Bottoms up.

You know capitalism is in trouble when Business Week comes out with the cover story: GLOBAL Crisis: Time To ACT. The voice of enlightened capital, Business Week sounds apoplectic. "Fundamental assumptions about the future of the American economy have been completely altered by the crises in Asia and Russia," Bruce Nussbaum, Business Week's editorial page editor, declares in the September 14 issue. "The peace and prosperity of the world are at stake."

Brought on by the currency collapses in Asia last summer, and compounded by foolish commands from the International Monetary Fund (IMF), the world economy is now in turmoil. Economies in Asia are down anywhere from 5 percent to 20 percent in the last year. Russia is in free fall. Japan is sinking into its deepest recession since World War II. South Africa, Brazil, Venezuela, and Mexico may also be hit. Meanwhile, the bubble on Wall Street finally burst when the U.S. stock market fell by almost 20 percent in late August and September.

We are in the midst of a global recession caused by overcapacity. There are too many goods chasing too few buyers. Deflation, not inflation, is the problem of the day. Hundreds of millions of consumers in the hard-hit countries no longer have disposable income to buy products. This fuels a vicious cycle. If consumers can't purchase goods, companies lay off workers, which means there are fewer people who can afford to make purchases.

"It is clear that the contours of the crisis are different from anything we've seen in a long time," warns Business Week. "In severity and speed, it has taken most economists totally by surprise."

One person it hasn't taken by surprise is William Greider, who wrote a book last year called One World, Ready or Not: The Manic Logic of Global Capitalism. In it, he assailed the religion of the global free market and predicted the deflationary crisis that is upon us. He described what he called "the problem of surplus capacity." He wrote: "The system cannot continue on its present trajectory, not without sooner or later facing a substantial--perhaps sudden--adjustment in expectations and returns. To put it crudely, capital is being invested in new factories to make more things when the market is already struggling with a mounting shortage of buyers.... The wider the gap becomes between productive capacity and realistic market demand, the more likely it is that the collapse of optimism will be sharp and shocking. This is the nature of the catastrophe that the global system is flirting with at present."

In his September 14 speech before the Council on Foreign Relations, Bill Clinton recognized that "the industrial world's chief priority today plainly is to spur growth," but he stubbornly clung to the IMF orthodoxy that has led to the current crisis.

"We support the fundamental approach of the International Monetary Fund," he said. But that approach retards growth rather than spurring it. The IMF, which takes its cue from the U.S. Treasury Department, orders countries to hike interest rates, slash spending, and abolish subsidies on staple items like food and oil. This drives local companies out of business, increases unemployment, and hikes the cost of living.

It's time for the IMF to abandon this strangulation strategy, or it's time for the United States to abandon the IMF. The IMF doesn't deserve a single penny more from U.S. taxpayers until it stops making these economies scream. Given the magnitude of the suffering the IMF has caused, it is the height of gall for the head of the IMF, Michel Camdessus, to say the Asian crisis is "a blessing in disguise," as he did earlier this year.

The IMF helped bring on the crisis not only by imposing such hard terms, but by encouraging countries to allow their currencies to be traded freely. "Almost all observers now concede that premature liberalization of capital markets (often pushed by the IMF itself) was one cause of the current crisis," writes Harvard professor of international trade Jeffrey Sachs in a recent issue of The Economist magazine. Large-scale currency speculation was not permitted until twenty-five years ago and didn't become commonplace until the 1980s, a September 4 article in The Wall Street Journal noted.

This experiment has failed. Let's admit it and allow countries to control their own currencies.

Part of the crisis also stems from the IMF's demand that countries throw open their economies to foreign trade and investment--at all costs. But such trade and investment is notoriously fickle, as multinational corporations seek out ever cheaper labor markets and suppliers.

John Maynard Keynes, the economist who helped point the way out of the Great Depression, noted: "Let goods be homespun wherever it is reasonable and conveniently possible and, above all, let finance be primarily national."

Proponents of free trade say that any time a country fosters its homespun industries, the dangers of protectionism arise. But protectionism did not cause the Great Depression. The stock market crash and foolish fiscal and monetary policy did.

"The economic advisers of the day had both the unanimity and the authority to force the leaders of both parties to disavow all the available steps to check deflation and depression," wrote John Kenneth Galbraith in The Great Crash, 1929.

Today, some of those available steps are clear, but the Clinton Administration refuses to take them because they require a break with the free market philosophy preached by the IMF, Federal Reserve chairman Alan Greenspan, and Treasury Secretary Robert Rubin.

First, Western creditors should offer debt forgiveness to severely indebted countries. There's no way these countries can implement a rational and fair domestic economic strategy that spurs growth if they have to spend a huge percentage of their budget just on servicing the debt. Even Business Week thinks some debt forgiveness is a good idea.

But the only kind of debt the Clinton Administration seems interested in forgiving is private sector debt. It sees virtually no role for governments in controlling their own economies. It wants the private sector to rule--in the United States, and even more so abroad.

Nor does it believe governments should help their own people. In his Council on Foreign Relations speech, Clinton waved at the problems that people in Asia are facing, and he proposed that the World Bank should double spending "for the social safety net in Asia, to help people who are innocent victims of financial turmoil." How ironic: Clinton, through the IMF, insists that governments destroy their own safety nets. Then he asks the World Bank to reconstruct one. (In any event, his proposal meant next to nothing: The World Bank was already planning to double its social spending in Asia, but the total amount is expected to reach only $2 billion by the end of next year. That won't make a dent in the problem.)

Nor does the Clinton Administration favor letting the Asian economies themselves try to work out a solution. Clinton and Rubin have made a lot of noise about Japan not pulling its weight in the crisis, but when Japan offered last year to round up $100 billion for a proposed Asian Monetary Fund, they put the kibosh on it. The Treasury Department "feared the fund would offer big loans with less-stringent conditions than the IMF's and would threaten U.S. economic supremacy," The Wall Street Journal reported on September 24.

But the United States will eventually suffer from a global recession if it doesn't watch out. Clinton seems to understand that, but he can't get out of the box marked FREE MARKET POLICIES.

Because this is a crisis of purchasing power, the surest way to resolve it is to give people enough money to buy goods. As Greider recommends, we should "stimulate global growth by boosting consumer demand from the bottom up." Unless people in South Korea, Indonesia, Malaysia, Thailand, Russia, South Africa, Brazil, Venezuela, and Mexico have their basic needs met and some money to spare, there is little way there will be sufficient demand to hold up the world economy. The U.S. consumer can't do it forever.

On both moral and economic grounds, we need a global Marshall Plan. Just as U.S. aid helped revive Europe after World War II--a policy that ushered in two decades of prosperity--a global Marshall Plan is necessary today to revive the world economy. Unless the United States and the other major industrial powers give or lend enough money to the ailing economies around the world, they will all drag us down with them. This aid should be tied to countries that respect labor rights, because without such rights, the money will be skimmed off by the local elite.

But it seems unlikely that a President blinded by ideology and wounded by scandal would even propose such a solution. And it's less likely still that a parochial Congress would approve it.

That being the case, individual countries--and social movements within them--may initiate change themselves. "The question is no longer whether the world will move away from the rule of the invisible hand, but how fast it will do so," writes Walden Bello, professor of sociology and public administration at the University of the Philippines and author of Dragons in Distress: Asia's Miracle Economies in Crisis. "We are likely to see a move away from dependence on foreign investment and export orientation and toward economic strategies based principally on domestic financial resources and the local market."

Such strategies would help the people of these countries, who are suffering so badly right now. But they wouldn't help Western banks and corporations. That's why Business Week is so scared.