---------- Forwarded message ---------- Date: Mon, 7 Sep 1998 19:21:33 -0400 From: Doug Hunt <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Subject: Free market fallacies > Free market fallacies > > By Robert Kuttner, 09/06/98 > > The swooning stock market, the East Asian collapse, > and the Russian implosion have a common genesis. > All are casualties of the great illusion of our era - the > utopian worship of free markets. > > Half a century ago the democracies of the West, > chastened by two world wars and a depression, by > the brutalities of pure capitalism and the menace of > communism, concluded that a market economy > needed to be tamed and domesticated, to coexist > with a decent, stable, and just society. > > But the stagnation of the 1970s, the resurgence of > organized business as a political force, and finally the > collapse of communism revived an almost lunatic > credulity in pure markets and a messianic urge to > spread them worldwide. > > Consider the East Asia crisis. For the most part, East > Asia has productive workers and firms, households > with high rates of savings, even prudent government > budgets. > > Some countries did suffer from business-government > cronyism. But what wrecked these economies was > their sudden exposure to international speculative > forces beyond their control. > > Financial speculators first overinvested in their > currencies, stocks, and businesses - and then > abruptly pulled the plug. This sudden vulnerability, in > turn, reflected ultra free-market norms imposed by the > United States and our proteges at the International > Monetary Fund. > > Obviously the real value of an economy does not > fluctuate by 80 percent in a few months. What > fluctuates are the guesses of foreign speculators. But > in an exposed economy, these become self-fulfilling > prophesies. > > The US stock market is a casualty of the same naive > market-worship. Just weeks ago, prestigious > commentators were still proclaiming a fundamentally > ``new economy'' of permanent prosperity, eerily > echoing the 1920s. Supposedly, the combination of > deregulation, globalization, low inflation, and > technology meant stocks had nowhere to go but up. > > In truth, the stock market got dangerously overvalued > because markets often misvalue things. Markets > misvalue human labor, education, and universal > health care; they misvalue clean air and water. And, > occasionally, euphoria breaks out and markets > misvalue stocks. > > Ironically, what has saved the stock market from even > steeper collapse is that nemesis of financial-market > purists - the good old capital gains tax. Investors are > riding out the down market rather than paying a tax > on what's left of their gains. The same free-market > fundamentalists who considered globalization an > unmitigated plus now offer this contradictory > reassurance: The contagion won't seriously damage > us because America is still relatively isolated > compared with the poor suckers who took our advice > and are now more globally exposed than we are! > > Alas, America is no island. Calamity in Asia, Russia, > and Latin America, in part the fruit of our own > ideological exports, can't help but affect the United > States and Europe. The most dangerous of all these > events is the collapse in Russia. It recalls the West's > failure to help Germany recover after World War I, > resulting in Hitler and World War II. > > The United States spent $9 trillion to win the Cold > War. But once communism collapsed, we concluded > that market forces would do the rest. Western aid to > Russia peaked at just $2 billion a year, a tiny fraction > of postwar Marshall Plan aid to Europe. > > There was a historic moment, in the early 1990s, > when a ``grand bargain'' with the emerging > post-Soviet Russia was on offer. With serious aid we > could have helped true reformers build an effective > democratic state and a modern mixed economy. > Instead, the Russians got laissez-faire gangster > capitalism. Today, weirdly, the most effective > opposition is the Communist Party. > > Economic reconstruction after World War II accepted > the necessity of a mixed economy. In that era, the > United States and the International Monetary Fund > recognized that emergent economies could not be > the prisoners of private speculative capital. > > The postwar system regulated private money flows > and stabilized currencies to allow nations to develop. > Today's IMF perversely demands exposure to > speculators as a precondition of assistance. > > Increasingly, nations like Russia and Malaysia are > imposing unilateral and defensive controls on capital. > But instead of being part of a coherent system of > stabilization and development that includes > necessary buffers, these ad hoc moves are > isolationist and destabilizing. Until the economic > priesthood of the West revises its ultra-market view of > free financial flows, more such moves will follow. > > What we need is a program of stabilization and > reconstruction in the spirit of the post-World War II > years, with limits on speculative money flows and > more development aid. Sometimes it takes a crisis to > change official thinking. Let's hope conventional > wisdom shifts before crisis turns to catastrophe. > > Robert Kuttner's is co-editor of The American Prospect. > His column appears regularly in the Globe. > > This story ran on page C07 of the Boston Globe on 09/06/98. > © Copyright 1998 Globe Newspaper Company. -- ** NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. ** ___________________________________________________________ Doug Hunt, UCC/NEER Chair, US NGO Caucus for UN Comm. on Sust. Dev. & Organizer US Network for Sustainable Development Financing p: 301-593-4724 f:301-593-7591 e:[EMAIL PROTECTED]
