The Age of Incompetence: Live from Project Syndicate

Should-Read: Bill Janeway: The Retreat from Hyper-Globalization – What’s The Future?: "It was the increased flow of immigrants to locales with relatively low immigrant populations that drove the Brexit vote in the UK...

...“High numbers of migrants don’t bother Britons; high rates of change do.”... Unrestricted flows of trade, people and capital both exemplify extreme globalization and generate economic crisis and the consequent political backlash. This is where the critical role of “stocks” — inventories, reserves, reservoirs, sinks, pools — requires attention. Stocks decouple flows: they buffer the impact of changes in inputs to consequent outputs....

Nowhere are stabilizing stocks more needed than in the global financial system.... Bank capital is the buffer stock that exists to protect the financial system against shocks: financial shocks, economic shocks, political shocks. Bank leverage is the ratio of assets to that capital. For each bank, increasing leverage increases its efficiency.... For the system, increasing leverage reduces the robustness of the system....

Yet, as the rise of nativist movements across all of western Europe testifies, a significantly more comprehensive social safety net and more progressive tax regime does not insulate political elites from populist rebellion.... During the retreat of 1914–45, too often politics failed as “an alternative to market mechanisms for the management of global crises.” Too often — most disastrously for Germany and the world in Berlin in 1933 — a political regime itself served to intensify the crisis. Today, we remain suspended in the paradox of politics. Securing financial stability and regenerating economic prosperity requires market interventions by governments deemed untrustworthy by broad segments of the populations they represent and are meant to serve. Indeed, rebuilding social trust will take a long and arduous effort.

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