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A very creepy, somewhat sad, and pathetic document. Certainly the creepiest--the most positively Orwellian--moment in this open letter is when Nader refers to "devaluation and other contractionary policies..." Since well before the days of Keynes, devaluation has been the original expansionary policy: a way to provide running room for future monetary expansion, interest rate reduction, and export expansion to boost aggregate demand. People have objected to devaluation as dangerously expansionary. No one--before Nader--has ever condemned devaluation as contractionary.
The reference to "devaluation and other contractionary policies" is one of several cynical attempts at Orwellian doublespeak: the work of a writer who not only fails to write what is true, but does not even care to try to write what is true.
Ralph Nader has indeed sunk far since the 1960s.
December 31, 1997
One of the more disturbing traits of the architects of economic globalization is their penchant for secrecy and apparent disdain for democratic processes. This modus operandi is problematic not only on procedural grounds alone, but also because it tends to foster policies that serve narrow corporate interests over broader taxpayer, consumer, worker, environmental, and other citizen interests.
There is no doubt that the globalization-induced Asian financial crisis and the South Korean meltdown in particular were and are serious problems. However, as serious problems, they merit open debate and explanation of policy choices by government officials--not stealth meetings, secret decisions, concealed information, intentionally obscure comments from you and other officials and sudden reversals of policy. The priorities of democracy must be elevated over those of "the market."
As you may recall, in the first weeks of the South Korean crisis, you and members of the Clinton administration repeatedly asserted that U.S. funds would be involved in the South Korea/Citicorp bailout only as a "second line of defense." On December 3, South Korea and the International Monetary Fund agreed to a $55 billion loan package in which South Korea acceded to substantial economic conditions. The U.S. contribution was $5 billion, drawn from the Exchange Stabilization Fund, a pool of money on which the President can draw without approval by Congress, and specifically characgerized as a "second line of defense" to be used only if the multilateral development bank money was exhausted. You continued to assure the American people that U.S. taxpayer money would not be put at risk.
On December 24, in what may become known as the Great Christmas Eve Reversal, the Clinton Administration agreed to lend South Korea $1.7 billion in January as part of a $10 billion emergency loan package. In exchange for the loan, you extracted a series of additional South Korean economic conditions that are of questionable benefit to the South Korean economy, though of certain advantage to big U.S. banks and other corporations, which will now be able to acquire majority stakes in South Koreans firms at fire-sale prices.
The loan packages impose an array of austerity measures on the South Korean economy, which many economists have argued compellingly are exactly the opposite of what is justified by the underlying fundamentals of the economy. The recessionary policies pushed by the IMF and the Treasury Department will throw tens of thousands of South Korean workers out of their jobs and depress the wages of those who hold on to their jobs, even though there appeared to be effective alternative policies (such as increased transparency and financial sector restructuring, with no macroeconomic dictates) available. Devaluation and other contractionary policies will also further the problem of cheap foreign labor undermining the jobs and negotiating leverage of U.S. workers.
Meanwhile, the international banks that made loans to South Korean enterprises and are complicit in whatever imprudent loans were made will apparently be bailed out by the IMF and Christmas Eve Reversal packages--suffering no more than deferred payments. Furthering the inequity, the IMF and the reversal packages require South Korea to open up its economy to foreign mergers and acquisitions--meaning that Citicorp, J.P. Morgan, Bankers Trust, BankAmerica, the Bank of New York, Chase Manhattan, and others are not only bailed out but then given the opportunity to buy up lucrative sectors of the South Korean economy--a double windfall.
How does the man who preached about the risk of "moral hazard" justify such a generous package for lenders and such a harsh package for the borrower? Your handling of the South Korean/Citicorp bailout is a textbook study of the dark side of globalization. It is time for you to remember that you are employed by the people of the United States, not by the banks and financial houses of Wall Street.
The first step in demonstrating your respect for the American people is to disclose the list of the big banks that are the ultimate recipients of the bailout. A second step would be to cease to make large-scale use of the Exchange Stabilization Fund without prior Congressional approval, as proposed in legislation introduced by Senator Lauch Faircloth. Third, there should be no Administration request this spring for more funding for the IMF, which has demonstrated that it is too secreive and too enchanged with pull-down austerity measures to merit support.
Finally, you may wish to ponder the inadequacies of the Administration's economic intelligence. A broader array of empirical indicators are a reflection of a more anticipatory and therefore democratic process of decision making.
A draft letter to the editor in response:
January 14, 1998
Letters to the Editor
72 Fifth Avenue
New York, NY 10011
Dear Mesdames and Sirs:
Let me protest your printing Ralph Nader's and Robert Weissman's open letter to Robert Rubin. It is dishonest--morally, intellectually, and politically.
Why complain about U.S. policy "reversals", and never mention the deterioriating situation that provoked the policy changes?
Why accuse the IMF of trying to throw tens of thousands of Koreans out of work, and never mention the millions of Koreans whose jobs would vanish in the Great Depression-style financial collapse the IMF is trying to prevent?
Why condemn the IMF for trying to get Korea to encourage foreign investment in Korea, and never mention Korea's biggest problem today: too little foreign investment--capital flight--as a result of the financial panic?
And why such eagerness to jump into bed with Senator Lauch Faircloth?
Perhaps worst of all, why talk of "Devaluation and other contractionary policies..."? Devaluation is expansionary policy: a way to provide running room for future monetary expansion, interest rate reduction, and export expansion to boost aggregate demand. People have objected to devaluation as dangerously expansionary. No one before has ever condemned devaluation as contractionary.
Nader and Weissman's piece is a cynical attempt at Orwellian doublespeak: the work of writers for whom it is a matter of indifference whether what they write is true or not.
You have a duty to demand higher standards of logic, argument--and honesty--in your pages.
Professor of Economics J. Bradford
DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
This document: http://www.j-bradford-delong.net/Politics/Nader_letter.html