Will MOAB Trigger Protectionism? | 83 comments (83 topical, editorial, 0 hidden)

Re: Will MOAB Trigger Protectionism? (4.00 / 4)

The removal of capital controls was an important contributing factor to the 1997 currency crisis and its reinstatement was an important part of its remedy (for those countries that dared to reinstate them temporarily, such as Malaysia did with Krugman's blessing). It is apparent that free movement of capital contributes to financial instability generally.

Free movement of capital also renders international trade "non-Ricardian". In the presence of mobile capital trade is no longer win-win and comparative advantage is replaced by absolute advantage.

Capital controls need to be in the form of hard barriers, but simply of exit taxes.

I wonder if what is really damaging is the combination of free movement of capital and freely floating currency exchange rates. You could have one or the other. I think exit taxes on capital are by far the easiest way to moderate things.

In five words, capital controls are not 'protectionism'.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Tue Jan 13th, 2009 at 05:05:10 AM EST

Re: Will MOAB Trigger Protectionism? (4.00 / 2)

You cannot have controlled exchange rates without controlling capital flow - that would render your monetary policy impotent. So if you have to either restrict capital flows or control the exchange rate, it has to be the former.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jan 13th, 2009 at 05:10:22 AM EST
[ Parent ]

That depends on what your monetary policy is ... (4.00 / 3)

... if your monetary policy is to maintain a steeply discounted exchange rate, that is the easiest to maintain without support from capital controls.

OTOH, that is making maintenance of a stable exchange rate the overriding priority, irrespective of the state of domestic economic activity and financial markets, so it surely qualifies as a "hard" objective even under that qualifier.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jan 13th, 2009 at 12:42:17 PM EST
[ Parent ]

Re: Will MOAB Trigger Protectionism? (4.00 / 3)

Correction:

Capital controls need tonot be in the form of hard barriers, ...

Otherwise it makes no sense.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Tue Jan 13th, 2009 at 05:18:01 AM EST
[ Parent ]

Re: Will MOAB Trigger Protectionism? (4.00 / 6)

I usually compare capital to a fluid in tanker truck trailer. If you leave the tank without any device to prevent it, at the first turn, even taken at medium-speed, the transfer of liquid inside the tank will create a massive imbalance which will topple the trailer. So, usually tank trailers are fitted with inside perforated walls to slow the fluid movement. This can be compared to capital controls.

Another way to prevent the problem is to increase the viscosity of the fluid, which could be a good metaphor for taxes on transactions...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Tue Jan 13th, 2009 at 09:14:01 AM EST
[ Parent ]

Will MOAB Trigger Protectionism? | 83 comments (83 topical, 0 editorial, 0 hidden)

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