Dani Rodrik contributed a guest article to the Economist this week on A Plan B for Global Finance. (A side note - it was pretty nice of the Economist to give him the space, since Rodrik admitted that until recently he didn't even read the Economist. Or as he explained in his blog, "a one-man boycott of ideology that masquerades too often as journalism." It seems the financial crisis has changed a few things!)
In a single page, Rodrik makes quite a strong argument against efforts at creating a global financial regulatory regime. As he puts it, "global financial regulation is neither feasible, nor prudent, nor desirable." Rodrik points out that financial regulation involves a set of trade-offs, e.g. between innovation and stability, and each country will have different preferences. Oddly, he leaves out an even stronger argument against global financial regulation, although one that is implied in the article.
In the face of great uncertainty about what model(s) of financial regulation should be implemented, the obvious response is experimentation. As no policymakers know for certain what will work best, countries should be free to experiment with different models of national regulation. Some will prove workeable, and some not. Those models that are successful will then be open to imitation by countries with similar goals and preferences. This argument is akin to those Rodrik makes in a paper on Economic Development as Self-Discovery but oddly leaves out of his piece in the Economist. (Perhaps one page was not enough?)
To join the fray on Rodrik's article, check out the Rodrik roundtable at the Economist.
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