Dani Rodrik at The Economist:
Central Authority Necessary, by Mark Thoma: Dani Rodrik does not believe that global financial regulation is feasible, prudent, or desirable, and he argues for considerable regulatory autonomy for individual countries rather than a centralised regulatory authority. This is consistent with the one economics, many recipes theme he has been developing in recent years. I don't disagree with the idea of granting individual countries as much individual flexibility as possible, and most proposals recognise some role for a global institution, so the question is one of degree, i.e. how much power to give a central authority, and how much power to leave to each individual country.
There is often tension between moving quickly to resolve a crisis, and following democratic processes that allow all interests to be represented in the decision-making process. When power is concentrated, quick action is much easier, and we see this concept at work in the Federal Reserve system. The Fed, as initially conceived in 1913, was a decentralised institution with no dominant central authority. The vision was one of twelve cooperating banks, with each bank granted the power and the flexibility to respond to conditions within their districts. This is the vision Dani has for the world economy.
But the Great Depression made it clear that such an institution, while perhaps ideal for normal times, was severely limited when a crisis hits... [...continue reading...]
[Update: Brad DeLong makes a similar point: We Need a Hegemon Who Won't Drive Us Crazy...]