Conversations with History - Barry Eichengreen

welcome to a conversation with history I'm Harry Kreisler of the Institute of International Studies our guest today is Barry Eichengreen who is the party professor of economics and political science at the University of California Berkeley where he has taught since 1987 he is also a research associate of the National Bureau of Economic Research in Cambridge and a research fellow at the Center for Economic Policy Research in London in 97-98 he was a senior policy adviser at the International Monetary Fund he's a fellow of the American Academy of Arts and Sciences and he is the convener of the bellagio group of academics and economic officials he's written many publications and papers but today we're going to focus on two one is globalizing Capital a history of the international monetary system and the European economy since 1945 coordinating capitalism and beyond he also edited with Richard Baldwin an online book which was very timely called rescuing our jobs and savings what g7 8 leaders can do to solve the global credit crisis Barry welcome to conversations Thank You Harry good to be here where were you born and raised I was born and raised in Berkeley California so that explains a lot I suppose and and looking back how do you think your parents shaped your thinking about the world and and I might add Berkeley well being in Berkeley in the 1960s was an interesting experience I was in high school at the time and recreation included going down to Telegraph Avenue and smelling the tear gas my parents were not connected with the university but many of my childhood classmates were sons and daughters of professors and people who would be at my parents dinner parties so the attractions of the academic life were fairly clear people in Berkeley at that point in time went in one of two directions thank some became musicians and chefs and the others became more concerned about politics and and policy so I went in in the second direction and and around the dinner table were there discussions about what was going on in the world or about economic issues there were and I'm sure my household was by no means unique in that respect it was the 1960s so I'm I'm not really a child of the 1960s having still been in secondary school I'm an infant mm-hmm of the 1960s but there was a lot of consciousness of what was going on a highlight of that period for me was Robert Kennedy came to the Greek Theatre in 1968 as part of his campaign and I shook his hand the one president one presidential candidate from the sand I I've shaken and and and what what kind of imprint was left on you you think other than pointing you in the direction of research that you undertook it was the the period of the Vietnam War as well so I the imprint was one to try to do work that was somehow relevant to policy my other deep and abiding and Christa's been history so the question became at some level although I don't know that I ever really articulated it how to use history in a way that could speak to a broader policy oriented audience so that may be a simple explanation for how I ended up doing economic history and 20th century economic history in particular and where were you educated where did you do your undergraduate work and your graduate work my undergraduate work was that UC Santa Cruz in the era more or less of trailers rather than buildings just informed us I mean that started mm-hmm and no grades so students were encouraged to do cross-disciplinary work and and define their own majors to the extent that I'm a intellectual trespasser and I work in history and economics and political science all that may be a product of having been at Santa Cruz my PhD is from Yale where they had and may still have a well-developed economic history program where I could do two years of work and economics go over to history and do a master's degree and then complete my PhD in economics and what was your dissertation on my dissertation was on the Great Depression a little little that I know how enduring and relevant that interest would be let's talk about a little about being an economic historian what what skills are involved what what what do you have to have in the way of skills that to make this happen well we like to tell our students you have to have all the skills of a well trained economist which means facility in theory and quantitative methods and then you have to aspire to the sensibility and appreciation of the the texture of events and of the societies in which they occur that characterizes a good historian so it it's very hard to hold up both ends of the bargain I think the best economic historians find enough hours in the date to do both mm-hmm and talk a little about the the synergy between these two disciplines because in in some ways at the same time that it's a very necessary match it's one that you don't find often unless somebody picks this this subfield so to speak that brings the two together in what way does economics help history in vice-versa well I I actually think in eken in particular there is a growing appreciation of economic history and what economic historians do there has been more consciousness of the importance of institutions for economic development in the wake of the the transition in Eastern Europe where the institutional inheritance was part of the problem if you're serious about studying institutions where do you go to understand their origins and their evolution over time where do you go for empirical variation in the data you have to go to history so I think that economists have become more sympathetic to historical method historical investigation and and to what their economic historian colleagues do similarly I think history departments not all of them but many of them appreciate the advantages in some circumstances of formalism abstraction and certainly formal theory which is increasingly prominent