Jomo Kwame Sundaram’s Blog

Ahead of the first United Nations environmental summit in Stockholm in 1972, a group of scientists prepared The Limits to Growth report for the Club of Rome. It showed planet Earth’s finite natural resources cannot support ever-growing human consumption. Limits used integrated computer modelling to investigate twelve planetary scenarios of economic growth and their long-term consequences for the environment and natural resources. Emphasizing material limits to growth, it triggered a major debate. Authored by Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III, Limits is arguably even more influential today. Within limits Limits considered population, food production, industrialization, pollution and non-renewable resource use trends from 1900…

Developing countries have long been told to avoid borrowing from central banks (CBs) to finance government spending. Many have even legislated against CB financing of fiscal expenditure. Central bank fiscal financing Such laws are supposedly needed to curb inflation below 5%, if not 2% – to accelerate growth. These arrangements have also constrained a potential CB developmental role and government ability to respond better to crises. Improved monetary-fiscal policy coordination is also needed to achieve desired structural transformation, especially in decarbonizing economies. But too many developing countries have tied their own hands with restrictive legislation. A few have pragmatically suspended…

Widespread adverse reactions to the UK government’s recent ‘mini-budget’ forced new Prime Minister Liz Truss to resign. The episode highlighted problems of macroeconomic policy coordination and the interests involved. Macro-policy coordination But macroeconomic, specifically fiscal-monetary policy coordination almost became “taboo” as central bank independence (CBI) became the new orthodoxy. It has been accused of enabling CBs to finance government deficits. Critics claim inflation, even hyperinflation, becomes inevitable. Government finance ministries and CBs are the two main macroeconomic policy protagonists. Poor ‘macro-policy’ coordination has generated problems, including contradictory policy responses. This has meant more macroeconomic and financial instability, worrying markets and investors. Fiscal…

Preoccupied with enhancing their own ‘credibility’ and reputations, central banks (CBs) are again driving the world economy into recession, financial turmoil and debt crises. Wall Street ‘cred’ Most CB governors believe ‘credibility’ is desirable and must be achieved by fighting inflation at any cost. To justify their own more harmful policies, they warn inflation is ‘damaging’. They argue CBs need ‘independence’ from governments to pursue ‘credible’ monetary policy. Inflation targeting to ‘anchor’ inflation expectations is supposed to generate desired ‘confidence’. But CBs have been responsible for many costly failures. The US Fed deepened the 1930s’ Great Depression, the 1970s’ stagflation…

The dogmatic obsession with and focus on fighting inflation in rich countries are pushing the world economy into recession, with many dire consequences, especially for poorer countries. This phobia is due to myths shared by most central bankers. Myth 1: Inflation chokes growth The common narrative is that inflation hurts growth. Major central banks (CBs), the Bretton Woods institutions (BWIs) and the Bank of International Settlements (BIS) all insist inflation harms growth despite all evidence to the contrary. The myth is based on a few, very exceptional cases. “Once-in-a-generation inflation in the US and Europe could choke off global growth, with…

Central banks (CBs) around the world – led by the US Fed, European Central Bank and Bank of England – are raising interest rates, ostensibly to check inflation. The ensuing race to the bottom is hastening world economic recession. Going for broke New UK Prime Minister Liz Truss has already revived ‘supply side economics’, long thought to have been fatally discredited. Her huge tax cuts are supposed to kick-start Britain’s stagnant economy in time for the next general election. But studies of past tax cuts have not found any positive link between lower taxes and economic or employment growth. Oft-cited US examples…

Policymakers have become obsessed with achieving low inflation. Many central banks adopt inflation targeting (IT) monetary policy (MP) frameworks in various ways. Some have mandates to keep inflation at 2% over the medium term. Many believe this ensures sustained long-term prosperity. The now universal 2% inflation target “was plucked out of the air”. This was acknowledged by Reserve Bank of New Zealand (RBNZ) Governor Don Brash who first adopted IT. The target was due to NZ Finance Minister Roger Douglas’ “chance remark” of achieving “genuine price stability, around 0, or 0 to 1 percent”. IT discord Heads of major central banks…

Los países ricos suben las tasas de interés en un esfuerzo para vencer a la inflación, mientras los países del Sur en desarrollo luchan para hacer frente a la desaceleración económica, la inflación, esa elevación del valor del dinero y otros costos, además de la creciente angustia de la deuda. Las subidas de los tipos de interés de los países ricos han provocado salidas de capital, depreciaciones de la moneda y mayores costes del servicio de la deuda. Los problemas de los países en desarrollo se han visto agravados por la volatilidad de los precios de las materias primas, las…

As rich countries raise interest rates in double-edged efforts to address inflation, developing countries are struggling to cope with slowdowns, inflation, higher interest rates and other costs, plus growing debt distress. Rich countries’ interest rate hikes have triggered capital outflows, currency depreciations and higher debt servicing costs. Developing country woes have been worsened by commodity price volatility, trade disruptions and less foreign exchange earnings. Rising debt risks Almost 60% of the poorest countries were already in, or at high risk of debt distress, even before the Ukraine crisis. Debt service burdens in middle-income countries have reached 30-year highs, as interest…

Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies. Decolonization? Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique (CFA) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later. France insisted decolonization must involve ‘interdependence’ – presumably asymmetric, instead of between equals – not true ‘sovereignty’. For colonies to get ‘independence’, France required membership of Communauté…