It is fitting that this panel on Monetary and Exchange Rate Policies is the first of our four panels in today's conference on hemispheric integration. We can view this first panel as "cause" and the three panels to follow as "effect": the mismanagement of monetary and exchange rate policies is very much the cause of many of the distresses that should become evident in the panels to follow. The effects of monetary and exchange rate mismanagement include declining levels of equity in rich and poor countries; less security throughout the world; political fragmentation both in the United States and elsewhere; and a growing threat to the project of further trade liberalization and regional integration.

This paper will focus primarily on the monetary and exchange rate policies that are routinely promoted by the International Monetary Fund (IMF), an institution that is heavily influenced by Treasury Department views since the United States enjoys an effective veto power in voting within the IMF.¹ The thesis of this paper is that the range of responsible institutions -- the IMF, the World Bank, and the U.S. Treasury, among them -- are constrained by orthodox economic models. These institutions are essentially confined by ideological straight-jackets: their adherence to a particular set of policy responses in the face of mounting evidence of failure suggests a fear of open discussion and debate about alternative theories and modes of analysis.

Part I of this paper will describe the ideological constraints arising from today's dominant trade theories. In Part II, I will analyze the particular mix of policies pushed by the IMF and other institutions, and suggest that the policies themselves are undermining economic well-being and social and political stability. Part III will offer alternative directions for policy. Part IV suggests that critics within the IMF and World Bank are already struggling to escape the confines of their ideological straight-jackets.

I. The IMF's Ideological Straight-Jacket

Every economist was first an economics student, which may go far in explaining why so many economists persist in flawed assumptions about trade and development. For students of economics, the starting point in international trade theory is David Ricardo's "law of comparative advantage," a justification for free trade that seeks to explain how trade should maximize each nation's output.² According to Ricardian theory, one country will have a comparative advantage in the production of a particular good if it produces that good more efficiently as compared with another country. Each country should produce those goods for which it has a comparative advantage and then trade such goods for others produced more efficiently elsewhere.³ In this way, specialization of labor and free trade allows each nation to maximize its output and aggregate income.⁴

Although the Ricardian narrative assumes that trade is good for all countries, trade rarely balancs out between countries in the real world. In a regime of floating exchange rates, currencies are supposed to help bring trade back into balance. In theory, a country with a trade and current account deficit could return to balance by a depreciation in the value of its currency.⁵ The lower value of its currency should boost its exports and make its imports more expensive. This is the adjustment process which should return everyone to equilibrium.

In reality, chronic trade deficit countries have not generally adjusted well through the mechanism of flexible exchange rates. Among the chief reasons for the failure in exchange rate adjustment has been the incentive for deficit countries to keep their currencies strong (i.e., overvalued) to attract private foreign portfolio investment. The distinguishing characteristic of portfolio capital (stocks and bonds) is how quickly investments can be liquidated, hence the term "hot money". The most dramatic examples of this pathology may be found in Mexico in 1994 and in Argentina in late 2001.

In the past I have described this dependence on inflows of portfolio investment as an addiction. ⁶

The stage marked by an inflow of hot money represents only part of a dangerous cycle of addiction: the inflow is necessary to finance trade and current account deficits; but the inflow also contributes to the appreciation of the country's currency (a currency that is badly in need of depreciation); and that appreciation worsens the trade deficit, necessitating a bigger fix in capital inflow.⁷ The cycle begins when a country incurs foreign debt to pay for its imports, and it often ends badly with a sudden loss of confidence, capital flight, central bank intervention (i.e., futile attempts to "defend the currency" through open market operations and higher interest rates),⁸ and finally a sharp drop in the currency value. It is pointless to attempt to trace the initial loss in investor confidence to a particular event.⁹ Sooner or later foreign creditors will refuse to finance growing deficits and there will be a sudden liquidation of assets denominated in the deficit country's currency.¹⁰

If we start with the Ricardian premise that free trade benefits all, it is only a small step to blaming the deficit countries when they are in their hour of need, hat in hand, asking for emergency financial assistance from the IMF. But Ricardian trade theory indulges in some very unrealistic assumptions and overlooks some important realities. For instance, Ricardian theory assumes that capital is immobile.¹¹ In reality, and in large part a result of deliberate IMF policy, investment capital is now highly mobile. ¹² By the mid-1990's, there was about $315 billion in annual Foreign Direct Investment (mostly investment in fixed plant and equipment by multinational corporations), and over $1.2 trillion a day in foreign exchange transactions, much of which goes for the purchase of foreign stocks and bonds.¹³ Hot money had arrived, and speculation has become the tail that wags the dog of trade.

Ricardian theory also ignores the distribution within each nation. While trade may often result in a higher output of goods and higher income for a country, the increased production and income is often concentrated in few hands. ¹⁴

Finally, the reification of Ricardian theory ignores the realities of politics and market power, all of which may more significantly contribute to chronic trade deficits than anything within the control of deficit countries. For instance, many deficit countries that enjoy comparative advantages in commodities and other primary products have seen a steep decline in their terms of trade vis a vis countries that export capital goods. Capital goods are more likely to enjoy the anti-competitive protection of intellectual property law: according to the WTO's Agreement on Trade-Related Intellectual Property Rights (TRIPS), registered patents are now protected for a period of twenty years.¹⁵ There is nothing sacrosanct about such a twenty-year term and to many in the Third World (including those that desperately need to import pharmaceuticals) such a period of protected monopoly profits seems excessive -- well beyond what is necessary to encourage and reward research, development, and invention.

While political and economic bargaining power can have an enormous impact on the terms of trade,¹⁶ such variables are not easily translated into the mathematical equations or graphs of economists. We need only compare the wide variety of outcomes when countries enter into concession agreements that grant foreign corporations access to their natural resources. At one extreme are countries with little bargaining power.¹⁷ At the other end of the spectrum are countries that have managed to obtain highly favorable terms or successfully nationalized the concessions, such as members of the Organization of Petroleum Exporting Countries (OPEC).¹⁸

II. Orthodox Policy Responses

The IMF and World Bank have together imposed a particularly destructive kind of adjustment on countries experiencing severe balance of payments difficulties. In exchange for IMF and World Bank assistance, deficit countries are expected to adopt and implement a Structural Adjustment Program (SAP).¹⁹ Typically a deficit country must agree to a strict diet of "fiscal discipline" which will entail severe cuts in government spending,²⁰ 20 increases in taxes, and user fees for health care and education.²¹

Monetary policy is also skewed by the IMF's Structural Adjustment Program. The central bank of a country experiencing acute payments problems will often raise interest rates in an attempt to appease foreign hot money capital.²² But the rise in interest rates will only add to the country's mounting debt burdens.²³ In addition, Structural Adjustment usually requires the deficit country to privatize state-owned industries by selling state assets at fire sale auction prices (often to insiders and foreign cronies),²⁴ to further liberalize capital accounts,²⁵ and to devalue its currency to make it more expensive to import goods from abroad.

