Good article. While IMF economists may be slowly coming around to the view that unfettered capital flows might not always be a great idea, most IMF officials and practitioners I know have long understood that they are almost never a good idea, at least for developing economies...
...I would add that they are not good for advanced economies either, and most economists (including John Maynard Keynes and Harry Dexter White during Bretton Woods) used to know this until quite recently.
The argument in favor of free capital flows rests on an implicit but..
The argument in favor of free capital flows rests on an implicit but..
...usually unacknowledged assumption: that international capital flows mainly reflect the uncorrelated decisions of rational, long-term investors to allocate capital to its most productive use (i.e. everyone is Warren Buffet), and that these flows force or allow countries to...
...adjust in ways that raise productivity.
But I have never met a trader or investor who won’t (at least over drinks) ridicule the idea. Most international capital flows represent portfolio flows, not direct investment, and reflect liquidity shifts in the major economies,...
But I have never met a trader or investor who won’t (at least over drinks) ridicule the idea. Most international capital flows represent portfolio flows, not direct investment, and reflect liquidity shifts in the major economies,...
...speculative activity, savings distortions, investment fads, debt and derivative dynamics, reserve accumulation, political flight capital, and trading strategies that depend more on evaluating consensus opinion than on the expected investment outcome. And yet they still...
...force economic adjustments in the affected countries that have nothing to do with their economic needs and which, in the end, only benefit banks.
Most countries should act to raise frictional costs on capital inflows substantially, which would reduce their exposure to...
Most countries should act to raise frictional costs on capital inflows substantially, which would reduce their exposure to...
...short-term speculative capital inflows and outflows without much affecting longer-term or productive capital.
As Keynes suggested, we should want total freedom for the international flow of ideas, a little less freedom for the international flow of people, reasonable...
As Keynes suggested, we should want total freedom for the international flow of ideas, a little less freedom for the international flow of people, reasonable...
...freedom for the international flow of goods, and very restricted freedom for the international flow of capital.
Sorry for the long tweet.
Sorry for the long tweet.
