The Globalization Problem

An excellent point from Ezra Klein about the problems of a more globalized world:

So you get something like Greece where the bailout has to come from people who don’t think they care whether Greece fails, or you get something like a global bank tax where Canada refuses to go along because its banks don’t deserve to be punished with a tax. As domestic regulations and solutions become more vulnerable to international arbitrage and global problems, the needs for smooth international actions will become greater, but it’s not clear to me such things are actually becoming easier.

I actually think coordinated international action has arguably become harder as a result of the very same trends in economic policy. It used to be that you could hammer out an agreement and explain it to the Germany people one way in Bild another way on Greek television and a third way to the Financial Times and the Wall Street Journal. People tend to have an unduly zero-sum view of international interactions, so message-segmentation is often key to selling any kind of mutually beneficial agreement.

At any rate, this is a fairly general problem, but on the specific issue of financial regulation it strikes me as a fairly compelling reason to move back to some limited form of capital controls to allow countries to pursue tax and regulatory measures without everything with any teeth requiring near-universal international coordination.