Robert,
Can you post a URL for Sach's article?
I have to say in spite of not having read the whole article that these excerpts do not inspire me.
1. "these countries deserve the benefit of the doubt. But there is no convincing way to prove this." Well, there is no convincing way to prove it because they WERE given the benefit of the doubt for years and it has become clear in the past year that they abused that trust. Enormously. The only way to give them "the benefit of the doubt" at this point would be to make every company conform to minimally acceptable accounting standards and have quarterly reports which give an account of their finances and what they are doing. Transparency. Easier said than done, obviously. Its hard to do, in fact impossible to do completely, but it is obvious that there is a huge gap between what they report and what they do, as no one had a clue of just what kind of debt the Asian companies/countries had taken on. Neither how much nor the quality of the debt.
2. "So this free-marketeer [Milton Friedman] has long championed government-mandated deposit insurance as a protection against bank runs. We now need an international equivalent, to forestall panics in international lending." This strikes me as nonsense. Countries themselves should do this by taxing their own banks. This would slow growth, yes, it would be hard, yes, but it should be structured in a way that gives banks incentives for making responsible loans, and governments incentives for properly regulating the banks. No international body could do this. The article partly recognizes this in its next sentence ("the best idea around is that developing countries should impose their own supervisory controls") but if the money comes from an international body, the incentives for some minimal honesty would be gone.
3. "To avoid panicky capital outflows, it is best to prevent banks from exposing themselves to excess short-term indebtedness in the first place." I don't understand this--so the banks should expose themselves to long-term indebtedness, which is inherently more risky? I must be misinterpreting somehow.
4. "Even with all of the turbulence and value destruction of the past year...no developing countries are closing the doors on markets and globalisation. In Malaysia and Russia, certainly, there has been a backlash. But even there, policymakers know they cannot get by without the outside world; and they know that only markets can deliver the chance of sustained growth." Well of course they haven't "closed the door on globalisation"", they are utterly dependent on it. They haven't done the hard thing, and built up their own internal markets. That way is the long, hard, slow way to build a country's wealth (even if it is the only true way to build real wealth). Instead they tried to do it Japan's way--export their way to wealth--and thereby exposed the inherent contradictions of this economic strategy. EVERYBODY CAN'T DO THIS SUCCESSFULLY, and when too many countries try it, it MUST result in failure for those that did try it, especially when they try to finance it with debt pegged to another currency. In retrospect, it is a lunatic strategy. The last sentence--that "they know that only markets can deliver the chance of sustained growth"--strikes me as ludicrous. The "markets" can't do this if they are producing without regard to market reality, and if they are paying attention to profit but only to market share, and if they are, in any case, largely corrupt, and not actually producing anything that is truly needed. There was NO chance that, e.g., that that great symbol of cupidity the Twin Towers would EVER be profitable. That is only the "tallest", most visible example of many idiotic projects. If these governments don't adopt policies that will over time build strong middle classes in their countries (rather than just a few great fortunes), then they will continue to have severe problems. And so, eventually, will the US and developed countries (so I think, anyway, I know that Lawrence Kam disagrees with me here--he wrote about a month or so ago we can just go on exploiting LDCs without suffering political, moral and economic consequences).
All IMHO, obviously. So, rip into what I wrote. What is good about this article?
Regards,
Sam |
