Project and content management for Contemporary Authors volumes
WORK TITLE: American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold
WORK NOTES:
PSEUDONYM(S):
BIRTHDATE: 8/16/1953
WEBSITE:
CITY: Los Angeles
STATE: CA
COUNTRY: United States
NATIONALITY: Chilean
http://www.anderson.ucla.edu/faculty/sebastian.edwards/
RESEARCHER NOTES:
PERSONAL
Born August 16, 1953, in Santiago, Chile; married Alejandra Cox (an economist); children: three.
EDUCATION:University of Chicago, M.A., 1978, Ph.D., 1981; also studied at Universidad Católica de Chile.
ADDRESS
CAREER
Economist and academic. University of California, Los Angeles, professor of economics, beginning 1981, then Henry Ford II Professor of International Business Economics; Universidad Austral, Buenos Aires, Argentina, Professor Extraordinario, 2000-04. World Bank, chief economist for the Latin America and Caribbean Region, 1993-96; National Bureau of Economic Research, research associate, Africa Project codirector; consultant to various organizations and governments. Member of various corporate and nonprofit institutions boards; former member of California Governor Arnold Schwarzenegger’s Council of Economic Advisors; Kiel Institute of World Economics, Scientific Advisory Council member; has worked as a volunteer firefighter in Chile, 1973-77; has appeared on national television programs.
MEMBER:Latin American and Caribbean Economic Association (past president).
AWARDS:Carlos Díaz-Alejandro Prize, 2013, for research on the Latin American economies.
WRITINGS
Also the author of The Economics and Politics of Transition to an Open Market Economy; author of the novels El Misterio de las Tanias, 2007, and Un dia perfecto, 2011; contributor to academic and economic journals, including American Economic Review, Journal of Monetary Economics, Economic Journal, Oxford Economic Papers, Journal of Development Economics, Quarterly Journal of Economics, and Journal of Economic Perspectives; contributor to periodicals, including Wall Street Journal, Economist, Financial Times, Los Angeles Times, Miami Herald, Newsweek, El País, La Vanguardia, Clarín, and El Mercurio.
SIDELIGHTS
Sebastián Edwards is a Chilean-born economist and academic. After completing a Ph.D. in economics from the University of Chicago, he began working as a professor of economics at University of California, Los Angeles, eventually becoming the Henry Ford II Professor of International Business Economics. Edwards has also served as the chief economist for the Latin America and Caribbean Region of the World Bank, a research associate with the National Bureau of Economic Research, and as a consultant to various organizations and governments.
Reform, Recovery, and Growth and Crisis and Reform in Latin America
In 1995 Edwards coedited Reform, Recovery, and Growth: Latin America and the Middle East with Rudiger Dornbusch. The book aims to explain why some countries have excelled beyond the 1982 global debt crisis while others remain stagnant. The various authors question the requirements for a stabilization policy that reduces inflation within a reasonable period of time; the effects structural reforms have on short- and long-term growth; and the effects of specific structural adjustment designs. Edwards opened the book with his chapter, titled “Trade Policy, Exchange Rates, and Growth.”
Writing in the Latin American Research Review, Daniel G. Arce M. mentioned that the results of Edwards’s study in the first chapter of the book “support the view that after controlling for other “endogenous factors,” countries with open trade regimes tend to grow faster over the long run than do countries with distorted trade sectors. Edwards is quick to point out, however, that this analysis provides no information on the transition to economic opening. Instead, post-reform policy analysis for the case of Mexico, Chile, and Colombia is based on a discrete set of data points on import and capital inflows, exports, trade distortions, and labor and factor productivity over the 1980s and early 1990s,” adding that “this approach leads to some puzzling results, such as a decrease in Mexican total factor productivity from 1978 to 1982 and from 1987 to 1991, when one would expect that the trade reforms over this period would have increased total factor productivity. In my view, the trade results are not the most important contribution of Reform, Recovery, and Growth. Even the most casual observer of economics would have predicted the positive correlation between growth and trade regime.”
Arce queried in the same review: “Does the empirical evidence support the claim that trade is an engine of growth? This question was addressed exhaustively in Edwards (1993), part of which is presented again in Reform, Recovery, and Growth in a clear, nontechnical fashion (chap. 1). Edwards’s essay is an excellent synthesis and test of the economic arguments for free trade that underlie neoliberal reform. His discussion is open-minded and avoids the type of free-trade dogma that generally separates economists from other social scientists.” Arce remarks that “Edwards is quick to point out that the export-oriented industrialization widely credited for the East Asian ‘miracle’ should not be confused with trade liberalization because imports have yet to be liberalized in those countries. Moreover, any preoccupation with tariffs as an indicator of protection is highly misleading because quantity restrictions (quotas) abound, and real exchange rate depreciation is just as important as trade controls.” Arce concluded that Reform, Recovery, and Growth “is an important and long-overdue complement to economic theory because in neoclassical models, trade raises the level of aggregate output but not necessarily its rate of growth.”
Edwards also published Crisis and Reform in Latin America: From Despair to Hope in 1995. The book examines the economic reform process for Latin American and Caribbean countries between 1982 and 1994. Drawing on comparative studies, Edwards points to the failure of various stabilization policies as the primary impetus for the debt crisis that hurt the region during this period. Writing in Foreign Affairs, Kenneth Maxwell called it “an essential book, clearly written and accessible to nonspecialists, that should be basic reading for anyone” with an interest in Latin America. Reviewing the book in the American Economist, Sandra M. Ryzowy insisted that the book “is successful at looking at the past, present and future for a region characterized by turbulent changes in its economy.”
Left Behind and Toxic Aid
Edwards published Left Behind: Latin America and the False Promise of Populism in 2010. The account looks at the negative aspects of populism on Latin American economies with a particular focus on that of former Venezuelan leader Hugo Chavez. Edwards grades the various Latin American countries on their performance and likelihood to make the necessary reforms—such as improving education and having efficient judiciaries—that will create positive economic projections. Reviewing the book in Foreign Affairs, Richard Feinberg observed that the book’s primary targets “are the run-of- the-mill policymakers who have failed to tackle the deeper institutional reforms.” Writing in Choice, Patrice M. Franko remarked that the author’s “facility for conveying historical detail and identifying key trends in Latin American economies makes this a must read for all levels.”
In 2014 Edwards published Toxic Aid: Economic Collapse and Recovery in Tanzania. The account looks at the way that international aid organizations forced the government of Tanzanian President Julius Nyerere to reform his economic policies in the 1980s and 1990s. Through emphasis on privatization and liberalization of the economy, aid groups were able to hold the government hostage until their terms were met, ultimately leading to two decades of economic growth. Writing in Foreign Affairs, Nicolas van de Walle lamented that “Edwards devotes too little attention to the many critics of the aid process in that country.” Aside from that, van de Walle found the book to be “thorough.”
American Default
Edwards published American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold in 2018. The account looks at the FDR administration’s response to ending the Great Depression, where a default was engineered by abandoning the gold standard and using the government as the backup for the fiat currency used to pay back creditors. Edwards writes about the prevailing economic wisdom of the time, FDR’s lack of support from the Supreme Court, and his rhetoric about the “forgotten man” to explain the reasons behind this course of action.
A Publishers Weekly contributor insisted that “this comprehensive study of an important event in U.S. fiscal history has significant implications for today.” A contributor to the Shulmaven blog claimed that “American Default is a worthy addition to the economics literature of the Great Depression.” The same reviewer noted that “because it is more a history book than an economics book the lay reader should find it very readable.”
BIOCRIT
PERIODICALS
American Economist, September 22, 1996, Sandra M. Ryzowy, Crisis and Reform in Latin America: From Despair to Hope, p. 98.
Choice, January 1, 2011, Patrice M. Franko, Latin America and the False Promise of Populism, p. 958.
Foreign Affairs, March 1, 1996, Kenneth Maxwell, review of Crisis and Reform in Latin America, p. 156; September 1, 2010, Richard Feinberg, review of Left Behind: Latin America and the False Promise of Populism, p. 163; January 1, 2015, Nicolas van de Walle, review of Toxic Aid: Economic Collapse and Recovery in Tanzania.
Latin American Research Review, December 22, 1999, Daniel G. Arce M., Reform, Recovery, and Growth: Latin America and the Middle East, p. 212.
NBER Reporter, June 22, 2000, review of Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, p. 52.
Publishers Weekly, April 23, 2018, review of American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold, p. 75.
ONLINE
Shulmaven, https://shulmaven.blogspot.com/ (June 16, 2018), review of American Default.
University of California, Los Angeles, Anderson Graduate School of Management website, http://www.anderson.ucla.edu/ (August 22, 2018), author profile.
Zocalo Public Square website, http://www.zocalopublicsquare.org/ (June 27, 2018), “In the Green Room.”
Sebastian Edwards
Henry Ford II Professor of International Economics
Anderson Graduate School of Management at UCLA
Sebastian Edwards is the Henry Ford II Professor of International Economics at the University of California, Los Angeles. He is the Co-Director of the National Bureau of Economic Research's "Africa Project" and previously served as the Chief Economist for Latin America at the World Bank. His research interests include emerging markets, currency crises, capital markets, Latin America, monetary policy, and the Federal Reserve.
CV: http://www.anderson.ucla.edu/faculty/sebastian.edwards/S%20Edwards%20CV_May_2014.pdf
Brief Biography
Sebastian Edwards is the Henry Ford II Professor of International Economics at the University of California, Los Angeles. From 1993 to 1996 he was Chief Economist for Latin America at the World Bank. He has published 15 books, and over 200 scholarly articles. He is the Co-Director of the National Bureau of Economic Research’s “Africa Project.”
