Bill Black: “Liberal” Economists Cheered the New Democrats’ Deregulation of Finance

By Bill Black, 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. Originally published at New Economic Perspectives

This is the second part of my series on how Hillary and Bill Clinton and Paul Krugman have pivoted in response to Bernie Sanders’ series of electoral wins and are racing hard right on finance and crime.  In my first column I wore my criminology “hat” to explain how Bill was disinterring outrageous (false and racist) positions that Hillary and he had once championed.  This was all the more bizarre because Hillary and Bill had recently repudiated those positions.  In the mid-1990s, Hillary and Bill sought to spread a “moral panic” about subhuman black “super predators” in order to secure passage of the crime bill that led to mass incarceration and then to maintain the 100-to-one disparity in sentencing for crack v. powder cocaine once it was known that the scientifically baseless sentencing disparity was leading to a dramatic rise in the incarceration of blacks and Latinos.  I also deplored Bill’s false claim that Black Lives Matter protesters were “defending” those who murdered black children.

In this second column I provide context essential to understanding Krugman’s race to the right on finance.  Readers are unlikely to understand how ultra-right wing the economic policies were of the Clinton administration.  Bill Clinton and Al Gore were two of the most powerful leaders of the “New Democrats” – a group of Democrats determined to move the party strongly to the right on economics, budget, national security, regulation, and crime.  The New Democrats’ policy apparatus was funded overwhelmingly by Wall Street but its ideological support came from economists who were “liberal” on some social issues.  The Clintons and Gore delivered for Wall Street by embracing the three “de’s” – deregulation, desupervision, and de facto decriminalization that encouraged and allowed twin bubble to rapidly expand.  The “dot com” bubble was the first bubble to burst.  The housing bubble burst in late 2006, leading to the financial crises of 2008 and the Great Recession that began in 2007.

I discuss two articles illustrating how ultra-right the “liberal” economists of the Clinton-era were in shilling for the pro-corporation policies championed by the New Democrats.  Both articles were published in Fortune in spring 1999 – roughly one year before the peak of dot com bubble.  In that era, the magazine was proudly pro plutocrat.  The tone of economist that authored the article was one of pandering to the plutocrats’ prejudices.

It is important to understand the intersection of the economic and political contexts in spring 1999 in the United States.  Clinton took the extraordinary step in 1996 of nominating Alan Greenspan to continue to run the Fed.  Greenspan was an Ayn Rand acolyte originally appointed to run the Fed by President Reagan.  Greenspan was infamous as a supporter of Charles Keating, the most notorious fraud of the savings and loan debacle.  All of Greenspan’s praise of Keating’s operations and predictions of success for Lincoln S&L proved catastrophically wrong.  Greenspan had long led an unholy war against Glass-Steagall, seeking to eviscerate through dozens of rule changes and interpretations designed to destroy its protections.  Greenspan was also hostile to using the Fed’s unique statutory authority under the Home Ownership and Equity Protection Act of 1994 (HOEPA) to prohibit all lenders, including what Krugman now stresses were “shadow” firms not normally subject to federal regulation that specialized in making predatory and fraudulent liar’s loans.  Greenspan refused to use HOEPA to stop the predatory and fraudulent lending even as it grew massively.  Greenspan’s successor Ben Bernanke (another Republican who would be appointed by President Obama to continue to run the Fed after the financial crisis made indisputable his regulatory failures) also refused to use HOEPA to protect the American people from these predatory and fraudulent loans.  He finally used the HOEPA authority to adopt a rule banning liar’s loans only in May 2008 – roughly a year since the secondary market had died and liar’s loans had virtually ceased.   Even then, he delayed the effective date of the rule until November 2009, lest he inconvenience any active fraudulent and predatory lender.

The Clinton administration had already shown its intense hostility to financial regulation at the SEC, working with Republicans to block key reform efforts by SEC Chair Arthur Levitt.  Beginning in 1998 and continuing in spring 1999 the administration successfully blocked the efforts of Brooksley Born to protect the global economy from coming problems involving financial derivatives – and later in 1999 passed an act that forbade any future regulator from providing such protection.  The Clinton administration was working with the most conservative Republicans in Congress to effectively repeal the Glass-Steagall Act. In 1999, Citigroup and Travelers Insurance agreed to the largest merger in financial history – in open defiance of the Glass-Steagall Act in order to successfully extort Congress to repeal the Act.  Robert Rubin, the former CEO of Goldman Sachs, the government leader in destroying Glass-Steagall, announced that he was stepping down as Clinton’s Treasury Secretary.  He promptly joined Citigroup.  By 1999, even before the effective statutory repeal of Glass-Steagall, the banks that were first to take advantage of Greenspan’s evisceration of Glass-Steagall and began to trade securities were already suffering severe losses.

