Work and World

Fareed Zakaria: History Warns Us About Troubles Brought By Inflation

SPEAKING ABOUT EXACTLY THAT. SHE’LL TELL ME WHAT SHE’S LEARNED. >>> BUT FIRST HERE’S “MY TAKE.” AS WE WATCH INFLATION SPIKE UPWARDS AT A PACE NOT SEEN SINCE THE EARLY 1980s, EXPERTS ARE DEBATING WHETHER THIS IS WORRYING AND LONG TERM OR BENIGN AND TRANS FORY. I’M NOT A ECONOMIST BUT AS A STUDENT OF HISTORY, I WONDER IF THE RETURN OF INFLATION IS PART OF A LARGER SHIFT THAT IS TAKING PLACE ACROSS THE WORLD. TO PUT IT SIMPLY, FOR DECADES IN COUNTRY AFTER COUNTRY, ECONOMICS TRUMPED POLITICS BUT NOW FROM CHINA TO TURKEY TO THE UNITED STATES, POLITICS IS TRUMPING ECONOMICS. TZ CON KWES OF INFLATION IS ONE OF THE MOST FAR REACHING CHANGES OF OUR TIME. COUNTRIES USED TO THINK THEY HAD TO LIVE WITH AND MANAGE ESCALATION AND RISING PRICES. WHEN THEY GOT OUT OF HAND, THEY OFTEN HAD SEVERE CONSEQUENCES. UNLIKE UNEMPLOYMENT, WHO AFFECT JUST THE SMALL PERCENTAGE OF PEOPLE WHO DON’T HAVE JOBS, INFLATION AFFECTS EVERYONE. AND UNLIKE UNEMPLOYMENT, WHICH SHRINKS WHAT YOU MIGHT HAVE EARNED IN THE FUTURE IF YOU HAD A JOB, INFLATION SHRINKS WHAT YOU HAVE NOW BY ERODING THE VALUE OF ALL OF YOUR SAVINGS. THAT’S WHY HIGH INFLATION HAS BEEN SO OFTEN ASSOCIATED WITH POLITICAL TURMOIL FROM GERMANY IN THE 1920s TO IRAN IN THE 1970s TO LATIN AMERICA IN THE 1980s. WE FORGET NOW AS RECENTLY AS THE 1980s, INFLATION WAS RAMPANT ACROSS MUCH OF THE WORLD. COUNTRIES LIKE BRAZIL, ARGENTINA AND PERU HAD INFLATION RATES THAT WERE MEASURED IN THE THOUSANDS OF PERCENT. THE UNITED STATES KICKED OFF THE DECADE WITH OVER 12% INFLATION. AND IN EUROPEAN COUNTRIES LIKE ITALY, IT ROSE ABOVE 20% AND MOST OF THESE COUNTRIES, THE CAUSE WAS SOME COMBINATION OF LARGE GOVERNMENT DEFICITS, LAX CENTRAL BANK POLICIES AND EXTERNAL SHOTS LIKE THE OIL CRISIS OF THE 1970s. THESE CRISES PRODUCED A POLICY REVOLUTION. CENTRAL BANKS BECAME MORE INDEPENDENT AND FOCUSED ON TAMING INFLATION. GOVERNMENTS IN THE DEVELOPING WORLD BECAME MORE FISCALLY RESPONSIBLE, AND IN SOME CASES CHILE AND MEXICO, THEY BRIEFLY TIED THEIR CURRENCIES TO THE DOLLAR. ONE CRUCIAL REASON THAT COUNTRIES LIKE ITALY WERE WILLING TO GIVE UP THEIR CURRENCY IN FAVOR OF A COMMON EUROPEAN ONE WAS THAT THEY BELIEVED THAT ESSENTIALLY MERGING THEIR MONETARY POLICY WITH GERMANY’S WOULD ENABLE THEM TO FIX THEIR INFLATION PROBLEM. IN LARGE MEASURE, IT WORKED AND BY THE EARLY 2000s, COUNTRY WERE CONGRATULATING THEMSELVES FOR HAVING WON THE WAR. IT ALL SEEMS PART OF A PARADIGM WHERE GOVERNMENTS RECOGNIZE THE POWER OF FREE