Tuesday, April 14, 2009

Wolf it down

Martin Wolf has prepared another typically thoughtful column, this one in response to Simon Johnson's incendiary Atlantic article.  Wolf is a characteristically a bit more balanced and a bit less rhetorical:

Yet do these weaknesses make the US into Russia? No. In many emerging economies corruption is egregious and overt. In the US, influence comes as much from a system of beliefs as from lobbying (although the latter was not absent). What was good for Wall Street was deemed good for the world. The result was a bipartisan programme of ill-designed deregulation for the US and, given its influence, the world.

Moreover, the belief that Wall Street needs to be preserved largely as it is now is mainly a consequence of fear. The view that large and complex financial institutions are too big to fail may be wrong. But it is easy to understand why intelligent policymakers shrink from testing it. At the same time, politicians fear a public backlash against large infusions of public capital. So, like Japan, the US is caught between the elite's fear of bankruptcy and the public's loathing of bail-outs. This is a more complex phenomenon than the "quiet coup" Prof Johnson describes.

This is certainly true.  The US as emerging market hypothesis is overly simplistic, even if it does capture something important, and is especially useful as a tool to pierce the delusional egotism of America.  But for all the problems we have, I don't think that it is yet a foregone conclusion that there is no way to tame the financial beast.  What remains to be seen is if we can generate the political mechanism for real reform.  This will only become apparent as the cloud of panic lifts and we see the real economy stabilize to some extent.  For the moment, I remain pretty cynical on this point, but I'm hoping to be proven wrong.

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