Martin Barnes' Response

As far as the global picture is concerned, I suppose one question is whether the crisis that started in Asia represents a failure of the free-market system, as some have contended. I do not believe so and I would argue that the move to more open markets simply exposed the fault lines created in economies where market forces were being suppressed or distorted by government intervention, crony capitalism and a lack of financial transpar ency. One could further argue that the growth of information technology will force governments to be more open to the benefit of long-run economic prospects. Perhaps there is no room for the middle ground. Governments will have to decide to either fully embrace a free-market model or impose a closed siege economy, with all that entails. The latter will be increasingly hard to do, however, in an information age of e-cash, the internet etc.

Perhaps it is not so much a new global financial architecture that is needed as a more open endorsement of free-trade principles. Of course, there will always be lots of volatility in capital flows and often these can be destabilizing to individual economies. I would have thought that such problems could be dealt with by micro-policies aimed at controlling certain types of short-term capital flows.

I continue to be struck by the growing divergence between the US and overseas economies. It has long struck me that Europeans have always misunderstood and underestimated the strength of America. They find the US political system chaotic compared with a parliamentary system, but fail to take account of the checks and balances. They mistakenly think that many of the new jobs are hamburger flippers, they are obsessed with the US crime rate and income inequalities. Yet look at the record: who has fast growth, low unemployment, a budget surplus, a lead in high-tech innovation, etc., etc.? Certainly not Europe!

Yes, the United States cannot remain an island of prosperity in a global sea of depression, but the benefits of having a flexible and dynamic economic structure will become increasingly important in the new global economy and the United States has a big advantage on that score. Could the United States remain in a long-wave upturn while the rest of the world flounders? It would not seem possible yet we cannot rule it out. Most likely, I suppose that building global deflationary forces would eventually crush the US stock market and that could unleash a very bearish cycle of negative feedback loops.