“CAPITAL OUTFLOWS”

Feeling lazy today so I’m pulling from Krugman a couple of days old:

Catching up on my Willem Buiter, I find this interesting piece on capital controls in the response to the European crisis, which begins:

When Iceland’s banking system and currency collapsed last September, a key component of the emergency package that was introduced under the auspices of the IMF were controls on capital outflows, implemented through rigorous foreign exchange controls.

I have a bit of personal history here — and it has some bearing on broader economic policy issues right now. Back in 1998, in the midst of the Asian financial crisis, I came out in favor of temporary capital controls; a bit about that here. At the time it was regarded as a horribly unorthodox and irresponsible suggestion — and I had a long, very unpleasant phone conversation with a Senior Administration Official who berated me for my anti-market ideas.

Today, that wild and crazy idea is so orthodox it’s part of standard IMF policy.

There are obvious parallels with the current debate over bank nationalization.

He obviously finds vindication in the fact that the IMF is now doing what he advised. This doesn’t mean it is a good idea. The notion that limiting investment is going to help is absurd. Preventing investment where it will have the strongest returns will not help. Yes, investing was wild and unsound, but that doesn’t mean that all foreign investment is going to be hurtful. Preventing free trade will not make Icelanders more wealthy.

Of course I think Krugman has zero-sum tendencies even if he doesn’t always articulate them like he does here:

Well, no. Although America has higher per capita income than other advanced countries, it turns out that that’s mainly because our rich are much richer. And here’s a radical thought: if the rich get more, that leaves less for everyone else.

Because it’s not possible for poor people to get richer at the same time and thus change our perceptions of what being poor is.