This is the text of a brief speech given by Babbitt at a Democratic Party function in November 1987. The distilled contents are for the most part dealing with economic policy in the United States.
For Latin American governments, mediating between their national societies and the international economy, the contemporary debt issue poses some excruciating dilemmas. On the one side, these governments are under intense pressure to arrive at satisfactory formulas for settling their debts–satisfactory, that is, to the banks and creditor agencies that control access to international financial markets. Loss of such access would threaten vital capital and trade flows, and for this reason virtually every Latin American government has so far placed a high priority on meeting its external obligations. But governmental elites, if they are to remain in power, must also answer to (or repress) their own populations. And the price to be paid for external help with "liquidity problems" has typically involved politically dangerous stabilization measures (devaluations, wage and credit restrictions, and fiscal deficit reductions)–measures that often arouse the strong opposition of major social forces.
Argentina has made the headlines of international media not only for its successful return to democratic political rules in December 1983 but also for its renewed slump into economic crisis. The country is no longer able to meet the debt servicing requirements and to repay loans due this year while auspices for rescheduling and extending foreign debt are bleak. As a corollary tovexternal problems, there are high public sector deficits, inflation is accelerating at a galopping pace, and net private investment has turned negative. Up to now, the new democratic government has not lived up to expectations since it did not present a reform package designed to overcome the severe economic problems of the country. Rather, the government has relied on some ad-hoc emergency measures in an attempt to prevent the crisis from turning into catastrophy.
Abstract. A crisis is afflicting traditional liberal economists. The crisis policy devised by John Maynard (Lord) Keynes, which seemed to work well during World War II and in postwar reconstruction, met its nadir in 1975. Contrary to Keynesian theory, formalized in the Phillips Curve argument that inflation and mass unemployment are mutual trade offs, double digit inflation and record unemployment made further deficit spending an impossible policy. Some Keynesians, switched to a new ideology, "industrial policy", a form of piecemeal planning likely to eventuate in a new protectionism. Analogous to the supply side economics ideology, industrial policys' adoption by many leading Democrats could drive many Keynesian economists from the Democratic party.
The first session of the 99th Congress was a year of wrenching institutional and political realignment. Facing monstrous structural budget deficits in excess of $200 billion a year. Congress struggled to adjust its distributive urges to the unpleasant realities of a redistributive era. Unlike previous budget crises that were caused by economic events beyond Congress's control, the current problem was created by an unwillingness to raise sufficient revenues to pay for the nation's defense and social program commitments. Frustration, gridlock, and partisan warfare eventually ended in surrender to the Executive Branch: a balanced-budget act was adopted that could radically alter Congress's power of the purse.During the 99th Congress, many Democratic members also continued to realign their policy positions in accordance with contemporary economic and political forces. Democrats in Congress searched for an appealing formula that would ensure political survival and continued control of the House. But the strain of reconciling their traditional public philosophy with conservative trends left Democrats demoralized and in disarray.
The first session of the 99th Congress was a year of wrenching institutional and political realignment. Facing monstrous structural budget deficits in excess of $200 billion a year. Congress struggled to adjust its distributive urges to the unpleasant realities of a redistributive era. Unlike previous budget crises that were caused by economic events beyond Congress's control, the current problem was created by an unwillingness to raise sufficient revenues to pay for the nation's defense and social program commitments. Frustration, gridlock, and partisan warfare eventually ended in surrender to the Executive Branch: a balanced-budget act was adopted that could radically alter Congress's power of the purse.During the 99th Congress, many Democratic members also continued to realign their policy positions in accordance with contemporary economic and political forces. Democrats in Congress searched for an appealing formula that would ensure political survival and continued control of the House. But the strain of reconciling their traditional public philosophy with conservative trends left Democrats demoralized and in disarray.
The first session of the 99th Congress was a year of wrenching institutional and political realignment. Facing monstrous structural budget deficits in excess of $200 billion a year. Congress struggled to adjust its distributive urges to the unpleasant realities of a redistributive era. Unlike previous budget crises that were caused by economic events beyond Congress's control, the current problem was created by an unwillingness to raise sufficient revenues to pay for the nation's defense and social program commitments. Frustration, gridlock, and partisan warfare eventually ended in surrender to the Executive Branch: a balanced-budget act was adopted that could radically alter Congress's power of the purse.During the 99th Congress, many Democratic members also continued to realign their policy positions in accordance with contemporary economic and political forces. Democrats in Congress searched for an appealing formula that would ensure political survival and continued control of the House. But the strain of reconciling their traditional public philosophy with conservative trends left Democrats demoralized and in disarray.
Over the last five years, military authoritarian regimes broke down consistently throughout Latin America. The return to democratic government has had less to do with the internal political situation in these countries than with the economic crises faced by the military regimes. The military regimes collapsed primarily because of the external debt crisis that emerged in the early 1980s. There were two characteristic patterns in the macroeconomic policy of the military authoritarian systems. According to one pattern, the regimes attempted to maintain growth rates through reflation, which led to chronic trade deficits that had to be covered through continuous reserve inflows. Alternatively, particularly in the Southern Cone, the regimes attempted disinflation through the heterodox strategy of underdevaluation of exchange rates. Although this slowed inflation, this was achieved only at the cost of serious balance of payments disequilibrium and a decrease in external competitiveness, which limited the ability to service foreign debt. The net result was that at the time of the global recession of the early 1980, the regimes were forced to apply restrictive policies that were associated with substantial output losses. The domestic recessions in turn largely destroyed the military's claims to political legitimacy.