[ Growing hardship is all but assured in 2023, and it will provide
even more fertile ground for dangerous demagogues. ]
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THE ROAD TO FASCISM  
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Joseph E. Stiglitz
December 12, 2022
Project Syndicate
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_ Growing hardship is all but assured in 2023, and it will provide
even more fertile ground for dangerous demagogues. _

, Wm McNamee/Getty Images

 

NEW YORK – Economics has been called the dismal science, and 2023
will vindicate that moniker. We are at the mercy of two cataclysms
that are simply beyond our control. The first is the COVID-19
pandemic, which continues to threaten us with new, more deadly,
contagious, or vaccine-resistant variants. The pandemic has been
managed especially poorly by China, owing mainly to its failure to
inoculate its citizens with more effective (Western-made) mRNA
vaccines.

The second cataclysm is Russia’s war of aggression in Ukraine. The
conflict shows no end in sight, and could escalate or produce even
greater spillover effects. Either way, more disturbances to energy and
food prices are all but assured. And, as if these problems weren’t
vexing enough, there is ample reason to worry that the response from
policymakers will make a bad situation worse.

Most importantly, the US Federal Reserve may raise interest rates too
far and too fast. Today’s inflation is largely driven by supply
shortages
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some of which are already in the process of being resolved. Raising
interest rates therefore might be counterproductive. It will not
produce more food, oil, or gas, but it will make it more difficult to
mobilize investments that would help alleviate the supply shortages.
Monetary tightening also could lead to a global slowdown. In fact,
that outcome is highly anticipated, and some commentators, having
convinced themselves that combating inflation requires economic pain,
have been effectively cheering on the recession. The quicker and
deeper, the better, they argue. They seem not to have considered that
the cure may be worse than the disease.

The global tremors from the Fed’s tightening could already be felt
heading into winter. The United States is engaged in a
twenty-first-century beggar-thy-neighbor policy. While a stronger
dollar tempers
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inflation in the US, it does so by weakening other currencies and
increasing inflation elsewhere. To mitigate these foreign-exchange
effects, even countries with weak economies are being forced
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to raise interest rates, which is weakening their economies further.
Higher interest rates, depreciated currencies, and a global slowdown
have already pushed dozens of countries
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to the edge of default. Higher interest rates and energy prices will
also push many firms toward bankruptcy, too. There have already been
some dramatic examples of this, as with the now-nationalized
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German utility Uniper. And even if companies don’t seek bankruptcy
protection, both firms and households will feel the stress of tighter
financial and credit conditions. Not surprisingly, 14 years
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of ultra-low interest rates have left many countries, firms, and
households overindebted.

The past year’s massive changes in interest rates and exchange rates
imply multiple hidden risks – as demonstrated by the near-collapse
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of British pension funds in late September and early October.
Mismatches of maturities and exchange rates are a hallmark of
under-regulated economies, and they have become even more prevalent
with the growth of non-transparent derivatives. These economic
travails will, of course, fall hardest on the most vulnerable
countries, providing even more fertile ground for populist demagogues
to sow the seeds of resentment and discontent. There was a global sigh
of relief when Luiz Inácio Lula da Silva
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defeated Jair Bolsonaro in Brazil’s presidential election. But let
us not forget that Bolsonaro got almost 50% of the votes and still
controls
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Brazil’s Congress. Across every dimension, including the economy,
the greatest threat to well-being today is political. Over half
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the world’s population lives under authoritarian regimes. Even in
the US, one of the two major parties has become a personality cult
that increasingly rejects democracy [[link removed]]
and continues to lie about the outcome of the 2020 election. Its modus
operandi is to attack the press, science, and institutions of higher
learning, while pumping as much mis- and disinformation into the
culture as it can.

The aim, apparently, is to roll back much of the progress of the past
250 years. Gone is the optimism that prevailed at the end of the Cold
War, when Francis Fukuyama
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herald “the end of history
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disappearance of any serious challenger to the liberal-democratic
model. To be sure, there is still a positive agenda that could
forestall a descent into atavism and despair. But in many countries,
political polarization and gridlock have pushed such an agenda out of
reach. With better-functioning political systems, we could have
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moved much faster to increase production and supply, mitigating the
inflationary pressures our economies now confront. After a
half-century of telling farmers _not _to produce as much as they
could, both Europe and the US could have told them to produce more.
The US could have provided childcare – so that more women could
enter the labor force, alleviating the alleged labor shortages – and
Europe could have moved more quickly to reform its energy markets and
prevent a spike in electricity prices.

Countries around the world could have levied windfall-profit taxes in
ways that might actually have encouraged investment and tempered
prices, using the proceeds to protect the vulnerable and to make
public investments in economic resilience. As an international
community, we could have adopted the COVID-19 intellectual-property
waiver
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thereby reducing the magnitude of vaccine apartheid and the resentment
that it fuels, as well as mitigating the risk of dangerous new
mutations. All told, an optimist would say that our glass is about
one-eighth full. A select few countries have made some progress on
this agenda, and for that we should be grateful. But almost 80 years
after Friedrich von Hayek wrote _The Road to Serfdom_
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we are still living with the legacy of the extremist policies that he
and Milton Friedman
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into the mainstream. Those ideas have put us on a truly dangerous
course: the road to a twenty-first-century version of fascism.

Joseph E. Stiglitz, a Nobel laureate in economics and University
Professor at Columbia University, is a former chief economist of the
World Bank (1997-2000), chair of the US President’s Council of
Economic Advisers, and co-chair of the High-Level Commission on Carbon
Prices. He is a member of the Independent Commission for the Reform
of International Corporate Taxation and was lead author of the 1995
IPCC Climate Assessment.

* Fascism
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* Joseph Stiglitz
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