Chace Review: Martin Wolf on Fixing Finance

In Fixing Global Finance, Martin Wolf examines the implications of the interconnected world when things go badly wrong. By Imola Unger

The United States has grown to be the number one borrower in the world and largest receptor of surplus savings from emerging economies, especially Asian markets. The merger of micro and macro finance and Asian exchange rates tied to the dollar have created a state of extreme dependence between markets, the fragile balance of which even a straw could break. Consequently, that symbolic straw was placed, on the domestic front (partly) in the form of the subprime crisis. Due to this interdependence and 2008 the collapse of the stock market, the ensuing recession has extended into a worldwide phenomenon now threatening with a 1930s like depression on a global scale. All players must contribute, especially individual players who complacently think their consumption does not add into the lot. This is exactly the moment of individual action in capitalism, when our financial waste must not be swept under the rug of the large powerful players. This is a time when everyone must contribute in order to save the global economy and establish a new working framework for it.

Solid foundations are required for this framework, a network of flexible individuals perceptive to change and demand, and not a mass of large inertia periodically running into panic, dragging all markets with it. Currently one of the biggest issues is the sizability of the major economic players, be it countries or corporations overarching borders, and the inertia they exert before escalating into crash when they eventually do adopt the speed. Perhaps the time of these big players is up, perhaps the economy is signaling the time of change. In the creation of such a framework Martin Wolf’s unparalleled expertise can be of much value.

In his book Fixing Global Finance he discusses the grossly undervalued significance of the merging micro and macroeconomics. The movement of capital plays out largely on the end consumer level and a substantial percentage of (domestically thinking) the US economy is defined by that flow of capital. The dynamics of this flow are largely definitive not only on the home market but through millions and millions of American consumers will impact the world economy too.  The theory Wolf lays out is already at work in practice in the “Buy American” incentive, which is another example of how finance can be regulated by government. While trade cap or caged markets are certainly not the way to go, nor is refusing Chinese, the flow of American capital into a country that has already large reserves thereof will not contribute strongly to stabilizing the market.

Exchange rates are harder to influence, and the individual does not have much say in the running of the IMF. But simple things such as “Buying American” or keeping savings within the United States will contribute to the prevention of reliance on foreign capital (Swiss banks, Japanese investment). As an individual, the chance is there to “ride” the momentum and harness its force to domestic flourishing and responsible foreign spending. Consumption will not cease to exist, nor will it decline as early 2009 indexes show, but it can be channeled.