in history economic theory of course only being one example of that helped our audience understand what you mean by institutions because that's that's a an important element of your analysis and it it's part it's the way that one comes to understand periods in a way that you wouldn't understand them if you were just focusing on the economics so institutions are slippery concept admittedly one can think in terms of the formal written constitutional rules and regulations under which a society functions be they the way contracts are enforced or in the political realm the Electoral College in the United States or one can think about informal norms and conventions and understandings I think Douglas North the economic historian who won the Nobel Nobel Prize for his work on institutions would prefer a kind of a capacious definition that encompassed both the informal in the formal and and in your you let me show one of the books that we're gonna discuss briefly before we get into the present the book is called European economy since 1945 coordinated capitalism and Beyond and you're looking here at what made possible Europe's great economic advance in the in the sort of the first phase of the post-war period and and it was a remarkable coming together of an institutional network in Europe on the one hand but also the demands of technology and the particular kind of economic development require talk a little about that because what what had to understand both of these trajectories to see how it all came together well let me give you a little big picture first I think about two schools of thought on how institutions develop on the one hand there's the the functionalist view which says there are certain problems that need to be solved and societies develop institutions that are well suited for solving those problems the other view would say institutions of all historically something occurred in the past that led to their development they are social conventions and attitudes and written rules that have persistence that get locked in and are therefore slow to change I'm I have one foot in both camps so my story about Europe in the 20th century would say Europe in the first half of the 20th century and in in indeed all the way down to 1970 or so faced specific set of economic challenges that needed to be solved Europe needed high levels of investment to catch up with the United States it needed a relatively even distribution of income to maintain the social peace and mobilize the savings to finance that investment and it needed a government that could get a big push going get all the relevant heavy industries up and running at the same time and it developed a set of institutions well-suited to that to solving that problem so in on the labor market front these were the institutions of corporatism that involved collaboration between labor and management on how to organize production the welfare state an elaborate welfare state that delivered a relatively even distribution of income and the social peace and a prominent activist government then intervened in the operation of the economy and got all the relevant industries up and running again in the fourth quarter of the 20th century that was no longer the economic problem to be solved Europe needed to innovate it needed more of a private sector-led economy it began to need more high-powered incentives for entrepreneurs yet the old arrangements large welfare state interventionist government corporatist institutions remained in place they were locked in they had developed a certain inertia so that is why Europe continues to struggle to remake itself and to accommodate the very different imperatives of the 21st century and and so in what what you're suggesting is there are constraints both political and economic because of the institutions in place to allow the pivot to a new era that has different functional requirements yeah so the the different elements of Europe's institutional constellation interact with one another so you can think of a clock or a piece of sophisticated machinery if you try to replace one without replacing the others or adapting the others at the same time the whole mechanism stops functioning so how to remake a set of interlocking institutional arrangements is no easy task Europe has the advantage of having a European Union and a European Commission that can think about and give advice about the big picture and about the whole process of institutional reform but Europe is a continent of nation-states fundamentally in each of which the the polity and the government make their own individual national decisions the the other book that you've written which is is terribly important in the context of our present economic collapse is and I'm going to show it globalizing capital and a history of the international monetary system and why let me ask you a simple question why why is an international monetary system important the international monetary system is part of the connective tissue between different national economies we have China and we have the United States and they are both producing goods and selling them to one another among other things we observe China selling a lot more to us than we sell to them something that probably can't go on forever so the international monetary system made up of exchange rates and capital flows and interest rates is in principle when it works well of one of the mechanisms through which those imbalances are rectified mm-hmm and and you it's it's interesting because the the reform of the system when there is a sense of the things need a major adjustment some sometimes many times that becomes very complicated in dealing with the need in reform and I and I believe you're saying that on the on the one hand you need a political power or to force the system and its individual members to do what's good for themselves collectively but on the other hand