The authors, bizarrely, believe that policy-makers are like undergraduates who can get 'lured' by some silly academic theory.



They write- 'Why, after all, would China abandon capital controls now, and what took Argentina so long to adopt such obviously necessary measures?' We know very well why China has taken this measure- it is a short term attempt to shore up the currency- and we also know why it won't have much impact. China isn't going to let foreigners take over their companies. They are moving in the other direction and have enormous coercive power to ensure it happens.



Argentina's problems are well known. This same soap opera has been endlessly repeated with a different cast.



The authors say China could have 'succumbed to financial globalization' in the Nineties. Are they utterly mad? Do they think the Chinese Communist Party would have bent the knee to a Rupert Murdoch whose newspapers and tv channels told their population what to think? Do they imagine that foreign corporations would have been able to use Chinese labor while preventing any theft of intellectual property?



If China could have succumbed to some stupid academic theory, why not to the theory that what is best is a Multi Party democracy with the right of secession for national minorities? China's actions have been consistent, if not always sensible. They are intended to boost the power of the Ruler and those loyal to him.



Emerging market financial crises- like all financial crises- are caused by reckless lending and stupid investing. They can afflict a command economy just as easily as a capitalist economy. Often, there is an element of corruption or, at the least, agent principal hazard. The authors speak as if 'capital inflows' are like inflows of sewage. They are correct. The Marshall Plan led to capital inflows into post-War Europe. This reduced vast swathes of the continent to starvation.



It is interesting that the authors, both of whom are immigrants, condemn immigration because it is one of 'the tenets of the neo-liberal consensus. Surely, they will accept that they are good immigrants who have benefited their host country? By contrast, it is sensible to keep out criminals or those whose wage competition will drive down living standards for the working class. Similarly, some capital flows are desirable and others are not. This is a matter for mechanism design, not ideological verbiage. It is senseless to talk of China and Argentina as if we can learn some nomothetic truth by examining their trajectories. However, China is sui generis and the Argentinian soap opera has been repeated ad nauseam all my adult life. There may be idiographic lessons here- but nothing ideological.



There is no good evidence that 'financial globalization' aggravates macroeconomic instability. Rather corrupt or incompetent policy making has this effect. No doubt, structural changes in the economy, and political or geopolitical changes, increase uncertainty and thus cause macroeconomic instability but capital inflows- including hot flows (which is merely arbitrage) cushion the shocks and increase robustness. For that very reason, there can be sudden corrections and, if these are large enough, there is contagion risk. But that's what mechanism design is for.



The authors speak of 'development economics'. But, it failed completely- at least in India. It was counter-productive. There was a full blown Sovereign debt crisis by the early Eighties. Development Economists- like Sukhamoy Chakroborty- were shunted off to some academic lumber-room. They had no influence. The truth about damaging hot money inflows is that power elites benefited corruptly or nepotistically and this created Agent Principal hazard. Singapore pays its officials well and thus has sensible policies. Its experience with respect to capital inflows has, historically, been benign. But, in my experience, this is because its officials know what they are talking about. They don't get 'lured' by academic theories or bogus ideologies.