The sharply devalued currency, along with the fiscal and monetary austerity, will quickly translate into a sharply declining standard of living for much of the population.²⁶ It is troubling that for much of the past decade Argentina was being hailed by the IMF as the model of fiscal and financial rectitude.²⁷ Its sudden fall from grace should instill some humility, introspection and soul-searching among those who are still pushing the same Structural Adjustment line, but sadly that does not seem to be the case.²⁸ Unquestioning adherence to Ricardian theory by today's neoclassical orthodoxy results in flawed and dangerous policies. It permits policymakers to simplistically blame the victims -- often the deficit countries -- while absolving surplus countries from any responsibility. This adherence to outdated theories and assumptions has become an ideological straight-jacket, confining the policy and imagination of monetary authorities around the world, particularly at the IMF, which has become one of the bunkers of orthodox thinking in monetary affairs.

Argentina followed the orthodoxy all too well and for far too long. For the past decade, its commitment to low inflation was above reproach. Monetary austerity was taken to an extreme as the country tied its currency, the peso, to the U.S. dollar.²⁹ During much of the same period, Argentina maintained impressive fiscal discipline,³⁰ liberalized its capital accounts to hot money inflows and outflows, and permitted foreign investors to purchase its banking industry.³¹ The latter two policies - capital account liberalization and the sell-off of its banking sector - would later come home to roost.³¹

While the U.S. dollar may be able to remain overvalued indefinitely (perversely attracting foreign capital inflows to dollar-denominated investments),³³ the overvalued Argentinian peso could not remain at such heights. Yet Argentina continued the strong-peso policy by maintaining a stringent monetary policy and linking the peso to the dollar. Unfortunately, the failure of Argentina's convertibility board has led many orthodox economists, including some at the IMF, to favor the false allure of "dollarization."³⁴ But dollarization necessarily means surrendering monetary sovereignty, becoming dependent on Federal Reserve policy without any voice or vote in Federal Reserve decision-making, and could leave a country trapped with an overvalued exchange rate and deepening recession.³⁵ In addition, surrender of one's currency would also entail giving up all of the benefits of seigniorage (the revenue that governments derive from the issuance of coin and currency).³⁶ At the very least, one would expect that a country that replaces its currency with the dollar would demand compensation in the form of a considerable subsidy from the U.S. to make up for the transfer of seigniorage benefits to the U.S.³⁷ Monetary integration in Europe has actually been preceded by significant transfers of capital in the form of the European Union (EU) regional aid program by which some $180 billion (around 35 percent of the EU's budget) will subsidize the EU's poorer regions over the present five year period ending in 2006 -- a veritable on-going Marshall Plan within the EU.³⁸ It is telling that neither the North American Free Trade Agreement (NAFTA) nor the proposed Free Trade Area of the Americas (FTAA) include any similar plans for regional aid transfers to assist poorer countries and regions to meet minimum regulatory and living standards.

The particular exchange rate model (i.e., the convertibility board) enforced by Argentina for much of the past decade meant that inflation would be maintained at low levels and at all costs, even at the cost of a growing "passive deficit." The stringent monetary policy and high interest rates required to maintain low inflation resulted in unemployed resources and declining tax revenues.³⁹ The U.S. is faced with the same phenomenon. The U.S. economic recession which started in 2001 has already resulted in a steep decline in federal tax revenues, as much as $70 billion lower than expected, thereby doubling the projected federal budget deficit to more than $140 billion.⁴⁰ Unlike other deficit countries (such as Argentina and Brazil), the U.S. is not pressured to drastically cut its government spending or privatize state-owned enterprises or assets.⁴¹ The U.S. evades such "discipline" for reasons that are unique to the dollar,⁴² but the important point is how ineffective it is to try to reduce a passive deficit by cutting government spending. The spending reductions may only intensify the economic slowdown, thereby contributing to further fall-offs in tax revenues and, perversely, a rise in the level of deficits in the future.

In the recent case of Argentina, the dynamic of a growing passive deficit along with severe monetary austerity was compounded by the peso's link to the dollar which led to an overvalued currency, and hence growing current account and trade deficits, the very conditions which will eventually lead to a currency crisis. Finally, the high interest rates greatly exacerbated the country's dependence on foreign capital by increasing debt service costs dramatically. For instance, a study by the Center for Economic and Policy Research bears this out. From 1993 to 2000, Argentina's primary government spending was essentially flat while interest payments on the government's debt tripled from $2.9 billion to $9.7 billion.⁴³ The study dismisses the idea that there was any overspending by provincial governments that brought on the crisis, and underplays the great increase in the private sector's rising debt burden.⁴⁴ Joseph Stiglitz, former chief economist of the World Bank, has concurred in this judgment. According to Stiglitz, Argentina's debt to gross domestic product (GDP) ratio remained moderate, at about 45 percent: "But with 20 percent interest rates, 9 percent of the country's GDP would be spent annually on financing its debt. The government pursued fiscal austerity, but not enough to make up for the vagaries of the market."⁴⁵ The IMF's obsession with "fiscal discipline" is particularly destructive and it rests on the assumption that government spending creates debt, while business spending creates wealth. This myth is reflected in the failure of the U.S. federal budget to distinguish between operating expenditures and long-term investment (which adds to the public capital stock).⁴⁶ Capital budgeting would provide a more accurate picture of public sector spending and borrowing, thereby enabling policymakers to reach better economic decisions.⁴⁷ Likewise, Brazilian President Fernando Henrique Cardoso, speaking at the recent 43rd annual meeting of the Inter-American Development Bank, criticized the IMF 's accounting rules for developing nations, claiming they were more stringent than accounting rules used by the IMF in Europe.⁴⁸ The orthodox demand for fiscal discipline completely ignores all the varied ways that public spending contributes to private sector growth, such as the technological spinoffs that are exploited by (and "crowd in") private investment.

After a country's currency comes under speculative attack, the IMF's downward adjustment model will seal the fates of many. While Structural Adjustment policies will eventually reduce current account and trade deficits in the aggregate, the cost to the social fabric is enormous. In Argentina, mass unemployment (of more than 20 percent), food riots and massive strikes by unpaid public workers (including emergency room doctors) brought down two governments in a week.

The great British economist John Maynard Keynes, an opponent of the laissez faire do-nothing policy of his day, once wrote that "in the long run, we're all dead."⁴⁹ Today, we should entertain a corollary to Keynes's dictum, that "in the aggregate, we're alright. But in the disaggregate, many of us are not." While the Structural Adjustment model may restore a country's trade balance (in the aggregate) and may permit a resumption of income and economic growth (in the aggregate), the distribution of the growth is by necessity, if not design, a top-heavy one in which the elites reap the lion's share of the pie.

