That’s Bob Shiller’s book on Irrational Exuberance on the shelf
The International Monetary Fund and the World Bank are poised to hold their annual meetings, but the big news in global economic governance will not be made in Washington DC in the coming days. Indeed, that news was made last month, when the United Kingdom, Germany, France, and Italy joined more than 30 other countries as founding members of the Asian Infrastructure Investment Bank (AIIB). The $50 billion AIIB, launched by China, will help meet Asia’s enormous infrastructure needs, which are well beyond the capacity of today’s institutional arrangements to finance.
One would have thought that the AIIB’s launch, and the decision of so many governments to support it, would be a cause for universal celebration. And for the IMF, the World Bank, and many others, it was. But, puzzlingly, wealthy European countries’ decision to join provoked the ire of American officials. Indeed, one unnamed American source accused the UK of “constant accommodation” of China. Covertly, the United States put pressure on countries around the world to stay away.
In fact, America’s opposition to the AIIB is inconsistent with its stated economic priorities in Asia. Sadly, it seems to be another case of America’s insecurity about its global influence trumping its idealistic rhetoric – this time possibly undermining an important opportunity to strengthen Asia’s developing economies.
China itself is a testament to the extent to which infrastructure investment can contribute to development. Last month, I visited formerly remote areas of the country that are now prosperous as a result of the connectivity – and thus the freer flow of people, goods, and ideas – that such investments have delivered.
The AIIB would bring similar benefits to other parts of Asia, which deepens the irony of US opposition. President Barack Obama’s administration is championing the virtues of trade; but, in developing countries, lack of infrastructure is a far more serious barrier to trade than tariffs.
A generally wholistic understanding of the workings of the global economy is just one of the reasons Joe Stiglitz was honored with the Nobel Prize in economics. It ain’t a bad start.
RTFA and understand why modern economists think our government’s hypocrisy ain’t new – just backwards for a couple new reasons.
Illustration by Matt Wuerker
After a hard-fought election campaign, costing well in excess of $2 billion, it seems to many observers that not much has changed in American politics: Barack Obama is still President, the Republicans still control the House of Representatives, and the Democrats still have a majority in the Senate. With America facing a “fiscal cliff” – automatic tax increases and spending cuts at the start of 2013 that will most likely drive the economy into recession unless bipartisan agreement on an alternative fiscal path is reached – could there be anything worse than continued political gridlock?
In fact, the election had several salutary effects – beyond showing that unbridled corporate spending could not buy an election, and that demographic changes in the United States may doom Republican extremism. The Republicans’ explicit campaign of disenfranchisement in some states – like Pennsylvania, where they tried to make it more difficult for African-Americans and Latinos to register to vote – backfired: those whose rights were threatened were motivated to turn out and exercise them. In Massachusetts, Elizabeth Warren, a Harvard law professor and tireless warrior for reforms to protect ordinary citizens from banks’ abusive practices, won a seat in the Senate…
The Republicans should not have been caught off-guard by Americans’ interest in issues like disenfranchisement and gender equality. While these issues strike at the core of a country’s values – of what we mean by democracy and limits on government intrusion into individuals’ lives – they are also economic issues. As I explain in my book The Price of Inequality, much of the rise in US economic inequality is attributable to a government in which the rich have disproportionate influence – and use that influence to entrench themselves. Obviously, issues like reproductive rights and gay marriage have large economic consequences as well…
…Here is what Americans should hope for: a strong “jobs” bill – based on investments in education, health care, technology, and infrastructure – that would stimulate the economy, restore growth, reduce unemployment, and generate tax revenues far in excess of its costs, thus improving the country’s fiscal position. They might also hope for a housing program that finally addresses America’s foreclosure crisis…
America – and the world – would also benefit from a US energy policy that reduces reliance on imports not just by increasing domestic production, but also by cutting consumption, and that recognizes the risks posed by global warming. Moreover, America’s science and technology policy must reflect an understanding that long-term increases in living standards depend upon productivity growth, which reflects technological progress that assumes a solid foundation of basic research…
Americans should hope for all of this, though I am not sanguine that they will get much of it.& More likely, America will muddle through – here another little program for struggling students and homeowners, there the end of the Bush tax cuts for millionaires, but no wholesale tax reform, serious cutbacks in defense spending, or significant progress on global warming.
With the euro crisis likely to continue unabated, America’s continuing malaise does not bode well for global growth. Even worse, in the absence of strong American leadership, longstanding global problems – from climate change to urgently needed reforms of the international monetary system – will continue to fester. Nonetheless, we should be grateful: it is better to be standing still than it is to be heading in the wrong direction.
Optimist that I am – still as cynical as Joe Stiglitz the author of this piece – we have 2014 and 2016 to look forward to. Americans may just be bright enough, confident enough, to push the House back to solid enough Democrat control at the mid-term to enable progressive legislation to be funded. I expect no miracles from our voters or elected officials – but, I think we’ll have the market on our side.
At this moment, I’m confident in Hillary running in 2016 – and her added experience in foreign policy [as tawdry as that has continued to be] better equips her for the battles for the presidency.
Should be fun. We may get a little further along the road to solvency and modernity.