Is a liberal international economic order losing intellectual support? Should developing economies be worried? If Larry Summers is the canary in the intellectual mine, his two columns in the Financial Times (April 28 and May 5) suggest that the answers to both questions are yes.
The liberal economic order of the last several decades was premised on two assumptions. First, that the proliferation of prosperity across countries was a good thing. Second, there would be winners and losers but, on balance, a majority of people in both developing and developed countries would benefit. Mr Summers now appears to be questioning both assumptions. He has not stated outright that the proliferation of prosperity is undesirable but his columns do suggest that globalisation creates competition for America.
Carbon trade, especially the trades between developed and developing countries, which I think is one of the most brilliant ideas in mechanism design, will be the next big thing in financial innovation. A democrats president in November will only expedite the process.
Bernanke summarizes the origin of current financial meltdown in a nice 2 min video.
In watching China’s earthquake rescue, I was stunned by one interview clip in which local official complained that due to lack of diesel oil, the heavy rescue equipment could not be put into use. At every gas station, diesel is sold out.
Why is there a shortage of diesel in China? That’s because Chinese government thinks price control is the way to deal with inflation. The unintended policy consequence is the suppliers (such as SINOPEC and China Petro) all cut down their supplies. This reminds me of the price and wage control in the US back in 70s under President Nixon, and the long wait line at the gas station… Politicians just don’t learn their lessons.
Also, with commodities prices all time high, I think it’s a good time for Chinese government to re-evaluate their policy toward auto industry: Whether public transportation should be preferred in a country with 1.4 billion population? Whether gas guzzlers like GM’s Hummer shall ever be allowed to be produced in China? Yes, there are plenty of Hummers in China.