The IMF’s welcome rethink on capital controls

Triple Crisis blogger Kevin Gallagher co-authored the following opinion article with José Antonio Ocampo in the Guardian on the IMF’s formal recognition of capital controls as a vital policy tool for regulating destabilizing capital flows in developing countries.

In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies.

In preparation for its annual meetings next week, on Tuesday the IMF took its work on capital controls a step further by issuing two reports (one official report and one staff discussion paper) outlining when nations should use capital controls, and what types of capital controls should be used under the proper circumstances. The new reports amount to yet another big step forward for the IMF – though there is still a long way to go.

Read the full article at the Guardian.

The IMF's welcome rethink on capital controls

Triple Crisis blogger Kevin Gallagher co-authored the following opinion article with José Antonio Ocampo in the Guardian on the IMF’s formal recognition of capital controls as a vital policy tool for regulating destabilizing capital flows in developing countries.

In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies.

In preparation for its annual meetings next week, on Tuesday the IMF took its work on capital controls a step further by issuing two reports (one official report and one staff discussion paper) outlining when nations should use capital controls, and what types of capital controls should be used under the proper circumstances. The new reports amount to yet another big step forward for the IMF – though there is still a long way to go.

Read the full article at the Guardian.

The EU Debt Crises: Three weaknesses of the European Stability Mechanism

Daniela Schwarzer

The latest meeting of the European Council on March 24-25 was supposed to settle the economic governance reform of the EU. It did indeed agree on a so-called “Comprehensive Package”, including the terms of reference of the future European Stability Mechanism (ESM) to solve sovereign debt crises as well as a so-called “Pact for the Euro Plus”. Two years back, hardly anyone would have expected such progress. But in particular the ESM may prove insufficient both for the prevention and resolution of debt crises.

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Albert Hirschman, Alan Greenspan, and the Problem of Intellectual Capture

Mark Blyth

I like the Financial Times (FT) for two main reasons: it gives me all I need to know that day in about seven pages every morning, and the fact that its ‘sound.’ By ‘sound’ I mean that, unlike the Murdoch press, I can rely on the FT to tell me the truth since consistently lying to the global investor class is a losing business model. But one should remember that for the FT, as it is for the rest of us, it’s still the truth as they see it.

A week or so ago the FT published a piece that asked why, if social democracies are so nice, their crime fiction is so dark? It’s a fair point, and anyone sitting through the middle section of ‘The Girl With the Dragon Tattoo’ has probably asked the same question. I didn’t read the FT’s answer, but my own answer comes from being in Iceland last week; a trip that gave me an insight into intellectual capture that I didn’t really appreciate before: that some truths are harder to shake than others.

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Climate games and America

Sunita Narain

Triple Crisis blogger Sunita Narain published the following opinion article in Business Standard on legislation attempting to remove the EPA’s power to regulate carbon dioxide as a pollutant in the U.S.

Last fortnight, the final nail was driven into the action on climate-change coffin. In the US, a crucial vote in the house sub-committee decided that the country’s Environment Protection Agency (EPA) would no longer have the power to regulate carbon dioxide as a pollutant. The committee voted we say that the threat from climate change was not real, urgent or even serious. They said that any steps to curtail emissions would impact manufacturing and energy industry in the US. This was not negotiable. In other words, the world is back to square one — where it started in 1992, at the Rio Conference and where US president George Bush said that his country’s lifestyle was not negotiable.

Read the full article at Business Standard.

To Sustain Economic Recovery: Re-regulate

Timothy A. Wise

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.

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Regulating Wall Street: Exploring the Political Economy of the Possible

Gerald Epstein and Robert Pollin

Triple Crisis blogger Gerald Epstein co-authored the following working paper with PERI co-director Robert Pollin on three areas of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act where effective regulations can be established.

The Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 is the most ambitious measure aimed at regulating U.S. financial markets since the Glass-Steagall Act was implemented in the midst of the 1930s Depression.  However, it remains an open question as to whether Dodd-Frank is capable of controlling the wide variety of hyper-speculative practices that produced the near total global financial collapse of 2008-09.  This is because the legislation mainly lays out a broad framework for a new financial regulatory system.  It leaves the details of implementation to ten different regulatory bodies in the U.S.  The lack of specificity in setting down new financial regulations was widely viewed as a victory for Wall Street, and equally, a defeat for proponents of a strong new regulatory system.

Read the full working paper at PERI.

Europe: Fiscal or External Crisis?

Matías Vernengo

Central to the different views of conservative and progressive authors, with respect to the European crisis, is the question of causality relating the fiscal and external crises.  Although causality is a thorny issue, the empirical evidence may illuminate the matter.  The following graph (Fig. 1)  shows the evolution of unit labor costs in Germany, and the group of peripheral countries, sometimes referred by their acronym (PIIGS), that were hit by the crisis, or are close to that position.

It shows that while German unit labor costs remain essentially constant, increasing merely 6 percent, in all the other countries the increases were of the order of more than 30 percent.  This translates into significant real appreciation of the real exchange rate in the periphery of Europe.

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The Transmission of Global Food Prices

Triple Crisis bloggers C.P. Chandrasekhar and Jayati Ghosh published the following article for International Development Economics Associates (IDEAs) on the high transmission of recent international food price changes to domestic food prices in many developing countries.

Clearly, we are back in another phase of sharply rising global food prices, which is wreaking further devastation on populations in developing countries that have already been ravaged by several years of rising prices and falling employment chances. The food price index of the FAO in December 2010 surpassed its previous peak of June 2008, the month that is still thought of as the extreme peak of the world food crisis.

Some of the biggest increases have come in the prices of sugar and edible oils. But even staple prices have shown sharp increases, with the biggest increase in wheat prices, which doubled in the second half of 2010 and have been increasing since then. Rice prices have been relatively stable in global trade over the past year in comparison, but are still much higher (by around 48 per cent) than they were at the start of 2008.

Read the full article at IDEAs.

Popular Climate Economics Model Needs Major Overhaul

Frank Ackerman, re-posted from the Real Climate Economics Blog, a Triple Crisis partner.

True or false: Risks of a climate catastrophe can be ignored, even as temperatures rise? The economic impact of climate change is no greater than the increased cost of air conditioning in a warmer future? The ideal temperature for agriculture could be 17oC above historical levels?

All true, according to the increasingly popular FUND model of climate economics. It is one of three models used by the federal government’s Interagency Working Group to estimate the “social cost of carbon” – that is, the monetary value of the long-term damages done by greenhouse gas emissions. According to FUND, as used by the Working Group, the social cost of carbon is a mere $6 per ton of CO2. That translates into $0.06 per gallon of gasoline. Do you believe that a tax of $0.06 per gallon at the gas pump (and equivalent taxes on other fossil fuels) would solve the climate problem and pay for all future climate damages?

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