It’s easy to discount what Latin America may have to teach the world about running an economy. After all, what can a region perpetually embroiled in intractable problems possibly teach us? In this part of the world turmoil is the norm. In reality, though, the basic problem in Latin America is not its chronic economic instability, but the inability of its leaders to learn from experience, and their propensity to keep pushing policies that have already proven disastrous. I call it ideological necrophilia – the passionate commitment to dead ideas.
This, however, does not mean that more advanced economies can’t learn from Latin America. In fact, here is some advice from Latin America that President Joe Biden and his team would do well to keep in mind.
The first is not to ignore the deficit. The idea of brushing aside the consequences of spending far more than a government collects in taxes has a long history, and is the subject of a fierce academic debate. In 1932, John Maynard Keynes argued that recessions can be remedied with dramatic increases in public spending. In 2002, then-US Vice President Dick Cheney blandly asserted that “deficits don’t matter.” That debate is very much alive. In 2020, economist Stephanie Kelton published a book titled The Deficit Myth. In this bestseller, the unorthodox economist explains why the so-called Modern Monetary Theory means that a government that controls its currency can increase public spending as much as it wants. Again: fiscal deficit doesn’t matter.
It has become easy to ridicule economists who sound the alarm about inflationary spikes that never seem to materialize
It’s clear that President Biden has decided to gamble on a huge increase in public spending not causing any collateral damage to the economy. More specifically, he is betting that it will not cause inflation. Or that whatever inflation it does cause is not a serious problem. Or that the increase in prices will be only temporary. Perhaps he feels that if inflation does become rampant and prolonged, it can be brought to heel through other economic policy instruments, like interest rates. Economists call this fine tuning: trying to adjust economic policies in order to cool an economy overheated by increased public spending. But most importantly he seems convinced that, as the deficit doves argue, inflation is simply no longer a problem in advanced economies. For decade after decade, those who have predicted damaging inflationary outbreaks in the US or Europe have been wrong. As a result, it has become easy to ridicule economists who sound the alarm about inflationary spikes that never seem to materialize.
But as any student of Latin American history knows, the region’s presidents have been serving up this same kind of explanation for why inflation is not a threat, ad nauseam in fact, while they carelessly increased public spending, and almost always with disastrous results. It turns out that in these countries the deficit does indeed matter. A lot. The consequences turn up everywhere: currencies are devalued, debt skyrockets, capital flees, investment stalls and, of course, prices spiral with devastating effects on the least well off. The United States and other developed countries have conditions and institutions in place that makes them less vulnerable to this dynamic. But not immune. The complacent tolerance for inflation can be disastrous.
The Latin America experience has been that once inflation is rooted in the economy (in prices, contracts, wages, and people’s expectations), it is excruciatingly difficult to root out. And that attempts to fine tune the economy usually fail. What’s more, big increases in public spending spark waste, inefficiency, and corruption.
Larry Summers and Olivier Blanchard, two highly respected economists, believe that Biden’s huge spending binge will be inflationary
It is true that Latin American countries do not control the currency they borrow in, while having the dollar as its currency opens up possibilities for the United States that other countries just don’t have. Even so, the fear of inflation is already making itself felt in the US. A survey by Fortune magazine found that 87% of American adults are concerned about it. Private investors are already restructuring their portfolios to make them less vulnerable to inflation. Larry Summers and Olivier Blanchard, two highly respected economists, believe that Biden’s huge spending binge will be inflationary. Summers, a former US Treasury secretary and adviser to Presidents Clinton, Obama and Biden, accused the US Federal Reserve of misreading the economy: “The primary risks today involve overheating, asset price inflation and excessive financial leverage and subsequent financial instability.” Martin Wolf, the influential economics columnist for The Financial Times, wrote that “doubts about the Fed are reasonable. We know that it is politically easier to loosen than to tighten monetary policy… Lobbies for cheap money have strengthened, while those for prudence have weakened.”