“Liberal” economists were the critical supporters of the Clinton administration’s destruction of effective financial regulation.  Part of this effort was deregulation, but desupervision was its even more destructive handmaiden.  I have taken key excerpts from one of these economists to illustrate how far right wing they were.

The First Article

The author of the first article (April 26, 1999) chose a deliberately provocative title.  “Want Growth? Speak English THAT CERTAIN JE NE SAIS QUOI OF LES ANGLOPHONES.”  The article made the triumphal assertion that speaking English was a key to economic growth.  The economist ran through major English-speaking nations and declared them great successes.  Ireland had the highest growth rate.

There is Ireland, the recently dubbed “Celtic tiger,” growing at an amazing 8% rate for the past five years.

It should be clear that the economist was weak on bubbles.  He described the U.S. growth rate (largely a product of the dot com bubble) with the same term he used for Ireland (“amazing”).  Ireland’s property bubble would hyper-inflate (relative to its GDP) to twice the size of the U.S. residential real estate bubble.  The economist, however, saw massive growth when he observed (but did not recognize) disastrous bubbles.

The economist contrasted the great success of English-speaking nations with others.

Latin Americans who thought they had put their past behind them are watching with horror as financial crisis strikes once again.

The economist did not mention that “Latin Americans … thought they had put their past behind them” because U.S. economists had assured them that with their adoption of the mantra of English-speaking economists’ “Washington Consensus” of hard right economic policies their low-growth pasts were “behind them.”  Instead, right wing economics championed by English-speakers in the form of the Washington Consensus produced one “financial crisis” after another throughout Latin America.

Even as China was emerging as the growth champion (and before that growth became dependent on bubbles, the economist pronounced English as the explanation for the national differences in growth rates.

What do the countries that have managed to remain prosperous while the world suffers have in common? Well, the answer is plain to the naked eye–or make that the naked ear. Yes, the common denominator of the countries that have done best in this age of dashed expectations is that they are the countries where English is spoken.

The Economist’s Heroes: Alan Greenspan, Larry Summers, Margaret Thatcher & M. Friedman

The economist was only getting started with his Anglo-Saxon triumphalism.  He and his colleagues made several explanations for the supposed triumph.

First, there’s the Alan Greenspan theory–or is it the Larry Summers theory? Economic policy in English-speaking economies tends to be run by smart economists with one foot in the academic world, who therefore make better decisions than the doctrinaire mandarins who run ministries of finance. And in a world where the rules have suddenly changed, the story goes, clever men and women who went to MIT are better able to adapt than bureaucrats whose only expertise is in office politics.

A slight variant is the Margaret Thatcher theory. In the 1980s there was an ideological groundswell in the English-speaking world in favor of markets and against government intervention; perhaps the rest of the advanced world missed the tide because it couldn’t read Milton Friedman in the original.

One particular point that a friend made to me is that e-mail and the Internet put people who use nonalphabetic writing, like the Japanese, at a particular disadvantage.

In 1999, well after the collapse of its twin bubbles, Japan was the second-largest economy in the world and China was already growing at such a high rate and so persistently that it would soon become the second-largest economy.  If using a non-alphabetic language is a critical restraint on growth, then the Chinese and Japanese must be far better at economics than are English-speakers since they have prospered so greatly while carrying the equivalent of thirty pounds of non-alphabetic lead in their saddles.  But the economist missed the logical flaw in his friend’s speculation.

The economist’s speculation that English-speaking nations had much faster growth because they put exceptionally brilliant economists like Greenspan, Summers (both appointees of Bill Clinton), and the economist authoring the column in charge of economic policy is revealing and humorous.  It is hardly surprising that unsurpassable arrogance and Anglo-Saxon triumphalism became fellow travelers.  Similarly, it will surprise no one that an elite economist would champion the idea that the special brilliance of the author and a few of his fellow elite economists explained the unique success of the Anglo-Saxon nations.

While MIT economists, Greenspan, and Summers are so brilliant that they explain America’s high growth, regulators and government officials’ are fools “whose only expertise is in office politics.”  Fortunately, America places economic policy in the hands of Greenspan, Summers, and MIT economists and removes all authority from the inept bureaucrats.

But what was most wondrous from the self-described “liberal” economist was his ode to Margaret Thatcher and Milton Friedman as a likely explanation for (asserted) Anglo-Saxon superiority.

What the economists never even considered was that the relatively high U.S. growth rates they were considering in 1999 could be the product of the inflating dot com and real estate bubbles.