Professor Edwards has been an adviser to numerous governments, financial institutions, and multinational companies. He is a frequent commentator on economic matters in CNN and other cable outlets, and his op-ed pieces have been published in the Wall Street Journal, the Financial Times, the Los Angeles Times, El País (Spain), La Vanguardia (Spain), Clarín (Argentina), El Mercurio (Chile), and other newspapers from around the world. He has been an expert witness in a number of legal cases in the United States and other nations. He is a frequent speaker at financial and industry meetings.
Sebastian Edwards is a member of a number of corporate and nonprofit institutions boards.
His latest published books are: “African Successes,” (co-edited with Simon Johnson and David Weil; University of Chicago Press, 2016); “Toxic Aid: Economic Collapse and Recovery in Tanzania” (Oxford University Press, 2014).
Other books include “Left Behind: Latin America and the False Promise of Populism” (University of Chicago Press, 2011), and “Crisis and Reform in Latin America: From Despair to Hope,” (Oxford University Press, 1995).
Professor Edwards has been President of the Latin American and Caribbean Economic Association (LACEA), and is currently a member of the Scientific Advisory Council of the Kiel Institute of World Economics, Kiel-Germany. He was a member of California Governor Arnold Schwarzenegger’s Council of Economic Advisors.
In 2013 Professor Edwards was awarded the Carlos Díaz-Alejandro Prize in recognition for his research on the Latin American economies.
Professor Edwards was educated at the Universidad Católica de Chile. He received an MA in economics in 1978, and a Ph.D. in economics in 1981, both from the University of Chicago.
July 2017
E Mail: sebastian.edwards@anderson.ucla.edu; Phone: +1 310 592 9720
Sebastián Edwards
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Sebastián Edwards
Born
16 August 1953 (age 64)
Santiago, Chile
Nationality
Chilean
Occupation
economist, professor, speaker, and consultant
Sebastián Edwards (born 16 August 1953, Santiago, Chile) is a Chilean economist, professor, speaker, and consultant. He is currently the Henry Ford II Professor of International Business Economics at the UCLA Anderson School of Management at the University of California, Los Angeles (UCLA). From 1993 until April 1996, he was the Chief Economist for the Latin America and Caribbean Region of the World Bank. He is also a research associate of the National Bureau of Economic Research (NBER), a member of the advisory board of Transnational Research Corporation and co-chairman of the Inter American Seminar on Economics (IASE). He is the Past President of the Latin American and Caribbean Economic Association (LACEA), an international professional association of economists with academic interests in Latin America and the Caribbean region. He was a member of the Scientific Advisory Council of the Kiel Institute of World Economics, Kiel-Germany. He is a member of California Governor Arnold Schwarzenegger’s Council of Economic Advisors.
From 1981 through 1993, he was an assistant, associate, and full Professor of economics at UCLA. From 2000 to 2004, he was Professor Extraordinario at the IAE, Universidad Austral, Argentina.
Sebastian Edwards was born in Santiago, Chile. He was educated at the Catholic University of Chile, and received an M.A. and Ph.D. in economics from the University of Chicago. He is married to economist Alejandra Cox Edwards. They have three grown children and 4 grandchildren.
Contents [hide]
1
Author and editor
2
Columnist
3
Novelist
4
Other activities
5
Books
6
Sources
7
External links
Author and editor[edit]
Edwards is the author of more than 200 scientific articles on international economics, macroeconomics, exchange rates, country risk, international investment, and economic development. His articles have appeared in the American Economic Review, the Journal of Monetary Economics, The Economic Journal, Oxford Economic Papers, the Journal of Development Economics, the Quarterly Journal of Economics, the Journal of Economic Perspectives and other professional journals.
Edwards is an associate editor of the Journal of International Trade and Economic Development, the Journal of International Financial Markets, Institutions and Money, and Analisis Economico. For almost ten years he was the co-editor of the Journal of Development Economics.
Columnist[edit]
His work and views has been frequently quoted in the media, including the New York Times, the Financial Times, the Los Angeles Times, the Wall Street Journal and The Economist. His op-ed pieces have appeared in the Wall Street Journal, the Financial Times, the Los Angeles Times, the Miami Herald, Newsweek, Time, El País (Madrid), La Vanguardia (Barcelona), La Nación (Argentina), Clarín (Argentina), and La Tercera (Chile). He is also a columnist for Project Syndicate. He is a frequent guest on CNN en Español and other TV and cable news programs.
Novelist[edit]
In 2007 he published the novel El Misterio de las Tanias (Alfaguara), a political thriller involving Cuban spies, political kidnappings, and a fabled ransom worth over one billion dollars. The novel was a bestseller in Chile, where it stayed in the Bestseller list for almost 30 weeks. El Misterio de las Tanias was released in Argentina in mid 2008 and in the rest of the Spanish speaking world in 2009.
In May 2011 his second novel Un dia perfecto was published by La otra orilla and Editorial Norma. In Un día perfecto two parallel stories develop during one day—June 10, 1962. On that date Chile's soccer national team unexpectedly defeated the Soviet Union during the World Cup. The first story is a love triangle, while the second one deals with the mysterious disappearance of Lev Yashin, the Soviet famous goalkeeper, known as the "Black Spider". Soon after publication, Un día perfecto joined the list of bestselling novels in Chile. It will be published in the rest of the Spanish speaking world during the second half of 2011.[needs update]
Other activities[edit]
Sebastian Edwards has been a consultant to a number of multilateral institutions, governments and national and international corporations, including the Inter-American Development Bank, the World Bank, the International Monetary Fund, and the Organisation for Economic Co-operation and Development
Professor Edwards has been an expert witness in a number of securities cases that have been litigated in Federal and State courts, and in a number of arbitration cases.
Books[edit]
American Default. Princeton University Press. 2018. ISBN 9780691161884.
Conversación interrumpida (2016)
Toxic Aid: Economic Collapse and Recovery in Tanzania (2014)
Left Behind: Latin America and the False Promise of Populism (2010)
The Decline of Latin American Economies (2007)
Capital Flows and Capital Controls in Emerging Markets (2007)
The Economics and Political Transition to an Open Market Economy: Colombia (2001). OECD
Capital Flows and the Emerging Economies (2000). U. of Chicago Press.
Anatomy of an Emerging-Market Crash: Mexico 1994 (1997). Carnegie Endowment for International Peace
Labor Markets in Latin America: Combining Social Protection with Market Flexibility (1997). Brookings
Crisis and Reform in Latin America: From Despair to Hope (1995). Oxford University Press
Monetarism and Liberalization, The Chilean Experiment (January, 1987), with Alejandra Cox Edwards.
Exchange Rate Misalignment in Developing Countries (1988)
Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries (January, 1989)
Macroeconomics of Populism in Latin America (1989) (coeditor with Rudi Dornbusch).
In the Green Room
UCLA Anderson School International Economist Sebastian Edwards
I Fought a Fire at a Chinese Restaurant in Santiago
Photo by Aaron Salcido.
June 27, 2018
Sebastian Edwards is an international economist at the UCLA Anderson School of Management. He previously served as the World Bank’s Chief Economist for Latin America and the Caribbean. He is a frequent commentator on CNN and author of the new book, American Default: The Untold Story of FDR, the Supreme Court and the Battle over Gold. Before taking part in a Zócalo/UCLA Anderson event titled “Could the United States Ever Go Bankrupt?” held at the RedZone at Gensler, in downtown Los Angeles, he chatted in the green room about his fascination with FDR, attending the 1962 World Cup in his native Chile, and what he and Mick Jagger have in common.
Q:
What’s the weirdest job you ever had?
A:
I don’t know if it’s weird, but I was a firefighter in South America. I’m from Santiago, Chile. Chile is the only country in the world where there are no professional firefighters. Every single fire fighter is a volunteer, and it’s part of the social capital; fire stations are like social clubs and they are organized in different ways. It was unpaid. I did that from 1973 to 1977. I had been pushed by my family to join. I was a student activist, from the left.
Q:
What was the most dangerous fire you ever fought?
A:
This was during the [Pinochet] dictatorship, so there was an [evening] curfew. And I lived at the station. So we would go out at night, and it was very eerie, a city of 5 million people, totally abandoned [during curfew hours]. We’d be on the truck, and all there was in the city, starting at, say, 11 at night, there would be no one in the streets except for some military patrols. So there was a very famous Chinese restaurant in the old part of Santiago, where we fought an electrical fire from, I would say, around 10 at night to 7 in the morning, and it was very scary, very dangerous, and it was very rapidly consumed. Our main concern was that it would expand to the adjacent buildings, in this old sort of semi-colonial area where the buildings were wall-to-wall; they were all attached to each other.
Q:
What are you reading for pleasure?
A:
I’m reading the latest book by Antony Beevor [Arnhem: The Battle for the Bridges, 1944]. It’s about Operation Market Garden in World War II, the effort to go into Germany through the Netherlands, as opposed to going through France, which was a big failure. I wrote a novel and I did a lot of research in order to put this into my novel.
Q:
If you could time-travel, where would you go?
A:
Right now I’m still very interested in the first Franklin Delano Roosevelt administration. I did a book, American Default, about 1933. I think it was, at least for peace time, the most fascinating year in U.S. history. The first year of the New Deal was very exciting, and economists were rethinking everything. And [John Maynard] Keynes was alive, and one of the greatest U.S. economists, Irving Fisher, from Yale. FDR’s Hundred Days was very exciting. So I would go there and sort of be a fly on the wall.
