Jim wrote:
The fact is that China, Japan, and the Gulf States are acting out of some sort of self-interest. If it's the central banks there, that self-interest isn't simple profit-grubbing since it is tempered or exaggerated by political goals of various sorts.
Stiglitz asks the question why poor countries (not only China, with an industrialization strategy based on exports, but many other countries with smallish shares of USD assets in their reserves, but still big chunks of money compared to the size of their economies) are lending money to the U.S.? Don't they have better uses for that money? Stiglitz's main answer is that, given the frequency of brutal currency crises after Bretton Woods fell apart, in this globalized world economy and chaotic Jamaica-"agreement" international monetary environment in which they have to exist, that's a reasonable hedge. Yes, the loss of global welfare adds up to a lot -- but one cannot just ask those countries to unilaterally stop hedging when they depend on foreign capital to stay afloat. The fact that this cuts across all sorts of political lines gives credence to Stiglitz's view. It's not the politics of China, Japan, or the Gulf states only -- as if their differences weren't enough. Mexico has a record official reserves balance as we speak. Considering the country's economic conditions, that's a lot of frozen money earning way below the regular hurdle rate in Mexico. A country like Venezuela, with huge inflows of oil revenues and a government committed to endogenous development and socialism, feels the need to hold large reserves in USD and U.S. financial assets. If Stiglitz is right, only a new international monetary system can release all that wealth for development. How would that ever be politically feasible? Well, a lot of people have to need it and struggle for it. Stiglitz is making the case to the establishment that it's in the best interest of U.S. capitalism to allow for those resources to be used for development rather than to fund U.S. consumption binges. It's the Keynesian view. Is it contrary to the struggle for world socialism? I don't think so. It may be a necessary intermediate step. The main current obstacle is the U.S. Yes, things are changing here, but I can envision the political energy to put in place a Keynesian-inspired Bretton Woods global agreement in the short- or medium run. For the time being, the left in this country will properly focus on (1) getting the troops out of Iraq, (2) implementing universal health care, and perhaps (3) reforming foreign policy. In that priority order, I think. A reforming of U.S. foreign policy can only start by reaping the lowest hanging fruits. A reform of the international monetary system is not the easiest one to reach. Bretton Woods and the San Francisco charter emerged from a bloody world war. The Soviet Union was expanding. It'd be nice if we learned from the past painlessly. But... Damn, Carrol's views must be making a dent on my optimism.... Hmm... Not really. The Washington demonstration was great. There's a lot of very creative people energized. We're going to see an escalation of local and national actions against the occupation in the coming months. And the target will include Republicans, Hillary, Obama, et al. PS: I don't know if Yoshie has formal studies in economics, but she's shown to be very well informed.
