A Global Marshall Plan?

One of the ideas that has been floating around lately, particularly on the left, is that of a Global Marshall Plan, a pouring out of money to redeem the poor countries from their crushing poverty.

The US has been running huge federal budget deficits. Our balance of payments is in even larger deficit. Which means vastly more dollars are going overseas than are coming back through trade. The dollar has declined from the Euro being 88 cents to it being $1.43 today. Sterling has risen from $1.38 a few years ago to $2.05. The Canadian dollar has risen from 68 cents to $1.03. It is generally acknowledged that the reason things are not much, much worse than they already are is that Japan and China are subsidizing us by buying huge amounts of dollar-denominated debt. If there comes a time when the Chinese and Japanese governments decide that it is just too costly to keep acquiring more and more rapidly-depreciating dollars, the plunge could become rapid and dramatic.

If the dollar collapsed to its true value against foreign currencies, the effects in the US would be disastrous. Inflation and interest rates would soar. Government spending would be slashed to minimize the inflationary effects of the deficit. State budgets, which do not have the option of running deficits, would be slashed even more.

I hardly need say on whose shoulders the resulting economic distress and dislocation would fall most heavily. The social effects from government spending cuts alone would be greatly reduced education budgets, health care spending would be cut, income transfer programs like AFDC would be gutted, government hiring would shrink to a trickle. The private economy effects would be even worse. Unemployment (which is already much higher than officially acknowledged) would soar. Mortgage lending, already reduced, would stop. Any remaining hope that working people could buy their own homes would vanish. With ever larger numbers of people unemployed, again I hardly need say which segments of the working people would suffer most severely.

With greatly increased unemployment would come all the social vices that beset the poorest among us. Drug dependency, prostitution, wife-beating, crime, dropping out of school, mental illness, preventable illnesses, infant mortality, homelessness, violence, would all increase sharply. At the same time government programs to address these problems would shrivel for lack of funding. White perceptions of the ghetto and barrio would lead to a hardening of racial attitudes. The gains of two generations of social amelioration could be reversed and wiped out within a few years. With rising unemployment and social distress, the pressure on Congress and the Administration for mass deportations would grow until it became irresistible.

Paradoxically there would be winners. Those of us with large fixed rate mortgages would make out handsomely. Another winner would be the Defense Department. For all the flag-waving about what heroes the soldiers are, one of the main reasons for enlisting is unemployment. Part of the reason the army cannot now realistically plan on invading Iran is that they can't get the manpower for it because the unemployment rate is relatively low. If the dollar were to collapse and interest rates and unemployment to rise relentlessly, the services would be able to enlist all the man- and womanpower they wanted. Even worse, faced with the alternative of deportation to a progressively impoverished Mexico, many illegals would seek citizenship by enlisting. Our armies would become in effect mercenaries. Once the public came to realize that a large fraction of our soldiers were foreign mercenaries, public sensitivity to the army taking casualties would diminish. With more boots on the ground and less concern about casualties, the military options open to Washington would multiply.

The post-World War II Marshall Plan was financed out of the vast balance of payments surpluses the United States, with the only large industrial economy not devastated by wartime bombing and invasion, enjoyed. As people our age may recall, the dollar was huge when we went to Europe until the early 1970's.

None of that is any longer the case. A global Marshall Plan is indeed a wonderful and even necessary idea. But it is US-centric thinking to suppose that we should lead it. We would be risking economic collapse to attempt it. The countries which should do it are those which are in the economic position the United States was in after World War II, those with strong currencies and large balance of payments surpluses. The countries in that situation are the European Union, Japan, China, Britain, and Canada. I was in Canada all this past summer and saw that the subject is already being discussed with some seriousness in influential magazines like McLean's.