That is the title of this opinion piece in the FInancial Times.
It turns out that in the present regime of “floating” exchange rates, countries have a choice of the tiger, or the tiger. Either they can accept the wild volatility of hot money flows driven by Federal Reserve policy, or they can impose capital controls. According to the FT’s Robin Harding, the central bankers who gathered at Jackson Hole last week, accept this dilemma fatalistically.
One would be tempted to say “good” and leave it at that. As anyone who has been through Alcoholics Anonymous can tell you, the first step to fixing the problem is to say, “Hi, I’m a central banker and I have a problem.”
Unfortunately, Mr. Harding says that “unconventional monetary policy ” and “big upgrades to financial regulation” (e.g. Dodd-Frank?) are successes. They’re just not enough, according to Mr. Harding to “tackle imbalances”. So we are doomed to more crises, and the problem is getting worse.
One academic wonk who presented at the conference proposes “targeted capital controls, tough bank regulation, and domestic policy to cool off credit booms”. Presumably she envisions even more draconian regulations than Sarbanes-Oxley and Dodd-Frank enacted around the world, plus control boards to determine who can have access to dollars and who is forced to remain stuck in the local currency.
Imposing capital controls will be one of the last panicky moves of flailing socialist leaders, before they get really nasty. The so-called “soft” socialism that now covers much of the globe allows the relatively free movement of capital across borders, along with people and goods. The “hard” socialism of Hitler and Stalin could not allow anything to move, except as commanded. And, of course armies. Armies move across borders, when peaceful people cannot cross with goods and money.
Any academic who apologizes and justifies this evil, is merely acting as the witch doctor who gives moral support to tyrants. People don’t go along with such naked evil, unless they believe it is somehow good, or at least necessary. Until recently, the witch doctors have been successful. Most Americans have not thought a lot about monetary policy, and have generally accepted the Fed and the paper dollar. They have started to become restive following the “unconventional monetary policy” and its “big success” in the economy since 2009.
While Mr. Harding is not on board the agenda of that particular academic, it is because he seems to prefer the ultimate monetary shaman: John Maynard Keynes. What is his proposal to fix, once and for all, the broken monetary system run by national central planners? A system administered by international central planners.
He says that the current system suffers from a “lack of a mechanism to force any country with a current account surplus to reduce it.” But don’t worry, the new regime of international central planning will work because it will have “penalties for countries that run a persistent surplus.” Think about this. What could possibly cause every country in the world to submit to an externally imposed penalty if they don’t run their affairs in accord with Mr. Harding’s central plan?
The solution is not more regulations, central plans, and penalties. We need to rediscover freedom and free markets. We need to rediscover the gold standard.