Sally and Erixon!

Razeen Sally is emerging as yet another leader in the global economic challenge. I applaud his efforts.

His approach is more international than that of Krugman or anyone else out there; except for Buiter and at some times, Rodrik.

Even though he comes from a trade (free-trade) approach, his outlook gives us some snapshot into how the new global governance should look like, surprisingly, from a goods and transfer aspect of things as opposed to the dollars and cents approach by Buiter. Or, the development aspect of a Rodrik.

He and Fredrik Erixon have collaborated on a few recent articles in regards to assisting the system to get back to health.

What he proposes is some what of a paradox:

Finally, the new consensus espouses a renewed compact of “embedded liberalism” or “Keynes at home and Smith abroad” (Caplin 2008). Greater government macro and micro interventions at home are needed to stimulate recovery, reduce inequality and preserve social stability. And stronger international cooperation (or “global governance”) is needed to make this work in tandem with open markets abroad. This idea is based on a contradiction. Big Government at home means a new Age of Protection abroad. Keynes at home is also Keynes abroad.

There may be more to the issue than just the paradox. Perhaps I would have to review the Caplin literature to understand what that would entail. But, from the face of it, it appears as if it is going to be littered with heavy government domestic spending, greater deficits and lots of spending to go with it.

I think there are some structuralist traditionalist economists, who would have issue with this.