The Second Article

The second column by this economist appeared in Fortune on May 24, 1999 under the title “The Ascent of E-Man R.I.P.: THE MAN IN THE GRAY FLANNEL SUIT.”  The economist again sought a provocative opening.

I grew up in a planned economy. [T]hose who controlled the economy’s “commanding heights,” its key industries, were administrators rather than entrepreneurs, conformists who were valued less for their productivity than for their loyalty, whose career advancement depended on their political skill. For ordinary workers, the system had some benefits: It was hard to get ahead, but once you had a good job, your life was secure. Still, the economy was often appallingly inefficient and consistently unresponsive to consumer needs.

No, I am not an immigrant from Eastern Europe. I’m talking about the U.S. economy of the ’50s and ’60s, when General Motors was the very model of a modern major company.

In those days progressive thinkers like John Kenneth Galbraith used to ridicule economists who still believed what they had learned from Paul Samuelson’s textbook, which was that free markets could be counted on to match supply and demand. After all, business itself was clearly moving away from markets and toward planning.

By contrast, in today’s cutting-edge e-businesses (see Cover Stories), the company often owns–or rather, rents–little but brainpower.

The villain in the piece is Galbraith because he is a “progressive thinker.”  The CEOs of big corporations are the “man in the gray flannel suit” – too bland to be evil or even worthy of blame.  The old-style CEOs who built firms like GM are dismissed with the economist’s classic insult – as “business bureaucrats.”  The hero of the piece is the “entrepreneur.”  (The author channels Ayn Rand and the most anti-governmental economists.)  The ultimate hero for the author was the CEO of one of the “dot com” firm staffed with geniuses.

“Ordinary Workers”

Note the non-persons in his tale – the “ordinary workers.”  They rate only two sentences.  There is no sense that they are important to the economy or even the success of the firm.  Instead, there is the muted recognition that the old system that Galbraith described led to a career for “ordinary workers” in which “your life was secure.”  Implicitly, the author is acknowledging that this will become a thing of the past in the new economy that he gushes about.  Rendering the lives of hundreds of millions of ordinary workers (and their families) insecure is not important enough to warrant express discussion.  The economist treats their fates as simply inevitable in order to achieve the brave new world.

The Star Firms of the New Economy: Enron and Goldman Sachs

The article then turns to it real focus, examining the firm at the pinnacle of the economist’s entrepreneurial pantheon that exemplifies the brave new world.

The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Enron–a company formed in the ’80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It’s sort of like the difference between your father’s bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company’s pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it.

The author’s gold standard of expertise is Goldman Sachs.  The greatest compliment he can pay Enron’s leaders is that their firm is so superior to its competitors that it is the Goldman Sachs of energy.  Enron paid the author $50,000 annually for what he would later describe as “an advisory panel that had no function that I was aware of.”  Right, who would say no to trading on his (self-described) reputation for brilliance as an MIT economist to get $50,000 from Enron for performing “no function?”

The Ideological Shift Leading to the “Liberal” Push for Deregulation

The economist then explained what made possible this brave new world that he wrote to champion – deregulation.  He explained that deregulation was driven by “a change in ideology.”  He explained to his readers that “Adam Smith” was right.  The problem – the bloated, bureaucratic corporation – was caused by the government interfering with the markets through regulation.  With deregulation, Enron was leading the way and “making freewheeling markets possible.”

But probably the biggest force has been a change in ideology, the shift to pro-market policies. It’s not that government has vanished from the marketplace. It’s still a good guess that in a completely unregulated phone market, long-distance companies would buy up local-access companies and deny their customers the right to connect to rivals, and that the evil empire–or at least monopoly capitalism–would rise again. However, what we have instead in a growing number of markets–phones, gas, electricity today, probably computer operating systems and high-speed Net access tomorrow–is a combination of deregulation that lets new competitors enter and “common carrier” regulation that prevents middlemen from playing favorites, making freewheeling markets possible.

Who would have thunk it? The millennial economy turns out to look more like Adam Smith’s vision–or better yet, that of the Victorian economist Alfred Marshall–than the corporatist future predicted by generations of corporate pundits. Get those old textbooks out of the attic: they’re more relevant than ever.

The economist who authored the April and May 1999 columns is, of course Paul Krugman.  The Enron energy trading operation he gushed about was a leading center of Enron’s frauds, particularly those that caused the California energy crisis.  Goldman just admitted to what the United States found to have been massive fraud.  Enron was indeed the Goldman of the energy industry just as Goldman was the Enron of finance.  The reader can now see Krugman’s actual views when he found it profitable to pander openly to the plutocrats defrauding the public and rigging the system against the consumer and the worker.  The reader can also see why he is so dismissive of criticism of Hillary taking enormous speaking sums from Goldman for performing “no [real] function.”

