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Inflation: Latin America’s lessons for Biden | The Global Observer

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A neighborhood in Bogotá, Colombia, in a 2020 file photo.
A neighborhood in Bogotá, Colombia, in a 2020 file photo.Mauricio Duenas Castañeda / EFE

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.

Twitter @moisesnaim



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Texas Deputy AG Apologizes for Slamming Simone Biles as ‘National Embarrassment’

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US gymnast Simone Biles received immense support from Americans this week after announcing she would not be competing in the Team USA final, nor the women’s individual all-around gymnastics final, due to personal mental health concerns. At the same time, the 24-year-old has received backlash from many individuals who viewed her pull-out as weak.

Aaron Reitz, deputy attorney general for Texas, took to Twitter on Wednesday evening to issue an apology to Biles, and recant a statement in which he panned the record-setting US gymnast as a “national embarrassment.” 

“In a moment of frustration and disappointment, I opined on subjects for which I am not adequately versed. That was an error. I can’t imagine what Simone Biles has gone through,” Reitz claimed. “Simone Biles is a true patriot and one of the greatest gymnasts of our time.”

“I apologize to her, and wish her well,” the deputy AG concluded, emphasizing that his “personal social media comments” do not represent the views of Texas Attorney General Ken Paxton, nor the Office of the Attorney General. 

Reitz’s since-deleted tweet against Biles, who was born in Texas and still resides in the Lone Star State, quoted another post that applauded the 1996 Olympic performance of Team USA gymnast Kerri Strug. Strug, one of the US’ “Magnificent Seven,” severely injured her ankle during the first half of the vault competition, but refused to bow out of the event and ultimately led her team to win the US’ first gold medal in women’s gymnastics. 

“Contrast this with our selfish, childish national embarrassment, Simone Biles,” Reitz said in his quote tweet. 

The deputy AG’s attempt at using Strug’s story to chastise Biles fell flat, as the two-time Olympian threw her support behind the 24-year-old on Tuesday. 

Furthermore, it is worth noting that Biles is no stranger to performing with adversity. When the US Women’s Gymnastics team took home gold at the 2018 World Championships in Qatar, Biles dominated in nearly every competition, despite intense stomach pains from what was later confirmed to be a kidney stone. 

Despite her pull-outs this year, Biles has continued to root for her fellow Team USA gymnasts. She also expressed in a Wednesday social media post that “the outpouring [of] love & support I’ve received has made me realize I’m more than my accomplishments and gymnastics which I never truly believed before.”



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Aid cuts make a mockery of UK pledges on girls’ education | Zoe Williams

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With all the fanfare Covid would allow, the global education summit opened in London this week. Ahead of the meeting, the minister for European neighbourhood and the Americas was on rousing form. “Educating girls is a gamechanger,” Wendy Morton said, going on to describe what a plan would look like to do just that.

The UK, co-hosting the summit with Kenya’s president, Uhuru Kenyatta, plans to raise funds for the Global Partnership for Education, from governments and donors. The UK government has promised £430m over the next five years.

There followed a number of reasons why the issue is so important, all of them absolutely sound: on any given indicator, from GDP to infant health and beyond, a nation stands or falls by how well, for how long, and how inclusively it educates its girls.

The issue has never been more important than during this pandemic, which in many countries is hitting a peak having already affected girls disproportionately.

These are all the right words, even in the right order, yet they land completely at odds with the government’s behaviour.

Lis Wallace, head of advocacy at the One campaign, is most immediately concerned with these pledges being fully funded. There are two core targets: one is to increase girls’ access to education, the other is to boost the key milestone for all children – that they’re able to read and understand a simple story by the age of 10.

The past 18 months have been devastating for education, particularly in countries where it’s harder to access to online learning. About 1.6 billion children are out of school across the world. There’s a target to raise $5bn (£3.6bn), “which is a drop in the ocean of what is required to meet the global learning crisis”, Wallace says. It looks as though this summit will raise no more than $4bn, which is nothing less than a “failure of statecraft”, as Wallace explains: “It’s challenging when the host government is stepping back and making aid cuts for it then to ask other countries to step up.”

This is a depressing echo of the G7’s failure earlier this year; commitments to share vaccine doses with low-income countries came too little, too late, with devastating results, and it’s hard to avoid the question of whether that outcome would have been different if the host nation had role modelled some generosity.

Furthermore, there’s some confused causality in the minister’s assertion that staying in school protects girls from “forced child marriage, gender-based violence and early pregnancy”. The exact inverse is true: it is largely teenage pregnancy that forces girls out of school in the first place, and to try to use education in lieu of sexual health and reproductive provision is illogical.

Esi Asare Prah, who is a youth and advocacy officer in Ghana for MSI Reproductive Choices, describes a situation in which 5,000 to 7,000 girls drop out of school each year after becoming pregnant – last year, 2,000 of them were between 10 and 14. Across sub-Saharan Africa, MSI estimates that up to 4 million girls drop out or are excluded from school every year due to pregnancy.

“These girls are most likely to be on the street, doing menial jobs; their children will not make it into higher education. It creates a cycle of poverty and a cycle of slums. For me, the foundation of it is that you can’t seek to invest in education for girls in sub-Saharan Africa and cut down funding for sexual and reproductive health. If you treat development issues as isolated, you will have the same issues of 50 years ago chasing you into the future.”

Here, the recent cuts to the aid budget make a mockery of these pledges on education: UK funding to the UN Population Fund recently went down by 85%.

There is inspiration to take from this summit, nevertheless; President Kenyatta has been leading the charge not only on education but also on the climate crisis, and there is a solidarity and sense of purpose between poorer nations that may yet inspire greater generosity from donors. Whatever it achieves, though, it will be despite its UK host not because of them.

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[Ticker] US backs WHO plan for further Covid-origin investigation

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US secretary of state Antony Blinken affirmed his country’s support to conduct additional investigations into the origins of the Covid-19 after meeting with the head of the World Health Organization, Tedros Adhanom Ghebreyesus, on Wednesday, Reuters reported. “He stressed the need for the next phase to be timely, evidence-based, transparent, expert-led, and free from interference,” a US state department spokesperson said in a statement.

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