The Brunch Table

So it looks like the New York Times has embraced the idea that the World Bank/IMF causes severe economic damage to poor countries. These institutions offer loans in exchange for the broad adoption of Reagan-style laissez-faire policies, which have a lousy overall track record when it comes to creating wealth. As a result, borrower countries typically end up in worse financial shape than when they started.

This was considered an unacceptably radical position just a few years ago, when Nobel Prize-winner Joseph Stiglitz advanced it in his great book Globalization and Its Discontents. (There’s even a photo of burning fire on the cover.)

Stiglitz’s argument is simple: countries borrowing money are not that different from people borrowing money–in each case, there’s “good debt” and “bad debt.” Poor countries are poor because their economies can’t generate enough wealth for enough people. And the quickest cure for that is usually infrastructure, defined as whatever increases the overall wealth-generating capacity of the economy. Tap water, roads, reliable electricity, and vaccinations are common examples: that’s good debt. Problem is, infrastructure investment is precisely what laissez-faire ideology forbids. Therefore, whatever a country ends up spending a World Bank/IMF loan on, it’s unlikely to increase the country’s ability to create wealth, which means it’s going to be very difficult to pay back the loan: that’s bad debt.

Keynesian economics, first adopted by Franklin Roosevelt’s New Deal and now used by most of the world’s rich countries (the U.S. prominently excepted), argues the exact opposite. Build the infrastructure first, Keynesian doctrine says, even if you have to go into debt, and wealth creation will follow. Now, Keynesianism was orthodoxy in the U.S. from 1932 up till the Reagan era. Even Nixon, Depression kid that he was, stuck to the basic principles–to an extent that’s hard to believe today.

It didn’t quite sink in for me until I saw a UPA Cold War propaganda short at this year’s Ottawa Festival, trumpeting the capitalist virtues of advertising–and realising that the Voice-of-God narrator was talking about Keynesian capitalism. I can’t find a link–shame, the UPA educational shorts are graphic-design marvels–but i took notes:

“In a feudal society, income distribution is a pyramid.” [Xylophone scale.]

“In an industrial society, income distribution is a diamond.” [Balloon-stretch sound.]

That’s a graphical representation of the Keynesian middle class, pumping their increased disposable income into the economy.

“The New Deal gave every two American consumers the buying power of three.” [Timpani drum.]

Surreal.