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Economy 4.0

Davos and The Missing Link

David Brancaccio Jan 31, 2011
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Like any decent meal, Econ 4.0 this time around presents an appetizer followed by a main course.

First the appetizer: Spouses and Mistresses at Davos. Anya Schiffrin, wife of the 2001 winner of the Nobel Prize in Economics Joseph Stiglitz, was the talk of the just-concluded World Economic Forum after she wrote a piece for Reuters about the varying social status of Significant Others at the conference, mistresses included.

An exclusive Econ 4.0 interview with Schiffrin’s husband Joseph, in which I ask nothing about this whatsoever, can be heard by clicking play on the audio player to the right. (The interview is about the new economic narratives Dr. Stiglitz expected to emerge from Davos).

Now that Schiffrin has your attention, let me deliver the main course: Watching over the global financial system. In 1957, the world was smart enough to set up the International Atomic Energy Agency to keep an eye on technologies that have the potential to wreck the world. It therefore makes sense to many that the world needs some kind of system to watch of what can be, as we learned in 2008, systems of financial destruction. It was noted at Davos that 28 months after Lehman Brothers went bust, there is still no global system to coordinate a response to the failure of another big financial institution.

One thing is clear, the answer to who will do this job is not the United States Federal Reserve or the United States Department of the Treasury. If there is one takeaway point from my reading of the 2011 Davos conference, it is that financial power in the world is shifting toward where the global population is, that is to say toward China, India and Brazil. The idea that the U.S. or even the U.S. and Europe will be the captain and first officer of the global financial supertanker is so twentieth century.

One obvious choice for overseeing the financial system across boarders is the Group of 20. The worry at Davos is that entropy could take over at the G20 as member countries pursue their own agendas and move away from the global esprit de corps the marked their earlier responses to the financial crisis.

The current G20 chief, French President Nicolas Sarkozy is interested in passing some of the buck here to the International Monetary Fund. With all the handwringing at Davos about “global imbalances,” including instabilities caused by countries with too large trade surpluses and countries with too large trade deficits, Sarkozy had those three letters to offer: IMF. For starters, Sarkozy said, the IMF could come up with a rigorous data collection system so that these imbalances could be measured and compared without the distortions that occur when individual countries supply the measures.

And when it comes to watching over the global financial system, it was noted at the conference that there is always the United Nations. The observation at Davos was accompanied by the five words that tend to follow any assertion of a new role for the UN: That institution needs reform first.

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