What Kind of Economy?
Finally, progressives should turn their energies to a challenge that the Hamiltonians never discuss and seem determined to ignore, and that is to devise effective new rules for the global financial system. For the world is changing in ways that will not permit a return to the go-go Wild West of international finance of the 1990s, even if Robert Rubin and his colleagues do return to power in 2009.
The 1997 Asian crisis and the 1998 Russian crisis marked--it is now clear--the last days of an illusion: that unfettered global credit markets can govern themselves. Russia has since retreated into itself, Asia is developing a sophisticated substitute for the Asian Monetary Fund we denied them a decade ago and most of Latin America has rejected neoliberal globalization at the polls, while new structures of mutual assistance for development are gradually being built. The chaos of a financial system run by bankers alone is therefore gradually yielding to new systems of control.
We should welcome this development. We should oppose efforts to introduce new instabilities--which is basically the issue today between Wall Street and China. The challenge before us is not to restore the global dominance of American banks. We should not play junior partners in that game but instead should help plan for a smooth transition to something better--protecting as far as possible not symbols of power but the broad benefits of our standard of life.
As part of this, a progressive economics needs to break with the polite traditions of our subject in one other way. We cannot avert our eyes, as many economists habitually do, from the disaster of Bush's foreign policy. The calamity in Iraq is plainly causing the world to rethink how much it can rely on American leadership, and this has consequences already visible in the decline of the dollar. If there is a war with Iran, the rethinking will accelerate, and what we've seen so far could be only a harbinger of greater difficulties still to come.
Although a collapse of the dollar reserve system probably isn't imminent, this issue will not disappear, even if Bush's policies are decisively rejected in 2008. Left unattended, it could lead to a repeat of the 1970s, when progressive hopes were knee-capped by international financial instability, a declining dollar and externally inspired inflation.
This problem defies easy solutions, but we who are progressives, who are populists, who are concerned about the economic security of working Americans, of the country as a whole and of the world system, should be thinking about them. We should be working, with international partners, on blueprints for a new system combining mutual and collective security with economic stabilization. For only this can foster sustainable development worldwide, while at the same time permitting us to attend to social justice and the environment at home.
This is not a job that private banks want to turn over to us. It is therefore not going to be found on the agenda of the Hamilton Project. That is a powerful reason that it should be on ours.