This is a tragedy. The core problem over the past few decades was not bankers\’ greed or the complex financial instruments that enabled them to satisfy it. It was the immense pyramids of debt built up by the Anglo-Saxon half of the world, and the equally massive mountains of savings created in the other.
Almost everything that occurred in the past couple of years was, directly or indirectly, a consequence of this.
No one should have let Britain run such large deficits, and the Chinese such vast surpluses, over such a long period. And yet both got away with it, in what must count as the most momentous economic policy failure in modern history.
Those imbalances (the sterile word economists use) created the mountain of money that fed the frenzy of mortgage lending and eventually caused a financial crisis. Part of the problem was that the much-mythologised Bretton Woods agreement was a botched job: it failed to stipulate that the world\’s big exporters and savers – China and Germany, for instance – should be just as responsible for setting right these imbalances as the debtor nations.
Edmund Conway here seems to be equating trade deficits/surpluses with government deficits/surpluses.
As everyone will know, my macro\’s not all that good. I know there\’s a link between the two but it\’s not a one to one equivalence, is it?
As for this:
Some time in the past 12 months, there was a brief window in which we really could have improved capitalism: made it less prone to boom and bust, ensured that levels of inequality would yawn no further apart.
I tend to side with the Austrians here: booms and busts are capitalism, not an aberration. And as for inequality, if that\’s something you worry about a lot (unlike myself) then why would you want to stop the decrease in global inequality that\’s been going on in recent decades?