Tuesday, June 29, 2004


Paul Krugman is a rare type of economist: he actually knows something outside the narrow "let's pretend that all people have equal incomes and only care about how much beer they get tomorrow" models of neoclassical economics. He even reads novels and stuff, I bet.

Krugman summarizes the economic situation in Iraq in his latest column:

Up to a point, the numbers in the Brookings Institution's invaluable Iraq Index tell the tale. Figures on the electricity supply and oil production show a pattern of fitful recovery and frequent reversals; figures on insurgent attacks and civilian casualties show a security situation that got progressively worse, not better; public opinion polls show an occupation that squandered the initial good will.
What the figures don't describe is the toxic mix of ideological obsession and cronyism that lie behind that dismal performance.
The insurgency took root during the occupation's first few months, when the Coalition Provisional Authority seemed oddly disengaged from the problems of postwar anarchy. But what was Paul Bremer III, the head of the C.P.A., focused on? According to a Washington Post reporter who shared a flight with him last June, "Bremer discussed the need to privatize government-run factories with such fervor that his voice cut through the din of the cargo hold."
Plans for privatization were eventually put on hold. But as he prepared to leave Iraq, Mr. Bremer listed reduced tax rates, reduced tariffs and the liberalization of foreign-investment laws as among his major accomplishments. Insurgents are blowing up pipelines and police stations, geysers of sewage are erupting from the streets, and the electricity is off most of the time — but we've given Iraq the gift of supply-side economics.

And not only have we given Iraq the curse of an unproven economic theory (we did the same to Russia a decade ago and you can see the consequences for yourself in the new Russian maffia and in the old people who are now starving on their fixed pensions) but we have done this with a workforce whose main claim to competence is fervent Republicanism. Never mind if the person has no experience or training; what matters is a stint at the Heritage Foundation:

If the occupiers often seemed oblivious to reality, one reason was that many jobs at the C.P.A. went to people whose qualifications seemed to lie mainly in their personal and political connections — people like Simone Ledeen, whose father, Michael Ledeen, a prominent neoconservative, told a forum that "the level of casualties is secondary" because "we are a warlike people" and "we love war."
Still, given Mr. Bremer's economic focus, you might at least have expected his top aide for private-sector development to be an expert on privatization and liberalization in such countries as Russia or Argentina. But the job initially went to Thomas Foley, a Connecticut businessman and Republican fund-raiser with no obviously relevant expertise. In March, Michael Fleischer, a New Jersey businessman, took over. Yes, he's Ari Fleischer's brother. Mr. Fleischer told The Chicago Tribune that part of his job was educating Iraqi businessmen: "The only paradigm they know is cronyism. We are teaching them that there is an alternative system with built-in checks and built-in review."

More generally, I wonder about the wisdom of focusing so much on the 'free markets' paradigm in a country where so many people are living off what we'd call welfare checks from the country's oil revenues. One can't just skip from one extreme to the other, all the time dodging bullets and scimitars, and one can't have any kind of functioning markets without a functioning infrastructure (roads, bridges, electricty, water), and infrastructure requires government expenditures.

It's also not fun to watch an ahistoric theory being forced upon people who have a very specific history, religion and culture; none of which seems to support the basic assumptions of the theory. I can well imagine a handful of rich Iraqis gaining the fruits of all this theorizing while the rest of the country dodges forgotten land mines and tries not to starve.