March 27, 2022acorngeoeconomics

Arms control for economic WMDs

The train has left the station, but Raghuram Rajan's suggestions can help mitigate the damage to the global economy.

The train has left the station, but Raghuram Rajan’s suggestions can help mitigate the damage to the global economy.

In particular, because economic weapons are too powerful to leave in the hands of any one country, their use should be subject to a minimal consensus requirement. Insofar as sanctions are more effective when more countries participate, this mechanism may already be inbuilt. Yet the threat of secondary sanctions can force otherwise unwilling countries to cooperate. The requirement therefore should be based on voluntary consensus — and the more destructive the economic weapon, the broader the required consensus should be.

Likewise, there should be a gradation of weapon use. Moves against the assets of aggressor-country elites should have the highest priority and lowest consensus requirements. Advanced economies should facilitate this by no longer turning a blind eye to the proceeds of tax evasion, corruption, and theft from elsewhere that are parked in their jurisdictions. Conversely, because moves to debase an aggressor’s currency or undermine its financial system can turn middle-class liberals and reformers into angry nationalists, they should be taken with more deliberation and maximal consensus.

Advanced economies will be understandably reluctant to place constraints on their own newly discovered powers. But they should recognize that a balkanized global economy would hurt everyone. Moreover, holding talks on economic arms control” could be a first step toward fixing the broken global order. Peaceful coexistence is always better than war, no matter how it is waged. Economic Weapons of Mass Destruction by Raghuram G. Rajan - Project Syndicate

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