Economics by Innuendo and Error

David Morse’s "A Quaker Response to Economic Globalization" (FJ May) exhibits many errors in economics. He is correct to sympathize with those in need, but we must always strive to act in light of actual circumstances to offer real, long-term solutions. Otherwise, we risk making the problems worse.

Kenneth Boulding is alleged to have said, "It isn’t that Quakers don’t know economics; it is that the economics they know is wrong." It often consists of making sly remarks about the economy, emphasizing a particular slant with which the reading audience is presumed to agree. It is usually accompanied by errors in economic history that have been popularly believed. David Morse’s article has done all of these.

Here is the first of his incorrect statements: "What our press touts as ‘free trade’ is, in reality, an elaborate set of rules written by large-scale international organizations to give them a competitive advantage over small-scale local operations" (p.9). Not so. The rules of free trade are worked out by consulting governments with the World Trade Organization. Using these rules, the WTO has often reached decisions adverse to "large-scale international organizations." The ruling against "foreign trade corporations" (that get tax advantages by their location on U.S. territory overseas) is one. The WTO demanded that this practice be ended. If the decision is implemented properly, multinational corporations will lose billions of dollars of tax advantages they once held. Likewise, the WTO forced President Bush to renounce steel tariffs, a move that was very costly to U.S. steel companies. In April 2004, the WTO decided against U.S. cotton farmers by supporting Brazil’s contention that U.S. subsidies were illegal by international trade rules. If the U.S. does not withdraw the subsidies, other countries will be authorized to put heavy tariffs on U.S. exports.

Thus some WTO decisions favor corporations; others disfavor them. There is no general pattern, only adherence to international trade rules agreed on by 147 member countries.

David Morse also opposes sweatshops, as do many Quakers. But "sweatshops" as we call them are the universal type of factory employing unskilled workers throughout the less developed world. Most have never traded with the United States. Oxfam has done a study showing that if we boycott sweatshops, we may drive their workers into even more harmful conditions, such as prostitution, factories that are less safe, or farmwork amid poisonous chemicals. Several economists have done similar studies with similar results, but David Morse does not mention any of them. The way to upgrade labor (and wages) is not through such quick-fix methods as refusing to buy their products, but through the arduous task of training to increase worker skills.

Here is an innuendo: that the International Monetary Fund and the World Bank insist that "Bolivia, for instance . . . reduce inflation by tightening the money supply. . . ." As economic advisor to the Bolivian National Stabilization Council in 1960 (to fight inflation), that is exactly what I suggested, as any economist would. The Bolivian government had printed money to feed its cronies. It was loaned funds by the United States and the IMF on its promise to stop that practice and balance its budget. The Fund required cutting down on government expenditures. I was there to monitor that this happened. Although we stopped the inflation, ultimately the Bolivians went back to their old tricks, and the case is essentially the same today.

For eight years I worked for the IMF (though not in Bolivia). I can assure you that my colleagues and I never considered the Fund to be an imperialist organization. Its duty was to help governments whose bad (corrupt) policies had caused balance-of-payments deficits. We insisted, in exchange for loans, that good (honest) policies replace the bad. No government is forced to borrow from the Fund, but if it does borrow, it must accept the Fund’s conditions.

Some minor errors also occur in David Morse’s article, such as that the World Trade Organization was "Bretton-Woods inspired." The WTO was actually founded 50 years later than the Bretton Woods conference that created the IMF and World Bank.

He refers to his own earlier article, "The Message of Seattle," in Friends Journal, March 2000. He also mentions the Viewpoint in the May 2000 issue by Brewster Grace, who was in Quaker United Nations Office in Geneva. But he does not mention that Brewster Grace’s Viewpoint was intended to correct the errors of David’s article—many of which are repeated in his FJ May 2004 article.

In fact, Brewster’s article opens with the sentence, "David Morse’s article on the protests in Seattle contains a number of factual errors about the World Trade Organization."

Here is another innuendo: "Clearly, we need to examine as a society what is meant by such terms as ‘marginal’ and ‘efficiency.’ Do they reflect the social costs and the environmental consequences?" (p. 9) These are technical terms in economics that (like numbers) have specific meanings but may be used in different ways by different authors. Sometimes they reflect social costs and environmental consequences, and sometimes not, depending on the author. However, David hints that these economics terms are always used as tools of a hypercapitalist society, which would be analogous to saying that numbers are always used in some insidious way.

Remaining innuendoes, which permeate the article, are too many to mention in a brief response.

The worst characteristic of this article is that it assumes (by innuendo) that his position is "Quakerly." But there is nothing Quakerly about it. I have long criticized the politicization of Quakers on points in which we have no experience. This article is but one more example.

Jack Powelson

Jack Powelson is professor of Economics, emeritus, at University of Colorado. He has written extensively on issues of poverty and economic development. He is a member of Boulder (Colo.) Meeting, and he edits The Quaker Economist (