GLOBALIZATION….In an interesting post about globalization and capital mobility ? in which I guess I come out as a 4-day-a-week globalist ? John Quiggin says this:
Even more, I’m struck by the failure of the world’s most sophisticated financial markets in their basic task, that of allocating funds for investment. Governments have wasted a lot of money on silly projects, but the dissipation of a trillion dollars in the space of a couple of years on valueless dotcoms and redundant optical fibre is a record that is not going to be matched any time soon. And as far as rent-seeking goes, the amount creamed off in this process by people whose contribution was entirely negative gives the Mobutus and Saddams of this world a fair run for their money.
Now, I really do believe that free markets are generally the most efficient allocators of economic resources (and I imagine that John does too), but his point is one that I’ve also marveled at, and not just because of the dotcom boom. As near as I can tell, international financial institutions are, in reality, just about worst judgers of risk imaginable, whose only real rule seems to be, “If everyone else is lending, then so should we, and if no one else is lending, then we shouldn’t either.”
This is a good example, I think, of a place where moderate government intervention is well justified. Things like fixed exchange rates or dollarization don’t seem to work, but unfettered capital movements all too often result in a boom/bust cycle that seems wholly unnecessary. Something in the middle, that allows markets to work but prevents them from nearly destroying entire countries seems eminently reasonable.
