Washington's Double Standard
An editorial by Eduardo Porter in yesterday’s New York Times points out the double standard in the U.S. government’s response to the current financial crisis, vs. the remedies it has supported for the rest of the world: “Could this be the same United States that backed the International Monetary Fund’s get-tough strategy during the emerging-market crises in the 1990s—pushing countries from Asia to Latin America to slash government spending and raise interest rates to recover investors’ confidence and regain access to lending from abroad?” The IMF advocated—and indeed coerced—high interest rates and reductions in government spending. But the solution in the United States is lower interest rates and expensive stimulus spending. Porter cites Joseph Stiglitz (who was chief economist at the World Bank at the time that “structural adjustment” was forced on Asia and Latin America) as one economist who sees a double standard here. He cites Larry Summers, who was Treasury Secretary at the time of the 1990s financial crises, as one who denies a double standard.
We agree with Stiglitz and Porter. As D&S collective member and blogger Larry Peterson noted in an earlier posting:
In a shocking display of bad taste at best, and ignorance at worst, a Lehman Brothers economist referred to last week’s Fed action as “shock therapy.” Most of the readers of this blog will need no reminding that the same phrase was used to describe the structural adjustment programs that caused “lost decades” for much of the poor and developing world. The only difference, of course, is that “shock therapy” for them meant jacking up interest rates to stratospheric levels—and subsequent capital outflows which enriched many Western investors, while for us, it has meant a dramatic drop in interest rates.
The source of this comment from the Lehman Bros. economist? The New York Times, of course.