often that doesn't happen and so there is an inertial quality to the trajectory and so you get kind of changes that are odd hoc and sometimes work so the one time that we've had fundamental changes in the international monetary system agreed to and implemented by a group of countries was in 1944 at the Bretton Woods conference in Bretton Woods New Hampshire where agreement on the form of the post-world War two international monetary system was reached that reflected two things that don't exist today number one there was a broad intellectual consensus opinion makers in different countries agreed on what form that system should take partly because they had been discussing and negotiating that question for three plus years and secondly there were crudely speaking only two countries at the table world war one was still being fought in early 1944 the UK and the US could agree and the Canadians had their own point a few a few others did but it was basically an anglo-american agreement today's world is different not only because there's less agreement intellectually on the form that International Monetary and financial arrangement Arrangements should take but also because our world is multipolar and now we talk in terms of the group of 20 country it's harder to get 22 agree than it is to mm-hmm and and I think that these this background is actually in but in the case of both of these books and what we've just talked about is is is useful for talking about the present economic crisis that the world confronts in the United States confront where we're talking just as President Obama has assumed office and I didn't want to quote one thing actually from the global finance book as you say the development of international monetary system is fundamentally a historical process and I think that that insight is very relevant to where we are today so I guess I want to walk you through what the present crisis is about and then also what we might do about it and your value your your report card on how well the international system in the United States has has responded so so how does history help us understand how this crisis came about let me give you the following example many people say correctly in my view that this crisis was caused by excessive risk-taking reckless behavior on the part of financial institutions that is all good and well but you need to step back and ask what were the sources of those risk risks and I would say they were in substantial part historically generated coming out of World War two and coming out of the Great Depression of the 1930s when the perception was that financial markets had malfunctioned disastrously everything that moved was heavily regulated gradually over time memories of the 1930s faded and we began to regulate our financial markets in the United States as did other countries so here in the US we removed fixed Commission's on stockbrokers and this goes back to about what year let us go spec I think to the early 1970s okay and all of a sudden broker dealers and others had to figure out they they're comfortable living went away they had to figure out other lines of business so they branched into uh doing securitization of various sorts and and it's important out because I want our audience understand so the brokers essentially were the representatives of the investment banks basically that that and and suddenly they saw their incomes being reduced as commissions were deregulated so broker dealers like Bear Stearns you will have heard the name yes ELISA yeah had been able to make a comfortable living earlier with deregulation other people could infringe on their turf and they had to figure out a way to supplement their incomes by moving into riskier lines of business using other people's money wholesale funding in order to finance their operations that's where all the leverage that has been a weak point in the financial system came from all of a sudden insurance companies were deregulated and they could go into similar lines of business as the investment banks that's how AIG the big insurance company got into all this risky business so I would say it was a historically rooted process where with the passage of time memories of history faded deregulation occurred but not all the consequences were anticipated and and I think it's important to emphasize that this was a as a historical process it was it was a bipartisan endeavor over time basically in it this is one of the things that you mean by institutions because there was a set of ideas notions about what made for for Prosperity both at home and abroad well so I've told the story of deregulation increased leverage and risk-taking and ultimately the financial crisis without referring to people so far and without referring to political parties you're quite right so the way that I tend to think of things which I suppose is both a strength and a weakness is in terms of these historical processes that reflect what happened long before in this case in the 1930s and how the consequences unfold over time but I think one would can't tell this story fully without a role for Ronald Reagan and the ideology of deregulation clearly individuals mattered political parties and and the ideology of regulation deregulation which infused the ideology of the Republican Party all through the end of the 20th century but also say the Clinton administration in the 1990s and it was then that the the glass-steagall reforms of the New Deal were overturned and and what is important about that in other words you explain to our audience this this notion of the conflict between commercial banks and investment banks and what that discarding of the glass-steagall legislation meant well glass-steagall had been imposed in the 1930s two separate deposit-taking households money should be safe safely deposited in prudent banks not undertaking risky business versus Investment Banking which was bankers