Financial stabilization

Even as the threat of global imbalances fades, the next phase of globalization will present new risks and opportunities that policymakers will need to confront. Developed markets could remain lethargic or suffer further slumps, increasing the risk of a global downturn. Financial stabilization policies may not be implemented effectively and evenly enough to avert the risk of another global financial crisis.Net capital flows could reverse and drain investment away from developed countries, potentially triggering protectionism. Inequality trends could persist or even widen. As the Doha Round limps along, the open trading environment built over the last 65 years could face rising pressure. Political and economic reforms across the world may stall, halting or reversing recent progress. By devoting time, energy and political capital to correcting

today’s perceived imbalance problem rather than tackling the challenges on the horizon, world leaders risk fighting the last war. It may be not just the global economy that needs some rebalancing but also policymaking itself. ∂

Alan M. Taylor is a Senior Adviser at Morgan Stanley and is joining the economics faculty at the University of Virginia as Souder Family Professor of Arts and Sciences.

Even as the threat of global imbalances fades, the next phase of globalization will present new risks and opportunities that policymakers will need to confront. Developed markets could remain lethargic or suffer further slumps, increasing the risk of a global downturn. Financial stabilization policies may not be implemented effectively and evenly enough to avert the risk of another global financial crisis.Net capital flows could reverse and drain investment away from developed countries, potentially triggering protectionism. Inequality trends could persist or even widen. As the Doha Round limps along, the open trading environment built over the last 65 years could face rising pressure. Political and economic reforms across the world may stall, halting or reversing recent progress. By devoting time, energy and political capital to correcting

today’s perceived imbalance problem rather than tackling the challenges on the horizon, world leaders risk fighting the last war. It may be not just the global economy that needs some rebalancing but also policymaking itself. ∂

Alan M. Taylor is a Senior Adviser at Morgan Stanley and is joining the economics faculty at the University of Virginia as Souder Family Professor of Arts and Sciences.