Hey, Secretary Paulson, Whatever Happened to Shock Therapy?
I thought the believers in the market accepted the logic of shock therapy. You know, when country stray too far from market fundamentals they need tough medicine to make their economy strong.
Consider the case of Jeffrey Sachs writing in his recent book, The End of Poverty. Looking back on his first prescription of shock therapy in the destitute nation of Bolivia Sachs had a revelation. He realized that “Bolivia’s physical geography was a fundamental feature of its economic situation, not merely an incidental fact …. Of course I knew that Bolivia was landlocked and mountainous …. Yet I had not reflected on how these conditions were key geographical factors, perhaps the overriding factors, in Bolivia’s chronic poverty …. Almost all the international commentary and academic economic writing about Bolivia neglected this very basic point. It bothered me greatly that the most basic and central features of economic reality could be overlooked by academic economists spinning their theories from thousands of miles away.” Yet, he concluded: “Monetary theory, thank goodness, still worked at thirteen thousand feet.”
Sachs, Jeffrey D. 2005. The End of Poverty (London: Penguin): p. 105.
Jeffrey Sachs is relatively liberal, as far as economists go. After all, economists today confidently tell us that Keynes is dead. Everyone has to accept the discipline of the market: the unemployed, people without medical insurance, and students facing high tuition. If workers wages fall short, they are at fault for lacking the skills of a financial manager.
But wait! Now that the financial managers are in trouble, boy do they need help.
I only have one question for market fundamentalists. If these bailouts succeed in putting Humpty Dumpty together again, will our fundamentalists agree to tax the fat cats or will they revise history and tell us that their rebuilt wealth owes everything to their hard work and intelligence?
Or, what I’m afraid is more likely, is that market fundamentalism is applicable only in impoverished countries 13,000 feet above sea level.