The World Bank's own statistics show that Structural Adjustment has had little impact in improving people's lives around the world: of the 4.7 billion people who live in the 100 countries that are World Bank and IMF clients 3 billion live on less than $2 a day and 1.2 billion on less than $1 a day; nearly 3 million children in developing countries die each year from vaccine-preventable diseases; 113 million children are not in school; and 1.5 billion do not have clean water to drink.⁵⁰ For many people around the world, the legacy of the orthodox policy response practiced and preached by the IMF is a legacy of dismal failure. The pain of sudden ruin and mass unemployment has contributed to dramatic escalations in street crime, ethnic violence, and political instability on a global scale.⁵¹

III. Alternative Policy Directions

The failure of orthodox policy to foster conditions of sustainable economic development suggests an urgent need for policy reform. Such policy reforms may require far less legal reform than many of the IMF's critics would assume.

The IMF Articles of Agreement (negotiated as part of the Bretton Woods Agreement of 1944) already provides many of the policy tools to reverse direction from the Structural Adjustment model to a more progressive path. Article VI of the IMF Articles of Agreement permits member nations to implement controls on capital flows. Such controls could take the form of regulatory or reserve requirements on inflows or outflows, or a turnover tax on foreign exchange transactions (the so-called Tobin tax).⁵²

At Bretton Woods, Keynes articulated the perspective of deficit countries (the position of Great Britain coming out of the Second World War). Keynes envisioned a system of cooperative capital controls: "Not merely as a feature of the transition, but as a permanent arrangement, the plan accords to every member Government the explicit right to control all capital movements."⁵³ It is clear that Article VI was designed to protect deficit countries from the vagaries and destabilizing fluctuations of speculative hot money capital flows. All of this has been greatly undermined by the dismantling of national controls on capital movements, a trend encouraged by the IMF's program on capital account liberalization, as part of the IMF's loan conditionality and Structural Adjustment model, and the bilateral and multilateral efforts of the U.S. government.⁵⁴

Another existing policy tool is Article VII of the IMF Articles of Agreement, the so-called "scarce currency clause" which explicitly permits the IMF to identify a chronic surplus country, declare its currency as scarce, and allow the rest of the world to discriminate against that country's imports in their exchange transactions.⁵⁵ This would provide a powerful incentive for surplus countries to accept their share of the adjustment burdens by recycling their surplus of reserves, either by foreign aid or by granting trade preferences. Unfortunately, the scarce currency clause has never been invoked and the IMF has taken a highly asymmetrical approach to adjustment by placing the major burdens on deficit countries.⁵⁶

U.S. policy at the time of the Bretton Woods Agreement in the mid-1940's could be said to have contemplated the possibility of mini-New Deals around the globe, policies designed to promote full employment and social welfare.⁵⁷ If deficit countries were free to restrict flows of private speculative capital, and if surplus countries were willing to recycle their surpluses through foreign aid and granting trade preferences, then the adjustment process need not be one in which all of the burdens would fall on deficit countries. Each country could pursue full employment policies, behind the protection of capital controls⁵⁸ and with a little help from their friends (including foreign aid from surplus countries).

As the world's largest surplus country in the aftermath of the Second World War, the U.S. recognized its enlightened self-interest by assuming its share of the adjustment burden and recycling its surplus. It restored economic growth to Western Europe and supported domestic aggregate demand through a range of progressive policies, including the Marshall Plan and the GI Bill of Rights. Under the Marshall Plan, from 1947 to 1951 the U.S. gave (as grants, not loans) nearly $13 billion to West European countries, including its former enemies.⁵⁹ The impact was immediate as economic growth increased by nearly 40 percent in Marshall Plan countries in only four years.⁶⁰ The U.S. contribution to the reconstruction, as well as to the social and political stability of Western Europe cannot be underestimated.⁶¹

Today the U.S. is the biggest deficit country in the world, with an annual trade deficit of nearly $400 billion in 2000. But instead of acting like a deficit country (or like an enlightened surplus country), it acts like a big, selfish surplus country. The U.S. expects other deficit countries to adjust downward with Structural Adjustment policies, even while evading such austerity measures for itself.

The present rules of adjustment, with all of the burdens on deficit countries, simply have not applied to the U.S. The dollar, after all, is the reserve currency and the transactional currency of the world. Every central bank wants dollars in reserve. Every country wants dollars for transactional purposes (for instance, to purchase oil from OPEC countries). The dollar is also the safe haven in any political storm, and the times we live in now seem like an endless storm. Refugee capital continues to flow to the U.S. regardless of the size of U.S. trade and current account deficits or other so-called objective indicators of economic performance.⁶²

The U.S. is a special case: it is a deficit country -- the largest in absolute terms in world history -- with none of the burdens imposed upon all other deficit countries. Official U.S. policy, regardless of which party is running the Treasury, is to demand that all of the burdens of adjustment remain on all other deficit countries. Those Structural Adjustment burdens have already been described: fiscal and monetary austerity, privatization, financial liberalization, central bank autonomy. One could hardly design a better menu of policies to ensure social insecurity on a mass scale - to ensure that there will be no New Deals under any circumstances anywhere in the world.

Yet we only need look at the successes in our history to find a path for the future. Much of the legal architecture already exists for a reformed global order, one with a more equitable allocation of the adjustment burdens. There is nothing preventing surplus and wealthy countries from recycling their monetary reserves to deficit countries - nothing but a lack of will and vision.⁶³ As the Marshall Plan history demonstrates, such a recycling of wealth would serve the long-term political and foreign policy interests of the U.S. and other relatively rich countries, as well as their more immediate short-term economic interests by providing markets for their goods and sustaining demand in their economies.⁶⁴

IV. Conclusion

Today's policymakers are trapped in an ideological straight-jacket: the IMF's orthodox model of downward Structural Adjustment for deficit countries. The mismanagement of monetary and exchange rate policy that is now being played out on a global scale raises enormous costs and challenges: widening inequalities in wealth and income, rising insecurity in an increasingly unpredictable and dangerous world, and political fragmentation. These three trends (rising inequality, rising insecurity, and political fragmentation) are interrelated.

There is growing inequality between North and South, but also growing inequality within both North and South.⁶⁵ As suggested above, the IMF's export-driven growth models may result in rising output in the aggregate, but the distribution of the increased income is far from equitable. Even within the U.S., many Americans have paid a heavy price for the intensified race-to-the-bottom competition, the soaring dollar, and the enormous U.S. trade deficit. Throughout the world, the widening gulf between the super-rich, the middle and working classes, and the poor now poses a clear and present danger to our national and global security interests.

