Washington still has no reason to suspect that poor people do not prefer to be poor.
Modern supply-side economics is one of the legs of the New Washington Consensus, which is not designed, like the previous one, to improve economies and the environment in the world, but rather its new design has little novel structure based on sustaining U.S. capitalism at home and imperialism abroad. The impact and connotations of this new consensus will attempt to suffocate the global south and Latin America in particular.
To understand what is coming for the world, something like a remake or re-edition of the Washington Consensus, there are two central speeches that explain it, both with global connotations, one domestic, for the American economy, about the virtues of “modern supply-side economics” by the current US Treasury Secretary and former chair of the Federal Reserve, Janet Yellen, in a speech to the Stanford Economic Policy Research Institute. The second, the idea of a broader economic policy, or the direction it would take to integrate more deeply U.S. domestic and foreign policy, was laid out by modern supply-side economics advisor Jake Sullivan in his speech on Renewing U.S. Economic Leadership at the Brookings Institution, where he explained what would be called the New Washington Consensus.
We will begin with the second point, which will provide the framework and vision for this new consensus. The idea is conceptually stated with the following logic. After World War II, the United States led a fragmented world to build a new international economic order. From Washington it is believed that this process helped the United States and many other nations of the world to reach new levels of prosperity. In recent decades, cracks in that foundation have been revealed. A changing global economy left many American workers and their communities behind. Two milestones or hinges of this process are marked here: the financial crisis that shook the middle class (2008-2010) and the pandemic that exposed the fragility of supply chains. The Russian invasion of Ukraine is the icing on the cake.
The United States believes that the world requires it to forge a new consensus, and the definitions on which it is based do not disguise its intentions. This strategy will build a fairer and more durable global economic order, to our benefit and to the benefit of people around the world. Sullivan lays out what they are trying to do. And he begins by defining four challenges they must face, namely:
First challenge: America's industrial base has been hollowed out.
Second challenge: a new environment defined by geopolitical and security competition, with significant economic impacts.
The third challenge is an accelerating climate crisis and the urgent need for a just and efficient energy transition.
The fourth is the challenge of inequality and its damage to democracy.The first challenge, the hollowing out of American industry, is based on a lack of investment. Under President Biden’s administration, the vision of public investment that had energized the American project in the postwar years faded, and this gave way to a set of ideas that advocated tax cuts and deregulation, privatization over public action, and trade liberalization as an end in itself. This is, as we shall see, the core of the old Washington Consensus, which in Argentina today is represented by most of the political parties vying for the presidency.
Let us follow the logic of the American National Security Advisor, because his reasoning is, letter by letter, that of the Argentine right wing since 1990. In the case of the Security Advisor, errors are marked, that is, the parent company exposes its mistaken vision: markets were always supposed to allocate capital efficiently, no matter what our competitors did. “But in the name of market efficiency, we oversimplified it, entire supply chains of strategic goods, along with the industries and jobs that produced them, moved overseas. And the postulate that deep trade liberalization would help the United States export goods, not jobs and capacity, was a promise made but not kept. That is, the market preferred to profit by moving business and labor overseas. And, as ridiculous as it sounds, the market opted for profits in the value chain; needless to say, it was not the market, but the multinationals.
The second challenge was to adapt to a new environment defined by geopolitical and security competition, with significant economic impacts. The global order would be more peaceful and cooperative, and would lead countries to the “rules-based” order, and encourage them to adhere to them, not question them. The truth is that China, a large non-market economy, had integrated into the international economic order in a way that posed considerable challenges. The PRC continued to subsidize on a large scale both traditional industrial sectors, e.g., steel, and key industries of the future, clean energy, digital infrastructure, and advanced biotechnologies. The U.S. not only lost manufacturing but eroded its competitiveness in critical technologies that would define the future.
The result, the rise of China with a government and economy that, after 2010, expanded its global share. The World Bank figures in the chart speak for themselves. The U.S. share of world GDP rose from 25% to 30% between 1980 and 2000, but in the first two decades of the 21st century it fell back below 25%. In those twenty years, China’s share grew from less than 4% to more than 17%, i.e., it quadrupled. The share of other G7 countries (Japan, Italy, UK, Germany, France, Canada) fell considerably, while developing countries (excluding China) have stagnated as a share of world GDP, and their share changed with commodity prices and debt crises.
The third challenge we faced was an accelerating climate crisis and the urgent need for a just and efficient energy transition. Biden believes that building a 21st century clean energy economy is one of the most important growth opportunities of the century, but that to take advantage of it, America needs a practical and deliberate investment strategy to drive innovation, reduce costs and create good jobs. The anti-inflation bill will be responsible for increasing investment and destroying European industrialization.
Finally, there is the challenge of inequality and its damage to democracy, which is no longer a societal problem, it is an idea of the elites. Trade-facilitated growth, the U.S. government assumed, would have inclusive growth, as the gains from trade would end up being widely shared within nations. But the fact is that those gains did not reach many workers. The U.S. middle class lost ground while the rich did better than ever. Identical reading could be made for the Argentinean extraccioncita model, the foreign trade of grains did not solve the appropriation of dollars nor the multiplication of employment and it seems that it would not do it either, or would follow the American example, in energy and mining.