Krugman’s prediction that we were seeing the death of market power by huge firms proved as accurate as his claim that Enron and Goldman were the gold standards of their industries.  He is one of exemplars we use in the book we are writing that explains that economics is the only field in which one can be awarded a Nobel for proving wrong in predictive ability.

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  1. James Levy

    In Economics you can oversimplify everything in your models, then claim, with cause, that factors outside your model did them in, so you were right viz. the model but nasty external factors had the bad taste to step in and invalidate your original claim. Having an elegant model which includes lots of math is much more important than actually tracing, forget about predicting, reality. You are, in effect, awarded for style and effort, and keeping your model within the parameters of dogma. It’s like having a bunch of architects around designing buildings without any structural engineers to turn the pretty pictures into edifices that actually stand up.

    1. Jerry Hamrick

      I spent much of my adult life working for businesses in which actuaries would develop models for new products which would have to be filed with the state before the product could be sold. If the model turned out to be wrong, and if people were injured, fines would be levied, licenses could be revoked, and the offending enterprise could be closed. Since that time I have been struck by the differences between economists and actuaries. The former deal in ideology, the latter in facts.

    2. George Stubbs

      We need more “behavioral” economics (like Veblen, but without the racism/misogyny), as opposed to the economists who generate these models that are seemingly deliberately ignorant of sociology, psychology, anthropology, and history. At the thought experiment level, Garrett Hardin’s “Tragedy of the Commons” exemplifies this over-simplification. It has an internal logic that is compelling to people who don’t care about what the human being actually is. Neo-liberal economics is the “Tragedy” logic played large.

      Duncan Foley’s “Adam’s Fallacy” is very instructive on these points (although he doesn’t specifically address Hardin–I come from an environmentalist’s perspective). Jeff Madrick is also excellent.

  2. Jerry Hamrick

    I have faithfully followed Bill Black’s writing for years now and he is amazing. The density of ideas, their relationships, examples of cause and effect, that he puts into one or two essays is greater than that found in many books I have read about our economic madness since 1995 when I retired. In addition, Black’s work to put the bad guys in jail adds strength to his essays. I know of no one who can begin to match him.

    But the work he does, and the good work I see here all the time, are not having any detectable effect, at least none that I can see from where I sit. The same economic tragedies, the same government corruption, are still hard at work. And that is the way it has been since the founding of our nation. The people suffer because of it. The suffering takes on slightly different forms, but its causes and its consequences do not change.

    As far as I can see, the economists who are the leading voices in our nation are champions of the status quo. They look at our current economic system as if it were a law of the universe–to them, it is carved in stone; it cannot be changed.

    There are four eternal questions that should guide us:

    (1) Where do we stand? We have many detailed answers to this question. Even our major media outlets have reported on the harm our current economic system has done to the people, and there are many thinkers who are beginning to ask what will be the ultimate outcome if we do nothing.

    (2) How did we get here? We have lots of good data in answer to this question. Bill Black has cataloged the failings of our system in great detail, as have many others including Yves Smith and others who write here regularly. We know what is wrong with our current system.

    (3) Where do we want to go? In general, this question was answered long ago when the myth of the American Way was created. We all harbor similar dreams that are dependent, not on our own efforts and talents, but on our failed systems of government and economics, the errors of which are spelled out in the answers to questions (1) and (2).

    (4) How do we get there from here? We have the answers to the first three questions. We are poised on the brink of a new era in American, and world, history. But we lack a plan. We do not know how to change our government and economic systems to work for the common good. And, as far as I can see, no one is working on those problems. I see lots of specialists jockeying for position. Krugman is a good example. He is an ambitious man and he wants to have a high perch in the next administration. But no one is developing a plan to move us forward. Such a plan would require replacing Madison’s “scheme of representation” with democratic representation. Our current economic system would have to be changed to something completely different that is focused on the common good abd would enable the people to live long lives worth living. Hard work, right?

    We are deeply engaged in a Darwinian struggle between institutions that are ideology-based and institutions that are fact-based. Our economists, most of them, are ideologues. I cannot imagine a world where we would talk about the differences between “salt water” and “fresh water” physics. Government, religion, education, economics, and business (GREEB) are the ideology-based institutions and of course we already know about STEM, the fact-based institutions. If the GREEB institutions continue their hold on power then all will be lost.

    1. Left in Wisconsin

      Your comment inspires a pre-question: who are “we”? To me, it is evident that many people who have disproportionate influence in our society do not see it or our current economic system as fundamentally flawed, and so the “solutions” they are in fact working tirelessly to implement go against the interests of most of us.

