
Under the rubric
Vive la politique!, and in conjunction with the colloquium of that name it has organized, the newspaper
Libération is presenting today a series of mini-debates between leading figures. Unfortunately, so little space is allotted to each that what emerges is largely mush. One might have expected more illumination from
an exchange between finance minister Christine Lagarde and leading economist J.-P. Fitoussi on the theme "Is Politics the Slave of Finance." Instead we get banalities. Fitoussi delivers himself of an oracle worthy of the Pythia at Delphi: "The supposed function of the markets is to coordinate the future plans of economic agents." He then wanders off into a meditation on the difficulty of the task and briefly evokes certain state regulatory functions, such as setting short-term interest rates (or is it inflation targeting, which he doesn't mention, or growth of the money supply, or a combination of expected inflation and potential growth, etc.). In keeping with his central theme, however, of coordinating expectations of the future among diverse economic actors, I would have thought he would emphasize the all-important role of information. In the current liquidity crisis, the lack of transparency, and in particular the role of bond-rating agencies, bears an important share of responsibility. The flow of liquidity outside the regulated banking system and into the unregulated world of hedge funds, off-balance sheet operations by banks, structured investment vehicles, and collateralized debt obligations has been facilitated by the unregulated but highly remunerated work of bond rating agencies and investment bankers, which put these vehicles together. This is where politics has a role to play in structuring the financial markets. Merkel and Sarkozy discussed this point at their meeting this week, hence it is all the more surprising to find it omitted from the discussion between Fitoussi and Lagarde, although Lagarde does at least touch on the need for "rules" and "transparency." But the time for buzzwords is past; what is needed is legislation.
Those in search of greater light, try
here,
here,
here, and
here.
ADDED LATER: In fairness to Fitoussi, he does a much better job when given ample space, as in
this interview, where, in particular, he makes the point about information that I criticize him for not making in
Libé.