One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about [how] they interact with each other.
Pointer from Mark Thoma.
Relevant because apparently he will be chief economist at he World Bank. I am not sure that his personality and that institution are meant for one another.
Why exactly do we need a World Bank in this day and age? What exact functions does it perform for its investors and debtors in a world full of apparently plentiful, cheap, and financial capital freely flowing through digital networks, and in which even many developing economies have mature financial and entrepreneurial sectors, and in which even Kenyan cowherds are managing their finances via mobile phones?
The World Bank was designed for almost exactly the opposite context. The post-war era was one in which financial capital was scarce, ‘analog’, expensive, and harder to move internationally for regulatory and other reasons, and in which many countries lacked experience and maturity and so required foreign consultation. It was one in which it was more arguable that nation states had to fill a role that private, multinational banks and investment houses could not yet fill, but which they can today.
As a lending institution, the World Bank doesn’t make sense any longer.
However, my theory of the primary contemporary function of the World Bank and IMF is to be the politically inaccessible scapegoat to which domestic politicians can always shift blame for ‘imposing harsh conditions’ and policies that those politicians would otherwise want to implement, but couldn’t because constrained by local politics and interest groups. It is like a ‘pretext case’ (e.g. Griswold or Plessy) in which the opponents are not genuine adversaries but instead are conspiring to set up the pins for a Court ruling.
The local politicians know that that it is better to permanently bind the whole nation via treaty to the IMF, World Bank, EU, or whatever, and then rail against how evil they are and what a bad deal they got, but darn it, don’t blame me and you can’t make it an election issue, because unfortunately ‘our hands our tied’, because (1) we keep our agreements, even the bad ones, and (2) we need to preserve our reputation and credibility and access to credit, which will be shot if we renege on even bad deals.
In other words, the World Bank, IMF, and to an extent, the EU and the U.S. Federal government exist to absorb the political blame for locals needing a patsy to make some unpopular reform, and being so powerful, prestigious, distant, and untouchable by any conceivable local entities or efforts, are almost always able to take those hits without even flinching.
A wacky choice, to be sure (no disrespect intended–I really like his ideas), but if they let him work out experimental charter cities it might do more good than the last 50-odd World Bank projects combined. We need small-scale experimentation.