      Taking on powerful interests is, for most people, very stressful (or worse, of course) and definitely not fun, and so they will take all reasonable steps to avoid it, including sucking up to or at least not overtly challenging those with disproportionate influence in the hope that they will not personally bear their wrath. Education/understanding is a long, slow process.

    2. sgt_doom

      I think it was Max Lerner (although I could be very wrong) who, in an introduction to a book on Thorstein Veblen, mentioned that the real definition of economics is to justify why a select few are born with everything, while the majority of us are born with nothing!

    3. tongorad

      Where do we go from here? Working class solidarity is the biggest threat to the status quo – that’s why the destruction of unions has been our owner’s highest priority. Piddling identity politics will get us no where.

    4. vidimi

      is the success of bernie’s campaign not evidence enough that some of it is getting through?

      i am optimistic that even if bernie loses, which is highly probably, the movement will grow. it has no other choice, because if he doesn’t win then things will necessarily get worse making the message more urgent.

      1. Jerry Hamrick

        I agree. People are waking up and I hope Bernie’s ideas will grow stronger and attract more supporters even if he loses. But even if he wins, he will not be able to get very much done.

        Our problem is not a lack of good, broad ideas. Our problem is with our government and economic systems. We must change these systems in order to implement the changes we need to meet the onrushing catastrophe of global warming.

        In addition, even if we are able to change our major systems we will need an action plan for applying adequate resources to our problems.

        And, all of the foregoing is time-dependent. Global warming is relentless and unpredictable apparently. All of the estimates about the speed of change have been wrong. Things are moving faster than we have thought.

  3. fresno dan

    The economist who authored the April and May 1999 columns is, of course Paul Krugman. The Enron energy trading operation he gushed about was a leading center of Enron’s frauds, particularly those that caused the California energy crisis. Goldman just admitted to what the United States found to have been massive fraud. Enron was indeed the Goldman of the energy industry just as Goldman was the Enron of finance. The reader can now see Krugman’s actual views when he found it profitable to pander openly to the plutocrats defrauding the public and rigging the system against the consumer and the worker. The reader can also see why he is so dismissive of criticism of Hillary taking enormous speaking sums from Goldman for performing “no [real] function.”

    Krugman’s prediction that we were seeing the death of market power by huge firms proved as accurate as his claim that Enron and Goldman were the gold standards of their industries. He is one of exemplars we use in the book we are writing that explains that economics is the only field in which one can be awarded a Nobel for proving wrong in predictive ability.

    a cynic would say the the dogma you believe in depends on the bribes you are paid….of course, in the new free market bribes, you do first what your paymaster wants, and than you get a speaking fee….
    Geez, that guy Krugman shows up at the scene of the crime an awful lot.

    1. sgt_doom

      The reason that Krugman was so quick with his quasi-retraction on his earlier moronic, insipid, ignorant and uneducated and purely dishonest attacks on Bernie is the extraordinary response of so many questioning why any site, newspaper or similar entity would ever publish anything on, about or by Krugman, being nothing more than a pathetic shill for the banksters.

      There is simply nothing Krugman has ever gotten correct to indicate he possesses even the rudimentary knowledge of economics and/or finance.

      The clown is an utter fool — or highly paid liar!

      Great comments, BTW, Dan!

  4. John Wright

    One should note how desperate Alan Greenspan was for income before he was appointed to the Federal Reserve.

    As I remember, economist/consultant/1990 Republican NY Gubernatorial candidate Pierre Rinfret wanted to buy the client list for Townsend-Greenspan (Greenspan’s consulting firm) when Greenspan moved to the Fed and was shocked to find there was nothing worth buying.

    Greenspan’s income came from giving paid speeches to conservative groups, but I’d guess this was not as lucrative for him, in the 1980’s, as it would be for the Bill/Hillary speechmaking industry some years later..

    Greenspan was 61 years old at the time he was appointed to the Fed, so getting this job was a major coup for him.

    I find it difficult to believe Greenspan could, even if so inclined, be a strong regulator of the financial industry as doing so could harm his new well paid gig at the Fed.

    Greenspan was an inspired choice for the financial industry purposes.

  5. Torsten

    And Krugman got the “Nobel” prize _after_ he wrote these things. Did he get it _because_ he wrote these things? Certainly pandering got him his present perch. I hope Bernie calls him out on this.

    1. sgt_doom

      Obviously commenter knows very well there is no such thing as a “Nobel” prize in economics as the Nobel family has never set up such a thing, nor has their foundation.

      It is the Swedish Central Bank Prize in Economical Sciences.