These security concerns have not gone unnoticed by the IMF which has been quick to assist Turkey, a so-called front-line state in the U.S. war against Al Qaeda and other terrorist networks.⁶⁶ Argentina, on the other hand, has the misfortune of being geographically far removed from Afghanistan and Iraq, making it far easier for the IMF to ignore its urgent needs for financial assistance.⁶⁷ Meanwhile, President Bush, in calling for an expanded U.S. role in rebuilding the physical, social, and political infrastructure of Afghanistan, compared his proposal to the Marshall Plan.⁶⁸

While the Bush administration proposal for a new Marshall Plan is limited to one country, the events of the past year, in Afghanistan and on September 11th, demonstrate the dangers of waiting until a country's social and political systems have completely broken down and become prey to terrorist forces. While the U.S. is now faced with choices between bad and worse in the Middle East and Central Asia, in other parts of the world it is not too soon to provide Marshall Plan-type assistance.⁶⁹

The international financial system is also threatening international trade, as well as the future prospects for trade liberalization and regional integration. For instance, the soaring U.S. dollar has priced many U.S. industries out of world markets, and sometimes even out of the U.S. market. Steel is a recent case in point. Foreign steel producers have certainly enjoyed a growing price advantage over U.S. steelmakers because of their declining currency values. The Bush agenda for fast-track trade negotiating authority for FTAA has bumped up against the political reality of discontent in steel country, among both steel workers and steel companies. Apparently in exchange for votes on fast-track (now called "Trade Promotion Authority"), the Bush administration had to promise and deliver tariffs on foreign steel imports.⁷⁰

This U.S. trade protectionism on steel brought quick retaliation from the European Union.⁷¹ Along with the crisis in Argentina, the U.S. steel tariffs, have led to harsh criticism of free trade throughout Latin America, and particularly from the Brazilian government, which is now seen as far less supportive of the FTAA project.⁷²

With so many visible signs of the flaws in the present model -- recurring currency crises, rising levels of poverty, national and global insecurity, political fragmentation, and threats to trade liberalization and regional integration -- some officials have finally appreciated the ideological straight-jacket that confines their policy options. But while the critique of today's dominant orthodox model is being articulated, the bigger question is whether it is being heard in the halls of power. For instance, Joseph Stiglitz, when he was chief economist of the World Bank, was an unrelenting critic of the IMF's Structural Adjustment model. But Stiglitz was forced from office because he persisted in making his views public.⁷³ The fact that Stiglitz was awarded the Nobel Prize in Economics a year later should not go unnoticed.⁷⁴

Likewise, Stanley Fischer, on the eve of his retirement as the IMF's deputy managing director, admitted that the rules of global finance are in need of reform to "reduce volatility in capital flows to emerging markets" by changing the international rules guiding the flow of capital.⁷⁵ It may be significant that Fischer waited until he was nearly out the door to speak so candidly.⁷⁶ No doubt there are many others within the IMF and World Bank, including mid-level officials, who have concluded that they must tread lightly with their dissenting views.

More recently, Fischer's replacement, Anne Krueger, proposed an international judicial panel to allow bankrupt governments to restructure their debts without being sued by private creditors.⁷⁷ Less than a day later John Taylor, the undersecretary of Treasury for international affairs, "shot down" Krueger's proposal -- an embarrassingly swift and public rejection.⁷⁸

The cracks in the orthodox consensus are even beginning to show at the top. Last summer, President Bush has called for the World Bank to replace half of its loans with grants to the world's poorest countries. Likewise, U.S. Treasury Secretary Paul O'Neill has criticized the World Bank for driving poor countries "into a ditch" by lending instead of donating funds to fight poverty.79 But this Bush administration proposal has met with the strong opposition of the World Bank and leading European countries.⁸⁰

We wait as policymakers try to extricate themselves from their ideological straight-jackets. With each effort, the straight-jacket seems to tighten further, and we all grow more restless. It is like watching a person try to find his way out of a room in the pitch-black darkness. He stumbles over furniture and other objects while searching for the door. But whenever someone lights a candle, he quickly blows it out and warns, "You might start a fire."⁸¹ These orthodox officials, always fleeing the untried, do not deserve our scorn or need our pity, but they do need persuading that it is time to put their theories aside and look at the world with newer eyes.⁸² Free and open debate is needed to help extricate them from their self-imposed confinements. This is no small feat in a time of social fragmentation and political polarization. War sometimes makes opposition to even outworn orthodoxies seem too dangerous to contemplate, even as it makes the overturning of such sacred cows more urgent.⁸³ Among the most pressing challenges facing this generation is the opening of discourse about our failing doctrines and conventions within such institutions as the IMF and World Bank, and in our larger political culture and everyday lives.

Endnotes

1. With 17.49 percent of Special Drawing Rights allocation, the United States has 17.16 percent of the voting power in the International Monetary Fund. See "IMF Members' Quotas and Voting Power, and IMF Governors," from International Monetary Fund website, April 5, 2002. Since all major decisions or changes to the IMF structure require "an 85 percent majority of the total voting power", the U.S. has an effective veto in the IMF. See Articles of Agreement of the International Monetary Fund, Dec. 27, 1945, 60 Stat. 1401, 2 U.N.T.S. 39, Art. IV, sec. 2 (veto power over general exchange arrangements), Art. IV, sec. 4 (veto power over changes in par values), Art. XV., sec. 2 (veto power over valuation of Special Drawing Rights), Art. XVIII, sec. 4 (veto power over decisions on allocations and cancellations of Special Drawing Rights). See also, Richard Gerster, "Proposals for Voting Reform within the International Monetary Fund," 17 J.World Trade L. 121-136 (1993).

2. David Ricardo, On The Principles of Political Economy and Taxation (London: John Murray, Albemarle-Street,1817; 3rd edition 1821).

3. Every country should enjoy a comparative advantage in producing certain goods. For instance, gold from South Africa, coffee from Colombia, autos from Japan and Germany, and from the U.S. during the period from the 1940's to about the 1970's, manufactured goods, and now high technology products and services. Sweden should not try to produce cotton, and Haiti would not try to produce steel. Whether a country can significantly change its comparative advantages through import substitution and industrial policies remains an open question.

4. William J. Baumol & Alan S. Binder, Economics: Principles and Policy (7th ed., Harcourt Brace, 1998) at 801.

5. Id., at 832-33 (likewise, a country with a trade and current account surplus would require an appreciation in its currency to return to trade balance). 6. Timothy A. Canova, Banking and Financial Reform at the Crossroads of the Neoliberal Contagion, 14 AMERICAN UNIVERSITY INTERNATIONAL LAW REVIEW 1571, 1640 (1999). 7. Id., at 1594-95, 1604.

8. Jennifer L. Rich, "Argentine Peso Sinks to New Lows as Crisis Continues," N.Y. Times, Jan. 17, 2002 (reporting that Argentine central bank was selling dollars and buying back its own currency in a futile attempt to stabilize the peso, which had lost nearly half its value in four days).

