“An order which is adhered to from motives of pure expediency is generally much less stable than one upheld on a purely customary basis. … But even this type of order is in turn much less stable than an order which enjoys the prestige of being considered binding or, as it may be expressed, of ‘legitimacy’.” Max Weber
All for One examines inequality and the many ways it matters. In our overview article, the World Bank's Branko Milanovic explains how income inequality is measured and tells us that it's increased in most countries. The good news, he says, is that global inequality--between countries--could be on the downturn. IMF economists Andrew Berg and Jonathan Ostry find that a more equal society has a greater likelihood of sustaining longer-term growth. Other IMF research on inequality finds that financial sector development not only 'enlarges the pie' by supporting economic growth but divides it more evenly; that higher income inequality in developed countries is associated with higher indebtedness--at home and abroad; and that while fiscal consolidation is necessary in the medium term, slamming on the brakes too quickly can harm jobs and cut wages, exacerbating inequality. Also in this issue, we profile Elinor Ostrom, the first woman to receive the Nobel Prize for economics. In a tour of the globe, we look at how the African diaspora can help their home countries from afar, try to draw some early lessons from the euro area's debt crisis, investigate how the United States and its neighbor Canada handled public debt--with different results, and find out about the rise of emerging markets as systemically important trading centers. Back to Basics explains the difference between micro- and macroeconomics, and Data Spotlight tells us about a new worldwide survey of foreign direct investment.
Economic interdependence offers the potential for raising global welfare, but there is a fuzzy boundary between national interests and global objectives in the economic policy area. This paper examines the boundary area. It concludes that all international economic regimes must entail a mix of rules and discretion, and it considers the most appropriate weights to be given to rules and discretion.
“Democracy … is a charming form of government, full of variety and disorder, and dispensing a sort of equality to equals and unequals alike.” Plato “If we cannot end now our differences, at least we can make the world safe for diversity.” John F. Kennedy
Much has been written about economic policy, the international system, and national autonomy. In particular, a plethora of views has been expressed on how best to ensure consistency between aspirations of national sovereignty and the restraints imposed by an international environment. Two influential sets of views on how to attain such consistency involve the distinction between arrangements based on rules and those based on discretion. Regimes biased toward discretion stress the advantages of a global system characterized by independent (perhaps insulated) agents, thereby leaving a wide berth for autonomous national economic policy and, with it, for the individual pursuit of national welfare. Systems that stress the importance of rules emphasize the benefits of a global environment of interconnected parts, which by constraining national economic policy expands the common economic space and, with it, the pursuit of individual as well as collective welfare.