      Krugman “won” the prize ’cause he’s a shill for the central banksters, long a member of the Group of Thirty (

    2. John Wright

      Certainly Krugman tries to leverage the usurped “Nobel” brand as is titled

      “Paul Krugman – Nobel Prize Winner and Op-Ed columnist for The New York Times”

      He should title it more accurately, “The Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, not to be confused with the Nobel Science/Peace/Medicine prizes and not endorsed by the Nobel family”

      Why did the Swedish national bank not follow the example of those who have created several medals to honor accomplishments in mathematics, the Fields Medal, the Rolf Nevanlinna Prize, the Carl Friedrich Gauss Prize for Applications of Mathematics and the Chern Medal Award, all granted by the International Mathematical Union?

      The “Nobel Economics Prize” appears to be a cynical attempt of the economics profession to free ride on the Nobel brand to an undeserved degree of respectability.

      After the blowup of the Long-Term Capital Management hedge fund guided by TWO “Nobel Economics” winners, Myron S. Scholes and Robert C. Merton, the Nobel Prize committee should have severed ties with the economics “Nobel”.

  6. flora

    The “New Democrats” are just the old 1880’s lassez-faire Democrats (Tilden, Cleveland) dressed up in new words and a new sales pitch.

  7. Keith

    Today’s ideas are carefully selected to give a totally false view of how the world operates.

    Adam Smith is regularly praised by those in positions of power but let’s see what he really thought.

    From just one passage below he warns of:

    1) How high rates of profit are dangerous (probably due to the exploitation involved and insufficient wages going to society as a whole). How the highest rates of profit are found in the nations going to ruin.

    2) How the interests of businessmen and the public are usually totally different and they rarely consider the wider interests of the public, but just their business and profit.

    3) The businessmen like to reduce competition and the dangers of mergers and acquisitions.

    4) How businessmen like monopolies and cartels to engage in price gouging. Like the hedge funds that discovered unique suppliers of drugs so they could charge extortionate prices.

    5) How any ideas coming from businessmen must be carefully examined and “ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention”

    6) How businessmen will deceive and oppress the public in order to fulfil their own wants and often are found to do just that.

    The Adam Smith you expected?
    Read on …..

    From “The Wealth of Nations” – book 1:

    “His employers constitute the third order, that of those who live by profit. It is the stock that is employed for the sake of profit which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects.

    But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.

    The interest of this third order, therefore, has not the same connection with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen.

    As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter.

    Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public.

    The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.

    The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

    I have broken the passage up to highlight particular points.

  8. washunate

    I hope Black’s MMT colleagues at UMKC and elsewhere have been hearing what he’s been saying on this front. Fraud is pervasive, the intellectual class (both academic and media) is compromised, the problem is bipartisan, and things have been going wrong far longer than the GFC.

    Black is describing the environment in the 1990s in which Wray was developing the idea of PSE, as if hiring a few people at $6 an hour would solve the systemic failure of our system of political economy that denies people adequate food, clothing, shelter, medical care, basic dignity, and so forth in order to line the pockets of connected insiders.

      1. washunate

        My comment comes from this publication, written a decade before Wray acknowledges fraud in that article. Notice the distinct lack of mention of words like fraud and inequality, or any of the larger forces at play in our society. But he uses training 4 different times and skill 8 different times(!), as if that is why the US runs the largest prison system on the planet or spent the 1990s creating gigantic TBTF firms.

      2. washunate

        As far as the Nation article Wray penned, it avoids answering the main critiques:

        1a) If JG pays the legislated minimum wage and benefits, why not just raise the minimum wage and implement universal healthcare? Employer-based healthcare benefits are part of the problem, not the solution. And universal unemployment insurance (or UBI) would provide the same income as JG.

        1b) If quantity of jobs is your metric, then why not just amend the FLSA to reduce the work week and implement universal paid time off? Americans work far more than our industrialized nation peers. Let’s spread the work more equitably rather than working moar. Not only would that be better for our public health, it would also be better for our environmental stewardship. Employment in the formal economy is one of the biggest drivers of pollution.

        1c) Finally on this point, Wray conspicuously avoids advocating a specific wage level. He also doesn’t point out that he demands his own personal compensation be higher than what JG workers get paid. Indeed, he doesn’t mention the word inequality at all.

        2) Wray is still knee deep in the neoliberal blame the victim model. His very first reason why JG is beneficial states “on-the-job training and skill development”. It is not workers’ fault that compensation is so unequally distributed; that notion is comically out of touch. Now, of course there are some Americans whose skills really are quite elementary and no private sector employer would hire them at anything approaching a living wage. But that’s not something a little OJT can fix; that is a systemic failure of our systems of education, law, and medicine. We’re not talking marketable skills that a private sector employer would demand. We’re talking barriers like basic English literacy, computer knowledge, arithmetic, problem-solving, mental health diagnoses, and criminal records.

