I'm finding more delightful moments in Robert Rubin and Jacob Weisberg's In an Uncertain World. Here is a nice defense of Clinton-era policy accompanied by a little very polite score-settling:
Posted by DeLong at November 24, 2003 08:10 PM | TrackBackpp. 296-7: "Dwelling on the mistakes [of U.S. government and IMF policy during the Asian financial crisis of 1997-8] tends to obscure the larger point, which is that a market-based approach--of IMF loans combined with essential reforms--led to relativley rapid recovery in countries that took a reasonable degree of ownership of reform and avoided the real risk of much more severe global disruption. Perhaps the best testimonial to the market-based approach... comes from decisions taken by emerging market governments.. with an electoral mandate from the disadvantaged.... Both Kim Dae-Jung in South Korea and, more recently, President Luis Inacio Lula da Silva in Brazil had come to power on populist platforms. Both chose to embrace global integration and policy regimes designed to engender market confidence as a part of fulfilling their mandates to reduce poverty and raise living standards.
"At the same time, the entire Asia experience left me with the view that future financial crises are almost surely inevitable and could be even more severe.... [I]t is imperative to focus on how to minimize the frequency and severity... and how best to respond if and when they do occur.... [N]o one can predict in what area... the next crisis will occur.... I remember something John Whitehead said to me... at the time of the Penn Central bankruptcy. 'Now we'll put in all sorts of new processes to deal with commercial paper', he said. 'But the next crisis will come from a direction nobody is focused on now.'...
"Sometime later, sitting at my breakfast table in New York, I read some comments... by... Bush's newly appointed Treasury Secretary, Paul O'Neill. O'Neill was highly critical of the way we'd handled the Asia crisis. He called me the 'chief of the fire department' and said that our theory of interconnected markets was a passing fashion that needed to be retired like the 'hula hoop.' O'Neill's view of crisis response was that the new administration could avoid the moral-hazard problem simply by letting poorly managed emerging-market economies fail.
"I liked Paul. I didn't even mind him calling me the chief of the fire department. But as I read the story, i said to myself: They say they won't intervene. But they will.
And they did.... Turkeyu... Argentina... Uruguay... Brazil.... A lot of people begin their analysis with a priori constructs. But the orderly view from one's armchair is not the perspective you have when you're facing the messy reality of a global financial crisis."
I can only guess what the logic of a finanical melt-down feels like from the inside (Brad???), but I don't mind guessing. When you aren't held responsible for what happens, it is probably easier to conclude that the right thing to do is let things take their own course. Letting the chips fall where they may, when a lot of people might vote for the other guy if you do, probably seems like a worse idea to those in power than those who are not. I'm not a big fan of a "let burn" view of international finance troubles. That said, I doubt whether Rubin or anyone else who's been in a position to make that call can objectively know how much of their final choice was drive by domestic political considerations and how much by a determination of the relative risks of acting and not acting.
Posted by: K Harris on November 25, 2003 07:41 AM