9. Henri E. Cauvin, "What's Eroding South Africa's Currency?", N.Y. Times, Dec. 12, 2001, W1.

10. Clifford Krauss, "Argentine Economy: Postponing the Inevitable," N.Y. Times, Dec. 4, 2001, A10.

11. See The History of Economic Thought Website hosted by the Department of Economics of the New School for Social Research. Ricardo apparently believed that capital immobility was a good characteristic. In her forthcoming casebook on Law and Socioeconomics, Professor Lynn Dallas (University of San Diego School of Law) points out: "For Ricardo it is the force of community that keeps capital at home even in the face of higher profits abroad. Furthermore he affirms that he would be sorry to see these feelings of community weakened. Perhaps he already suspected that they would be weakened by the individualistic postulates of classical economics and its faith in the invisible hand's ability to transform private vice into public virtue." Manuscript of Chapter on Globalization on file with author.

12. Canova, Banking and Financial Reform, supra note 6, at 1610-13 (on IMF programs on capital account liberalization), and 1616-18 (on the U.S. Bilateral Investment Treaty program to promote liberalization of capital flows).

13. Dallas, supra note 11. Professor Dallas also points out that the total volume of international trade in goods was about $5 trillion a year by the mid-1990's. That much value now changes hands in the foreign exchange markets each week.

14. See notes 50 and 65 infra and accompanying text. Kevin Phillips, The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath (1990) at 95, 165, 241); Judith Miller, "Globalization Widens Rich-Poor Gap, U.N. Report Says," N.Y. Times, July 13, 1999, at A8; Richard W. Stevenson,"Income Gap Widens Between Rich and Poor in 5 States and Narrows in 1," N.Y. Times, April 24, 2002, A20 ("there is less and less debate between left and right about whether the phenomenon [of growing income inequality] exists, although there remain vigorous differences of opinion about how to respond");

15. Ralph H. Folsom, Michael Gordon, & John A. Spanogle, International Business Transactions (4th ed., West Group, 1999), at 767.

16. According to Lynn Turgeon, members of the Organization of Petroleum Exporting Countries (OPEC) "retaliated for the sudden deterioration in their terms of trade" that resulted from President Nixon's sudden devaluation of the dollar in the early 1970's. Lynn Turgeon, The Search For Economics as a Science (1996) at x. For an institutionalist critique of free market assumptions, see John Kenneth Galbraith, The New Industrial State (1967).

17. Notable examples of countries in weak positions to bargain with multinational corporations seeking concessions to their natural resources would include Peru (minerals) and Liberia (lumber). Weak bargaining positions may undermine market transactions and reinforce corruption. For instance, in January 2001, the Liberian legislature approved the Strategic Commodities Act, effectively giving its president and strongman, Charles Taylor, exclusive rights over all of Liberia's natural resources. See, Hakeem Jimo, Tidiane Sy and Dame Wade, "West and West-Central Africa", in Global Corruption Report 2001, Regional Reports (.pdf) (Transparency International, ed. Robin Hodess), at 81, 83. The Hong Kong-based Oriental Timber Company (OTC) has been clear-cutting millions of acres of Africa's most virgin forests for enormous profits. Through Robert Taylor, the president's brother who heads Liberia's Forestry Development Authority, OTC had obtained its concession to harvest Liberia's forest. It has been reported that OTC paid the Taylor family millions of dollars for the concession. Douglas Farah, "Liberia's Diverted Dreams," Wash. Post, Jan. 31, 2001, A01.

18. Libya's nationalization of its oil concessions (following the coup that brought Muammar Qaddafi to power in the early 1970's) presents a classic shift in bargaining power and the terms of trade. While Britain and the U.S. attempted to organize a boycott of Libya's nationalized oil, market dynamics undermined the boycott. Qaddafi was able to find alternative buyers in Eastern Europe. In addition, much of the losses were concentrated in one company, Occidental Petroleum. When other Western oil companies refused to share Occidental's burdens, its chairman Armand Hammer decided to ignore the boycott and renegotiate with Libya. Daniel Yergin, The Prize : The Epic Quest for Oil, Money, and Power (1993), at 574-592; Stephen R. Shalom, The United States and Libya (1993).

19. IMF assistance is usually tied to the adoption of a Structural Adjustment Program (often through so-called Letters of Intent) in a process that is known as "loan conditionality" (i.e., IMF loans are conditioned upon the Structural Adjustment policies). Richard Gerster, "The IMF and Basic Needs Conditionality," 16 J. World Trade L. 497 (1982); "IMF Board Discusses Modalities of Conditionality," IMF Public Information Notice No. 02/26, March 8, 2002. See also, Warren Nyamugasira and Rick Rowden, New Strategies; Old Loan Conditionalities (RESULTS Education Fund, Washington, D.C., April 2002) (criticizing new IMF and World Bank Poverty Reduction Strategies).

20. Larry Rohter, "Argentine Government Says It Can't Pay Its Workers," N.Y. Times, Feb. 26, 2002, W1.

21. Last year the U.S. Treasury Department failed to comply with legislation requiring the U.S. to oppose any IMF or World Bank loan requiring user fees for primary healthcare or education. Such user fees have led to declining school enrollments and decreased access to health care in many poor countries in Africa and elsewhere. Treasury also ignored the law by failing to report to Congress within ten days of the World Bank's approval of a particular loan to Tanzania that included user fees on health care. For more on Treasury's failure to comply with a clear Congressional mandate, see Robert Naiman, "Is U.S. Treasury Above the Law?", Center for Economic and Policy Research, Washington, D.C., June 7, 2001. See also, David Leonhardt, "World Bank Aims to Help Poor Receive Elementary Education," N.Y. Times, April 22, 2002, A2 (reporting that the World Bank, in response to its critics, now plans to reward poor nations, including Tanzania, that make progress on elementary education).

22. See, Timothy A. Canova, Financial Liberalization, International Monetary Dis/Order, and the Neoliberal State, 15 AMERICAN UNIVERSITY INTERNATIONAL LAW REVIEW 1279, 1294 (2000).

23. For instance, higher interest rates greatly compounded Argentina's debt burden. See notes 39-41 infra and accompanying text.

24.Joseph Stiglitz, "The Insider: What I learned at the world economic crisis," The New Republic, April 17, 2000.

25. Dominant narratives have a way of reinforcing the orthodox model. Canova, Banking and Financial Reform, supra note 6, at 1586-1595 (discussing how dominant neoliberal discourses are used to justify NAFTA's financial liberalization provisions). Labor law "protections" are characterized as "restrictions." But restrictive of what and of whom? While they are obviously restrictive of the ability of owners and management to fire employees, they do not restrict the capabilities of workers, but rather may permit workers to live free from the fear of unjust termination.