Q:
We’re in the middle of another World Cup. Do you remember the 1962 World Cup in Chile?
A:
I went to every game [in Santiago]. I was eight years old, and in Christmas of ’61 instead of getting a bike or a train set I got a thin envelope from my mother. My parents had separated about a year earlier. And I opened it up, and it was a set of tickets for every game in ’62.
Q:
So you went to the final?
A:
I went to the final [between Czechoslovakia and Brazil]. But I didn’t get to see Pelé play, because he had been injured in an earlier game. I’m the eldest child, and my parents got separated at a time when it was very unusual; divorce was illegal. So my mother was 27, and she was very scared that I would grow up as a “girlyboy.” And so she encouraged and tried to get me to do “boys’ things.” My dad never took me to see a game, because he was an intellectual. So I went with my mother. And we didn’t have enough money, so we didn’t have very good seats—behind one of the goals—which is great when your team is scoring on that goal, but it’s not great [when the teams switch halves of the field]. I saw [Brazilian right winger and forward] Garrincha and [midfielder] Didi, and [goalkeeper] Gilmar, and the kid who replaced Pelé, called Amarildo. I wrote two novels, both in Spanish, and one of them takes place during one day of the 1962 World Cup. It’s called A Perfect Day, and it takes place the day when Chile beat the Soviets, which allowed Chile to move on to the semi-final round.
Q:
Where did you learn to swim?
A:
I’ve never really liked swimming because of how cold the water was in Chile. I only took swimming seriously about a year ago. So after I ruined my knees and my back, and couldn’t run anymore, and then I fell twice from my bike, I said now I’m going to learn to swim. I swim now at UCLA, and I travel a lot for work and I try to swim everywhere I go. I was just in Sri Lanka and I swam a lot, in pools. I don’t do open ocean.
Q:
Who’s your favorite Rolling Stone?
A:
Mick Jagger. He went to the London School of Economics for about a year! I also like a lot Brian Jones. He died early on; he drowned.
Q:
What did you like about him?
A:
He was very quiet and had perfect blond hair, which looked fantastic for us kids when we were growing up in the late ’60s and our parents didn’t allow us to have long hair. But of course after I read Keith Richards’ autobiography, you cannot not like him.
American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold
Publishers Weekly. 265.17 (Apr. 23, 2018): p75.
Copyright: COPYRIGHT 2018 PWxyz, LLC
http://www.publishersweekly.com/
Full Text:
American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold
Sebastian Edwards. Princeton Univ., $29.95
(288p) ISBN 978-0-691-16188-4
Edwards (Toxic Aid), a UCLA economics professor, skillfully narrates a pivotal episode in American political and economic history he considers too little remembered. He reminds readers that in 1933, in the depths of the Great Depression, the FDR administration effectively engineered a default--something now considered unimaginable, despite the U.S.'s huge amount of public debt--by abandoning the gold standard, allowing debtors to repay creditors in fiat currency and replacing money backed by gold with money backed by the government. Edwards writes equally knowledgeably about economics and politics: he notes President Roosevelt's unwavering commitment to the "forgotten man," the Supreme Court's reluctant support of the executive branch (despite its aversion to the abrogation of contracts and the gold standard), and the prevailing economic wisdom of the time (for instance, Roosevelt's economic adviser, George F. Warren, believed that prices rose or fell according to the world's stock of gold). Edwards also notes that America's default may provide legal justification for other countries to institute sovereign defaults in the future. At a time of economic uncertainty at home and abroad, this comprehensive study of an important event in U.S. fiscal history has significant implications for today. June)
Source Citation (MLA 8th Edition)
"American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold." Publishers Weekly, 23 Apr. 2018, p. 75. General OneFile, http://link.galegroup.com/apps/doc/A536532929/ITOF?u=schlager&sid=ITOF&xid=728cb40b. Accessed 25 July 2018.
Gale Document Number: GALE|A536532929
Toxic Aid: Economic Collapse and Recovery in Tanzania
Nicolas van de Walle
Foreign Affairs. 94.1 (January-February 2015):
Copyright: COPYRIGHT 2015 Council on Foreign Relations, Inc.
http://www.foreignaffairs.org
Full Text:
41 Toxic Aid: Economic Collapse and Recovery in Tanzania by Sebastian Edwards. Oxford University Press, 2014, 320 pp. $55.00.
Despite the title of this book, the heroes of Edwards' entertaining account of Tanzania's development in the 1980s and 1990s are the international donors who imposed reforms on the country's socialist government after President Julius Nyerere's policies had ruined the economy. In the immediate postindependence era, international aid had provided support to those same counterproductive policies--hence the toxicity referred to in the title. But by the early 1980s, the majority of donors had withdrawn their support and begun to condition future aid on reforms, including the thorough privatization and liberalization of the economy. Edwards argues that Tanzania's adoption of this set of "Washington consensus" policies sped the country's economic growth during the last two decades. His book is one of the most thorough and careful examinations of the subject of economic reform in Africa, and it benefits from the many interviews he conducted with key actors in Tanzania. Nonetheless, Edwards devotes too little attention to the many critics of the aid process in that country, who continue to question the true extent of the reforms' success.
van de Walle, Nicolas
Source Citation (MLA 8th Edition)
van de Walle, Nicolas. "Toxic Aid: Economic Collapse and Recovery in Tanzania." Foreign Affairs, Jan.-Feb. 2015. General OneFile, http://link.galegroup.com/apps/doc/A396429779/ITOF?u=schlager&sid=ITOF&xid=42798b8e. Accessed 25 July 2018.
Gale Document Number: GALE|A396429779
Left Behind: Latin America and the False Promise of Populism
Richard Feinberg
Foreign Affairs. 89.5 (September-October 2010): p163.
Copyright: COPYRIGHT 2010 Council on Foreign Relations, Inc.
http://www.foreignaffairs.org
Full Text:
Left Behind: Latin America and the False Promise of Populism.
By Sebastian Edwards.
University of Chicago Press, 2010, 296 pp. $29.00.
Twenty years ago, Edwards and Rudiger Dornbusch explained how populist largess and misconceived state intervention in Latin America led inevitably from initial euphoria to lasting regret. Updating his classic argument, Edwards rips into the Venezuelan caudillo Hugo Chavez and predicts his inevitable demise. But Edwards' real targets here are the run-of- the-mill policymakers who have failed to tackle the deeper institutional reforms--ranging from building efficient judiciaries to demanding quality education--required for growth. An exacting grader, the UCLA professor bestows an A only on his native Chile and suggests that a mere handful of other Latin American countries--Colombia, Costa Rica, and Peru--will likely dislodge vested interests (such as corrupt corporate monopolies and entrenched teachers' unions) and sufficiently advance reforms. At a time when Latin America's democratic strides and financial resilience suddenly compare favorably on a world scale, the author's anguish seems off key.
Feinberg, Richard
Source Citation (MLA 8th Edition)
Feinberg, Richard. "Left Behind: Latin America and the False Promise of Populism." Foreign Affairs, Sept.-Oct. 2010, p. 163. General OneFile, http://link.galegroup.com/apps/doc/A246715677/ITOF?u=schlager&sid=ITOF&xid=dfc541fb. Accessed 25 July 2018.
Gale Document Number: GALE|A246715677
Crisis and Reform in Latin America: From Despair to Hope
Kenneth Maxwell
Foreign Affairs. 75.2 (March-April 1996): p156.
Copyright: COPYRIGHT 1996 Council on Foreign Relations, Inc.
http://www.foreignaffairs.org
Full Text:
BY SEBASTIAN EDWARDS. New York: Oxford University Press, 1995, 364 pp. $22.95 (paper). An authoritative and generally optimistic overview of the reform process in Latin America from 1982 to 1994 by the World Banles chief economist for Latin America and the Caribbean. Edwards, who is on leave from his position at UCLA, examines economic policymaking, often drawing on the excellent comparative work of recent years. He recognizes that just as experts failed to anticipate the Mexican default of 1982, which set in motion the Latin American debt crisis of the 1980s, they underestimated the depth of the Mexican peso crisis in December 1994. While he acknowledges the role of the debt crisis and outside pressure from the multilateral lending agencies and the United States in stimulating market reform, he attributes the reform consensus primarily to the failure of various stabilization policies (particularly the Austral and Cruzado plans in Argentina and Brazil) and a reinterpretation of the experience in Chile, where antipoverty programs were combined with market economics after the return to democracy. An essential book, clearly written and accessible to nonspecialists, that should be basic reading for anyone who follows the region.
Source Citation (MLA 8th Edition)
Maxwell, Kenneth. "Crisis and Reform in Latin America: From Despair to Hope." Foreign Affairs, Mar.-Apr. 1996, p. 156. General OneFile, http://link.galegroup.com/apps/doc/A18102425/ITOF?u=schlager&sid=ITOF&xid=c05a5bb8. Accessed 25 July 2018.
Gale Document Number: GALE|A18102425
Edwards, Sebastian. Latin America and the false promise of populism
Patrice M. Franko
CHOICE: Current Reviews for Academic Libraries. 48.5 (Jan. 2011): p958.
