New Economic Order: Same as Old Economic Order

By Kindred Winecoff

Dani Rodrik:

It will be a watershed year, ushering a new world economic order--with the disorder most likely coming first. I just don't have the foggiest idea what this new order will look like.

It will be a time when we will all have to change our tune and have to think out of the box. I for one will worry more about growth in the advanced countries than in the developing world, will be warning against the dangers of protectionism, will be singing the praises of the IMF (if its recent actions and pronouncements are a guide), and will fret about too much state intervention. Changing times require changing lines...

Rodrik is certainly not the first to predict a "new world economic order". All sort of talking heads, pundits, economists, political scientists, and politicians have been saying the same. Like the others, Rodrik is short on details ("I just don't have the foggiest idea" is a typical comment). But Rodrik is one of the smartest and most intellectually-honest international economists working, not a soundbyte-seeking talking head or politician, so his pronouncements are certainly worth noting. If he thinks a new economic system is in the cards, then I'll take the notion seriously.

But I don't understand his basis for making such a claim. In the same post he says "the crisis has demonstrated the deep divisions within Europe—on everything from financial regulation to the requisite policy response" and concludes that the best that we now can hope for Europe is that they don't "undermine" the policy actions of the United States.

Rodrik also says that China's influence on the global order is likely to decline as they shift their focus to domestic concerns, and that the I.M.F. has been and will continue to be one of the biggest players in this crisis. Meanwhile, falling gas prices signifies a decrease in influence for the energy-exporting countries (e.g. Iran, Venezuela, Russia) that had recently been flouting the U.S. and the 20th-century economic institutions.

So... the influence of China, Russia, and Europe declines and the influence of the U.S. and I.M.F. increases. How does this represent an over-throw of the old economic order?

To be sure, some tweaks to the system will be made on the margin. Perhaps some sort of international banking standards (such as reserve requirements) will be enacted, but these were not the primary cause of the crisis. Perhaps some sort of Tobin tax is put in place to prevent future Iceland-like implosions (although I doubt it). Perhaps greater regulation of ratings agencies will be put into place, but that would likely happen at the domestic, rather than international, level. What else do you want? Replacing mark-to-market accounting practices? Mandating maximum leverage levels? Again, these things may have exacerbated the crisis, but they didn't cause it.

In any case, marginal tweaks to the system do not make a New World Order. Indeed, it seems most likely that the most significant changes to the international financial system in the next year will be the changes made to the domestic financial structure of the U.S. And if that is true, then how can it be said that the age of the liberal international economic order is coming to a close?

Comments

[Moon Kil Woong:]

China would help itself if it focused more on itself. It needs more social equity. The disparity between rich and poor is greater than the US and the rich ones are power hungry, hoarding, and can't spend enough to ever make their economy viable. They need a middle class but that would give away power and speed a move to a real democracy.

As for the US new world order, the only real new world order in the last 2 decades has been the last 8 years in which the Bush Administration abandoned any concept of rational financial economic order and embraced havoc, chaos, fraud, corruption, uncontrolled spending, pork belly projects, cuts in education and infrastructure spending, and general lack of caring and understanding about the economy and budget.

I'll take moving to the same old economic world order we had before any day be it a Republican or Democratic one.

Jan 04 03:57 AM

[carey_jim:]

When anyone talks about a 'New world economic order' he is talking about history and politics and not the validity of economic theories. (See my previous comment.)

It looks as if Rodrik is basing his predictions on history and not economics, except as economics itself has a history that can be studied apart from its internal logical coherence and adequacy as a blueprint for economic activity.

'How can it be said that the age of the liberal international economic order is coming to a close?'

It can be said because history is an unfolding drama which is interesting for the same reason the plots of Shakespeare are interesting: Precisely because they reflect the world around us.

Or, to put it in another way, when you see a man standing in an open grave and looking at the skull of his former tutor, or declaiming to the vacant air 'To be or not to be,' you can hazard a guess about what is coming even if you don't have the 'foggiest idea' about just exactly what.

Jan 04 12:13 PM

[Jason Rines...:]

"Meet the new boss, same as the old boss" - The WHO Don't Get Fooled Again

Jan 04 03:03 PM