For instance, Italy recently reached a political impasse over a reform proposal that would eliminate rules requiring employers to take back workers found to have been fired for "unjust causes." Employers argue that those rules hamper their ability to get rid of unneeded workers. Under the proposed reform, employers would have to pay workers compensation but not take them back. The government insists the reforms are necessary to make the Italian economy more competitive and attract foreign investment, while the unions say the reforms will cost dearly in hard-won job security, widen the gap between rich and poor and undermine Italy's social stability. See, "Nationwide Strike Hobbles Italy," Los Angeles Times, April 17, 2002, p. A4 (reporting massive Italian strike, organized by the country's top three unions, in response to conservative Prime Minister Silvio Berlusconi's vow to reform Italian labor laws, "some of the most restrictive in Europe").

Compare such discourses about "restrictive" labor laws with laws that "protect" capital by permitting the free flow of capital, i.e., restrictive governments from impeding the flow of hot money capital. Such laws are not considered restrictive but "liberal", hence the term "capital account liberalization." But while they liberate the owners of capital, they effectively "restrict" the ability of sovereign governments to provide full employment and social security to their citizens.

26. Argentina's collapsing currency has apparently resulted in some perverse incentives for policymakers. With so many people now unemployed and so many businesses failing, tax revenues are disappearing. Meanwhile, the weak peso has given Argentine exporters a sudden price advantage, thereby encouraging the government to try to raise revenue by taxing exports. Larry Rohter, "Hard-Pressed Argentina to Tax All Exports," N.Y. Times, March 5, 2002., A3.

27. Thomas Catan & Mark Mulligan, "End of era for IMF's star pupil," Financial Times, Jan. 5-6, 2002, p. 4; David Felix, "Is Argentina the Coup de Grace of the IMF's Flawed Policy Mission?," Foreign Policy in Focus, Policy Report (Nov. 2001).. Martin Wolf, "Time for Plan B in Argentina," Financial Times, Oct. 31, 2001, p. 21 (reporting that Ricardo Hausmann, chief economist at the Inter-American Development Bank, suddenly shifted his position from strong support for Argentina's hard currency peg, or even dollarization, to a floating peso).

28. Alistair Scrutton, "Argentine Protests Spread Over IMF Budget Demands," Reuters, April 17, 2002 (reporting that Horst Koehler, the IMF's Deputy Director, is heralding a new get-tough attitude with Argentina, saying that "the IMF is not asking for the impossible" and that the provinces and government must "face reality" and cut jobs).

29. Under Domingo Cavallo, the economy minister under former President Carlos Menem, Argentina adopted a convertibility law according to which each peso in circulation was required to be backed by a dollar in reserve. "Any Argentine who wished to trade in a peso would be given a dollar by the state-owned bank." Catan & Mulligan, supra note 27. On Cavallo's sudden fall, see Larry Rohter, "Former Economic Chief Is Indicted in Argentina," N.Y. Times, April 11, 2002, A10.

30. Jane Bussey, "The debt did it: Argentina's economic crisis is a result of huge interest payments, not runaway spending, a study says," Miami Herald, March 24, 2002 (citing study by the Center for Economic and Policy Research showing that Argentina's primary government spending was essentially flat from 1993 to 2000 while its interest payments on government debt rose threefold).

31. Joseph Stiglitz, "Lessons from Argentina's debacle," Straits Times (Singapore), Jan. 10, 2002.

32. As Stiglitz points out: "Growth requires financial institutions that lend to domestic firms. Selling banks to foreign owners, without appropriate safeguard, may impede growth and stability." Id.

33. See note 37 and 62 infra and accompanying text.

34. "Saving Argentina," Financial Times, Jan. 3, 2002, p. 16.

35. Thomas Catan and Richard Lapper, "Argentina in Crisis: Demonstrations shake gates of presidential power," Financial Times, Dec. 21, 2001, p. 10.

36. While the concept of seigniorage originated in the days when precious metals comprised the monetary base, the government is able to derive similar benefits in today's economy in which fiat money comprises the monetary base through the role of the central bank's open market operations when it exchanges Federal Reserve notes for interest-bearing Treasury securities. William F. Hummel, "Money: What it is, How it works."

37. Even without dollarization, the U.S. has benefitted from the dominant position of the dollar in the global economy. See, Robert Guttman, How Credit Money Shapes the Economy: The United States in a Global System (1994) at 31, 114-15 (describing how seigniorage benefits freed the U.S. economy from any external constraint: "With its own currency having a monopoly status as world money, it was the only country whose capacity to run external deficits was not restricted by its available foreign-exchange reserves. We could therefore run much more stimulative policies and escape recessionary policy adjustments much longer than would otherwise have been possible.").

38. "What's ours is ours," The Economist, May 26, 2001.

39. Tax revenues in Argentina have collapsed. According to Argentine President Eduardo Duhalde: "The crisis affects the entire country and above all the public sector. It isn't that a lot is being spent in the provinces, but because people have stopped paying taxes as a result of the crisis." Larry Rohter, "Bank Holiday and Creditors Add to Crisis In Argentina," N.Y. Times, April 22, 2002, A3.

40. Richard W. Stevenson, "Tax Revenues Lag, Threatening to Double Deficit," N.Y. Times, April 26, 2002, A1.

41. It seems impossible to even imagine comparable demands being made on the U.S. political system, to forego spending on defense, homeland security, or health and education programs, to sell-off public lands (national parks and nature preserves to mining or oil companies), or to privatize the National Aeronautics and Space Administration (NASA) or national laboratories such as the Sandia or Los Alamos National Laboratories here in New Mexico. Such spending cuts and privatizations would surely undermine technological development, spinoffs to the private sector, as well as economic growth and other national objectives such as social stability and national security.

42. See notes 37 and 62 infra and accompanying text.

43. Bussey, supra note 30.

44. Id.

45. Stiglitz, supra note 31 (reporting that Argentina's government spending was far below Japan's as a percentage of GDP).

46. Conversely, private institutions such as corporations, are permitted to depreciate their long-term investments over a period of time, a practice which recognizes that such spending adds to wealth. A number of prominent U.S. economists have proposed that the federal government adopt a formal capital budget which identifies its investment spending, as do businesses and other governments. According to Robert Heilbroner, "such an accounting method would reassure the anxious public that at least an identifiable part of the 'deficit' represents borrowing for purposes that most would approve. Since there is [presently] no such accounting system, all public borrowing is deemed to be the work of the devil - when, properly understood, it may be crucial to the future strength and vitality of the nation." Robert Heilbroner, "Why Fear Debt?", N.Y. Times, Feb. 28, 1995, p. A23. See also, John Kenneth Galbraith, The Affluent Society (1976) (comparing public squalor with private affluence, and criticizing the strong bias against providing adequate resources to the public sector).