Copyright: COPYRIGHT 2011 American Library Association CHOICE
http://www.ala.org/acrl/choice/about
Full Text:
48-2796
HC125
2009-51548 CIP
Edwards, Sebastian. Latin America and the false promise of populism. Chicago, 2010. 292p bibl index afp ISBN 9780226184784, $29.00
Edwards, a preeminent analyst of Latin American economies, identifies productivity and innovation as the distinguishing factors for categorizing into which of three groups a nation will fall: low-growth economies clinging to populist policies; those unable to overcome old, bureaucratic institutional practices and thus continue to experience mediocre economic performance; and innovative developers characterized by strong economic growth and reduced inequality. He asserts that countries grow most quickly in a cycle of innovation, followed by investment and institutional reform, and a subsequent increase in capital that maintains growth. Edwards suggests that most Latin American countries are held back by either neopopulism or institutional inertia. He notes that legacies of inflexible colonial institutions overlaid with contemporary policy choices protect the privileged elite and that most Latin American economies lack the microeconomic foundations to support rapid growth. Mso, impediments to doing business (e.g., weak contract enforcement and red tape) steal time from entrepreneurial innovation. Country case chapters suggest that the macroeconomic crisis has not created the policy momentum for micro reform. Although the country cases fail to consistently test his three-stage framework, Edward's facility for conveying historical detail and identifying key trends in Latin American economies makes this a must read for all levels. Summing Up: Highly recommended. *** Public, academic, and professional collections.--Patrice M. Franko, Colby College
Franko, Patrice M.
Source Citation (MLA 8th Edition)
Franko, Patrice M. "Edwards, Sebastian. Latin America and the false promise of populism." CHOICE: Current Reviews for Academic Libraries, Jan. 2011, p. 958. General OneFile, http://link.galegroup.com/apps/doc/A249310994/ITOF?u=schlager&sid=ITOF&xid=84f37806. Accessed 25 July 2018.
Gale Document Number: GALE|A249310994
Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies
NBER Reporter. (Summer 2000): p52.
Copyright: COPYRIGHT 2000 National Bureau of Economic Research, Inc.
http://www.nber.org/reporter/
Full Text:
Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, edited by Sebastian Edwards, is available from the University of Chicago Press for $50. This book treats the large movements of capital that triggered the international currency crisis of 1998 and focuses particularly on the emerging economies of East Asia, Latin America, and Eastern Europe.
This NBER conference volume includes an introduction, nine papers, and eight commentaries divided into three sections: "Capital Flows to Developing Countries: Theoretical Aspects," "Cross-Country Evidence," and "Capital Flows to Latin America, Asia, and Eastern Europe."
Edwards is a Research Associate in the NBER's Programs on International Finance and Macroeconomics and International Trade and Investment. He is also the Henry Ford II Professor of International Economics at the Anderson Graduate School of Management, University of California, Los Angeles.
Source Citation (MLA 8th Edition)
"Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies." NBER Reporter, 2000, p. 52. General OneFile, http://link.galegroup.com/apps/doc/A66499122/ITOF?u=schlager&sid=ITOF&xid=56f8a49b. Accessed 25 July 2018.
Gale Document Number: GALE|A66499122
The Political Economy of Policy Reform in Developing Countries
Daniel G. Arce M.
Latin American Research Review. 34.1 (Winter 1999): p212+.
Copyright: COPYRIGHT 1999 Latin American Studies Association
http://lasa.international.pitt.edu/eng/larr/editorial-policy.asp
Full Text:
By Anne O. Krueger. (Cambridge, Mass.: MIT Press, 1993. Pp. 171. $22.50 cloth.)
The transition experience from the end of the debt crisis to the current neoliberal euphoria raises many questions about the consequences of reliance on the market in terms of macroeconomic performance and social welfare. This essay will review five texts and use them to analyze three questions. First, in political terms, where does the demand for neoliberal reform come from, and how do differences in the determinants of this demand affect the success of specific policies? Second, is trade the primary "engine of growth," or will neoliberals have to recognize the importance of other social phenomena, such as education? Third, how should analysts rethink the way that macroeconomic policy is affected by transitions? The success of any given transition is not fully assured, except perhaps in Chile. Particular questions pertaining to social welfare and capital dependence have yet to be resolved.
The Demand for Reform
The literature under review adopts various approaches to understanding the initiation of the process of neoliberal reform. For example, Aaron Tornell's contribution to Reform, Recovery, and Growth: Latin America and the Middle East, edited by Rudiger Dornbusch and Sebastian Edwards, employs a simple game-theoretic framework to illustrate the demand for trade liberalization in Mexico as a function of the decrease in fiscal revenues during the 1980s. Tornell views liberalization as a "benefit of crisis" due to a social contest that pits competing rent seekers against each other over a shrinking pie of revenues. Trade liberalization gave a first-mover advantage to the private-sector elite, precisely when that sector was convinced that its main competitor, the parastatal elite, would gain a first-mover advantage through policies such as the nationalization of banks, which blocked private-sector access to fiscal revenue through subsidized credit. That is, the private sector preferred to undergo the adjustment costs associated with trade liberalization and the drastic reduction of the rents generated by customs receipts rather than assume a follower's role that lacked access to subsidized credit.
The issue of the demand for liberalization is also addressed in various contributions to Democracy, Markets, and Structural Reform in Latin America: Argentina, Bolivia, Brazil, Chile, and Mexico, edited by William Smith, Carlos Acuna, and Eduardo Gamarra. For example, Pilar Vergara examines Chilean neoliberal reform, in which General Augusto Pinochet managed to impose a "modernization model" without democratic constraints. This model consisted of a reduced interventionist role for the state and severe restrictions on public spending on social programs. Vergara characterizes Chilean reforms as stressing the liberalization of markets, foreign trade, and exchange rates as well as privatization of traditional social institutions such as health care and social security. Chilean neoliberals argue that the free-market economy is not incompatible with greater social equality, but Vergara finds that the major challenge facing current and future Chilean administrations is to achieve the equity required for long-term growth. Currently, high-income Chileans have a market choice of access to high-quality social services. Yet income distribution has become increasingly regressive, and state subsidies to the poorest groups are now too small to have any lasting positive impact. Hence arises the danger that Chilean growth may become constrained by poverty. One must wonder if other Latin American countries following neoliberal reforms are headed down the same path.
Similarly, Lourdes Sola's analysis of Brazil in Democracy, Markets, and Structural Reform in Latin America finds an absence of active social forces advocating market-based reforms such as trade liberalization and privatization. Rather, Brazil suffers from a "neoliberal paradox": the state, led first by Fernando Collor and now by Fernando Henrique Cardoso, acts as the principal protagonist and underwriter of neoliberal reforms. Brazilian organized interests such as the entrepreneurial class demonstrated a remarkable ability to adapt to and take advantage of the economic stagnation and high inflation of the 1980s. For example, Brazilian banks are highly adept at making profits on inflationary "float" in the financial system.(1) Therefore, the impetus for trade reform was a political agenda involving the need to increase real salaries through productivity increases and a drop in the price of imports. In the same way, Brazil's privatization efforts targeted the skewed distribution of income through employee entitlements to purchase shares of privatized firms.
With respect to Argentina, Carlos Acuna shows that the 1980s were characterized by a sequence of aborted attempts to open the economy in order to "thaw" the price freezes associated with heterodox inflation stabilization, to alleviate scarcity of foreign currency, and to eliminate growth bottlenecks associated with an essentially closed economy. By 1989 President Carlos Menem had redefined Peronism by appointing representatives of the powerful Bunge y Born conglomerate to run his first economic team. This decision resulted in an official deepening of his administration's neoliberal stance. Not surprisingly, the implementation of such policies was carried out ineffectively by more mainstream Peronists within the executive branch. Clearly, something had to give in order to undertake a successful attempt at neoliberal reform and economic opening.
In March 1991, the new finance minister, Domingo Cavallo, announced the Plan Cavallo, a convertibility plan in which the exchange rate was fixed at one U.S. dollar equaling one peso. Any monetary creation had to be backed financially by an equivalent increase in foreign-exchange reserves at the Banco Central. This situation demonstrates what Anne Krueger calls the ability of a crisis to stop politics as usual, creating a window of opportunity for a charismatic leader to employ "technocratic support to take appropriate actions." According to Acuna, trade opening was supposed to act as a ceiling on domestic price increases, especially wages, and as a mechanism for reducing the cost of inputs through import competition under the convertibility policy. Furthermore, extensive privatization of public-sector enterprises increased the government's foreign-exchange coffers and solidified the irreversibility of Argentina's foray into neoliberalism.
In The Political Economy of Policy Reform in Developing Countries, Krueger summarizes the Latin American experience as a whole: "One of the most discouraging features of reform programs has been the limited number of success stories" (p. 8). Except for the Chilean transformation and the success of the Mexican pacto years prior to the 1994 peso crisis, most policy reforms during economic reconstruction can be characterized as a "stop-go cycle" associated with short-term behavior geared toward securing loans from multilaterals (the World Bank, the International Monetary Fund, and the International Development Bank). The conditionality of such loans often induced a recession through deficit reduction, devaluation, and liberalization of the trade regime. Once any hint of a recovery began, however, economic expansion was constrained by an endemic upward drift in the deficit resulting from political pressures accompanied by a current-account deficit arising from increased private-sector demand for imports. The result is a return to economic conditions ripe for another crisis.
Krueger further asserts that the stop-go cycle in Brazil is a direct consequence of the fragility of Brazilian political coalitions. No reigning governing coalition ever managed to create a sustainable formula to reduce the deficit.(2) Indeed, the government was often excluded from the most cohesive coalitions, which tended to be private-sector agents opposed to government reform. In contrast with Mexico, for example, Brazilian industrial leaders during the 1980s opposed plans to open the economy. Unions also opposed economic opening for fear that import competition would lead to lower wages. As a result, the Brazilian government could create only a temporary consensus for reform when faced with the most extreme economic conditions.
