We Need Greater Global Governance. By Peter Mandelson
The crisis reveals the weakness of nation-based regulation.
The Wall Street Journal, Jun 19, 2009, p A13
Fingering the villain in the banking crisis of 2008 turns out to be tougher than it looks. Was it the banker with the skewed incentives and the poor grasp of risk? Was it the over-indebted consumer with the 125% mortgage? Was it the politicians and regulators who failed to see the risks in both?
The answer, of course, is that it was all three, and any number of other contributing factors. But what enabled the banking crisis to happen was a structural imbalance in the growth model of the global economy over the last two decades.
That model has produced unprecedented global growth, but it also developed a serious weakness at its center. Unless we address that weakness, any other counter-recessionary strategy is palliative at best. The risk is that as the global economy slowly returns to growth, the urgency to address this fundamental problem will recede.
Reduced to its crudest form the problem was this: Credit was too cheap in the developed world. It was kept cheap by a number of factors. The commitment of China to an export-led growth model, matched by a willingness from rich-world consumers to keep spending, created persistent surpluses in China in particular.
Those surpluses were invested in developed-world debt, particularly the U.S., pushing down interest rates. That encouraged investors to look for riskier and riskier investments to increase their yield. It also encouraged people to buy houses they couldn't afford with the help of people who probably shouldn't have lent them the money in the first place. That debt was sold around the world. The end of the housing bubble revealed the risk in the system.
The precise detail of this process matters less here than the simple problem it represents. The stability or otherwise of the global economy is the sum of sovereign national macroeconomic policies. There is no mechanism to mediate between those policies or insist on action that would counter systemic risk. Similarly, national financial regulators have a clear enough remit for national market stability, but financial markets are now regional and global. Nobody was asleep at the wheel of globalization because there is no wheel to speak of.
If these imbalances are to be unwound in an orderly way, China will have to build a social welfare system that reduces huge levels of precautionary saving and thus boost domestic demand. It will need to continue to move towards greater currency flexibility. The export-led growth models of other surplus economies such as Germany and Japan are also both going to have to give way to greater domestic demand. Both consumers and governments in the U.S. and Britain are going to have to repair their balance sheets. We are going to have to save and invest more and export more.
Is any of this actually possible? Is it possible to preserve the benefits of open trade and an open global economy, addressing macroeconomic risk while totally respecting the choices of sovereign governments?
The answer has to be: not really. No government in the global economy, and certainly not economies on the scale of the U.S., China, Japan and the European Union, can claim a prerogative over domestic action that entirely ignores the systemic affects of its policies. The only way forward is a totally renovated approach to international coordination of economic policy.
We need to strengthen and depoliticize the International Monetary Fund and give it a new surveillance role that covers all aspects of systemic risk. It needs to be mandated to make recommendations on weaknesses in the system, and countries should be obliged to take these recommendations extremely seriously. Peer pressure is going to be vital -- just as it has been in keeping trade barriers at bay over the last year.
We need much greater global coordination of financial regulation, facing up to systemic risk and ensuring that market participants are not able to play one regulatory jurisdiction against another. The Group of 20 leaders have taken the first steps down this road.
Free-market true believers will resist the conclusion, but the only way to preserve a global growth model based on the huge benefits of dynamic markets is to regulate it better. The bill for the benefits of an open global economy has arrived, and it can only be paid in greater global governance.
Mr. Mandelson is Britain's business secretary and was EU Trade Commissioner from 2004 to 2008.
Friday, June 19, 2009
WSJ Editorial Page: The NEA's Latest Trick
The NEA's Latest Trick. WSJ Editorial
Trying to deny military families.
The Wall Street Journal, Jun 19, 2009, p A14
Public school teachers are supposed to teach kids to read, so it would be nice if their unions could master the same skill. In a recent letter to Senators, the National Education Association claims Washington, D.C.'s Opportunity Scholarships aren't working, ignoring a recent evaluation showing the opposite.
"The DC voucher pilot program, which is set to expire this year, has been a failure," the NEA's letter fibs. "Over its five year span, the pilot program has yielded no evidence of positive impact on student achievement."
That must be news to the voucher students who are reading almost a half-grade level ahead of their peers. Or to the study's earliest participants, who are 19 months ahead after three years. Parents were also more satisfied with their children's schools and more confident about their safety. Those were among the findings of the Department of Education's own Institute of Education Sciences, which used rigorous standards to measure statistically significant improvement.
If you call that "failure," no wonder the program has been swimming in several times as many applications as it can accept. They come from parents desperate to give their kids a chance to get the kind of education D.C.'s notorious public schools do not provide. That's the same chance the Obamas have made by opting for private schools and Secretary of Education Arne Duncan has taken by choosing to live in a Virginia suburb with better public schools.
Contrary to the NEA's letter, the D.C. voucher program isn't magically expiring of its own accord. In March, Congress voted to eliminate the vouchers after the 2009-2010 school year unless it is re-approved by the D.C. City Council and . . . Congress. The program, which helps send 1,700 kids to school with $7,500 vouchers, was excised even as the stimulus is throwing billions to the nation's school districts.
The NEA's letter was a pre-emptive strike against the possibility that 750,000 students in military families would benefit from vouchers. That idea was raised in a Senate hearing this month, when military families explained that frequent moves and inconsistent schooling was harmful to their children. "The creation of a school voucher program should be considered," Air Force wife Patricia Davis dared to say.
President Obama pledged to support whatever works in schools, ideology notwithstanding. But neither he nor Mr. Duncan have dared to speak truth to the power of the NEA. Military families can join urban parents on the list of those who matter less to the NEA than does maintaining the failed status quo.
Trying to deny military families.
The Wall Street Journal, Jun 19, 2009, p A14
Public school teachers are supposed to teach kids to read, so it would be nice if their unions could master the same skill. In a recent letter to Senators, the National Education Association claims Washington, D.C.'s Opportunity Scholarships aren't working, ignoring a recent evaluation showing the opposite.
"The DC voucher pilot program, which is set to expire this year, has been a failure," the NEA's letter fibs. "Over its five year span, the pilot program has yielded no evidence of positive impact on student achievement."
That must be news to the voucher students who are reading almost a half-grade level ahead of their peers. Or to the study's earliest participants, who are 19 months ahead after three years. Parents were also more satisfied with their children's schools and more confident about their safety. Those were among the findings of the Department of Education's own Institute of Education Sciences, which used rigorous standards to measure statistically significant improvement.
If you call that "failure," no wonder the program has been swimming in several times as many applications as it can accept. They come from parents desperate to give their kids a chance to get the kind of education D.C.'s notorious public schools do not provide. That's the same chance the Obamas have made by opting for private schools and Secretary of Education Arne Duncan has taken by choosing to live in a Virginia suburb with better public schools.
Contrary to the NEA's letter, the D.C. voucher program isn't magically expiring of its own accord. In March, Congress voted to eliminate the vouchers after the 2009-2010 school year unless it is re-approved by the D.C. City Council and . . . Congress. The program, which helps send 1,700 kids to school with $7,500 vouchers, was excised even as the stimulus is throwing billions to the nation's school districts.
The NEA's letter was a pre-emptive strike against the possibility that 750,000 students in military families would benefit from vouchers. That idea was raised in a Senate hearing this month, when military families explained that frequent moves and inconsistent schooling was harmful to their children. "The creation of a school voucher program should be considered," Air Force wife Patricia Davis dared to say.
President Obama pledged to support whatever works in schools, ideology notwithstanding. But neither he nor Mr. Duncan have dared to speak truth to the power of the NEA. Military families can join urban parents on the list of those who matter less to the NEA than does maintaining the failed status quo.
CBO on Federal President's health plan
ObamaCare Sticker Shock. WSJ Editorial
A $1.6 trillion deficit boost, and the uninsured will still be with us.
The Wall Street Journal, Jun 19, 2009, page A14
This was supposed to be a red-letter week for national health care, as Democrats started the process of hustling a quarter-baked bill through Congress to reorganize one-sixth of the economy on a partisan vote. Instead it was a fiasco.
Most of the devastation was wreaked by the Congressional Budget Office, which on Tuesday reported that draft legislation from the Senate Finance Committee would increase the federal deficit by more than $1.6 trillion over the next decade while only partly denting the population of the uninsured. The details haven't been made public, but the short version seems to be that President Obama's health boondoggle prescribes vast new spending without a coherent plan to pay for it even while failing to meet its own standards for social equity.
Finance Chairman Max Baucus postponed the health timeline, probably until after Congress's July 4 vacation. His team will try to scale down the middle-class insurance subsidies and make other cuts to hold the sticker shock under $1 trillion. (Oh, is that all?) Mr. Baucus also claims he's committed to a bipartisan consensus, yet most Republicans have been closed out of the negotiations, and industry lobbyists have been pre-emptively warned that even meeting with the GOP will invite retribution.
Useful to emphasize amid the mayhem is that CBO's number-crunching is almost always off -- predicting too much spending for market-based policies and far too little for new public programs, especially on health care. The CBO score for a new entitlement is only the teaser rate, given that the costs will inevitably balloon as the years pass and more people mob "free" or subsidized insurance.
Mitt Romney pitched his 2006 health reform -- which Democrats view as a model for universal coverage -- as modest and affordable, yet already its public option is annihilating the Massachusetts fisc. The original cost estimate for last year was $472 million; final spending came in at $628 million. Spending this year is at least $75 million over initial budget, while projections for next year range as high as $880 million -- and even those are probably too low.
Capitol Hill's entitlement Democrats are determined too press ahead, despite this cost detour. Still, this week's lesson is that ObamaCare might not be inevitable once Americans figure out the astonishing price tag.
A $1.6 trillion deficit boost, and the uninsured will still be with us.
The Wall Street Journal, Jun 19, 2009, page A14
This was supposed to be a red-letter week for national health care, as Democrats started the process of hustling a quarter-baked bill through Congress to reorganize one-sixth of the economy on a partisan vote. Instead it was a fiasco.
Most of the devastation was wreaked by the Congressional Budget Office, which on Tuesday reported that draft legislation from the Senate Finance Committee would increase the federal deficit by more than $1.6 trillion over the next decade while only partly denting the population of the uninsured. The details haven't been made public, but the short version seems to be that President Obama's health boondoggle prescribes vast new spending without a coherent plan to pay for it even while failing to meet its own standards for social equity.
Finance Chairman Max Baucus postponed the health timeline, probably until after Congress's July 4 vacation. His team will try to scale down the middle-class insurance subsidies and make other cuts to hold the sticker shock under $1 trillion. (Oh, is that all?) Mr. Baucus also claims he's committed to a bipartisan consensus, yet most Republicans have been closed out of the negotiations, and industry lobbyists have been pre-emptively warned that even meeting with the GOP will invite retribution.
Useful to emphasize amid the mayhem is that CBO's number-crunching is almost always off -- predicting too much spending for market-based policies and far too little for new public programs, especially on health care. The CBO score for a new entitlement is only the teaser rate, given that the costs will inevitably balloon as the years pass and more people mob "free" or subsidized insurance.
Mitt Romney pitched his 2006 health reform -- which Democrats view as a model for universal coverage -- as modest and affordable, yet already its public option is annihilating the Massachusetts fisc. The original cost estimate for last year was $472 million; final spending came in at $628 million. Spending this year is at least $75 million over initial budget, while projections for next year range as high as $880 million -- and even those are probably too low.
Capitol Hill's entitlement Democrats are determined too press ahead, despite this cost detour. Still, this week's lesson is that ObamaCare might not be inevitable once Americans figure out the astonishing price tag.
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