By Brenner, Reuven; Goldman, David P.
First Things: A Monthly Journal of Religion and Public Life , No. 198
The destinies of the aging but affluent people of the West and the young but impoverished people of the Global South are joined-and joined by a very simple economic fact: The old tend to have savings, while the young tend to have energy. To fund their retirements, old people must find young people to whom they can lend. And to start families and businesses, young people must find old people from whom they can borrow.
The extreme poverty of so many in the Global South offends morality for many reasons, but one reason hardly anyone seems to mention is that this poverty persists despite the economic interests of the world's people being complementary. We ought to help the poor, and we need to improve our own economic situation--and yet, somehow, we seem unable to do either.
This isn't a failure of charity. It's a failure of intellect, a failure of law, and a failure of imagination. Capital wants to flow from the West to high-return outlets in the South, but third-world corruption and first-world insularity combine to block these mutual needs and interests.
Despite its recent financial woes, the United States remains the only actor on the world stage that can break down the barriers impeding the natural flow of capital around the world. In that sense, our present economic crisis is both a prod and an opportunity for American leadership to act in the interest of both America and the world.
With the continued rise in American unemployment, despite nearly a trillion dollars in fiscal stimulus and more than eight trillion dollars in federal subsidies and guarantees to the financial system, this mutual dependency should be glaringly obvious. Americans, at the cusp of the biggest retirement wave in their history, must save as they never have before, particularly after the wealth destruction of the past two years. As they reduce consumption in order to save, employment falls--so far that one in five American adults is unemployed, underemployed, or "discouraged from seeking employment."
Americans could increase both their savings and their employment by exporting manufactured goods--but that is like saying that, if we had some ham, we could have ham and eggs, if we had some eggs. America has neither the capacity to manufacture such exports nor the customers to buy them. Half the world thirsts for capital, while half the world is drowning in it.
Two decisive actions would help open the floodgates that separate the capital-thirsty Global South from the capital-rich savers of the West. We need, first, monetary policy to stabilize currencies--currencies of developing nations, in particular--while creating conditions for the rapid development of their domestic capita] markets. And we need fiscal and regulatory changes to encourage savings and investment in the United States, to rebuild its equity.
In many ways, America's present position resembles that of the final years of the Carter administration, when Keynesian fiscal stimulus and lax monetary policy gave the country the worst of both worlds: economic stagnation and a collapsing currency. The present administration's policy mix of "Keynesian deficit spending" and near-zero interest rates will not produce a recovery either. In fact, by going down this road, we can only make matters worse.
Post-Carter, the Reagan administration trampled on economic convention by applying the economist Robert Mundell's idea of combining tight monetary policy (to save the dollar) and tax cuts (to encourage investment and risk-taking). This prescription began the longest economic boom in American history-and the nation can look forward to another long economic boom if policymakers have the courage and imagination to throw out Keynesian convention.
But, as Mark Twain said, history does not repeat itself; it only rhymes. We cannot simply replay the tape of the Reagan years, and we have to do something else to save the dollar from a devaluation spiral and rebuild equity. …