A 21st Century Marshall Plan

Ricardo Hausmann has a very clever idea in today’s Financial Times. We’ve all heard the idea of freeing up the housing market by using the US Government’s ability to borrow at low rates. Hausmann globalizes that idea and suggests that the US re-export money to “fairly well behaved countries such as Brazil, Colombia, Mexico, Peru, South Africa and Turkey have essentially lost access to external finance.”

Here is Hausmann’s argument in a short compass:

It is useful to remember that power is a relative, not an absolute concept. True, the US has been hurt by the current turmoil but so have many others. The Dow Jones is down by almost 40 per cent so far this year but this makes it pretty much the best performing stock market in the world. [ . . . ] The US has become the only remaining super-borrower, able to issue thousands of billions of dollars in debt at record low rates while the dollar strengthens. People are unwilling to lend to almost anybody except for the US Treasury.

Why should we do this? First, the US is the engine of global growth. Restarting the global economy is the key to American prosperity but it would also allow the US to re-establish global leadership both economically and diplomatically.

many countries across the world are going to suffer the consequences of the lack of access to finance at a time where the decline in their export earnings would have warranted more borrowing to smooth things out. If unchecked, this will cause their economies to shrink and their imports to decline, hurting US exports just when they are most needed. Under these conditions, there is the risk that countries will shut themselves off from the global economy and impose the financial equivalent of the protectionist Smoot-Hawley Act of 1930 . This can lead to an unravelling of the consensus for globalisation that has characterised the post-cold war era.

If the US re-circulates financial resources, by on-lending to well behaved countries that have lost access because of the financial crisis, it would not increase its net debt but instead would make money for the US taxpayer while helping increase demand for US exports.

The only problem with this idea is Congress. Unable to put together a domestic bailout with proper oversight or make a decision about the auto companies that involves anything more than limited self-interest, Congress is unlikely to seize this historic opportunity to essentially create a 21st Marshall Plan (which was born out of America’s self-interest.)


The Crisis Gives the US New Financial Power
Financial Times; December 15, 2008

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