----- Original Message ----- From: John Hermann <[EMAIL PROTECTED]> To: John Hermann <[EMAIL PROTECTED]> Sent: Thursday, 21 October 1999 11:22 PM Subject: Encroaching on the Nobel Brand Economic Reform Australia ERA EMAIL NETWORK Date: Wed, 20 Oct 1999 From: COMER <[EMAIL PROTECTED]> Organization: Committee on Monetary and Economic Reform ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Encroaching on the Nobel Brand by William Krehm Editor-Publisher, Economic Reform mailto:[EMAIL PROTECTED] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The Wall Street Journal's celebration of the award of the so-called Nobel economics prize to Robert Mundell was a doubly inhouse affair. "Inhouse" number one was an encroachment on another "brand" if we may borrow the mega-corporation lingo. Th economics Nobel prize has nothing to do with the prestigious prizes for science, literature, and peace-promotion established by Alfred Nobel, the Swedish chemist, in 1901. It was set up in 1968 by the Central Bank of Sweden, and awarded quite consistently for work that conformed to, or at least did not offend the dogmas of central bankers. The very name then was a very early essay at passing off monetarism from its early launching as a science by association. The extent of the scam was apparent last year when in 1997 Robert Merton and Myron Scholes won the 1997 economics prize for their work on evaluating risky "derivatives" such as stock options. The following year the merit of both their work and the assessments of the Swedish Central Bank's adjudicating committee were brought into question when a biggest-ever hedge fund in which they were partners had to be saved from collapse by the intervention of the US Fed. The other "in-family" celebration of the Mundell award was in the editorial pages of The Wall Street Journal that played a key part in translating Mundell's unorthodox views into the underlying economic strategy of the Reagan presidency, Margaret Thatcher in Britain, and the Euro union. Mundell was an early advocate of currency unions because of the economy and supposedly lesser risks in unifying currencies. The risks created by the monetarist restrictions on the central banks of the Euro union has never attracted Mundell's attention. Nor is research on that crucial likely to win anybody the Nobel Economics Prize. The WSJ's celebration included an Oped piece by Arthur Laffer (15/10) who recounts how Mundell in the sixties was considered "beyond the fringes of mainstream economics. Mundell was the leader of a small group advocating fixed exchange rates, warning of impending inflation if the US went off gold, and calling for tax-cuts to spur economic growth. Jude Wanniski called the vibrant new paradigm 'the way the world works.' We were as influential as Keynes, but the difference is that Mundell got it right." There were times, writes Laffer when he and Mundell seemed the only members of the new doctrine. The editorial page of the WSJ had hewed to "monetarist, budget-balancing partial equilibrium" beliefs, but all that was changed when the 32-year old Robert Bartley, assumed the editorship of the page. Mundell's view was based on the "dichotomy of appropriate use of monetary and fiscal policies. Living in a world brought to its knees by hyperinflation, hyper-unemployment, and hyperactive do-gooders. As simple as Mundell's policy mix seems to all of us today, it sure wasn't obvious back then. The press and political establishment were anything but open-minded about tight money reining in inflation [while] tax rate cuts [promoted] growth and employment." It might seem a magic cocktail that Mundell put together. But when viewed from the perspectives of whose interests were served, it becomes clear that it allowed speculative finance to pick the cherries off the economic cake of at least three dogmas. The high interest rates that was supposed to keep inflation in check, put a premium on those who commanded money pools. The lurching of interest rates permitted financial institutions to ride the peaks and troughs of the economy with equal profit, the government spending -- financed increasingly by the very banks whom the government bailed out -- kept the economy active in their interests, and the deregulation ("the only closed economy is the world itself, and the only meaningful policy is global monetarism") guaranteed cheap raw materials and low-grade industrial goods to keep prices down in the First World and the unions under pressure. That is where we find ourselves today, but the next chapter of the saga is pounding at the stock market doors today. Could it be that last year's mishap of the 1997 Nobel Economics Laureates and their co-managed mega-fund was only a foretaste of more to come? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Copyright (C) 1999 COMER. May be reproduced with proper acknowledgement. ---------------------------------------------------------------- This is the Neither public email list, open for the public and general discussion. To unsubscribe click here Mailto:[EMAIL PROTECTED]?Subject=unsubscribe To subscribe click here Mailto:[EMAIL PROTECTED]?Subject=subscribe For information on [EMAIL PROTECTED] http://www.neither.org/lists/public-list.htm For archives http://www.mail-archive.com/[email protected]
