You are right, Harry, I should have written " the 'free market' Neo-Liberal folks...
M -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of Harry Pollard Sent: January 6, 2002 5:20 PM To: Michael Gurstein; Futurework@Scribe. Uwaterloo. Ca Subject: Re: FW: LA Times: Argentine Crisis May Prompt the IMF to Change Ways Michael wrote: >The free market Neo-Liberal folks have done their stuff for the last ten >years and what we see is the result. Which means of course their were no economic crashes before the "free market Neo-Liberal folks". However, one of the important factors of freeing economies is that governments must be responsible. Unfortunately, they usually aren't. They take the money lent to smooth the changes and then play fast and loose. (I've already reported on the $60 million given to Nigeria that has simply disappeared. (I suggest a check of the Swiss banks.) When governments get money, they waste it, and/or divert it to favored individuals. Eventually, the chickens come home to roost. Then they have nothing to show for the investment - but they still owe for the goodies they were given. So, they do the obvious - they ask for more. It seems that everybody talks about money, but no-one understands what it is. Normally money is said to have two functions. It's a "measure of value: and it's a "medium of exchange". (Forget "store of value" - it doesn't apply.) Problem is that something which is a measure of value may make a poor medium of exchange. Conversely, an excellent medium of exchange may be an awful measure of value. Probably the best media of exchange are checks and credit card slips - instant media produced and destroyed as they are needed. At Christmas, for example, the amount of media may double, or triple. This is not inflationary unless that's what you mean when you use that word. (Incidentally, "inflation" isn't an economic word at all, though it's now used to "cloud men's minds".) Yet, bits of paper that are so useful as purchasing media, make an awful measure of value. A country's money is a good guide to its economic health. If people don't want (say) Argentinean money at its market price, it means that traders think its a bad buy at the asking price. So, Argentina will have to lower its price.In the free market the price would drop it anyway and trade would continue. That's he advantage of free convertibility - letting the market show how badly - or how well - the economy is doing. Unfortunately, when the money is weak, instead of repairing the economy that makes it weak, they insist the money is really strong and adjust it to show 'strong'. It's like warming the room by holding a match under the thermometer, then pointing to the high temperature it shows. Thus did Boros make his well-publicized 2 billion pound killing. Not so well advertised is that he lost 2 billion a year or so later. Britain was forced by the European "snake" to maintain the pound at a value much higher than it was really worth. The economic consequences were getting dangerous, so Blair got out from the snake and devalued the pound. Whereupon Boros made his killing, shrugging his shoulders and saying - what else could Britain do? When governments try to play with the money, disaster looms, which was the problem in Argentina. Back when people didn't know what their peso would buy tomorrow - inflation was 5000% - President Carlos Menem decided to peg the peso to the dollar - 1 to 1. Michael, what part of the preceding paragraph seems like the "free market" to you? It's certainly what neo-liberals do (not liberals) but are you suggesting "free market" means massive state intervention? By golly, you are re-writing the dictionary! The peso wasn't worth a dollar except by government fiat. The result was that companies folded, nearly 20 percent became unemployed. Argentina became one of the most expensive places to do business and the middle class found what poverty was like. This on one side, with 5000% inflation on the other. Now they will unpeg the peso and set a new rate. Is this a good example of the free market? The idiots will probably devalue the peso by 30% (you'll know by the time you read this) pressed by such problems as a shortage of medicines, and zooming prices on staples like bread. This because businesses are covering themselves against the coming devaluation. However, never loath to do everything wrong, they are likely to allow people to pay dollar debts with pesos at a one-to-one parity. This means that people who lent a dollar to someone will get 70 cents back. I suppose this also is a good example of the free market, Mike. Actually, this is plain old Gresham. His Law stated that bad money would drive out good. You would keep the good money under the mattress, while you paid your debts with the bad. So, most of the loans were made in dollars - but the workers were paid in pesos. It seems evident that the people didn't trust the government's peg of one peso equals one dollar. Now lenders will get their loans back at 70 cents in the dollar. As there are more borrowers than lenders, this is a pretty good political ploy. Not a free market action, but a cute governmental ploy. You said: "Does Argentina re-nationalize--hmmm, what does it renationalize? Probably a good idea to start with the roads, but without foreign capital and with only one road system that might break down really quick and any benefits that might accrue from making the roads re-accessible to the population would be too long term to matter much before things degenerate into barbarism. " Privatizing roads is about as silly as you can get. Any government's job should be not to "privatize" but to remove barriers to competition. Privatizing roads, which are naturally a monopoly, doesn't bring in competition. It installs a private monopoly in a basic service. And roads are about as basic as you can get. Many libertarians want private roads. It's the pottiest part of their economic policy. Harry ****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 Tel: (818) 352-4141 Fax: (818) 353-2242 *******************************
