Life in a crestfallen world

In the early 1960s, a Broadway musical called “Stop the World, I Want to Get Off” was all the rage. But you hear the sentiment of that title a lot these days.  Opinion polls show that Americans are both weary with and wary of the rest of the world. It’s as if they wish it would all just go away.

The increasing signs of anti-globalism sentiment are unsurprising given that the typical American got nothing out of the last economic expansion. Adjusted for inflation, the median wage is lower than it was in 2000, and jobs are less secure. Americans want to cast blame, and unfortunately, it’s always easiest to blame foreigners-the people who trade with them, and migrate to their country. This could be a large problem in the future. When isolationism last flourished there in the 1930s, it hurt the economy, and if it comes to dominate their thinking in the aftermath of financial crisis, it will hurt them again.

Globalization means freer markets and more political freedom worldwide; multinationals are businesses, large or small, that have operations in more than one country; and illegal aliens are people who want a better life so much that they are willing literally to risk everything for a chance at the worst jobs that developed economies offer. All three are major contributors to western prosperity, productivity and standard of living.

Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.  Wise after the calamity, central bankers, market regulators and the rest are already saying what are needed are tighter rules, closer oversight and a premium on sobriety. The rest of us may ask why it has taken so long for these guardians of the system to stir from their complacency. Doubtless we will be told in turn that this is no time for recriminations. The people who presided over this mess must now be trusted to save the global financial system from their past mistakes.  The fiendishly complex products that seemed for a time to define a new financial capitalism will be seen for what they properly are: instruments of deception as much as of innovative genius.

How much good all of this will do is an open question. To the interested observer, it looks that the big mistakes of recent years have not been so much about the absence of regulation, but a failure to act. The central bankers and the regulators were simply asleep on the job – something they will never admit while inventing jargons like `toxic instruments’ that wreaked havoc!

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