The idea that the way in which the political process recognizes and addresses class and distributional conflicts affects the stabilization process is also a central theme of Inflation, Stabilization, and Debt: Macroeconomic Experiments in Peru and Bolivia, by Manuel Pastor Jr. He offers as a microcosm the contrast between Bolivian orthodox policies and Peruvian heterodox policies during the 1980s.(3) What is novel is that Pastor treats both heterodoxy (price-freezing and income policies) and orthodoxy (strict monetary contraction and devaluation) as sociopolitical approaches to stabilization, a choice that can be justified empirically. For example, by testing for structural and inertial components of inflation through an analysis of sticky prices and causality tests between money and prices, Pastor makes a convincing case that heterodoxy was the correct antidote for Peru. Given the breathing room supplied by wage and price controls, a policy of conciliation toward capitalist behavior to remove import-induced constraints on growth targeted the structural bottlenecks at the root of Peruvian hyperstagflation. Pastor finds no such structural evidence in hyperinflated Bolivia, however. Instead, he concludes that money-price causality ran in the usual monetarist direction, hence the tax and devaluations policies implemented by the Bolivians were socially and economically consistent. Moreover, the Bolivian devaluation courted the social sector whose action was required to ensure stabilization: foreign capital.
Although both countries appear to have followed the correct economic prescriptions for their socially concerted approaches, neither policy succeeded. Bolivia is still plagued by slow growth even though its patently orthodox policies stabilized inflation dramatically. Peruvian heterodoxy was never implemented in its ideal form. Pastor reinforces Krueger's assessment of the political breakdown that led to these failures. Even temporary stabilization brings about "a rise in social and political support for the government. The proper action at this point involves using the political 'honeymoon' to push through medium-term corrections such as the expansion of import capacity through export promotion and import substitution" (p. 60). Both Peru and Bolivia failed to take advantage of their windows of opportunity.
A lesson to be learned from all this discussion is that neoliberalism and trade reform are likely to be more effective and successful when they are closely related to the goals of macroeconomic stabilization, as was the case in Argentina and Chile. In countries where neoliberal reform continues to reflect social and political struggles, as in Brazil, less capacity exists for taking advantage of trade as an "engine of growth." Indeed, despite a devaluation crisis, the Mexican case shows that liberalization can serve as a useful preemptive strike against macroeconomic mismanagement. Yet the current income-distribution problems in Chile and high unemployment in Argentina illustrate that the success of neoliberal reform will eventually be limited unless its social consequences are anticipated and addressed in a timely fashion.
Empirical Justification
Does the empirical evidence support the claim that trade is an engine of growth? This question was addressed exhaustively in Edwards (1993), part of which is presented again in Reform, Recovery, and Growth in a clear, nontechnical fashion (chap. 1). Edwards's essay is an excellent synthesis and test of the economic arguments for free trade that underlie neoliberal reform. His discussion is open-minded and avoids the type of free-trade dogma that generally separates economists from other social scientists. For example, Edwards is quick to point out that the export-oriented industrialization widely credited for the East Asian "miracle" should not be confused with trade liberalization because imports have yet to be liberalized in those countries. Moreover, any preoccupation with tariffs as an indicator of protection is highly misleading because quantity restrictions (quotas) abound, and real exchange rate depreciation is just as important as trade controls.
This study is an important and long-overdue complement to economic theory because in neoclassical models, trade raises the level of aggregate output but not necessarily its rate of growth. Growth is measured in terms of total factor productivity, which is the difference between growth in gross domestic product (GDP) and the growth in capital stock and the labor force. Edwards posits two primary sources of growth: that occurring from domestic technological innovation and human capital accumulation (education), and countries' ability to catch up by absorbing and imitating innovations occurring abroad. Edwards argues that this convergence should produce a convergence of growth rates across nations.
The argument implicit in Reform, Recovery, and Growth is that trade produces dynamic advantages of three kinds that affect productivity and growth in the long run: higher capacity utilization and more efficient investment projects; more liberalized economies that experience faster growth in exports, which stimulates GDP growth; and export expansion that relaxes foreign-exchange constraints on growth. Moreover, the revolution occurring in "endogenous growth theory" predicts a relationship of long-run equilibrium between output and economic growth.
Edwards then tests for an empirical relation between trade and growth that captures the most appealing features of the endogenous growth literature. He estimates growth in total factor productivity as a function of six factors: trade distortions as measured by import and export taxes; initial gross national product over the time series, meant to summarize the country's "catch-up potential" (those with a lower GDP have more catching up to do and will grow faster); human capital as measured by increased rates of attainment of secondary education; an estimate of the role of government participation in the economy to ascertain whether government expenditure crowds out private growth investment; a measure of political instability assumed to be negatively correlated with growth; and the degree to which government uses inflation to finance its expenditures. The inflation variable is tailor-made to ascertain the effects of the most volatile macroeconomic variable in Latin America over the period studied (1971 to 1982).(4)
The results support the view that after controlling for other "endogenous factors," countries with open trade regimes tend to grow faster over the long run than do countries with distorted trade sectors. Edwards is quick to point out, however, that this analysis provides no information on the transition to economic opening. Instead, post-reform policy analysis for the case of Mexico, Chile, and Colombia is based on a discrete set of data points on import and capital inflows, exports, trade distortions, and labor and factor productivity over the 1980s and early 1990s. This approach leads to some puzzling results, such as a decrease in Mexican total factor productivity from 1978 to 1982 and from 1987 to 1991, when one would expect that the trade reforms over this period would have increased total factor productivity.(5)
In my view, the trade results are not the most important contribution of Reform, Recovery, and Growth. Even the most casual observer of economics would have predicted the positive correlation between growth and trade regime. Several other interesting variables that appear to influence growth strongly, notably education and political stability, deserve further policy investigation than they are given here. It is to be hoped that an updated analysis will be made of these variables and their application to Latin American countries.
Macropolicy
At the end of the 1980s, the World Bank refocused its lending targets away from the type of macroeconomic stabilization adjustment generally associated with the International Monetary Fund and went back to its traditional concern for structural adjustments that will ensure long-term growth. Yet while doing so, the World Bank never lost sight of the performance of a country's fiscal deficit as a quantitative target for meeting the conditionality terms of loans. The question of what specific deficit measure to use has always been a bone of contention in Latin America. For example, it is well documented that in the early 1980s, the "conventional deficit" used by the IMF failed to account for sources of budget endogeneity. That is, the deficit affects the macroeconomy, but the converse is also true. Nominal debt payments fluctuate with the rate of inflation, and thus in periods of high inflation, these payments automatically rise and the government's borrowing requirement automatically increases without any discretionary policy action. Brazilian policymakers argued this very point early on in the debt crisis, but it took several IMF-sponsored stabilization fiascos for the multilaterals to recognize this source of endogeneity and create what is now known as the operational deficit - the primary benchmark for all conditional lending.
It is therefore refreshing to read about the Inter-American Development Bank's anticipation of new sources of budget endogeneity during the transitions to economic opening now occurring in Latin America. Guillermo Perry and Ana Maria Herrera's Public Finances, Stabilization, and Structural Reform in Latin America usefully summarizes the assessment of taxes and fiscal policy during periods of high inflation, devaluation, privatization, and trade liberalization in Argentina, Chile, Colombia, and Mexico. The lessons to be learned are numerous. Most are discussed intuitively.(6) Trade liberalization is a budgetary issue in terms of its effects on customs receipts in the revenue side of deficit calculations. Indeed, Perry and Herrera show that the long-term effect of trade liberalization is a steady downward trend in customs receipts that must be recognized in any assessment of fiscal stance.
Perry and Herrera begin by discussing the controversy over deficit measurement that arose in the mid-to-late 1980s, when deficits reflected three endogenous components. The first was the Olivera-Tanzi effect - the loss in real tax revenue due to the fact that most taxes are not immediately withheld in Latin America, and the lag in payment therefore causes tax revenues to decrease and deficits to increase. The second factor was the failure of public-sector prices to adjust with inflation. The third was real devaluation in order to stimulate export earnings as a source of debt servicing. This overview sets the stage for the authors' main message: "stabilization programs must take these cyclical characteristics into account in order to prevent cyclical trends in public finances. Neither the governments nor multilateral organizations have paid enough attention to this problem..." (p. 34). This interpretation parallels the contribution by Jaime Ros to Democracy, Markets, and Structural Reform in Latin America. Ros's first diagram (p. 300) and his accompanying explanation is the best pedagogical exposition of the symbiotic interaction between inflation, deficits, devaluation, and monetary growth that I have encountered thus far.
Ros as well as Perry and Herrera identify how devaluation can create significantly different budgetary effects depending on its direct effect on the macroeconomy. Consider first that a devaluation increases the price of imports. This outcome can lead to a fiscal crisis through a short-term liquidity-induced recession in countries where the import content of domestic production or the average worker's consumption basket is high (as in Argentina and Chile). Alternatively, devaluation can make primary exports more competitive in the world market. In this case, export earnings increase public savings and improve the national fiscal stance to the extent that public saving does not adversely affect the private capital formation necessary for growth. In either scenario, the portfolio effects caused by international capital arbitrageurs may either exacerbate or counteract the impact of a devaluation. Hence policymakers must be careful to account for permanent rather than temporary changes in capital flows.
