Belmont Club

I had a dream

The Telegraph reports that “economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House’s plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run.”

His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says.

There are “troubling similarities” between the US President’s actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.

A paper laying out their joint thesis argues that government was the problem, both during the Great Depression and today. The synopsis of the Rowley and Smith paper says, “expansionary fiscal and monetary policies by the Bush administration and the Greenspan Fed were implemented to deal with the recession of 2001, and are precisely what caused the current crisis.”

An Institute of Economic Affairs review says “the authors argue that there are “troubling similarities” between the approach of the current US government and the disastrous economic policies of President Roosevelt during the 1930s.”

“FDR’s interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows.” …

in a damning indictment of Obama’s economic programme, the authors conclude that:

“Now is a particularly bad time to enact socialistic reforms to the market for healthcare, pursue wealth-destructive cap and trade environmental programs, or force additional federal tax dollars into state and local education markets. Such policies imply higher government spending and, eventually, either higher taxes or runaway inflation, thus depleting taxpayer and business confidence in the economy…”

This is not the place to examine the argument that government is the problem, but it is fair to say that it is around this argument current debate over the economic crisis revolves. There will be those who strong believe that more government, more deficit stimulus programs, more expenditure is the answer, while not surprisingly there will be those who hold the opposite. Whichever end of the rope one is pulling on, it seems clear that it is the same rope.

The paper’s reference to Argentina refers to the “Infamous Decade”, prior to which in 1929, Argentina had the 4th highest per capita GDP in the world. In response to the Great Depression, Argentina embarked on a policy of import substitution industrialization.

Adopted in many Latin American countries from the 1930s until the late 1980s, and in some Asian and African countries from the 1950s on, ISI was theoretically organized in the works of Raúl Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL). Insofar as its suggestion of state-induced industrialization through governmental spending, it is largely influenced by Keynesian thinking, as well as the infant industry arguments adopted by some highly industrialized countries, such as the United States, until the 1940s. ISI is often associated with dependency theory, though the latter adopts a much broader sociological outlook which also addresses cultural elements sought to be linked with underdevelopment.

Argentina’s history is complex and will be cited as evidence on both sides of the ideological tug of war for their purposes. Today, Argentina is still one of the more prosperous countries in the world, somewhere between the 23rd and 30th largest economies in the world. Adam Smith observed that “there’s a lot of ruin in a nation”. That fact may console those who are bent on imposing their vision of fairness on it; the idea that however badly they hurt it the United States wouldn’t fall any further than number 25 in the world; a middling place with nothing in particular to be proud of except for the fact that it was no longer number one. That’s a virtue in the eyes of some, who will ask what is so wrong about becoming another Argentina if that is the price to pay for ridding the world of the United States? That’s another way of thinking of the rope each side is pulling on.


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