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October 16, 2022 Reading Time: 5 minutes

Last week the United Nations Conference on Trade and Development (UNCTAD) issued a report entitled “Development Prospects in a Fractured World.” In it, the authors caution that:

[s]upply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures. All regions will be affected, but alarm bells are ringing most for developed countries, many which are edging closer to debt default.

It is certainly true that emerging market nations are seeing their debt-service costs increase. The report cites some “60 percent of low income countries and 30 percent of emerging market economies in or near debt distress.” But the blame should not be put on spendthrift government practices. Rather:

[i]nterest rate hikes by advanced economies are hitting the most vulnerable hardest. Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 percent. 

And for this reason, UNCTAD advocates that international financial institutions “provide increased liquidity and extend real debt relief for developing countries.” And additionally that governments “increase public spending,” “use strategic price controls to directly target energy, food and other vital areas,” and “channel more money into renewable energy research and development.” 

Before tackling the smorgasbord of economic ignorance here, it is helpful to look back to almost exactly two years ago when Lockdowns have Killed What’s Left of the United Nations’ Credibility was published. As noted, early in the pandemic the United Nations Office of the Secretary General called upon member governments to “step up and do everything possible to contain the disease,” adding that “[w]e know that containment is possible, but the opportunity is narrowing.” Thus the false dichotomy almost universally applied in the developed world in March and April of 2020 (that a choice must be made between economic viability and public health) was invoked. But many of the nations to which the UN was communicating are underdeveloped, thus not having the considerable “laptop class” that could easily shift to work from home. In May 2020, in the face of growing food security concerns among impoverished nations, the United Nations Human Rights Commissioner nevertheless urged that lockdowns not be lifted for political or economic considerations. 

If at any time in the last few decades there was a clear role for the United Nations to play in defending the most economically vulnerable nations on Earth, this was it. The multinational organization might have recommended that member states address the spread of COVID by pursuing a balance between economic vitality and disease mitigation, informed by local knowledge and conditions. It might have promoted the idea of shift work or building risk-stratified workforces in agriculturally dependent nations. Yet, it parroted the policy prescription employed by many wealthy developed countries (and even then not without consequences). So it was that in July 2022 the World Health Organization reported that:

[a]s many as 828 million people were affected by hunger in 2021 – 46 million people more from a year earlier and 150 million more from 2019. After remaining relatively unchanged since 2015, the proportion of people affected by hunger jumped in 2020 and continued to rise in 2021, to 9.8 percent of the world population. This compares with 8 percent in 2019 and 9.3 percent in 2020. Around 2.3 billion people in the world (29.3 percent) were moderately or severely food insecure in 2021 – 350 million more compared to before the outbreak of the COVID‑19 pandemic. Nearly 924 million people (11.7 percent of the global population) faced food insecurity at severe levels, an increase of 207 million in two years … Almost 3.1 billion people could not afford a healthy diet in 2020, up 112 million from 2019, reflecting the effects of inflation in consumer food prices stemming from the economic impacts of the COVID-19 pandemic and the measures put in place to contain it. An estimated 45 million children under the age of five were suffering from wasting, the deadliest form of malnutrition, which increases children’s risk of death by up to 12 times. Furthermore, 149 million children under the age of five had stunted growth and development due to a chronic lack of essential nutrients in their diets, while 39 million were overweight. 

The cost of the UN’s lack of leadership during the COVID pandemic are both unmistakeable and awful. Nevertheless, the United Nations is doubling down by promoting policies which are guaranteed to worsen the lot of individuals in both developed and developing worlds alike. A few points: 