Pastor's Inflation, Stabilization, and Debt reinforces the lessons of the transition about devaluations. Specifically, growth in Latin American countries is often constrained by imports rather than by capacity. That is, regardless of trade orientation, domestic manufacturers are often dependent on imports for key intermediate components in production. This finding implies that the increased import costs that devaluations produce may dominate the degree to which devaluations spur exports. Such an outcome is known as a contractionary devaluation. Empirical evidence of this effect is cited both by Pastor and by Morley (1992). Hence Pastor warns that as the exchange rate becomes the primary policy variable in the neoliberal era, Latin American countries must be careful that those who determine the exchange rate do not come to dominate decision making. The danger is that neoliberalism may produce a new sort of dependency associated with investment and financial-capital bottlenecks or volatility.
Conclusion
In terms of future research, several "substantive lags" have been identified here that are associated with the neoliberal transition. These lags must be understood to ensure long-term success. First, what is the political economy of "getting prices right"? The unemployment experiences associated with neoliberal reform in Argentina and the apertura in Colombia as well as relative price disparities in Peru that have persisted long after the "Fujishock" show that it takes much longer than most economists would admit for markets to arrive at clearing prices. A related point is that future benefits of trade orientation require investment in education and technology for gains to be more than short-lived. Labor-market "flexibility" only generates a short-term comparative advantage. The Chilean government appears to have recognized this point in restoring union rights. Third, wage-based comparative advantage is extremely regressive. Contrary to the conventional perception of Asian success stories, problems with income distribution quickly constrain growth in Latin America through political channels. In summary, the "takeoff" is upon us, and it is to be hoped that economic transformation will be accompanied by the social improvements necessary for sustained development as well as growth.
1. For a further discussion of this phenomenon, see Armijo (1996).
2. See also Roxborough (1992) and Arce (1997).
3. For those interested in model-oriented analyses, the simple orthodox and heterodox macroeconomic models presented in Pastor's second and third chapters are accessible for students who have had a course in intermediate macroeconomics.
4. Actually, the data set consists of fifty-four countries.
5. Edwards explains this outcome as an aggregate distortion of strong sectoral responses in the areas immediately affected by trade reform.
6. A notable exception is the quasi fiscal deficit, which is neither formally defined nor explained, although it appears often as a major point of concern in Perry and Herrera's analysis.
REFERENCES
ARCE M., DANIEL G.
1997 "Fiscal Pacts." Open Economies Review 8:1-14.
ARMIJO, LESLIE ELLIOTT
1996 "Inflation and Insouciance: The Peculiar Brazilian Game." LARR 31, no. 3:7-46.
EDWARDS, SEBASTIAN
1993 "Openness, Trade Liberalization, and Growth in Developing Countries." Journal of Economic Literature 31:1358-93.
MORLEY, SAMUEL A.
1992 "The Effect of Devaluation during Stabilization Programs in LDCs." Review of Economics and Statistics, no. 71:21-27.
ROXBOROUGH, IAN
1992 "Inflation and Social Pacts in Brazil and Mexico." Journal of Latin American Studies 24, pt. 3:639-64.
DANIEL G. ARCE M. is Associate Professor of Economics at the University of Alabama. His current research interests include game-theoretic aspects of macroeconomic policy in Latin America and the effects of arbitrage and market-making in the region. He has published several articles on these topics.
Source Citation (MLA 8th Edition)
Arce M., Daniel G. "The Political Economy of Policy Reform in Developing Countries." Latin American Research Review, vol. 34, no. 1, 1999, p. 212+. General OneFile, http://link.galegroup.com/apps/doc/A54169854/ITOF?u=schlager&sid=ITOF&xid=a9027920. Accessed 25 July 2018.
Gale Document Number: GALE|A54169854
Reform, Recovery, and Growth: Latin America and the Middle East
Daniel G. Arce M.
Latin American Research Review. 34.1 (Winter 1999): p212+.
Copyright: COPYRIGHT 1999 Latin American Studies Association
http://lasa.international.pitt.edu/eng/larr/editorial-policy.asp
Full Text:
Edited by Rudiger Dornbusch and Sebastian Edwards. (Chicago, Ill.: University of Chicago Press, 1995. Pp. 426. $65.00 cloth.)
The transition experience from the end of the debt crisis to the current neoliberal euphoria raises many questions about the consequences of reliance on the market in terms of macroeconomic performance and social welfare. This essay will review five texts and use them to analyze three questions. First, in political terms, where does the demand for neoliberal reform come from, and how do differences in the determinants of this demand affect the success of specific policies? Second, is trade the primary "engine of growth," or will neoliberals have to recognize the importance of other social phenomena, such as education? Third, how should analysts rethink the way that macroeconomic policy is affected by transitions? The success of any given transition is not fully assured, except perhaps in Chile. Particular questions pertaining to social welfare and capital dependence have yet to be resolved.
The Demand for Reform
The literature under review adopts various approaches to understanding the initiation of the process of neoliberal reform. For example, Aaron Tornell's contribution to Reform, Recovery, and Growth: Latin America and the Middle East, edited by Rudiger Dornbusch and Sebastian Edwards, employs a simple game-theoretic framework to illustrate the demand for trade liberalization in Mexico as a function of the decrease in fiscal revenues during the 1980s. Tornell views liberalization as a "benefit of crisis" due to a social contest that pits competing rent seekers against each other over a shrinking pie of revenues. Trade liberalization gave a first-mover advantage to the private-sector elite, precisely when that sector was convinced that its main competitor, the parastatal elite, would gain a first-mover advantage through policies such as the nationalization of banks, which blocked private-sector access to fiscal revenue through subsidized credit. That is, the private sector preferred to undergo the adjustment costs associated with trade liberalization and the drastic reduction of the rents generated by customs receipts rather than assume a follower's role that lacked access to subsidized credit.
The issue of the demand for liberalization is also addressed in various contributions to Democracy, Markets, and Structural Reform in Latin America: Argentina, Bolivia, Brazil, Chile, and Mexico, edited by William Smith, Carlos Acuna, and Eduardo Gamarra. For example, Pilar Vergara examines Chilean neoliberal reform, in which General Augusto Pinochet managed to impose a "modernization model" without democratic constraints. This model consisted of a reduced interventionist role for the state and severe restrictions on public spending on social programs. Vergara characterizes Chilean reforms as stressing the liberalization of markets, foreign trade, and exchange rates as well as privatization of traditional social institutions such as health care and social security. Chilean neoliberals argue that the free-market economy is not incompatible with greater social equality, but Vergara finds that the major challenge facing current and future Chilean administrations is to achieve the equity required for long-term growth. Currently, high-income Chileans have a market choice of access to high-quality social services. Yet income distribution has become increasingly regressive, and state subsidies to the poorest groups are now too small to have any lasting positive impact. Hence arises the danger that Chilean growth may become constrained by poverty. One must wonder if other Latin American countries following neoliberal reforms are headed down the same path.
Similarly, Lourdes Sola's analysis of Brazil in Democracy, Markets, and Structural Reform in Latin America finds an absence of active social forces advocating market-based reforms such as trade liberalization and privatization. Rather, Brazil suffers from a "neoliberal paradox": the state, led first by Fernando Collor and now by Fernando Henrique Cardoso, acts as the principal protagonist and underwriter of neoliberal reforms. Brazilian organized interests such as the entrepreneurial class demonstrated a remarkable ability to adapt to and take advantage of the economic stagnation and high inflation of the 1980s. For example, Brazilian banks are highly adept at making profits on inflationary "float" in the financial system.(1) Therefore, the impetus for trade reform was a political agenda involving the need to increase real salaries through productivity increases and a drop in the price of imports. In the same way, Brazil's privatization efforts targeted the skewed distribution of income through employee entitlements to purchase shares of privatized firms.
With respect to Argentina, Carlos Acuna shows that the 1980s were characterized by a sequence of aborted attempts to open the economy in order to "thaw" the price freezes associated with heterodox inflation stabilization, to alleviate scarcity of foreign currency, and to eliminate growth bottlenecks associated with an essentially closed economy. By 1989 President Carlos Menem had redefined Peronism by appointing representatives of the powerful Bunge y Born conglomerate to run his first economic team. This decision resulted in an official deepening of his administration's neoliberal stance. Not surprisingly, the implementation of such policies was carried out ineffectively by more mainstream Peronists within the executive branch. Clearly, something had to give in order to undertake a successful attempt at neoliberal reform and economic opening.
In March 1991, the new finance minister, Domingo Cavallo, announced the Plan Cavallo, a convertibility plan in which the exchange rate was fixed at one U.S. dollar equaling one peso. Any monetary creation had to be backed financially by an equivalent increase in foreign-exchange reserves at the Banco Central. This situation demonstrates what Anne Krueger calls the ability of a crisis to stop politics as usual, creating a window of opportunity for a charismatic leader to employ "technocratic support to take appropriate actions." According to Acuna, trade opening was supposed to act as a ceiling on domestic price increases, especially wages, and as a mechanism for reducing the cost of inputs through import competition under the convertibility policy. Furthermore, extensive privatization of public-sector enterprises increased the government's foreign-exchange coffers and solidified the irreversibility of Argentina's foray into neoliberalism.
In The Political Economy of Policy Reform in Developing Countries, Krueger summarizes the Latin American experience as a whole: "One of the most discouraging features of reform programs has been the limited number of success stories" (p. 8). Except for the Chilean transformation and the success of the Mexican pacto years prior to the 1994 peso crisis, most policy reforms during economic reconstruction can be characterized as a "stop-go cycle" associated with short-term behavior geared toward securing loans from multilaterals (the World Bank, the International Monetary Fund, and the International Development Bank). The conditionality of such loans often induced a recession through deficit reduction, devaluation, and liberalization of the trade regime. Once any hint of a recovery began, however, economic expansion was constrained by an endemic upward drift in the deficit resulting from political pressures accompanied by a current-account deficit arising from increased private-sector demand for imports. The result is a return to economic conditions ripe for another crisis.