gambling their own funds and not deposits on riskier activities the perception having been that in the 1920s bankers had taken excessive risks with other people's money small savers money and that could not be allowed to continue that memory faded with time as I said before and in the United States we look to other countries like Germany which didn't have similar restrictions and where financial supermarkets Universal banks they're called actually seem to be pretty efficient and stable and well-managed so there was pressure to eliminate glass-steagall it has happened at the end of the 1990s so that American banks could compete with their foreign counterparts the implication of that being in my view conflicts of interest returned and in addition to that there was an intensification of competition as commercial banks and insurance companies infringed on the traditional turf of investment banks everybody levered up their bets and gambled to survive now what we've been talking about here is kind of the American domestic environment deregulation and of course America is in the financial area the dominant player because our financial system was so far advanced but but there's another big problem here which I want you to explain to our audience and that is the global imbalances that began to emerge in the late 90s and then into the 21st century between China and the United States and and why did that what was it and why did that matter well there there are two explanations for this financial crisis one is reckless deregulation and gambling by people in financial markets the other one is the global savings glut and the flood of foreign money in particular Chinese money into the United States the argument there being that the housing bubble would have never taken on the purport it reached in the first half of this decade without cheap Chinese funding without the Chinese buying all these Fannie Mae and Freddie Mac and US Treasury securities I'm of the view that the principal culprit was in the United States that we grew our financial crisis at home and we shouldn't blame the Chinese but I think the global imbalance the fact that the Chinese were running big trade surpluses and had lots of money that they had to park somewhere and they parked it here was a compounding factor and in all of this and we'll talk about this again a little later but what's kind of interesting is I guess I'm not a expert on international finance but one gets the sense that these imbalances there were ways to deal with the surplus saving that might have benefited the whole international economy whereas this fed a distortion that was domestically generated in the United States so what is essentially a poor country on the rise was funding the excesses and the imprudence of the richest country in the world a number of us had been arguing this that capital unlike water flowing uphill from poor to rich countries and international imbalance of this magnitude were perverse and unsustainable a number of us have had been arguing this since 2004 and the more years passed between 2004 and 2008 when not much gave I think the less credibility people invested in our arguments so we were kind of like the the people crying wolf and and the wolf never quite arrived at the door so I don't want to take satisfaction in the fact but in 2008 the wolf became clearly evident and and we've had a number of crisis since we went off the gold standard and especially in the 90s the Asian financial crisis the collapse of the Russian economy the collapse of long-term capital the hedge fund and so on but but I get the sense that you were sanguine about the the resolution of these crisis and with the - Oh with with our current crisis you're less sure hey what what me sanguine he asks yeah I wouldn't I wouldn't say sanguine but I would certainly admit along with the rest of the economics profession that I failed to anticipate that we could have a crisis of this severity and magnitude I certainly worried about the disorderly correction of global imbalances but had a failure of imagination in the sense that I couldn't conceive that the unwinding could be this disruptive and painful and I have always been of the view that we learned the lessons of history and that we wouldn't repeat the great depression that we had learned enough to avoid the kind of banking and financial collapse experienced in the 1930s now it's hard to be confident you can be hopeful that's correct but you can't be sure now let's look at the response of the Bush administration it's very clear that that in in in the beginning they eat crisis they thought was isolated that Bear Stearns was you deal with that problem and and that would at least deal aggressively with our problems and that turned out not to be true what why think was there such a failure of imagination on the part of the policy makers as they was it because they were making it up as they went along what well to start with there was a sense of denial certainly a reluctance to acknowledge the damage to the financial system so every new financial problem was perceived as isolated it took the better part of a year for the reality to gradually dawn and and people in Washington and more generally to realize that this was a problem that had infected the entire that put at risk the entire US financial system secondly I think the people responsible for coping with this crisis for formulating a policy response are financial engineers starting with Hank Paulson and are therefore inclined to the view that there is some kind of limited clever engineering solution to the problem third and most fundamentally is ideology that there has been a reluctance to think about the possibility that it might be necessary for the government to first in inject its own money into the banking system and take ownership stakes in the banks and now there's still a reluctance has been a reluctance that