If deficit spending enthusiasts like Paul Krugman start to hedge their bets, it’s time to look again to the Latin American experience. The influential Nobel laureate has just written that, although he does not believe that inflation will be a problem, “this does not mean that the entire Biden economic program is going well. It may indeed end up being overly ambitious.” Translation: it could very well cause inflation.
When the economy of a Latin American country becomes unstable, its own people pay the consequences. When the world’s largest economy becomes destabilized, absolutely everyone pays the price.
EU not evacuating staff from Kyiv
The EU will not evacuate its staff from Kyiv, the bloc’s foreign affairs chief Josep Borrell said on Monday before the meeting of EU foreign affairs ministers, who will have a video conference with US secretary of state Anthony Blinken. “Blinken will explain the reasons for this announcement, we are not going to do the same thing, […], we don’t have to dramatise, the negotiations are going on,” Borrell said.
‘I’ve already sold my daughters; now, my kidney’: winter in Afghanistan’s slums | Global development
The temperature is dropping to below zero in western Afghanistan and Delaram Rahmati is struggling to find food for her eight children.
Since leaving the family home in the country’s Badghis province four years ago, the Rahmatis have been living in a mud hut with a plastic roof in one of Herat city’s slums. Drought made their village unliveable and the land unworkable. Like an estimated 3.5 million Afghans who have been forced to leave their homes, the Rahmatis now live in a neighbourhood for internally displaced people (IDP).
There are no jobs. But the 50-year-old has hospital fees to pay for two of her sons, one of whom is paralysed and the other who has mental illness, as well as medicine for her husband.
“I was forced to sell two of my daughters, an eight- and six-year-old,” she says. Rahmati says she sold her daughters a few months ago for 100,000 afghani each (roughly £700), to families she doesn’t know. Her daughters will stay with her until they reach puberty and then be handed over to strangers.
It is not uncommon in Afghanistan to arrange the sale of a daughter into a future marriage but raise her at home until it is time for her to leave. However, as the country’s economic crisis deepens, families are reporting that they are handing children over at an increasingly young age because they cannot afford to feed them.
Yet, selling her daughters’ future was not the only agonising decision Rahmati was forced to make. “Because of debt and hunger I was forced to sell my kidney,” she tells Rukhshana Media from outside her home in the Herat slum.
Afghanistan is on the brink of “a humanitarian crisis and economic collapse”, according to the UN. The agency’s ambassador to Afghanistan has said it is “experiencing the worst humanitarian crisis of its contemporary history”. Drought, Covid-19 and the economic sanctions imposed after the Taliban seized power in August 2021 have had catastrophic consequences on the economy. Dramatic rises in inflation have resulted in soaring food prices.
The kidney trade has been growing in Afghanistan for some time. But since the Taliban took power, the price and conditions under which the illegal organ trade takes place has changed. The price of a kidney, which once ranged from $3,500 to $4,000 (£2,600 to £3,000), has dropped to less than $1,500 (£1,100). But the number of volunteers keeps rising.
Rahmati sold her right kidney for 150,000 afghani (£1,000). But her recovery from the operation has not been good and now, like her husband, she is also sick, with no money left to visit a doctor.
More than half of the country’s estimated 40 million population face “extreme levels of hunger, and nearly 9 million of them are at risk of famine”, according to the UN refugee agency, UNHCR. For a growing number of Afghans, selling a kidney is their only way to get money to eat.
“It has been months since we last ate rice. We hardly find bread and tea. Three nights a week, we can’t afford to eat dinner,” says Salahuddin Taheri, who lives in the same slum as the Rahmati family.
Taheri, a 27-year-old father of four, who scrapes together enough money for five loaves of bread each day by collecting and selling recycled rubbish, is looking for a buyer for his kidney. “I have been asking private hospitals in Herat for many days if they need any kidney. I even told them if they need it urgently, I can sell it below the market price, but I haven’t heard back,” Taheri says. “I need to feed my children, I have no other choice.”