The U.S. Treasury Secretary, for her part, explained the term “modern supply-side economics,” which describes the Biden administration’s economic growth strategy: “What we are really comparing our new approach to is traditional “supply-side economics,” which also seeks to expand the economy’s potential output, but through aggressive deregulation combined with tax cuts designed to promote private capital investment.
Traditional supply-side economics was devised as an expression by Heber Stein in 1976. And A.B. Laffer was one of its main theorists and conceptualizer of the curve that bears his name, which proposes that lower taxes lead to higher growth and higher tax revenues. This theory failed everywhere, but supported privatization and deregulation measures, becoming popular during Margaret Thatcher’s administration in the United Kingdom and Ronald Reagan’s presidency. The latter used this theory as the basis of his economic policy (reagonomics) and confronted the neo-Keynesian democrats with it.
Pure supply-side economists emphasize capital investment, lower taxes and unrestricted trade (deregulation and trade liberalization or globalization) as the best ways to promote economic growth, based on Say’s Law, “supply creates its own demand”, a theoretical aspect in which they omit that money is neutral, i.e., everything I sell is tied to the purchase of another good I need. It contrasts with the Keynesian view with its emphasis on demand. This is the neoclassical policy used by Menem in Argentina, Cardozo in Brazil, the PRI in Mexico, etc.
Why Yellen dismisses the old Washington consensus approach, which left the lost decade in the 1980s for Latin America, or the sale of national assets in the 1990s: “Our new approach is much more promising than the old supply-side economics, which I consider a failed strategy for raising growth. Significant capital tax cuts have failed to deliver the promised gains. And deregulation has an equally poor track record in general and with respect to environmental policies, especially for reducing CO2 emissions.”
How is this done? Basically, through government subsidies to industry, not through ownership and control of key supply-side sectors. According to the Treasury Secretary: “The Biden administration’s economic strategy embraces, rather than rejects, collaboration with the private sector through a combination of enhanced market-based incentives and direct spending based on empirically proven strategies. For example, a package of incentives and rebates for clean energy, electric vehicles and decarbonization will incentivize businesses to make these critical investments.” And taxing corporations, both domestically and through international agreements, to stop tax haven avoidance and other corporate tax hiding tricks.
Modern supply-side economics and the New Washington Consensus combine domestic and international economic policy for the major capitalist economies in an alliance of the willing. But this new economic model offers nothing to those countries facing rising debt levels and servicing costs that are driving many into default and depression.
With debt crises looming, governments must go further into debt to subsidize private companies, tax them and partner, where appropriate, to produce, transport and secure the resources needed for the first world energy transformation. The problem is that over the last 270 years, Europe and North America have contributed more than 70% of the stock of greenhouse gases. This has also depleted almost the entire carbon budget of the planet, as if there were a carbon debt ceiling. But today, according to Martin Wolf of the Financial Times, emerging and developing countries generate about 63% of emissions, if you include China, if you take it out, Latin America has no impact, but it is a proportion that is bound to grow.
It follows magically that not only must there be large cuts in emissions, but that a large part of those cuts, particularly relative to trend, must be made by emerging and developing countries. To achieve this, investment in the green transition in these countries (apart from China) must reach about $2.4 trillion per year (6.5% of gross domestic product) by 2030.
In other words, the rich countries, which became powers at the cost of exploitation of natural resources, exploitation of workers and environmental degradation, should help the poor of the third world not to pollute with credits or some kind of green whip that disciplines us, in exchange for what?
Despite the clarity and transparency with which they express, disseminate and comment on their failed thoughts of decades ago, they have resurfaced again. Why would the same creators of inequality now put remedies to it? Why, as philosopher Byung-Chul Han says, can’t a revolution be made with such inequality? Han understands that neoliberal power is so stable and has no resistance and gains followers in the world, for various reasons that we will clarify. But I think there are two levels, the first world, for which Han speaks, and a third world, as evidenced by the cases of Jujuy in Argentina, Ecuador or Peru where repression to stabilize the system is still needed.
There is a part of society that is no longer representative of the working class, they are lords and deer at the same time, there is no class struggle in the first world, the rival is not distinguished, it is not known who is the evil one and who is the exploited or who is the abused worker. The class struggle is against oneself, for not being enterprising enough, for not working more hours, for not adapting to the new future, etc.; the failure is one’s own, society, the laws, the political actions of exclusion have nothing to do with it. In America, it is still possible to protest against the society that excluded us, against marginalization policies, against exploitation and in favor of rights. But it would be to fight against what Adam Tooze calls polycrisis: debt, energy, economy, and above all democracy, which has been excluded from the voters, is only a problem of the elites.
The new consensus is as absurd, exclusionary and concentrating as the old one. The difference in this case is who will pay the price. Undoubtedly, it will be the middle class.
translated by deepl.
taken from here