Biden bailout could fuel growth in US, but ‘global finance’ will cause third world to suffer
The US stimulus will almost certainly increase the demand for commodities and therefore their prices, and while this may not have much impact on the US inflation rate, it will certainly increase the inflation rate among commodity suppliers. third world base like India. The political response to such an increase in commodity inflation will be precisely the opposite under a globalized finance regime from what it should have been and what it would have been under the post-war interventionist regime.
Rising commodity prices due to a sudden surge in demand should ideally expand state efforts to increase the supply of these commodities by increasing public investment in areas critical to that production. . But in a globalized financing regime, the policy response will be to reduce public investment, and public spending in general, so that it is not supply that increases, but domestic demand that is reduced, to contain it. inflation. In short, austerity will be imposed on the economy that supplies raw materials so that its level of activity and therefore its rate of growth are limited for this reason.
So, for an economy like India, if there will be some increase in exports due to the Biden package, this would be accompanied by an overall compression in the level of activity and growth, so that enough primary products are squeezed out of domestic absorption to curb excessive demand pressures and hence inflation.
This was not the case during the post-WWII boom. Governments were not obliged to obey the dictates of finance. As a result, rising commodity prices have been accompanied by government efforts, including greater public investment, to increase the supply of these commodities, rather than reducing their domestic absorption by reducing government spending. For this reason, a global boom during this period could only have a stimulating effect on the Indian economy, not a contraction effect.
In short, the Biden package is based on an untenable assumption, namely that a Keynesian policy of stimulating the economy through fiscal means can be followed, while the Keynesian injunction that “finance must first and foremost be national Is ignored.
This untenable hypothesis in turn stems from the illusion that the world economy as a whole can emerge from the protracted crisis to which neoliberal capitalism has condemned it without placing restrictions on the movements of finance, that is, say that the hegemony of finance does count for the level of global economic activity.
But while the US state may not be hampered by the hegemony of finance, or even the states of advanced countries as a whole acting in a coordinated fashion, states in third world countries are not so lucky. . Instead of calling for a change in the international economic order whereby nation states once again regain their autonomy from now globalized finance, the Biden package simply assumes that in the current order we can return. at the time. of Keynesian demand management for the benefit of all countries.