MARKETS AND FREE TRADE. THOMAS FRIEDMAN USED THE METAPHOR OF THE GOLDEN STRAIGHT JACKET TO EXPLAIN WHAT HAPPENED. GOVERNMENTS PLACED THEMSELVES IN A SITUATION WHERE THEIR POLICY OPTIONS WERE TIGHTLY CONSTRAINED BY MARKETS AND AS A RESULT THEIR POLITICS SHRANK BUT THEIR ECONOMIES GREW. OVER THE LAST FEW YEARS, IT HAS SEEMED AS THOUGH THE OPPOSITE IS HAPPENING ALMOST EVERYWHERE. LOOK AT TURKEY, WHICH BY THE 2000s HAD BECOME A MODEL DEVELOPING COUNTRY, TAMING INFLATION AND SPURRING GROWTH. ITS POLICYMAKERS WERE LAUDED ACROSS THE WORLD. TODAY TURKEY’S PRESIDENT HAS ABANDONED EVEN THE PRETENSE OF RATIONAL ECONOMIC POLICY, USING THAT POLICY TO REWARD FRIENDS AND PUNISH FOES AND ADVOCATING MONETARY POLICY THAT IS THE OPPOSITE OF WHAT MOST EXPERTS BELIEVE WOULD WORK. CHILE, WHICH WAS CONSIDERED THE MOST FISCALLY PRUDENT COUNTRY IN LATIN AMERICA, NOW APPEARS TO HAVE TAKEN A PATH TOWARDS A MORE FAMILIAR LEFT WING POPULISM. OR CONSIDER THE POSTER CHILD OF DEVELOPING COUNTRIES, CHINA, WHERE ECONOMIC GROWTH WAS THE NORTH STAR OF POLICY MAKING. TODAY XI JINPING PURSUES POLICIES THAT OFTEN ATTACK THE PRIVATE SECTOR IN KEY GROWTH AREAS LIKE TECHNOLOGY. AS THE SCHOLAR ELIZABETH ECONOMY HAS POINTED OUT, IT IS CHINA, NOT AMERICA, THAT BEGAN THE MOVE TO DECOUPLE THE TWO COUNTRIES ECONOMIES AND EMBRACE PROTECTIONISM AND ECONOMIC NATIONALISM WHEN XI ANNOUNCED HIS MADE-IN-CHINA STRATEGY AND FOR ITS PART MIRRORED ITS PROTECTIONISM WITH ITS OWN SUBSIDIES. THE WESTERN WORLD HAS FOLLOWED SUIT. DRIVEN BY AN UNDERSTANDABLE CONCERN OF MIDDLE CLASS WAGES AND INEQUALITY, ECONOMIC POLICY IS NO LONGER ORIENTED TOWARDS ECONOMIC GROWTH. TARIFF, RELIEF AND SUBSTANCE PACKAGES ALL REFLECT THAT POLITICS HAS TRUMPED ECONOMICS. CENTRAL BANKS EVERYWHERE HAVE RUSHED IN OVER THE LAST DECADE TO TAKE EXTREME MEASURES TO THE RESPONSE TO THE BIG SHOCKS OF THE AGE, THE FINANCIAL CRISIS AND PANDEMIC. IN THE MID-19 90s, NOT ONE COUNTRY IN THE WORLD HAD A DEBT-TO-GDP RATIO OF 300%. TODAY, 25 COUNTRIES HAVE EXCEEDED THIS MARK. THE OLD OBSESSION WITH ECONOMICS OVER POLITICS WAS OVERDONE. IT ACHIEVED GREAT SUCCESSES BUT IT CREATED OTHER PROBLEMS, SUCH AS WAGE STAGNATION. BUT THE CURRENT EMPHASIS OF POLITICS OVER ECONOMICS SEEMS MORE DANGEROUS. IT ALLOWS POLITICIANS TO ENGAGE IN PA TRONAGE POLICIES, PROTECTIONISM AND SHORT-TERM GIMMICKS TO PREVENT ORDINARY PEOPLE FROM FEELING THE PAIN OF A CRISIS. IN THE LONG RUN, HOWEVER, ONE WONDERS IF IT IS THE SAME
Video source: https://www.youtube.com/watch?v=Mi2JGgDU_Kw

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