Italian and U.S. universities (his Ph.D. is from Yale).
Correa is the exemplar of everything the U.S. cherishes. His father was often unemployed. He worked hard and was able to get a doctorate at a fine, but far less prestigious U.S. school.
Repeated success in democratic elections
Monti was not elected. None of the ministers he appointed were elected. Monti was made a “Senator for Life” so that he could hold office. His popularity has fallen so sharply that his political opponents turned on him and he has announced his intention to resign.
Correa was elected in 2007, re-elected in 2008, and has a very large lead in the polls projecting that he is about to again win reelection. His electoral success is remarkable because he inherited the global financial crisis when he came into office and Ecuador had a recent track record of immense political instability.
“Despite the police rebellion and recent protests by student and indigenous groups, polls show that he retains a solid majority of support and is Ecuador’s strongest leader in decades. He has brought calm and stability to a country that had eight presidents in the decade before he was elected, and then, remarkably, re-elected, in 2009.”
Dedication to the interests of those with the greatest needs rather than to the wealthy
Monti’s austerity policies attacked the least powerful and least well-off Italians. His emphasis was on getting bailouts for Italy’s largest banks in the form of direct lending from the ECB (instead of indirect bailouts through ECB loans to the Italian government that would then make loans to the banks). That is the grand concession he obtained from Angela Merkel. The results of his policies are a deep recession, rapidly growing unemployment, increasing inequality, and growing emigration.
Correa’s policies have led to increased employment for large numbers of Ecuadorians, reduced poverty, and an improved safety net. The least politically powerful people in Ecuador now have political champions.
Bold, innovative policies
The profiles would lead a reader to believe that Monti exemplified flexibility and innovation and that Correa is the ideologue. The reality is that the opposite is true. Monti is pictured as the leader of a successful insurrection against Merkel’s austerity policies, but he lacked the courage to adopt fiscal stimulus and actually implemented the self-destructive austerity policies that Merkel insisted Italy adopt. Indeed, Monti famously misinformed Italians that there was “no alternative” to austerity.
The contrast between Monti’s timidity and Correa’s boldness is stark. Correa threw the World Bank out of Ecuador. He threw the U.S. out of its military base in Ecuador. He led the default on Ecuador’s debt and a successful buy-back of the debt at a huge discount. He arranged a large loan from China to provide access to credit. He imposed a tax on banks in order to fund an increase in social spending that helps the poor the most. He did all this in an environment in which he was risking his life because of the serious dangers of a coup and where most observers believed he was dooming his chances for reelection. Correa’s bold policies have produced high growth in real GDP, significantly reduced unemployment and poverty, political stability, and strong political support.
Correa is the economist who has demonstrated the complete package: the head to get the economic policies correct, the heart to act on behalf of the people with the greatest need and the least power, the guts to risk his life on behalf of his nation, and the soul to take on the most powerful and entrenched interests in his nation in order to liberate his nation from their toxic grip. Correa is exceptionally popular with the Ecuadorian people and has won multiple elections.
Monti is the economist who has gotten the most important economic issues of his time wrong. He has worked on behalf of the world’s largest banks and banksters, the wealthiest and most powerful and destructive entrenched interests in Italy. His policies have caused increased unemployment, a gratuitous recession, and high emigration. Monti has never been elected. He was placed in power through the extortion of the world’s largest banks and intervention by Germany. The great majority of Italians oppose his rule and his policies.
So why does the NYT continue to praise Monti and disparage Correa? The NYT’s hagiographic praise of Monti’s purported act of courage – insisting that Germany allow the Troika to bail out Italian banks directly – is further proof of our family’s rule that it is impossible to compete with unintentional self-parody.
Readers, however, may share my belief that the supreme example of unintentional self-parody contained in the profiles is the related claim that Monti, an elite banker who used his power to ease public bail outs of banks, is a selfless “technocrat” devoid of any “natural constituency to protect” because he was unelected and appointed through a de facto coup orchestrated by elite banks and bankers. The NYT accepted as gospel the claim that elite bankers like Monti are devoid of self-interest and do not protect the interests of the elite banks that provide him wealth and prestige and put him in power. The Onion couldn’t have written it better.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on Twitter: @williamkblack