Lessons from the past
In 1999 the international capital market, although still not a perfect market by an economist's definition of the term, is certainly much broader and almost certainly more efficient than it was two and a half decades ago. In fact, its breadth and efficiency have caused a number of highly respectable economists to suggest arguments that almost certainly would, only recently, have been considered heresy: namely, that “perfection” carries with it some serious problems and that, at times, it may constitute a considerably less than perfect institutional structure. There have been financial crises in Mexico and Latin America in the early 1980s, and again in the mid-1990s. Since the mid-1990s the Japanese miracle has become a bad dream. In 1998 and 1999 a major Asian crisis — a crisis that has already begun to impact Brazil and threatens to engulf markets throughout the western world — has had a dramatic effect on the financial infrastructure of developing Asian countries, countries like Korea, Thailand, Indonesia, and Malaysia. Given these apparently continuing problems, could policy makers have learned anything from the history of the world's financial markets in the years leading up to World War I?
In a recent article in The Economist, Jeffrey Sachs, citing dramatic declines in GDP in Indonesia, in Thailand, South Korea, and Hong Kong, a near breakdown — that is, collapses of share prices of nearly 50 percent or more — of the stock markets of Indonesia, Brazil, South Korea, Hong Kong, and Thailand, and the dramatic erosion of the Thai baht, the South Korean won, and the Indonesian rupiah, concludes that “the collapse of the emerging markets and its ricochet effect on advanced economies may not be the end of globalization. But it is certainly the end of an era.”1574 In a similar vein, the normally staid Los Angeles Times published a____________________