may or may not change to utter the word nationalization and to acknowledge that the US government may have to take a majority stake in some of the big banks that are at risk do you think that if the response in the beginning had been more aggressive and systemic that it would have slowed down the unraveling or maybe even stopped it well there'll be a lot of counterfactual histories written of this in the future I think it's certainly the case that if we had leaned against the wind and raise interest rates more quickly and taken firm steps toward budget balance in the first half of the decade we could have limited the vulnerabilities that the problems that came back to bite us subsequently in in in addition I do believe that if in summer and fall of 2008 we had moved to recapitalize the banks quickly rather than think there was some clever financial engineering solution using reverse auctions and the tarp to take toxic assets off the balance sheets of the banks and do nothing else that the I think bank capital recapitalization earlier and more forcefully would have made a big difference I also think that in 2008 we should have acknowledged how rapidly the economy was slowing down and done more fiscal stimulus at that point then we infected so in a way they were locked in to not seeing the systemic nature of the Christ does the failure to save a lot is made of the failure to save Lehman Brothers is that just a symptom a manifestation of a systemic crisis and people are saying oh if we had you know plug the dike there then it wouldn't have unraveled what is your thought on that so to know how important the Lehman Brothers failure was and whether it could have been averted you either have to be an attorney or had to be in the room or both so I'm not not sure but I I think I'm of the view that Lehman Brothers was a symptom of a much larger problem so even in the hypothetical world where the the Lehman problem had been a been resolved and the subsequent problem with AIG caused by the bankruptcy of Lehman Brothers had not occurred there would have been other financial institutions and big banks that would have gotten into comparable trouble later in the year I'm curious I want I want to get in your in your mind here a second because if you know you you have this duality you're an economist and you're historian and as you're watching this thing unfold you know to what extent and I'm sure you saw it much earlier than others was it was the Economist in you that didn't see that you know this was a situation that would be handled by people who had learned the lessons of the historian or or what I guess I'm I'm just sort of curious because because clearly the historian who does your kind of work who's writing you know 20 years or 30 years in in the future will look back and see a lot of things that that people living in this era did not see so I'm reassured that I'm not the only economic historian of the Great Depression who is giving advice about policy at the moment or not including myself making policy at the moment Ben Bernanke is famous as a student of the Great Depression and in fact a number of other members of the Federal Reserve Board in the last two years Rick Michigan and Randall Kroszner are also students of the Great Depression why did the Fed respond early and aggressively to the unfolding of the subprime crisis starting in August of 2007 partly because the board was populated by students of the Great Depression who had learned that the Fed failed to do so in the 1930s I think there's another side to that coin however you know history can inform policy but it can also distort policy so you might ask why did the Fed respond to the subprime crisis as a banking crisis and not fully appreciate the problems in securities markets or the insurance industry the answer is the crisis the early 1930s was primarily a banking crisis that's what they learned and studied and that shaped their perceptions of current events not entirely to the good and help us understand then what what is at what point does this become systemic in it moves it beyond a banking crisis I mean what what is the insight there about that they didn't have to see this differently than from what the problem had been in the depression I don't think the our policymakers fully appreciated counterparty risk in other words the extent to which the failure of Lehman Brothers could create severe financial problems for its counterparties for other people who done business mmm-hmm with it because the literature on the Great Depression and the banking crisis of the 1930s doesn't really emphasize counterparty risk with a few exceptions I don't think that our policymakers currently understanded the risks posed by derivative instruments which have been the weak link for many financial institutions partly because derivatives markets were very limited in in the 1930s so again I'm tempted to say that history has shaped current policymakers perceptions of what the crisis is and how to respond it both for good and frill now now what what do you see because as you mentioned earlier we're in a different world in which there's much more multipolarity there's a great emerging power China that's still sort of getting to to where it it might ultimately land there is the European community the euro a major economic force now and and above the mall has been the United States as the the reserve currency what will this crisis do to our leaving economic role which which has been like what you described namely a trajectory which has stayed on course partly out of inertia it's clear that this crisis has not exactly enhanced the reputation of the United States and the dollar internationally nothing could be more obvious than that and now we're beginning to see data for example that the Chinese are curtailing their purchases of US Treasury bonds and other securities they're not halting them much less selling