Re: Why economists do not care about high rates of unemployment w

[Doug Henwood <dhenwood@xxxxxxxxx>]

On Fri, 15 Apr 1994, Paul Davidson wrote [with deletions]:

> The question you ask as to why the Bretton Woods system broke down is a good
> one as is your prior complaint that the IMF and World Bank become tools of
>  "political power of the rentier".
> (Mitchell uses a more emotionally charged lexicon.)

Damn. I'm falling down on the job!

>          You are willing to suggest that Bretton Woods broke down because of
> the "weakening preeminence of US in the global economy". This does suggest that
>  you recognize that, at least in the US, the capitalist system could push for
> global reductions in the major faults of unemployment and inequality. (Mitchell
> apparently would not agree that the entrepreneurial system can be designed to
> permanently (if only the Us hadn't weakened) or even better if only the
> strengthening entrepreneurial economies of Europe, etc) had followed the
> designs for solving inbalances in intenrationl payments as the US did
> after WWII.

I do not recognize any such thing. The decline in US preeminence was the
result of the rise of Japan and Western Europe as economic powers - not
really a rise de novo but a restoration of their pre-war status. The US
did not design or fund the Marshall Plan out of any charitable instincts
- it was a clear attempt to prevent the spread of red, pink, or
nationalist-capitalist approaches. Internal US government documents and
press commentary of the time are quite clear in professing the Marshall
Plan a failure, and thus the military budget became the chosen instrument
for the revival of world trade. That of course led to a massive outflow
of dollars and the eventual collapse of the fixed-rate system, but it was
a good ride while it lasted.

> continued global economic growth. Keynes specifically states that the basic
> fault with all convertible international payments systems -- whether fixed
> or flexible -- is that the entire burder of adjustment is put on the
> deficit nation. Success requires, according to Keynes,shifting a majority of
> the onus of adjustment to the creditor position. Thats what Keynes's original
> bancor plan did, thats what the Marshall plan and foreign aid (tmporarily) did,
>  and that is embedded as a permenant attribute of the new international
> payments system that I m advocating in PKMT and the JPKE.

What incentive to the surplus countries have to put the burden of
adjustment on themselves? None, of course. The political naivete of this
recommendation is on a par with the notion that the rentiers will consent
to their own demise.

>      Finally Doug raises the question of why is there no political momentum
> to restore it. First, I think the attempt to move to a unified monetary system
> in the European Community is a piecemeal attempt. But it does show some
> political momentum.

The ERM is a wreck. Its wreckage came about because it was an attempt to
throw together in economic and political union countries at very
different levels of development. There may be some political momentum
remaining for EMU, but it's coming mainly from Brussels and the City of
London - a long way from the kind of democratic ideal PD recommended in
his posting the other day on incomes policies.

Doug

Doug Henwood [dhenwood@xxxxxxxxx]
Left Business Observer
212-874-4020 (voice)
212-874-3137 (fax)