Time for capital controls

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As Larry Elliott notes http://www.guardian.co.uk/business/economics-blog/2011/dec/12/debt-crisis-recovery-recedesin the Guardian this morning, the Bank of England published a working paper this morning that says that the post war Bretton Woods agreements of fixed exchange rates and capital controls provided an environment for stable growth, the efficient allocation of capital and no economic shocks.

Of course the 1973 and onwards oil price changes threatened that but as they rightly note the system worked for 25 years whilst the Wahington Concensus era of free movement of capital has delivered none of those things, ever.

All right, there are caveats. Causality has to be assumed - but Courageous politicians always have to do that.

But as I argue in The Courageous State, the real need is to ensure capital is accountable and allocated to the real economy and not to speculation. Only then can real, sustainable, prosperity be restored. We are a long way from there and capital controls are an essential part of making global capitalism work again - by holding it to account for where it is, what it is used for and what tax it pays. Country by country reporting would help that, which is one reason why I am argung for it in Copenhagen today.