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.
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.
Europe: Fiscal or External Crisis?
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.
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.
Disasters and Financial Markets: More fallout from Japan’s crises
The massive and unfolding tragedy in Japan encapsulates in extreme form the intersection of the three crises that this blog deals with. The unprecedented earthquake and tsunami were obviously unpredictable natural disasters, but they also reflect the growing ecological fragility that is at the heart of the fears about the looming environmental crisis. The nuclear emergency that has erupted thereafter in the Fukushima nuclear installations is an extreme outcome of a particular pattern of development that has been heavily based on maximising energy sources, including the placing of nuclear reactors in known seismic and tsunami-prone zones. That these unbelievably tragic occurrences could then call forth massive financial instability is an indication of how far we have allowed our economies to become hostage to the most egregious market forces, even in times of colossal calamity.
Pulling Away the Curtain: The U.S. Government’s Role in Technology Development
Fred Block, Guest Blogger
The Obama Administration and the House Republicans are engaged in an intense battle over spending that will likely lead to a shutdown of the federal government. The immediate issue is funding the government for the remainder of the 2011 Fiscal Year that runs through September 30th. If the two sides don’t reach an agreement, current funding runs out on March 18th. But as soon as that issue is resolved, an even more momentous conflict will begin over spending levels for Fiscal Year 2012. The Administration has made clear that in both cases, it wants to protect certain types of spending from Republican cuts, especially funds for infrastructure and innovation.
Financial Fraud: Citigroup not in a class by itself
And now for a word about class. The Republican right wing has long been charging liberal commentators with fomenting class warfare. It is an otherworldly charge. Wages for typical Americans have been outright bad for a generation, while a top sliver has made the fortunes of a century. Even the Hamilton Group, the centrist think tank housed in the Brookings Institution and put together by Robert Rubin, just published a paper about how wages for males have fallen since 1969. But real Americans, we are told, don’t complain about the wealth of a few at the top.
In fact, the class warfare has been carried on by those at the top, aided by politicians, regulators, unthinking media, and not a few economists with simple half-truth theories about the universal stabilizing value of speculation, the rationality of stock prices and therefore stock options to reward CEOs, and the enormous dangers of wage increases that might contribute even to mild inflation.
Keynesianism and the Crisis
Lance Taylor, Guest Blogger
The only way to understand the Great Crisis and how to deal with it is through the economics of John Maynard Keynes and his closest followers. For the details see my new book, Maynard’s Revenge: The Collapse of Free Market Macroeconomics (Harvard University Press). Three ideas emphasized by Keynes 75 years ago are crucial for understanding the contemporary situation.
The first is that economic actors operate under fundamental uncertainty — at times they cannot predict or even imagine the nature of future developments. In the mid-2000s Federal Reserve Governor Ben Bernanke extolled a “Great Moderation” in macroeconomics. He did not, and probably could not, think about the tsunami that was about to strike. Rather, he accepted widespread market conventions that all was well. Keynes thought that such conventions might persist for a time, but then could rapidly break down.
Climate Change Negotiations: A Collection of Post-Cancún Analyses
It has been twelve weeks since the conclusion of the UN Climate Change Conference in Cancún. There were mixed feelings on the Cancún outcome. While many felt that, in substantive terms, not much was achieved, the agreement was also perceived as process-saving, especially when compared with the Copenhagen debacle a year earlier, and thus the closing session in Cancún met with thunderous applause.
Official climate change negotiations will resume in Bangkok, Thailand in early April. There, work will continue for the working groups on Long-term Cooperative Action (AWG-LCA 14) and on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP 16). The agenda includes, among others, issues such as a global goal for emission reductions and global peaking, adaptation, MRV for developed and developing countries, the registry, forests financing, technology, capacity building and market/non-market mechanisms. The Bangkok meeting will be the first in preparation for the next UN Climate Change Conference (COP 17), to take place in Durban, South Africa, November 28 –December 9, 2011. As such, no particular outcome is expected, other than progress towards an eventual deal in Durban (or beyond).
Commodity Market Reform: Wall Street versus the regulators
Steve Suppan, Guest Blogger
In contrast to the rapidity with which governments moved to use taxpayer funds to rescue the “too big to fail banks” in 2008, the pace of financial and commodity market reform since then has been agonizingly slow. One factor frustrating re-regulation is financial industry resistance to reform, aided in the United States by Republican Party efforts to reimburse the financiers of their November 2010 electoral victory with initiatives to defund the regulatory agencies responsible for implementing the “Dodd-Frank Wall Street Reform and Consumer Protection Act.”
Before dawn on February 19, the House of Representatives voted to slash the budget of the Commodity Futures Trading Commission by a third. “There would essentially be no cop on the beat,” CFTC Commission Michael Dunn said at a February 23 Senate hearing. CFTC Chairman Gary Gensler had told a House finance committee hearing that such a cut would not only cripple the CFTC’s ability to implement Dodd-Frank reforms, but would prevent his agency from investigating Ponzi schemes and market manipulation. The U.S. Senate is unlikely to support the House Republican assault on regulation, but the Obama administration’s proposal to levy a transaction fee to finance CFTC implementation and enforcement is facing stiff opposition.