        3) The article is willfully obtuse to what is wrong with our system. State and local governments and nonprofit organizations are not angelic actors. They are part of the problem. We don’t need lots of actors involved in decision-making. We need to reduce the amount of decision-making that is going on. There is simply too much activity to manage effectively at all levels of government. That’s why Medicare and Social Security work so much better than most other parts of our system and why social insurance (and UBI) are superior options to both our present welfare system and a potential JG: fewer middlemen mucking things up. The state-based nature of PPACA, for example, was one of the major criticisms of health insurance reform back in 2008-2009. We were right. Those advocating using states were wrong. That is the cold, hard reality.

        4) The words fraud and management are mentioned zero times.

        5) The article doesn’t explain why we need more work in aggregate. It simply assumes it to be true, completely ignoring massive amounts of unproductive work that could be shifted to productive work without increasing the total amount of work at all.

      3. washunate

        P.S., a different way of answering your question is to go to the heart of Wray’s advocacy for what the government ought to do:

        a. act as employer of last resort, and
        b. exogenously set the “marginal” price of labor.

        The critique is that government should do this instead:

        a. act as income source of last resort,
        b. legislatively set the “marginal” price of labor, and
        c. focus on distribution of resources rather than aggregate production

  9. Keith

    Neo-Liberalism is like a gold plated turd.

    Once you get through the shiny veneer its not very nice at all.

    Getting to the rotten core of Neo-Liberalism, a UK journey.

    1) Tony Blair announces the UK is a meritocracy where anyone can get to the top through hard work, drive and ambition.

    Next elected prime minister – Eton educated and married into the aristocracy.
    Eton boys occupy a myriad of positions of power.
    Privately educated elite firmly re-established.

    2) Everyone must be subject to market discipline and compete in a global market place.

    Industries that cannot compete in the global market place must fail.
    Heavy industry, manufacturing and mining decimated, severely affects the North of England and Midlands.

    The financial sector fails and is given unconditional bailouts with no effort to punish those who made the losses, the tax payer will just pick up the bill.

    3) The lasting damage to the economy caused by the financial crisis must be passed onto those at the bottom of society through austerity to balance the budget.

    Are you rich or are you poor?
    Neo-Liberalism helps the rich and disadvantages the poor.

    Nice rich bankers – how much do you want?
    Traditional industry – left to the whims of the global market place.

  10. susan the other

    When the NYT gives Bernie good coverage it is time for Krugman to retire. And he needs to devote a good bit of time to re-edit his memoirs. Betcha he’s got a Bill Black folder full of things he plans to rationalize.

  11. Synoia

    He described the U.S. growth rate (largely a product of the dot com bubble)

    The emotion which propelled the bubble was “”.

    The money that propelled the bubble was Y2K remediation, where corporations sent 40% of their capital budgets on 199 on IT, when the historical percentage was 8-12%.

    If a product was out of warranty, vendors declared them “non Y2K” complaint,” to force IT product replacement and boost sales.

    The IT business collapsed in 2002, when Large Customers rewarded their greedy IT vendors with 0% IT capital spending for 3 or 4 years.

    There is a very good rationale why greed is considered the worst of the 7 deadly sins. Greed has no limit.

    Greed, mammon, is now the ruling religion of the United States; of which Hilarity Clipon is a devout High Priestess.

  12. Paul Tioxon


    Immanuel Wallerstein, The Modern World System IV: Centrist Liberalism Triumphant, 1789–1914 (Berkeley: University of California Press, 2011

    Wallerstein’s 4th volume in his Modern World System analysis, devotes his research to the very same academic disciplines he uses to think about the world. At some point, history, the most ancient scholarship of recording the past for posterity, is of little use in making policy decisions by the newly empowered liberal democracies that are displacing the Ancien Regime. In seeking to manage an emerging social order under capitalism, which is spreading due to the power of industrialization at great speed and disruption of the traditions of the past, a new set of sciences of man, social sciences, with the propensity of physics and chemistry and biology are now needed. It is not only for useful purposes of decision making of the political economy, but serving to legitimize the newly emerging social order, much the same way a pope would crown a king, legitimizing his power over his subjects on earth. The Holy Pontiff, literally the Bridge between god and man, would show the divine right of the monarch via a king making ritual of crowning.

