‘We can’t say they didn’t warn us’

By Chrystia Freeland
November 29, 2010

Chrystia wrote an essay for Foreign Policy’s Top 100 Global Thinkers Issue on the economists and financiers whose ideas survived the financial crisis:

In a letter to shareholders written just after the dot-com bust, Warren Buffett observed, “You only find out who is swimming naked when the tide goes out.” The 2008 financial crisis had a similar effect on our economic and financial gurus: It revealed whose thinking was based on whiggish, End-of-History assumptions about the essential triumph of Western democratic capitalism and whose mental framework admitted the possibility of radical disruption. The thinkers whose intellectual — and maybe even psychological — starting point was that Western market democracy is neither perfect nor eternal turned out to be much better at foreshadowing the financial crisis, and it is those thinkers whose ideas are the most relevant today, in the uncertain, post-crisis world.

These specialists in uncertainty are a broad church: They range from academic economists who saw the crisis coming, like New York University’s Nouriel Roubini and the University of Chicago’s Raghuram Rajan, to philosophers of finance like George Soros and Mohamed El-Erian, who have made huge market bets, as well as intellectual ones, on how bubbles are formed and how they burst. One striking similarity between many of them is that they have seen regime change up close.

The most dramatic example is Soros, whose formative life experience was the Nazi invasion of Budapest when he was 13 years old. That trauma taught him two things: that the world could change overnight, and that those, like his beloved father Tivadar, who responded to that upheaval instantly were the ones who survived. Roubini, who is sometimes caricatured as either Dr. Doom or the Hugh Hefner of the dismal-science set, is likewise best described as a specialist in revolution. He spent his childhood being moved around volatile parts of the world from Istanbul to Tehran to Tel Aviv — and began his career as an economist studying the 1990s emerging-markets crises in Latin America, Asia, and Russia. El-Erian, Rajan, and Daron Acemoglu, a widely cited young Turkish economist, also have both personal and professional experience of rapidly, and sometimes traumatically, changing social and economic orders.

These men were all born or at least partly raised outside the United States. That is surely no accident. In the 20th century, and even in the 19th and 18th, America was the world’s laboratory, the place where many of the best, and most revolutionary, ways of organizing government and the economy were being worked out. The United States is still the world’s most powerful country and most intellectually vibrant — after all, these global thinkers now make their home in America — but partly because the United States is so big and has been so prosperous for so long, American-centric thinkers have been relatively slow to spot the challenges to the Washington Consensus and offer coherent alternatives.

Being a “global nomad,” as Roubini calls himself, has another intellectual advantage. Thanks to communism’s collapse, the lowering of trade barriers, and the technology revolution, the world economy is more interdependent than ever. This group takes America’s connection to the global economy as the starting point for its analysis — hence El-Erian’s emphasis on global financial imbalances (also a signature theme of Martin Wolf‘s Financial Times columns) and the relationship Rajan traces between rising income inequality and its U.S. political manifestation in subprime mortgages.

This crew is all about big ideas and the big picture — their frame of reference is global, and their intellectual strength is their ability to understand that entire economic systems can, and do, collapse. Paradoxically, the opposite impulse is simultaneously in fashion: You might call it the economics of small steps, an approach that eschews the big theory altogether in favor of smaller, achievable, and, crucially, measurable proposals.

Posted by Peter Rudegeair.

3 comments

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Chrystia, Democracies has its own share of defects, some groups with a certain agenda funds elections, and want their ends met. In India, individuals funds elections and then want to recover more money than initially invested. when USSR collapsed, Democracy was a promise, but then there was great depression and other issues, no system is perfect, we need to take a look at the Chinese system, it is a hybrid, politically communist, economically capitalist.

Arvind Pereira
http://www.ArvindLeoPereira.co.nr

Posted by pereiraarvindin | Report as abusive

As always, Freeland is worth reading. Few people can make me more angry when she dares to disagree with me. I’m sure that means something significant.

The items she excludes from her overview are, one, people born and raised in the USA are totally indoctrinated in what is probably the heaviest, most intense family and school propaganda program in the world. By the time birthright Americans are 18, they actually believe the USA is the best nation on Earth, and that they are the best people on Earth. Americans actually believe that, despite all the mountain ranges of hard, cold, concrete fact contradicting their childhood indoctrination. Naturally, their deranged, and often despicable delusions severely affect the relations of the USA with the rest of the world, in all aspects.

Two, the sole purpose of the US government and businesses in organizing and promoting international trade is to force other countries to sell their economies, their companies, and most of all their finances to new owners in the USA. Naturally, this rapacious lust for money and power on the part of American politicians and the wealthiest commercials is deeply and bitterly resented by the rest of the world.

Three. This anger and opposition to the intent of the USA to buy the rest of the world is especially strong today, after the US government and finance sector have just demonstrated that they are nothing but common criminals, running fraudulent scams in their markets to strip all the other people in the world of all their wealth by deliberate criminal acts, since they’ve been unable to buy the world honestly, and fast enough to satisfy their pyschopathic vanity and greed.

Why Freeland would exclude these apparently vital, crucial factors in the world today from her overview seems inexplicable. She must have had some reason for leaving out such important considerations. A reader can only speculate on what her reasons for failing to report the whole story might have been.

Posted by FirstAdvisor | Report as abusive

Okay, well so far as it goes, some of us are favored by god. I’m from Denver, but experienced several British winters. We definitely got blessed on the latitude thing. New York… not so much.

American born, I went native for a while over there. Concurrent Scots heritage, local family support, G.I. bill to pay rent, a chance to experience a ‘foreign’ culture in depth. Conclusion: The emigres from the Empire saved them, otherwise the food would have inevitably lead to terminal boredom. Tikka Masala is INFINITELY better than haggis. And gawd they have a propensity for compounding their climatological misery by building some truly depressing architecture.

Us Yanks aren’t bad people. We tend to blunder about a bit, but if you actually study the history of any nation/culture, you can probably find some really ugly behavior in anyone’s past.

What we ‘were’ was a young nation, and if you know where to look, you run in to it constantly. Also, we are not escapees from the process of history. A few years back, I would have said we ‘are’ a young nation. I think we are emerging from youthful innocence.

Where we are now is facing the inevitable reality of the end of the frontier. In my youth (’50s-’60s), it was not uncommon for neighborhood families to uproot and head to new promising futures in California. There ain’t nowhere to run to no mo’, and there really hasn’t been since at least the downturn in ’74-’75. Whether you agree with his policies or not, Reagan won because he promised to deal with our national funk. We have been here before, but we went on one heck of a binge to avoid facing it.

But as Allen Ginsburg noted in Death to Van Gogh’s Ear

“…I am not interested in preventing Asia from being Asia
and the governments of Russia and Asia will rise and fall but Asia and Russia will not fall

The government of America also will fall but how can America fall

I doubt if anyone will ever fall anymore except governments…”

We’re here for the long haul, and I for one am not going back to the Inverness.

Posted by ARJTurgot2 | Report as abusive