The flaws of the current international financial system are so intolerable that we must either (i) have a global regulator and a global lender of last resort, or (ii) nations must establish their own controls over international capital flows, according to Dani Rodrik. Effective global institutions would need to be able to dictate to members of the G-8, not just to all other nations as the IMF does. Reflected in the comments to Rodrik's post are the expected complaints that international regulation would be intolerable and unworkable and that national capital controls would be "inefficient" and easily circumvented.
To those who argue that financial globalization is a fait accompli and that capital controls cannot work, Rodrik blogs from a conference in Bankok that several Asian nations are resisting financial globalization and that it is working. Those, such as China, that have resisted most effectively have been less affected by the current crisis than those, such as South Korea, that are most globally integrated. The implication is that the present international financial system is doomed even if the US and other powerful players cannot agree on a new regime, because smaller nations can and will act on their own or in regional alliances.
The G-20 is meeting in Washington next week to discuss all this. It appears the host Lame Duck Administration will oppose all material changes, including specifically proposals to regulate hedge funds. 73 days to go!
Skeptic
To Rodrik's surprise, he finds Columbia economist Guillermo Calvo calling for capital controls and posts an explanation for the apostasy. What seemed a radical and unthinkable government interference with international capital markets 2 months ago is definitely thinkable today, but probably not by the Lame Duck Administration. 69 days to go.