THE BIGGEST THREAT TO THE GLOBAL ECONOMY IS … Anti-market bias. -Bryan Caplan • Procrastination. -Peter Diamond • Short-term thinking. -Esther Dyson • A euro meltdown. -Dean Baker • Tax-cut fanatics. -Jeffrey Frankel • The bond market. -Andy Sumner •
MY OUT-OF-THE-BOX SUGGESTION TO REVIVE THE GLOBAL ECONOMY IS Wipe out debts. -Daron Acemoglu • Require candidates for national office to pass ninth-grade tests on arithmetic, history, and geography. -Jeffrey Frankel • Double down on science. -Tyler Cowen• A government lottery where winners have mortgages, student loans, or other debt paid off. -Mark Thoma • We don’t need “out-of-the-box” solutions; we need “head-out-of-the-sand” ones. -Adam Hersh • Pray. -David Smick
Many questions in the field of financial regulation are hard to answer: Would the separation of commercial banking and investment banking help prevent crises? To what extent should individual consumers be protected against foolishly borrowing too much? Should Credit Default Swaps be regulated out of existence? What should regulators do about patterns of high executive compensation that is evidently not a reward for performance? I have views on these questions, just as other observers do. But in these cases I see the arguments on both sides.
After the currency crises of 1994-2001, and especially the East Asia crises of 1997-98, a lot of research investigated what countries could do to protect themselves against a future repeat. More importantly, policy makers in emerging markets took some serious measures. Some countries abandoned exchange rate targets and began to float. Many accumulated high levels of foreign exchange reserves. Many moved away from dollar-denominated debt, toward other kinds of capital inflow that would be less vulnerable to currency mismatch, such as domestic currency debt or Foreign Direct Investment. Some instituted Collective Action Clauses in their debt contracts to facilitate otherwise-messy restructuring of debt in the event of a severe negative shock. A few raised reserve requirements or otherwise tightened prudential banking regulations (clearly not enough, in retrospect). And so on.