47. See also, Robert Eisner, The Great Deficit Scares: The Federal Budget, Trade, and Social Security (1997). Eisner, a former president of the American Economic Association, in testimony on April 24, 1988 to the President's Commission to Study Capital, argued that the Federal budget, unlike private income statements, does not contain separate accounts for capital transactions. He suggested an alternative model for public sector accounting for capital assets - the National Income and Product Accounts (NIPA) developed by the Bureau of Economic Analysis (BEA), which propose separate capital accounts for Federal, State, and local governments, and a breakdown of gross domestic product to include totals designated for government consumption, expenditures and gross investment.

48. "Brazil Leader Lashes Out at IMF," Associated Press report, March 11, 2002.

49. John Maynard Keynes, A Tract on Monetary Reform (1924). Keynes was conceding that in the long run an increase in the money supply could result in higher prices. (But he argued that "In actual experience, a change in [the money stock] is liable to have a reaction both on [the velocity of money] and on [the real volume of transactions]," hence an effective strategy for promoting economic growth.) In his now famous passage, Keynes wrote, "But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." Id.

50. These statistics are from the World Bank's official web site (updated October 2001). See also notes 14 and 65 infra and accompanying text.

51. Timothy A. Canova, Global Finance and the International Monetary Fund's Neoliberal Agenda: The Threat to the Employment, Ethnic Identity, and Cultural Pluralism of Latina/o Communities, 33 U.C. DAVIS LAW REVIEW 1547, 1559-66 (2000).

52. For a fuller explication of the range of possible controls on hot money capital flows, see my article, Banking and Financial Reform, supra note 6, at 1622-33 (including discussion of the Tobin Tax proposal by Nobel-laureate James Tobin to tax foreign exchange transactions). The Tobin tax can trace its heritage from Keynes. "The introduction of a substantial Government transfer tax on all [financial] transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise." John Maynard Keynes, The General Theory of Employment, Interest, and Money 159-60 (1964 ed.).

53. Quoted in Linda McQuaig, The Cult of Impotence: Selling the Myth of Powerlessness in the Global Economy (1998) at 224. Keynes also articulated a vision of globalization that was consistent with import substitution, full employment, liberal democracy and social welfare, where private ownership could flourish, but tempered by the needs of community: "Ideas, knowledge, art, hospitality, travel - these are the things which should of their nature be international. But let goods be homespun whenever it is reasonable and conveniently possible; and above all, let finance be primarily national." John Maynard Keynes, National Self-Sufficiency, in The Collected Writings of John Maynard Keynes 233, 236 (D. Moggridge ed., 1982).

54. Canova, Banking and Financial Reform, supra note 6, at 1612-18.

55. See Articles of Agreement of the International Monetary Fund, Dec. 27, 1945, 60 Stat. 1401, 2 U.N.T.S. 39, Art. VII, sec. 3(a), (b).

56. Francis Stewart, Back to Keynesianism: Reforming the IMF, IV World Policy Journal 465, 472 (1987); Roy F. Harrod, The Dollar (1954) at 110.

57. By "mini-New Deals," I refer to the prospect of a full-employment capitalistic economy supported on a foundation of a thriving public sector. Andrew Shonfield, Modern Capitalism: The Changing Balance of Public and Private Power (1965) (analyzing the significance of increasing public power and active government in modern capitalist society to avoid violent swings from boom to slump, assure steady economic growth and social welfare); John Kenneth Galbraith, Economics and the Public Purpose (1973) (presenting alternative economic model and suggestions for reform to expand useof public resources to serve public rather than private interests). 58. For most West European countries capital controls remained in place throughout most of the 1950's, and for some countries until the early 1990's. Margaret Garristsen de Vries, Balance of Payments Adjustment, 1945 to 1986: The IMF Experience (1987), at 30-32; Michael Mussa & Morris Goldstein, Symposium, The Integration of World Capital Markets, in Changing Capital Markets: The Implications for Monetary Policy (Fed. Reserve Bank of Kan.City, 1993), at 252. Restrictions on hot money capital flows meant that these countries could recover economically and pursue full employment in an environment of low interest rates without fear of speculative attacks on their currencies. Fred L. Block, The Origins of International Economic Disorder (1977) at 109. In the U.S. such low interest rates were maintained during the 1941-1951 pegged period, during which the Federal Reserve purchased government securities at whatever price was necessary to keep benchmark interest rates pegged at 3/8ths of 1 percent on 90-day maturities to a maximum of 2.5 percent on 25-year Treasury bonds. Timothy A. Canova, The Transformation of U.S. Banking and Finance: From Regulated Competition to Free Market Receivership, 60 BROOKLYN LAW REVIEW 1295, 1300 (1995).

59. The $13 billion given away by the U.S. in Marshall Plan aid is estimated to be about $88 billion in today's terms. "That sum surpasses the amount of economic, food, and military assistance the United States provided in the four year period 1993-96 ($62 billion)." Curt Tarnoff, "The Marshall Plan: Design, Accomplishments and Relevance to the Present," in The Marshall Plan From Those Who Made It Succeed (1999), at 349, 379. The Marshall Plan constituted about 13 percent of the U.S. budget in 1948. That would be $203 billion in fiscal year 1996. For the U.S. to be willing to expend such a large percentage of its budget on any one program, "Congress and the President would have to agree that the activity was a major national priority." Id. Others have estimated that the size of the Marshall Plan would be much higher, more than $150 billion, in today's dollars. Paul Davidson, "Reforming the World's Money," 15 J. Post-Keynesian Econ. 153, 156 (1993); Canova, Banking and Financial Reform, supra note 6, at 1638.

60. Canova, Banking and Financial Reform, supra note 6, at 1639. It is ironic that some of the same West Europe countries that benefitted the most from Marshall Plan assistance are now opposing the Bush administration's proposal to replace up to half of the World Bank's loans with grants to the world's poorest countries. Alan Beattie & Richard Wolffe, "Bush seeks overhaul of World Bank loans policy," Financial Times, July 18, 2001, p. 10.

61. The GI Bill, which financed higher education, health care, and housing for returning U.S. military soldiers, could be seen as a domestic Marshall Plan. Lynn Turgeon, Bastard Keynesianism: The Evolution of Economic Thinking and Policymaking since World War II (1996), at 6, 68.

62. See notes 33 and 37 infra and accompanying text.

63. Likewise, the IMF has the ability to supplement global liquidity by issuing new Special Drawing Rights (SDRs), a proposal that was made in 1994 by the IMF's then managing director, Michel Camdessus. Canova, Banking and Financial Reform, supra note 6, at 1633-36. Camdessus proposed increasing SDRs by $52 billion and allocating such funds to formerly Communist and other poor countries that had never received any initial allocation of SDRs. The Camdessus proposal was rejected by the U.S., Germany and Great Britain. Id., at 1633-34. Brazilian President Fernando Henrique Cardoso has recently called on the IMF to increase allocations of SDRs to poorer nations. "Brazil Leader Lashes Out at IMF," Associated Press report, March 11, 2002.