Krueger further asserts that the stop-go cycle in Brazil is a direct consequence of the fragility of Brazilian political coalitions. No reigning governing coalition ever managed to create a sustainable formula to reduce the deficit.(2) Indeed, the government was often excluded from the most cohesive coalitions, which tended to be private-sector agents opposed to government reform. In contrast with Mexico, for example, Brazilian industrial leaders during the 1980s opposed plans to open the economy. Unions also opposed economic opening for fear that import competition would lead to lower wages. As a result, the Brazilian government could create only a temporary consensus for reform when faced with the most extreme economic conditions.
The idea that the way in which the political process recognizes and addresses class and distributional conflicts affects the stabilization process is also a central theme of Inflation, Stabilization, and Debt: Macroeconomic Experiments in Peru and Bolivia, by Manuel Pastor Jr. He offers as a microcosm the contrast between Bolivian orthodox policies and Peruvian heterodox policies during the 1980s.(3) What is novel is that Pastor treats both heterodoxy (price-freezing and income policies) and orthodoxy (strict monetary contraction and devaluation) as sociopolitical approaches to stabilization, a choice that can be justified empirically. For example, by testing for structural and inertial components of inflation through an analysis of sticky prices and causality tests between money and prices, Pastor makes a convincing case that heterodoxy was the correct antidote for Peru. Given the breathing room supplied by wage and price controls, a policy of conciliation toward capitalist behavior to remove import-induced constraints on growth targeted the structural bottlenecks at the root of Peruvian hyperstagflation. Pastor finds no such structural evidence in hyperinflated Bolivia, however. Instead, he concludes that money-price causality ran in the usual monetarist direction, hence the tax and devaluations policies implemented by the Bolivians were socially and economically consistent. Moreover, the Bolivian devaluation courted the social sector whose action was required to ensure stabilization: foreign capital.
Although both countries appear to have followed the correct economic prescriptions for their socially concerted approaches, neither policy succeeded. Bolivia is still plagued by slow growth even though its patently orthodox policies stabilized inflation dramatically. Peruvian heterodoxy was never implemented in its ideal form. Pastor reinforces Krueger's assessment of the political breakdown that led to these failures. Even temporary stabilization brings about "a rise in social and political support for the government. The proper action at this point involves using the political 'honeymoon' to push through medium-term corrections such as the expansion of import capacity through export promotion and import substitution" (p. 60). Both Peru and Bolivia failed to take advantage of their windows of opportunity.
A lesson to be learned from all this discussion is that neoliberalism and trade reform are likely to be more effective and successful when they are closely related to the goals of macroeconomic stabilization, as was the case in Argentina and Chile. In countries where neoliberal reform continues to reflect social and political struggles, as in Brazil, less capacity exists for taking advantage of trade as an "engine of growth." Indeed, despite a devaluation crisis, the Mexican case shows that liberalization can serve as a useful preemptive strike against macroeconomic mismanagement. Yet the current income-distribution problems in Chile and high unemployment in Argentina illustrate that the success of neoliberal reform will eventually be limited unless its social consequences are anticipated and addressed in a timely fashion.
Empirical Justification
Does the empirical evidence support the claim that trade is an engine of growth? This question was addressed exhaustively in Edwards (1993), part of which is presented again in Reform, Recovery, and Growth in a clear, nontechnical fashion (chap. 1). Edwards's essay is an excellent synthesis and test of the economic arguments for free trade that underlie neoliberal reform. His discussion is open-minded and avoids the type of free-trade dogma that generally separates economists from other social scientists. For example, Edwards is quick to point out that the export-oriented industrialization widely credited for the East Asian "miracle" should not be confused with trade liberalization because imports have yet to be liberalized in those countries. Moreover, any preoccupation with tariffs as an indicator of protection is highly misleading because quantity restrictions (quotas) abound, and real exchange rate depreciation is just as important as trade controls.
This study is an important and long-overdue complement to economic theory because in neoclassical models, trade raises the level of aggregate output but not necessarily its rate of growth. Growth is measured in terms of total factor productivity, which is the difference between growth in gross domestic product (GDP) and the growth in capital stock and the labor force. Edwards posits two primary sources of growth: that occurring from domestic technological innovation and human capital accumulation (education), and countries' ability to catch up by absorbing and imitating innovations occurring abroad. Edwards argues that this convergence should produce a convergence of growth rates across nations.
The argument implicit in Reform, Recovery, and Growth is that trade produces dynamic advantages of three kinds that affect productivity and growth in the long run: higher capacity utilization and more efficient investment projects; more liberalized economies that experience faster growth in exports, which stimulates GDP growth; and export expansion that relaxes foreign-exchange constraints on growth. Moreover, the revolution occurring in "endogenous growth theory" predicts a relationship of long-run equilibrium between output and economic growth.
Edwards then tests for an empirical relation between trade and growth that captures the most appealing features of the endogenous growth literature. He estimates growth in total factor productivity as a function of six factors: trade distortions as measured by import and export taxes; initial gross national product over the time series, meant to summarize the country's "catch-up potential" (those with a lower GDP have more catching up to do and will grow faster); human capital as measured by increased rates of attainment of secondary education; an estimate of the role of government participation in the economy to ascertain whether government expenditure crowds out private growth investment; a measure of political instability assumed to be negatively correlated with growth; and the degree to which government uses inflation to finance its expenditures. The inflation variable is tailor-made to ascertain the effects of the most volatile macroeconomic variable in Latin America over the period studied (1971 to 1982).(4)
The results support the view that after controlling for other "endogenous factors," countries with open trade regimes tend to grow faster over the long run than do countries with distorted trade sectors. Edwards is quick to point out, however, that this analysis provides no information on the transition to economic opening. Instead, post-reform policy analysis for the case of Mexico, Chile, and Colombia is based on a discrete set of data points on import and capital inflows, exports, trade distortions, and labor and factor productivity over the 1980s and early 1990s. This approach leads to some puzzling results, such as a decrease in Mexican total factor productivity from 1978 to 1982 and from 1987 to 1991, when one would expect that the trade reforms over this period would have increased total factor productivity.(5)
In my view, the trade results are not the most important contribution of Reform, Recovery, and Growth. Even the most casual observer of economics would have predicted the positive correlation between growth and trade regime. Several other interesting variables that appear to influence growth strongly, notably education and political stability, deserve further policy investigation than they are given here. It is to be hoped that an updated analysis will be made of these variables and their application to Latin American countries.
Macropolicy
At the end of the 1980s, the World Bank refocused its lending targets away from the type of macroeconomic stabilization adjustment generally associated with the International Monetary Fund and went back to its traditional concern for structural adjustments that will ensure long-term growth. Yet while doing so, the World Bank never lost sight of the performance of a country's fiscal deficit as a quantitative target for meeting the conditionality terms of loans. The question of what specific deficit measure to use has always been a bone of contention in Latin America. For example, it is well documented that in the early 1980s, the "conventional deficit" used by the IMF failed to account for sources of budget endogeneity. That is, the deficit affects the macroeconomy, but the converse is also true. Nominal debt payments fluctuate with the rate of inflation, and thus in periods of high inflation, these payments automatically rise and the government's borrowing requirement automatically increases without any discretionary policy action. Brazilian policymakers argued this very point early on in the debt crisis, but it took several IMF-sponsored stabilization fiascos for the multilaterals to recognize this source of endogeneity and create what is now known as the operational deficit - the primary benchmark for all conditional lending.
It is therefore refreshing to read about the Inter-American Development Bank's anticipation of new sources of budget endogeneity during the transitions to economic opening now occurring in Latin America. Guillermo Perry and Ana Maria Herrera's Public Finances, Stabilization, and Structural Reform in Latin America usefully summarizes the assessment of taxes and fiscal policy during periods of high inflation, devaluation, privatization, and trade liberalization in Argentina, Chile, Colombia, and Mexico. The lessons to be learned are numerous. Most are discussed intuitively.(6) Trade liberalization is a budgetary issue in terms of its effects on customs receipts in the revenue side of deficit calculations. Indeed, Perry and Herrera show that the long-term effect of trade liberalization is a steady downward trend in customs receipts that must be recognized in any assessment of fiscal stance.
Perry and Herrera begin by discussing the controversy over deficit measurement that arose in the mid-to-late 1980s, when deficits reflected three endogenous components. The first was the Olivera-Tanzi effect - the loss in real tax revenue due to the fact that most taxes are not immediately withheld in Latin America, and the lag in payment therefore causes tax revenues to decrease and deficits to increase. The second factor was the failure of public-sector prices to adjust with inflation. The third was real devaluation in order to stimulate export earnings as a source of debt servicing. This overview sets the stage for the authors' main message: "stabilization programs must take these cyclical characteristics into account in order to prevent cyclical trends in public finances. Neither the governments nor multilateral organizations have paid enough attention to this problem..." (p. 34). This interpretation parallels the contribution by Jaime Ros to Democracy, Markets, and Structural Reform in Latin America. Ros's first diagram (p. 300) and his accompanying explanation is the best pedagogical exposition of the symbiotic interaction between inflation, deficits, devaluation, and monetary growth that I have encountered thus far.