In the past five years about 250 official kidney transplants have taken place in the hospitals in Herat province, with a very limited number being a family member donating their organ, says Asif Kabir, a public health official in the province. The cost of a kidney transplant is 400,000 afghani, plus the price of the kidney, according to Kabir.
But the true number of kidney operations may be far higher. A doctor working in one of the hospitals where most of the transplants take place, who spoke on the condition of anonymity, says: “Recently the number of people who want to sell their kidney has increased in Herat and most of them live in the displaced camps, in Herat’s slums. The customers also go to the displaced camps to find a cheap kidney.”
Sayed Ashraf Sadat, a civil society activist in Herat, was a member of a delegation assigned by president Ashraf Ghani to investigate the illegal kidney trade in May 2021.
“We found that the hospitals were not working according to the law. People are working inside and outside the country to encourage people to sell their kidneys. These people get them visas and send them to the other side of the border. There is more demand for kidney transplants outside Afghanistan. Countries like Iran need kidneys, and poor Afghans are forced to sell them.”
Sadat says the investigation he was part of identified two hospitals in Herat where kidney transplant operations take place; one of them said it had completed 194 operations and the other said 32, but more than 500 people were claiming to have sold their kidney, 100 from a single village in Herat. “This shows the kidneys were taken outside Afghanistan,” says Sadat.
“For example, a kidney is purchased for 300,000 afghani (£2,100) inside Afghanistan, and it is sold for more than £7,500 to £11,000 outside the country,” says Sadat.
“We found evidence that some are encouraged to sell their kidneys, taken outside the borders, and their kidneys are sold for 200,000 to 400,000 afghanis ,” says Sadat. “It seems that the doctors are involved in the illegal trade. But unfortunately, our investigation was stopped due to a worsening security situation.”
Two months have passed since Rahmati’s kidney operation, and the money has already gone to pay off medical debt. Her recovery from the operation continues to go badly.
“I am so sick. I couldn’t even walk because the wound has been infected. It is very painful,” she says, adding that the recipient of her kidney only paid for the operation fee, two nights in hospital and her first medicine bill.
On the day of the transplant, Rahmati was sick and the doctors refused to operate. “I couldn’t breathe properly, so the doctors took me down from the hospital bed, but I returned. I told them ‘I am happy with my own death, but I can’t tolerate seeing my children hungry and ill’,” she says.
Sign up for a different view with our Global Dispatch newsletter – a roundup of our top stories from around the world, recommended reads, and thoughts from our team on key development and human rights issues, delivered to your inbox every two weeks:
Airlines should start paying for CO2 sooner
Airlines flying from one European destination to another should start paying for all their carbon emission from 2026, a year earlier than planned, according to a draft report by Croatian centre-right MEP Sunčana Glavak seen by Reuters. The Commission earlier proposed to phase out free CO2 permits by 2027. “We must support innovation in the sector and the use of sustainable aviation fuels,” she said.
Varakar says law on right to seek remote working can ‘change the culture’
GeckoLinux Rolling incorporates kernel 5.16 • The Register
EU not evacuating staff from Kyiv
The 1915 Armenian Genocide and its Russophobic Origins
What’s artificial intelligence best at? Stealing human ideas | Technology
The Religious Roots of Russia’s Mistrust towards the West
Global Affairs1 week ago
Covid created 20 new ‘pandemic billionaires’ in Asia, says Oxfam | Global development
Current1 week ago
TDs call for immediate lifting of 8pm hospitality curfew
Current1 week ago
One winner claims €19m Lotto jackpot in first ‘will be won’ draw
Current1 week ago
Record number of £5m-plus homes sold in London, says Savills
Current6 days ago
MARK partners with HUB for first UK BTR project
Current6 days ago
European Outlook 2022
Culture1 week ago
Wife of detained Richard O’Halloran wants Coveney to travel to China
Technology6 days ago
Microsoft acquires Activision, becomes world’s third largest game company