The Global Economy Exists Jude Wanniski December 8, 1997

Memo To: Pat Buchanan
From: Jude Wanniski
Re: There is a Global Economy

Your column in the December 6 NYPost, “The Coming Plague: Globalist RX has destroyed our immunity to ‘Asian flu’,” repeats many of your anxieties about our rush to “bail out” Mexico during its peso crisis. Please recall that you and I were shoulder-to-shoulder on Mexico, as you argued we should not commit U.S. taxpayer funds to a problem of Mexico’s own making and I argued we should not commit U.S. taxpayer funds to a problem in Mexico that our government helped inspire, and which the Mexican government could better handle by itself. In your column Saturday, you argue again that we should not be bailing out the Asian economies and again I agree, but this time you make a new argument with which I completely disagree: “The Global Economy is a fiction; it does not exist. There is a U.S. economy that is strong, a Japanese economy that is stagnant, and Asian economies in various states of crisis. And as each nation tries to pull its own oxen out of the ditch, we will soon appreciate how each looks out for its own interests first, last and always.”

If you would only spend a little time exchanging views with me, you would have much stronger arguments for objectives we both share. As long as you sound as if your are a pure “nationalist,” by which I mean dog-eat-dog, every-nation-for-itself, you will overlook the many times when it really is in our national interest to assist a trading partner and against our national interest to assume it caused its own problems, so to hell with it. A good many problems in the world are the result of narrow commercial interests in the United States using their political power here to extract gains from small countries that are dealing with us in good faith. Power corrupts and the United States is now the supreme power, which invites supreme corruption.

The Global Economy is not a fiction, but it is nothing new. In the mid-19th century, Karl Marx observed the imperial powers at work in the global economy and noted how commerce is interwoven to the point where an action anywhere has consequences everywhere else. It all moved in slow motion back then, compared to modern telecommunications, but the actions and reactions were almost certainly the same as they are today. The British were then the global superpower and the British did use their power to benefit themselves first and foremost, manipulating their colonies in a way that kept them constantly in debt, always behind the 8-ball. India has not recovered from the experience to this day.

In that relative sense, your nationalism is superior to the commercial imperialism the United States is now trying crudely to practice, emulating the Brits and in many ways still guided by the Brits. The most important element in the globalism of today’s economy is the U.S. dollar, the planet’s dominant monetary unit. After the Mexico peso crisis, Pat, you may remember that Alan Greenspan told the Senate Banking Committee that the crisis would not have occurred had we been on a gold standard. By that he meant the assault on the peso by the speculators through their agents in the international banks would have run into a dollar-gold-peso link that would have enabled the Mexican central bank to easily beat off attacks on the peso. As it was, because the speculators had allies inside the Mexican government who were eager to see a devaluation -- including Guillermo Ortiz, the current finance minister -- the Bank of Mexico’s hands were tied. The answer was not an IMF bailout, which has tied Mexico’s hands further still, but a U.S. helping hand through our Exchange Stabilization Fund -- a nice  idea I sold to Bob Dole and his “Mr. Mexico,” Sen. Bob Bennett of Utah. The idea was to assist Mexico only if the Bank of Mexico could be freed from the constraints of Ortiz and his pals at the IMF and U.S. Treasury. If the Mexican central bank could have sold peso bonds from its portfolio into its banking system, it could have revalued the peso back to 3.5 to the dollar instead of the 7, now 8, that has caused the country’s impoverishment and turned its trade account to surplus from deficit.

In that instance, the U.S. dollar was stable, so we could not pin any blame on Greenspan. In the current situation, Greenspan has driven down the U.S. dollar price of gold by $100 in only 13 months, to $285 from $385. For the supreme power’s supreme central banker to allow this to happen -- by keeping interest rates high to stave off economic growth -- is an irresponsible international act that is not in the world interest or in ours. The Greenspan deflation has wrecked poor emerging market economies throughout Asia and Latin America, whether or not they were tying their currencies to the dollar, as Thailand had been, or were trying to protect themselves from our deflation by gradual devaluation, as South Korea was. The dollar is so powerful as the international monetary unit -- gold and oil are everywhere priced in dollars -- that billions of people can be further impoverished by the crook of Alan Greenspan’s little finger. One thing we can say about the Brits when they ran their empire: they kept the pound sterling as good as gold, and thus provided a monetary umbrella to everyone who sought its relief. Britain did this for its own national self-interest, not to benefit the colonies, I can assure you. This is why it is so critical for you to understand that the Establishment forces we are both still fighting are not going to be brought to heel unless we do fix the dollar/gold rate. We essentially do it for ourselves, Pat, to prevent the big guys who control the Fed from manipulating the dollar to benefit their narrow interests. But in so doing, we benefit everyone on earth. It’s like the Golden Rule, by which you do unto others as you would have them do unto you. Now there is something I know you and I agree upon.