Ros as well as Perry and Herrera identify how devaluation can create significantly different budgetary effects depending on its direct effect on the macroeconomy. Consider first that a devaluation increases the price of imports. This outcome can lead to a fiscal crisis through a short-term liquidity-induced recession in countries where the import content of domestic production or the average worker's consumption basket is high (as in Argentina and Chile). Alternatively, devaluation can make primary exports more competitive in the world market. In this case, export earnings increase public savings and improve the national fiscal stance to the extent that public saving does not adversely affect the private capital formation necessary for growth. In either scenario, the portfolio effects caused by international capital arbitrageurs may either exacerbate or counteract the impact of a devaluation. Hence policymakers must be careful to account for permanent rather than temporary changes in capital flows.
Pastor's Inflation, Stabilization, and Debt reinforces the lessons of the transition about devaluations. Specifically, growth in Latin American countries is often constrained by imports rather than by capacity. That is, regardless of trade orientation, domestic manufacturers are often dependent on imports for key intermediate components in production. This finding implies that the increased import costs that devaluations produce may dominate the degree to which devaluations spur exports. Such an outcome is known as a contractionary devaluation. Empirical evidence of this effect is cited both by Pastor and by Morley (1992). Hence Pastor warns that as the exchange rate becomes the primary policy variable in the neoliberal era, Latin American countries must be careful that those who determine the exchange rate do not come to dominate decision making. The danger is that neoliberalism may produce a new sort of dependency associated with investment and financial-capital bottlenecks or volatility.
Conclusion
In terms of future research, several "substantive lags" have been identified here that are associated with the neoliberal transition. These lags must be understood to ensure long-term success. First, what is the political economy of "getting prices right"? The unemployment experiences associated with neoliberal reform in Argentina and the apertura in Colombia as well as relative price disparities in Peru that have persisted long after the "Fujishock" show that it takes much longer than most economists would admit for markets to arrive at clearing prices. A related point is that future benefits of trade orientation require investment in education and technology for gains to be more than short-lived. Labor-market "flexibility" only generates a short-term comparative advantage. The Chilean government appears to have recognized this point in restoring union rights. Third, wage-based comparative advantage is extremely regressive. Contrary to the conventional perception of Asian success stories, problems with income distribution quickly constrain growth in Latin America through political channels. In summary, the "takeoff" is upon us, and it is to be hoped that economic transformation will be accompanied by the social improvements necessary for sustained development as well as growth.
1. For a further discussion of this phenomenon, see Armijo (1996).
2. See also Roxborough (1992) and Arce (1997).
3. For those interested in model-oriented analyses, the simple orthodox and heterodox macroeconomic models presented in Pastor's second and third chapters are accessible for students who have had a course in intermediate macroeconomics.
4. Actually, the data set consists of fifty-four countries.
5. Edwards explains this outcome as an aggregate distortion of strong sectoral responses in the areas immediately affected by trade reform.
6. A notable exception is the quasi fiscal deficit, which is neither formally defined nor explained, although it appears often as a major point of concern in Perry and Herrera's analysis.
REFERENCES
ARCE M., DANIEL G.
1997 "Fiscal Pacts." Open Economies Review 8:1-14.
ARMIJO, LESLIE ELLIOTT
1996 "Inflation and Insouciance: The Peculiar Brazilian Game." LARR 31, no. 3:7-46.
EDWARDS, SEBASTIAN
1993 "Openness, Trade Liberalization, and Growth in Developing Countries." Journal of Economic Literature 31:1358-93.
MORLEY, SAMUEL A.
1992 "The Effect of Devaluation during Stabilization Programs in LDCs." Review of Economics and Statistics, no. 71:21-27.
ROXBOROUGH, IAN
1992 "Inflation and Social Pacts in Brazil and Mexico." Journal of Latin American Studies 24, pt. 3:639-64.
DANIEL G. ARCE M. is Associate Professor of Economics at the University of Alabama. His current research interests include game-theoretic aspects of macroeconomic policy in Latin America and the effects of arbitrage and market-making in the region. He has published several articles on these topics.
Source Citation (MLA 8th Edition)
Arce M., Daniel G. "Reform, Recovery, and Growth: Latin America and the Middle East." Latin American Research Review, vol. 34, no. 1, 1999, p. 212+. General OneFile, http://link.galegroup.com/apps/doc/A54169856/ITOF?u=schlager&sid=ITOF&xid=90ec47d3. Accessed 25 July 2018.
Gale Document Number: GALE|A54169856
Crisis and Reform in Latin America: From Despair to Hope
Sandra M. Ryzowy
American Economist. 40.2 (Fall 1996): p98.
Copyright: COPYRIGHT 1996 Sage Publications, Inc.
http://wwwwebpage.pace.edu/cfar/
Full Text:
During the past two decades, Latin American countries have undergone major reforms attempting to bring stability to their economic structures. The purpose of the book Crisis and Reform in Latin America, as stated by Edwards, is two-fold. First, the author wishes to provide a history of Latin America's experience with adjustment and market-oriented reforms during the period starting in 1982 through 1993. Second, the book discusses the successes and failures of the economic policies in the region as a means of learning about the Latin American economy.
Crisis and Reform is successful at looking at the past, present and future for a region characterized by turbulent changes in its economy. Edwards takes an in-depth look at the various policies implemented in Latin America from the opening of the markets to the privatization and deregulation of numerous industries in this region.
Edwards discusses all major crises affecting the economic situation of Latin American countries. In Part I, the author introduces the reader to the debt crisis and the early adjustments. He discusses whether the debt crisis was at all anticipated by Latin American governments. Part II analyzes the macroeconomic reforms taking place between 1987 and 1993. Among these, the reader finds extensive discussion of debt restructuring, debt relief, exchange rates, inflation and disinflation reforms. The opening of Latin American markets is given special attention because of its important effects on the international markets.
In reference to the future, the author takes a proactive approach to learning from experience. In Part III, Edwards manages to look at successes and failures under the same lens. In addition, he projects a positive outlook on the future. He realizes that Latin American countries have struggled and continue to struggle economically. However, free trade agreements pursued with the industrial world, and the countries' general economic openness are clear signs of their eagerness toward further economic development. Edwards' view is supported by many journals. For example, The World Bank Research Observer of February 1996, cites that the openness policies in Latin American economies has caused the capital inflows to increase. These inflows have been necessary to increase production capacity and stimulate investment.
Finally, to help the reader visualize some of the astonishing results, the author provides extensive economic trends, indices and other relevant data in the form of tables and graphs.
Sandra M. Ryzowy Lubin School of Business Pace University
Source Citation (MLA 8th Edition)
Ryzowy, Sandra M. "Crisis and Reform in Latin America: From Despair to Hope." American Economist, vol. 40, no. 2, 1996, p. 98. General OneFile, http://link.galegroup.com/apps/doc/A19063126/ITOF?u=schlager&sid=ITOF&xid=308e4d17. Accessed 25 July 2018.
Gale Document Number: GALE|A19063126
Saturday, June 16, 2018
My Amazon Review of Sebastian Edwards' "American Default: The Untold Story of FDR, the Supreme Court and the Battle over Gold"
The Great Depression Showdown over Gold
As an economic history nerd I can only applaud the work of my UCLA colleague Sebastian Edwards in his vibrant telling the story of the long forgotten Supreme Court showdown over the United States’ abrogation of contracts written with the gold clause. Remembering the inflation of the Civil War greenback era, most creditors demanded gold clauses in debt contracts in which they would be repaid in in either gold or its paper money equivalent value.
This system worked fine until the onset of the Great Depression. It is here where Edwards begins his story as President Roosevelt adopts an inflationist policy by first abandoning the gold standard by requiring all citizens to turn in their physical gold at the then $20.67/ounce price. Then in June 1933 Congress adopts a joint resolution authorizing Roosevelt to increase the price of gold which he ultimately does to $35/ounce and the legislation abrogates the gold clause in all contracts. Indeed, most economists credit the early recovery from the depression directly to the monetary easing associated with Roosevelt’s gold policies.
If Congress hadn’t abrogated the gold clause all debts would have been written up to reflect the devaluation by 69%. Thus it would require a payment of approximately $1700 to repay a nominal debt of $1,000. Needless to say a host of bankruptcies would have ensued.
Of course several creditors sued and Edwards skillfully moves the action from Roosevelt and Congress to the Supreme Court. The Supreme Court ruled that it was in Congress’ power to alter private contracts, but it was not in its power to alter U.S. government debt. However, the court ruled that as of the date of the Joint Resolution gold was still trading at $20.67/ounce and Americans were not allowed to possess physical gold at that time. Hence there would be no damages. A brilliant 5-4 ruling by Chief Justice Hughes.
The reason why these cases have been forgotten is that if they went the other way all hell would have broken loose. Instead of rallying as the stock market did after the ruling, stocks likely would have crashed. It would have triggered a constitutional crisis with Court versus the other two branches of government. Indeed the lead up to the ruling was a precursor to the 1937 court fight that Roosevelt would have.
As an aside Edwards notes that the United States had a treaty with Panama concerning the lease payments for the Panama Canal. That treaty had a gold clause in it. After a long negotiation in 1939 the lease payment was increased retroactive to 1934 thereby reflecting the dollar devaluation. Thus, the U.S. made good on its international treaty obligations.
“American Default” is a worthy addition to the economics literature of the Great Depression. It should be read with the works of Friedman & Schwartz, Bernanke, Irwin, Eichengreen and Sumner. And because it is more a history book than an economics book the lay reader should find it very readable. Further given the rising debt/GDP ratio in the U.S. when coupled with even larger unfunded liabilities, the idea of a 21st century American default is not totally improbable.
The full amazon URL appears at: https://www.amazon.com/review/R1JCSUKKX3TVDP/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv