At its core, his idea is the same as the old one: the creation of paper currency which will be used for bailing out countries in payments crises. Throughout the 1970s, after the US took the world off the Bretton Woods system and exposed it to unprecedented exchange rate volatility, Third World countries had asked the West to do the same. And they had kept on at it with renewed vigour after the Latin American debt crisis hit the financial markets in late 1982.
But such was the steadfastness of Americas ideological opposition that, by the end of 1990s, an increase in SDRs was no longer on anyones agenda. The force of that victory by the market-wallahs was so great that several of the older ideas vanished though not, it would seem now, without trace. It has taken a crisis of gigantic proportions like the one in progress in East Asia, to bring some of them the Tobin Tax, SDRs etc back on to the edges of the international agenda.
Some of these will never be considered seriously outside of academic discussions. But the very fact that a few of the more important ones have survived and, indeed, are being resurrected, suggests that they were reasonably sensible ideas to begin with. Which is why they need to be considered rather more deeply than the international financial community is willing to at present. After all, the root causes of the crises are usually the same. As Charles Kindleberger showed in his book on bubbles, only the scale, speed and manifestations change.
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Mr Soros has also come round to the view that it is impossible to simultaneously pursue for long the objectives of maximisation of private profit and maintaining of sound national macroeconomic balances. He says that these can often be contradictory. He also thinks that the private sector is a poor allocator of international credit precisely because of this incompatibility because the pursuit of private profit tends to take money into investments which can, in the event of a panic, throw the macroeconomic balance out of gear.
To many who got their ideological oats after 1980, this will appear heretical. But an equal number of older economists and policymakers will recognise in this the economic orthodoxy of 1950-80. In those days it was assumed without question that the caprice and avarice of the private sector or animal spirits, as described by Manmohan Singh can result in outcomes that eventually hurt not just the private sectors own interests but of entire economies. Or, as the jargon would have it, maximising the sum of individual utilities does not necessarily maximise the collective utility. Market failure and Deux ex machina can, did, and do play spoilsport. This perception lay at the heart of the command-and-control regime that India and so many others adopted.
In the meantime, whether or not anyone takes George Soros seriously, the international financial community needs to reflect on one very simple fact: how is it that, in spite of laying claim to wizardry bordering on genius, it has landed the world in two major and several minor debt default crises in two successive decades?
It is no argument that these things used to happen earlier as well. For one thing, the bubble-caused crises of the past werent as frequent; and for another, they didnt have such global repercussions. A third difference is that the past crises were mostly the result of priv-ate greed and mistakes. Governments were rarely involved. And certainly their fates did not hang in balance.
But now these crises are as much a consequence of the older ingredients as policy errors. And though Jeffrey Sachs may suggest otherwise, the fact remains that the story of East Asia is the story of precisely these errors, not merely of bankers folly or private greed. This, in turn, means that the crises are less easy to tackle because, as Mr Mahathir demonstrated early on in the Malaysian crisis, all kinds of issues (including national sovereignty) creep into the cover up. It is always grand to claim the pursuit of national interest to avoid hard decisions. India, as we all know, is one of the proven masters of the game.
As for the Soros prescription, would fresh SDRs be a good idea, never mind who administers them, the IMF or some other body? On balance, I think not because it would only increase what economists, for some arcane reason, call moral hazard the chances that you will jump off the roof are higher if there is a net spread out below to receive you.
The answer, as Paul Krugman who was the first to predict the crisis has pointed out recently, lies in better regulated and more rule-based markets rather than on crony capitalism of the type that prevailed in East Asia or easy ways out. India, in this respect at least, has an easier task: it has to dismantle an excess of prudential regulation rather than build up from scratch never mind what the Thai deputy prime minister says.