Picking Martin Wolf's brain

By: Matthias Catón
13.01.2010

I recently had the privilege to participate in a dinner in Singapore with Martin Wolf, the chief economics commentator of the Financial Times. Entertaining as always, he gave his views on the most important economic issues we will face in 2010. Of the many things he raised, a few particularly caught my attention:

On the question of a global reserve currency, Martin Wolf clearly expressed his preference for using Special Drawing Rights (SDR), as "you can't run a global economy with a national currency".

On a global transaction levy, the famous Tobin Tax, Wolf said that while he thought it was not useful for currency markets (as originally proposed by Tobin) he could see it for asset markets. He argued that a reduced liquidity of asset markets would make shareholders get more informations about a company before buying its shares because they would know that they might not be able to sell them again easily. This could create more informed markets. In any case, raising money for development goals should not be done with a transaction tax, according to Wolf. A pollution tax would be more suited for this purpose, he said.

Not too surprisingly, Wolf foresaw a major problem with public debts arising, including some potential sovereign defaults. He also said that rating agencies would in principle have to downgrade both the UK and the US, but didn't do so because of the political fallout. Asked about a possible solution for excessive public debt, he mentioned two: inflation and exchange rate changes.

Finally, on the issue of global trade imbalances he emphasized that among the countries with huge surplusses the emerging economies would have to consume more. Mature surplus economies, such as Germany and Japan, would not be able to absorb the quantities required to balance trade.

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