their existing holdings but they're slowing their accumulation having said that what's really surprising about the crisis is that the dollar has been a beneficiary and there are two explanations for that one is what I should say I don't fully understand why the dollar has benefited given that this is a u.s. originated and distributed crisis but you asked people in financial markets and they say technical reasons it means they don't know why the dollar is benefited either but I think more fundamentally other economies have been hit equally hard and other currencies have suffered at least as much as the dollar the European economy has been hit as hard as the US so the euro has not risen against the dollar the Japanese economy has the most serious recession now of any industrial country in the world because they mainly export automobiles nobody nobody is buying those and capital goods to China and they're not buying those either so the yen hasn't benefited the dollar is still standing as a reserve currency in part because there is no alternative currency that looks anymore attractive now now do you you anticipate that this set of circumstances will push us toward a situation where there's not one major reserve currency but there are a number of reserve currencies and that regional groupings economic groupings become more important and and and new nexus between these regions will be worked out I I do anticipate something along those lines so I think within a few years first rule of forecasting has given them a forecast or a number or a date but never both so I said a few without specifying there will probably be two leading reserve currencies the dollar in the euro Japan has never fully internationalized the N and China is as neither the transparency nor the financial openness needed for the renminbi to be a reserve currency but I'd see no reason why the dollar and the euro couldn't share this role for a good long time going forward you are in something that you wrote with regard to the recent crisis you talked about the divisions within Asia and the whole notion there of the competition and conflict between Japan and China and the extent to which that interferes with for example China taking a leading role so so again we're back to that situation where we come back to power and in this case international power and the way international global politics affects what is doable in terms of economic reform so there is take the Asian case a very strong desire there for regional solidarity and to ring-fence ring-fence the the region against financial disturbances coming from outside like the the global credit crisis and yet there hasn't really been an ability in to collaborate on an effective response Korea was hit very hard in November of oh wait by the global credit crisis but it ended up getting support in the form of $1 swap line from the Fed rather than getting real money on real cash on the Barrelhead from China and Japan and the reason for that is the Chinese and the Japanese couldn't agree the Chinese wanted financial supports within Asia because they know they're the big and increasingly dominant player in the region and the Japanese wanted supports for Korea through the International Monetary Fund because for historical reasons Japan has a much louder voice and more votes in the IMF than does China so so in other words we the politics comes into play when you when you try to deal with these issues now youyou say that youyou can't envision a future in which there the euro and the dollar or reserve currencies and this is gonna affect reform it's going to make Europe much more important with regard to the changes that will have to be made to deal with this crisis talk a little about that because America is not going to be able to get what it wants and has wanted in the past at the Bretton Woods conference in 1944 the u.s. had a lot of leverage not only as the world's biggest economy but as a result of lend-lease and support free for Europe during the war now it it's any reform will have to very much be a negotiation it's clear Europe will have to learn to speak with one voice which has always been a challenge so if reform discussed at the International Monetary Fund there is a US representative on the Executive Board but there's no European representative there 8 with limited votes and they don't speak in harmony all the time Europe needs to move to a single chair and in the World Bank and the International Monetary Fund and have a common view on these issues but I think the problem as you alluded to before is even larger than that in that once upon a time the US and Europe essentially had veto power over whatever happened and could drive as they did in 1944 these kind of negotiations and now agreement on International Monetary and financial reform monetary reform without China means nothing really makes no sense and financial reform without the emerging markets as a group which are increasingly prominent important players and financial markets similarly will mean nothing now when this crisis broke and I mentioned this innovative online book which you co edited which was a set of papers written in a very short period of time to put ideas on the table for the g7 meeting which was meeting in Washington and and so I'm curious here what you see is as the impact of ideas in other words look we were talking about Europe and you you explain to us how they had to pivot to deal with the new economic situation with stagnation clearly now it's a it's an order of magnitude greater in terms how of how everything has has fallen apart so so then the the the question becomes how will ideas power and the functional needs of a new international monetary system come together do you think look I'm an academic so I have a vested in trust in the notion that ideas matter and I found Li believe that that's one of the reasons why I get up every morning and