64. The Marshall Plan helped to sustain domestic demand in the U.S. Japan, in contrast has failed to recycle its surpluses, and instead has choked on its success. Canova, Banking and Financial Reform, supra note 6, at 1641.

65. See notes 14 and 50 infra and accompanying text.

66. Allan Beattie, Leyla Boulton, and Thomas Catan, "Clinging on: Emerging markets are under stress," Financial Times, Oct. 17, 2001, p. 20 (reporting that IMF coming to aid Turkey, but not likely to aid Argentina).

67. Larry Rohter, "2 Blows to Argentine President: Economy Minister Quits and Senate Balks at Crisis Bill," N.Y. Times, April 24, 2002, A6 (reporting that Jorge Remes Lenicov abruptly resigned as Argentina's economy minister because of his failure to negotiate an emergency assistance package with the IMF).

68. James Dao, "Bush Sets Role for U.S. in Afghan Rebuilding," N.Y. Times, April 17, 2002, A1. Of course, there are significant differences between Afghanistan today and Germany at the time of the Marshall Plan, namely that Germany had been militarily defeated and its cities and countryside were safe for U.S. aid workers. Afghanistan, on the other hand, lacks the basic internal security necessary for relief and rebuilding efforts. It is still subject to warlord rule and threatened by Al Qaeda forces infiltrating across the border from Pakistan. This would suggest that the first U.S. aid efforts in Afghanistan should focus on military assistance to rebuild a national army. Thom Shanker, "U.S. Team to Start Helping Afghans Build New Army," N.Y. Times, Feb. 18, 2002, A8) (reporting conclusions of analysts that Afghan militias must be dissolved and work must be found "for men who, for a generation, had only their weapons to earn a living"). See also, Dexter Filkins, "Pakistanis Say U.S. Is Allowed In Border Area," N.Y. Times, April 24, 2002, at A1 (Pakistani agreement that U.S. military advisors may accompany Pakistani troops into tribal border areas of Pakistan "appears to clear the way for American help" in rooting out hundreds of Al Qaeda and Taliban fighters).

69. Richard C. Bell & Michael Renner, "A Global Marshall Plan to Fight Terrorism," Worldwatch Institute, Washington, D.C., Oct. 6, 200 (in outlining his plan on June 5, 1947, General George C. Marshall said that there could be "no political stability and no assured peace" without economic security, and that U.S. policy was "directed not against any country or doctrine but against hunger, poverty, desperation, and chaos").

70. Philip H. Potter, "Fast Track and the TPA Debate in Congress," paper presented to the Conference on Integration of the Americas, Latin American and Iberian Institute, University of New Mexico, April 5, 2002 (reporting that in addition to the deal on steel, the Bush administration was forced to deal with other special interests, including anti-trade concessions to textile and agricultural interests).

71. Paul Miller, "U.S. Asks Europe to Delay Retaliation for Steel Tariffs," N.Y. Times, April 24, 2002, W1; Peter Marsh, "EU curbs on steel 'damage engineering,'" Financial Times, April 22, 2002, p. 31 (reporting that EU restrictions on steel imports are damaging the competitiveness of the European engineering industry).

72. Raymond Colitt and Richard Lapper, "Latin America 'may see more calls for protectionism,'" Financial Times, March 11, 2002, p. 6.

73. Canova, Global Finance and the International Monetary Fund's Neoliberal Agenda, supra note 51, at 1573-74.

74. Stiglitz was not able to play Houdini and escape from the ideological straight-jacket while remaining in an effective position of power. Instead our policymakers are confined by ideology and then gagged from expressing any strong dissent. Since the channels of communication are blocked within the IMF and World Bank, skeptics within are in need of assistance from outsiders to free them from their straight-jackets, engage in open discussion and debate, and rearrange IMF policies around the world. Id., at 1574 n. 125. See also, David Crosby, Stephen Stills, Graham Nash & Neil Young, "Chicago," from 4 Way Street ( "Though your brother's bound and gagged and they've tied him to a chair, won't you please come to Chicago for the help that you could bring. . . We can change the world, rearrange the world").

75. "No. 2 Official at I.M.F. Offers a Bleak Forecast," N.Y. Times, Aug. 28, 2001, C10.

76. Canova, Banking and Financial Reform, supra note 6, at 1623-24 (discussing earlier comments by Fischer and another IMF official suggesting the need for some kind of control on short-term capital flows).

77. Alan Beattie, "IMF outlines new plan for bankrupt countries to restructure debt," Financial Times, April 2, 2002.

78. Paul Blustein, "IMF Crisis Plan Torpedoed," Wash. Post, April 3, 2002, p. E01. Treasury's swift rejection was even more surprising since Paul O'Neill, the Secretary of Treasury, had seemed to endorse the idea of an international sovereign bankruptcy court in testimony to Congress just a few months before. "A better way for countries to default," Financial Times, Nov. 7, 2001, p. 21. As one senior IMF official explained off-the-record at the time: "Rubin was a Wall Streeter and had bondholders' interests at heart. O'Neill is an industrialist. He knows all about Chapter 11 and working out bankruptcy." Id. Apparently in the months since O'Neill's testimony to Congress, he was convinced to back off from the idea of an international Chapter 11 bankruptcy protection, an apparent reflection of the dominant political position of financial over industrial capital interests.

79. Joseph Kahn, "Treasury Chief Accuses World Bank of Harming Poor," N.Y. Times, Feb. 21, 2002, A11; William Easterly, "Tired Old Mantras at Monterrey," Wall St. J., March 19, 2002 (Easterly was one of the World Bank's top economists until being forced out last year for expressing heresy.

80. Beattie & Wolffe, supra note 60 (the Bush proposal would require that up to half of the World Bank's $6 billion a year in loans be provided as grants for education, health, water supply, sanitation and other human needs); Brian Knowlton, "Bush Asks Big Lenders To Increase Aid for Poor," Int'l Herald Trib., July 18, 2001, p.1.

81. It is a big world: we have complete darkness in the rooms of our orthodoxies, yet this darkness is related in ways that are not readily visible to the fires raging in other ends of the house. But the world is getting smaller, and a fire in one corner can now threaten the entire structure. We may no longer have the luxury of snuffing out candles and crawling so slowly in the dark.

82. Daniel Altman, "As Global Lenders Refocus, a Needy World Waits," N.Y. Times, March 17, 2002.

83. "War has several causes. Dictators and others such, to whom war offers, in expectation at least, a pleasurable excitement, find it easy to work on the natural bellicosity of their peoples. But, over and above this, facilitating their task of fanning the popular flame, are the economic causes of war, namely the pressure of population and the competitive struggle for markets." Keynes, The General Theory, supra note 52, at 381.