The World Policy Journal, in its Spring 2011 issue, asked nine global experts – including Esther Duflo, Jomo K.S., and Triple Crisis blogger Timothy A. Wise, among others – to provide short answers to the journal’s “big question”: What policy fixes or new innovations are needed to sustain the global economic recovery? Wise’s answer – continue re-regulating global markets – follows. Read all the responses here.
The global economic collapse was caused in part by the deregulation of an increasingly complex global economy. Re-regulating the areas that failed most spectacularly will be critical to securing a sustainable recovery. Efforts to do so include the Dodd-Frank measures to regulate Wall Street, new rules to rein in commodity speculation, a revived global discussion of food reserves to address food-price volatility, and policies that allow countries to regulate capital inflows and outflows to prevent financial contagion. These approaches put public institutions back in charge, setting and enforcing the rules of the game for global markets.
I once heard an economist refer to the financial collapse as the fall of the Berlin Wall for Anglo-American capitalism. That is a simple but profound metaphor. It equates the ideological commitment to deregulated markets with its opposite—Soviet-style central planning—and suggests that each collapsed under the weight of its own inefficiency and inflexibility. All economies are mixed economies—there is a role for the market and a role for government. The question is not whether the government should play a role but when and how.
Throughout the developed world, there is a danger that deficit hawks will halt the important efforts to re-regulate the global economy before they have even taken effect. That would be disastrous for our collective economic future.