  1. The link UNCTAD is attempting to draw between contractionary monetary policy and the current economic slowdown is questionable at best. US GDP was in decline (-1.6 percent) in the first quarter of 2022 before the first of the Fed’s rate hikes. Given lag times, it is unlikely that the second quarter GDP contraction (-0.6 percent) was significantly driven by the rate hikes during that quarter. Prices have been rising since early 2021. UNCTAD seems to be conflating the global economic decline resulting from inflation, supply chain, and employment disruptions with the policy rate increases intended to blunt them. In doing so they are effectively calling for stagflation (slowing growth with high inflation) in place of a recession (slowing growth). 
  1. There are few better litmus tests for economic ignorance than endorsing price controls, and the UNCTAD report proposes them explicitly. When prices of sought-after goods and services are capped, critical price signals indicating scarcity are eliminated which thwarts the effective functioning of markets. By recommending price controls with the qualifier “strategic,” they are likely suggesting that only a handful of items should be capped. But even price controls on a small number of sought-after items, such as gasoline and eggs, will inevitably result in shortages and, over time, distortions in the prices of other goods as money is redirected. Indeed, most price-control campaigns have historically started by targeting a small number of essential goods initially, only to expand to others as scarcity broadens and price distortions spread. Other effects associated with price controls are decreasing production quality of goods, as well as corruption.
  1. It is difficult to determine whether the UNCTAD recommendation that countries increase public spending is made in jest or not. The lockdowns which most governments embraced, and which the United Nations supported, were major factors abetting and undergirding the massively expansionary fiscal and monetary policies put in place throughout 2020 and early 2021. Intentional policies, not a virus, shut down most of the nations of the world for weeks or months two years ago. It is from those policies that the current inflation, supply chain problems, and other current economic problems emerged. The Russian invasion of Ukraine only exacerbated difficulties already well underway. Guidance holding that not only should more debt be issued, but that countries with tremendous debt loads should see forbearance in the form of other nations’ enduring unrestrained inflation, simply cannot be serious.

As covered in the previous article, in 1984 the forty-first session of the Commission on Human Rights met in Siracusa, Italy. The focus of the meeting was to discuss to what extent human rights should be negotiable in the face of a pandemic or other health disaster. The list was significant. The commission decided that emergency health measures should be based on scientific evidence, temporary, proportional, subject to review, and respectful of human dignity.

Yes, international relations are complicated. But the United Nations’ penchant for promoting the most dunderheaded option at every opportunity is respectable only from the standpoint of predictability. Should Americans be spending their increasingly inflated tax dollars to underwrite 22% of an international bureaucracy suggesting that higher prices should be added to a deepening economic slowdown? Are US citizens willing to subsidize small foreign nations having a proven inability to live within their means with the affordability of our groceries? With the cost of getting to work? With the ability to pay for our children to go to college? There, I subscribe, the answer is far simpler.

Peter C. Earle

Peter C. Earle

Peter C. Earle is an economist who joined AIER in 2018. Prior to that he spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area. His research focuses on financial markets, monetary policy, and problems in economic measurement. He has been quoted by the Wall Street Journal, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications. Pete holds an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

Selected Publications

“General Institutional Considerations of Blockchain and Emerging Applications” Co-Authored with David M. Waugh in The Emerald Handbook on Cryptoassets: Investment Opportunities and Challenges (forthcoming), edited by Baker, Benedetti, Nikbakht, and Smith (2022)

“Operation Warp Speed” Co-authored with Edwar Escalante in Pandemics and Liberty, edited by Raymond J. March and Ryan M. Yonk (2022)

“A Virtual Weimar: Hyperinflation in Diablo III” in The Invisible Hand in Virtual Worlds: The Economic Order of Video Games, edited by Matthew McCaffrey (2021)

“The Fickle Science of Lockdowns” Co-authored with Phillip W. Magness, Wall Street Journal (December 2021)

“How Does a Well-Functioning Gold Standard Function?” Co-authored with William J. Luther, SSRN (November 2021)

“Populist Prophets, Public Prophets: Pied Pipers of Lucre, Then and Now” in Financial History (Summer 2021)

“Boston’s Forgotten Lockdowns” in The American Conservative (November 2020)

“Private Governance and Rules for a Flat World” in Creighton Journal of Interdisciplinary Leadership (June 2019)

“’Federal Jobs Guarantee’ Idea Is Costly, Misguided, And Increasingly Popular With Democrats” in Investor’s Business Daily (December 2018)

Books by Peter C. Earle

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