I think that we have seen this in the current crisis as repeatedly academics and others have put ideas on the table about what needs to be done to formulate a more effective response to the financial crisis and you have with unfortunately Long Legs seen them taken up by policymakers to get right to your question I think we're going to see different coalition's form than we have in the past reflecting both the politics and the ideas that will be part of the mix so early next week there will be a meeting in London that will be hosted by premier way of China and Gordon Brown of the UK and they will discuss what we need to do to fix the the international financial architecture I don't think they will arrive on the first day at a common anglo-chinese position but that will be part of the process and that's an example of the kind of coalition that wouldn't have existed as recently as five years ago now I study the security field and in that field it's quite apparent that one of the hang-ups that the US has is a failure by elites to recognize the extent to which our power is diminished and even if they recognize it not acting on it what would what what do you see is there something comparable in the economic realm will will kind of American nationalism and and the kind of divided government that we have with congressmen representing very conservative constituents and so will that will that bring us down do you fear so that our response will be inadequate to these new realities or will it be so obvious that you know it's gonna happen well I don't know about bring us down but it will have to change that tactics and strategies we use to advance our interests one example of that in the monetary and financial realm would be when the Bush administration took office in early 2001 it was strongly opposed to working through international monetary and financial institutions and didn't want to have any more to do with the International Monetary Fund than it had to it thought that it could bash China bilaterally and advance US interests in terms of the dollar mm menB exchange rate over time we realized that wouldn't work and we began to work increasingly through the International Monetary Fund I think now again we will see the u.s. working through international institutions trying to build international coalition's and using our soft power you know the analogy with security carries right over we have to use the power of ideas the Obama administration has some serious thinkers on these matters on board and it's going to have to use them to effectively advance our interests in in the midst of all this the the what what will be the consequences for globalization will it only be financial globalization that that pulls itself in and the other forms will continue so you know as Chairman Mao said it's too early to tell as he said about the French Revolution it is said my gut tells me that there will be some slowing and rollback a financial globalization but not of globalization more broadly and the reason for that is that globalization more broadly has been promoted by other more fundamental developments outside the financial sphere like the forward market of Technology we've had the development of international supply chains and chains and production networks because of the internet and satellite telephony and other things that make it possible to coordinate production globally the advantages of that are profound containerization has made it much easier to import and export merchandise and when people said after 9/11 globalization will be rolled back we figured out out how to use x-rays and infrared technology to inspect the contents of containers without having to to open them I think there will be a variety of responses that will to some extent enable us to continue to take advantage of the fundamental benefits of globalization one final question is as you look to the future what do you see as institutional change that you would like to see in the global financial institutions will it be new institutions or will it be a reshaping of institutions like the IMF so forgive me for answering both I think the existing institutions need to be updated for the 21st century which means better governance the rising powers need proper seat at the table new tools suitable for the kind of risks that they're there to cope with but in addition we I think we need new institutions and my and my personal example of that would be a world financial organization we deal with the impact of foreign trade policies on the US economy and vice versa partly through the rules and enforcement mechanisms of the WTO and the WTO can tell a country including the US if your policies are not in conformance with your international obligations you need to change them or incur penalties and we do my question would be if we have a WTO why can't we have a WFO a world financial organization which would set down obligations for its members about how to adequately supervise and regulate their financial markets and institutions that would have independent panel of experts to monitor compliance and that could apply sanctions and penalties for countries that don't well on that note and hope for the future Barry let me show these two books again globalizing capital and the European economy since 1945 is they are they are quite in insightful and and really are informative with regard to what we're going through now thank you very much for joining us Barry Thank You Harry and thank you very much for joining us for this conversation with history

Channel: UC Berkeley Events

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Keywords: uc, ucberkeley, university, california, berkeley, Barry, Eichengreen, Globalization, International, Institutions, Economy, Harry, Kreisler, yt:quality=high

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Length: 57min 47sec (3467 seconds)

Published: Wed Feb 04 2009