5 Create an effective multilateral agency. As the global economy becomes more interconnected, we need better global oversight. It is unimaginable that America's financial market could function effectively if we had to rely on 50 separate state regulators. But we are trying to do essentially that at the global level.
The recent crisis provides an example of the dangers: as some foreign governments provided blanket guarantees for their deposits, money started to move to what looked like safe havens. Other countries had to respond. A few European governments have been far more thoughtful than the U.S. in figuring out what needs to be done. Even before the crisis turned global, French President Nicolas Sarkozy, in his address to the U.N. last month, called for a world summit to lay the foundations for more state regulation to replace the current laissez-faire approach. We may be at a new "Bretton Woods moment." As the world emerged from the Great Depression and World War II, it realized there was need for a new global economic order. It lasted more than 60 years. That it was not well adapted for the new world of globalization has been clear for a long time. Now, as the world emerges from the Cold War and the Great Financial Crisis, it will need to construct a new global economic order for the 21st century, and that will include a new global regulatory agency.
This crisis may have taught us that unfettered markets are risky. It should also have taught us that unilateralism can't work in a world of economic interdependence.
Some will see this as yet another assault on American sovereignty. And you know, they're not entirely wrong. But no country has absolute sovereignty in practice. Only a great power like the US could lose sight of that--until reality drives home the point. I doubt Stiglitz' answers are entirely correct--and I'm sure they're not complete--but he's probably on a productive track.