International Regulation For The Global Economy

Gordon Brown answers questions on the future of the economy, bankers bonuses and global co-operation

The UK prime minister, Gordon Brown, has rediscovered his "small-s" socialist roots during the current financial crisis he helped create by forgetting them and thus allowing US-style unregulated risk-taking in UK financial markets. It hasn't hurt Brown in the polls either - where once he had trailed so badly that everyone had written him off, now he's ahead of his Conservative Party rival by 11 points.

His credibility on the international stage is high too. He was the most successful treasurer of a Western nation since WW2, with 13 straight years in the black, and is the architect of the current international plan to restore liquidity to the world economy by having governments take equity stakes in banks and other institutions. It's a process known as "nationalisation" but somehow the U.S. media doesn't want to use that word or remind voters that the conservative Bush administration has been forced to socialist policy by its own maladministration.

Now, Brown has an op-ed in the Washington Post setting out the next stage of fiscal recovery - international laws to regulate the financial sector. He's even using the words "new Bretton Woods".

We must deal with more than the symptoms of the current crisis. We have to tackle the root causes. So the next stage is to rebuild our fractured international financial system.

This week, European leaders came together to propose the guiding principles that we believe should underpin this new Bretton Woods: transparency, sound banking, responsibility, integrity and global governance. We agreed that urgent decisions implementing these principles should be made to root out the irresponsible and often undisclosed lending at the heart of our problems. To do this, we need cross-border supervision of financial institutions; shared global standards for accounting and regulation; a more responsible approach to executive remuneration that rewards hard work, effort and enterprise but not irresponsible risk-taking; and the renewal of our international institutions to make them effective early-warning systems for the world economy.

Such an international regulatory framework, if enshrined in a treaty, will have the force of international law - and that's clearly what Brown and the other European leaders intend. It will then be largely immune to Republican deregulatory zeal even in the U.S., because laws adopetd by treaty have the force of federal laws but international treaties cannot be changed just by enacting domestic legislation to do away with them. Free market conservatives (and neocons, who hate any restriction on American hegemony and freedom to act as it sees fit) are going to hate Brown's plan, but what choice do they have? The medicine will taste bitter but a little bit (not too much) socialism will be good for what ails the world economy.

But what I would find really interesting would be if someone asked John McCain, "maverick reformer", if he thinks the fiscal socialism that the Bush administration has already enacted and the socialism to come are good ideas. And if not, what would be his alternative?

Nobel winner Paul Krugman is all for some fiscal socialism and nanny-stating on the domestic scene too.

there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

...The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

That's something Dems have already argued (as have I), but having the Nobel winner back you up is nice.

Crossposted from Newshoggers

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