From the Chicago Boys to the Goldman Sachs Men

It is a well known story that in the 50’s some Chilean Economists were trained at the University of Chicago. After they returned to Chile, they began pushing for economic reforms, including the liberalization of the economy, the privatization of the copper mines (and any other public properties), the reluctance towards the social role of the state and other policies that have now became known as the “neoliberal agenda”.

After the military takeover of general Pinochet against Allende they were appointed to the main economic institutions of the country. Their ideas of economic orthodoxy were used by the dictatorship, along with the implementation of their policy recommendations.

Juan Gabriel Valdés, in a book entitled “Pinochet’s Economists: the Chicago School in Chile” argues that this was a part of a transfer of ideology from the United States to Latin America: “traits that make Chicago a subculture were personalized in a handful of individuals who transmitted their vision of the world and their science inside and outside of Chicago to their disciplines” (52).

Ideology Diffusion

This process of ideology diffusion is somewhat similar to the current situation nowadays in the economic institutions of Europe. The difference, however, is that the boys have grown up, and they do not come from a university, but from a investment firm. More concretely, they come from Goldman Sachs, the third investment bank by total fees in 2010.

This map is pretty clear of the role of the Goldman Sachs Men in the governance of European economic institutions:

(http://www.independent.co.uk/incoming/article6264098.ece/ALTERNATES/w620/Pg-12-eurozone-graphic.jpg)
Source: The Independent

Moreover, this picture also helps clarifying that the markets are not abstract illusions that by the invisible hand distribute with justice the resources. But instead they have nouns and faces, and are real individuals.

I don’t know what Goldman Sachs has in order to be able to spread so efficiently its ideas. As a scientific I have to consider the endogeneity mechanism that states that it may be that they are able to recruit the most brilliant minds in the world to work with them. And after some time, those very brilliant minds are so brilliant that apparently are the single options to govern Italy or Greece. Yes, it may be that the recruitment processes at Goldman Sachs work really well. But since I do not have evidence that the Goldman Sachs personnel department is managed by an even smarter mind, I do not discard the fact that it is the other way round.

Non Majoritarian institutions

The disembarkment of the Goldman Sachs Man in Europe started in non-majoritarian institutions. That is, those bodies that act on behalf of some sort of delegation. Bodies that were created by democratic institutions (generally, Parliaments) in order to carry out specific tasks of economic governance or market surveillance. The most visible institutions of this kinds are the Central Banks.

The problem, however, is that there exists a tension between democratic legitimacy used to create nonmajoritarian institutions and the duties for which they were created. And apparently, nowadays the best Central Banker is not the one that is more capable of getting out of the current financial crisis, but the one that deviates minimally from the economic orthodoxy. In this case, the economic orthodoxy says that the single duty of a Central Bank is the control of the inflation rate. And so, a reasonable duty such as having to keep a low inflation rate becomes extremism when it is the only and single reason of its existence, when they want to demonstrate to everyone that they are immune to political pressures (ugh, politics is always something so dirty!). When, to sum up, they do not realize the overall picture, that their duty can not be maintained against democratic will, against common sense in the very exceptional circumstances in which we are living.

 

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