    But what to do now, with no pope to turn to in Protestant America? How would impersonal forces of nature, explained in the natural sciences as omnipotent, universal, the natural order of things translate into laws of man meant to govern the relationships among us all as a people? Would the laws legislated by parliaments and congresses be viewed as legitimate authority over the citizens of a nation, no longer subjects to a king? Wallerstein traces the develpment of the social sciences from their naming and founding and diffusion from one university to the next as they establish themselves as the 3 scientifically valid forms of knowledge each with distinct areas of expertise: Sociology, Political Science and Economics.

    An excerpt from Samir Amin’s review in the Monthly Review of Wallerstein Vol IV: ….

    “…… that it is only in the nineteenth century, as Wallerstein demonstrates, that Enlightenment thought succeeds in forcing philosophical reason to break apart into distinct disciplines.

    Political economy occupies a dominant place within the group of new social sciences, thereby reflecting the reversal of dominance in the hierarchy of instances within the mode of production, which moves from the political in earlier tributary modes of production to the economic in capitalism. My insistence on the dimension of modern commodity alienation complements, in my opinion, Wallerstein’s contribution in the chapter here in question. It allows us to read the history of the formation of modern social scientific thought as a development that leads to Marx. Subsequently, the exclusive concern of the new “economics” (Wallerstein reminds us that the term economics is introduced for the first time by Alfred Marshall in 1881) will be to substitute for Marx’s historical materialist method a definition of the “economic” that transforms it into an ahistorical anthropology. The new science is used in an attempt to demonstrate that in the imaginary “market economy,” invented as a response to Marx, the markets are self-regulating, tend to the production of equilibrium (that is optimal, moreover), and hence merit consideration as the expression of a trans-historical rationality. Leon Walras in the nineteenth century and Piero Sraffa in the twentieth, the major thinkers who set themselves the objective of demonstrating this, failed in this impossible endeavor.”


    The year 1881, is also the year industrialist Joseph Wharton, one of the founders of Bethlehem Steel co., invested $100,000 in the University of Pennsylvania to create America’s first school of business. The Wharton School of Finance and the Economy was segregated apart from the liberal arts college, to ensure that the new discipline would properly educate but also properly socialize businessmen who would at some future date take over the enterprises from the their fathers, their peers or simply add to the ranks talented and well trained ministers of profit making. The school headed by a minister, now created the new society for the propagation, not of the faith as in Catholicism, but of the ideology of liberalism in the face of nationalism or other competing ideologies.

    Mr Black shows us the empty suit that presents himself as an economist in the form of a feature writer of the dominant business ideology, Paul Krugman. And the failure of the science of economics as practiced by the type represented by Mr Krugman. An easily challenged and debunked writer when it comes to being the king maker in this cycle of presidential politics, Mr Krugman’s flimsy assault on Ms Clinton democrat adversary, Bernie Sanders, is shown to be a weak polemic usually found in Reader’s Digest to promote this or that idea, such as Hayek’s The Road to Serfdom, another essay devoid of substance but ringing the bell for liberty, freedom and individual choice in the face of any demand by the state.

    Of course Mr Krugman would have us transfer our belief in his authority as a really smart guy with a Nobel Prize-of a sort, an Ivy League academic and an occasional critical thinker capable of changing his mind now and then. With his august credentials, he lends his endorsement, his crowning of the Queen Hillary, as the legit candidate with the mostest. His decision making process is grounded in the social sciences and the reality that is revealed is truly wise and valid knowledge. What else could it be other than that? What else? Mr Black reveals nothing more than a member of the team supporting his own kind just because, and not reason, rational enlightenment thinking, not even pragmatism, but just because I say so. In other words, this is a political choice based upon power to dominate and to continue to dominate, not a very well articulated line of argumentation which could convince a critical listener.

    The economist serves his function, not to run the economy better for the nation as a whole, but to legitimate the current economic policies which increase the wealth of the already galactically ultra rich to keep and acquire yet more wealth, no matter how much harm is done to over 80% of the rest of the population. The natural order of things economic is authoritatively revealed by the economist, who has studied his academic discipline and sits perched high upon its apex of knowledge. His best advice to us is simply to vote Hillary. Why, well, just feel the majesty of the coming of the Lord, you may not look directly upon the face of scientific truth, but Mr Krugman can do so for us, so just trust in what he says, he is after all, a credentialed economist of the highest order. Argument by authority does not work when authority has been called into question, and shown to be wanting in all aspect usually attributed to legitimate authority, like truthfulness, reasonable articulation and the power to explain just what is going on that makes sense out of all the confusion.

  13. John

    This was an epic takedown. Krugman needs to respond to Bill Black…BB has now penned a number of articles on him with critiques that can’t be ignored.

    1. jawbone

      Ah, but Bill Black’s articles can be very much ignored by the likes of Krugman. Bill Black doesn’t appear on the pages of the Establishment Papers.


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