Out of Control: Canada in an Unstable Financial World

Xavier de Vanssay is an associate professor of economics at Glendon
College, York University.

Intended for students of economics, political science, and
Canadian/international studies, Out of Control is a collection of 11
(updated) papers that were written between 1998 and 1999, just after the
peak of the Asian financial crisis. The authors are for the most part
leftist economists (Jim Stanford, John Loxley, and others) or policy
writers (such as Linda McQuaig, who has recycled a chapter from her
latest book). The underlying theme of the book is the supposed
superiority of the euphemistically named “popular agenda ” (good)
over the market agenda (bad). The former favors more government
intervention and regulations, especially for financial markets, which
are “inherently unstable ” or pernicious (one writer likens the
financial derivative markets to a Mafia protection racket).

A central tenet of economics is that a country cannot have the
following three things at the same time: free movements of capital,
fixed exchange rates, and an independent monetary policy. This is known
as the impossible trinity. In prescribing controlling the capital
markets (thereby allowing a country to maintain fixed exchange rates and
an independent monetary policy), the authors fail to consider whether
the medicine might be worse than the illness. Further, one has the
distinct impression that history has passed many of the authors by. In
the last few years, Indonesia, South Korea, Thailand, Brazil, Chile,
Columbia, Mexico, and Peru have simply let their currency float; less
than one paragraph of this book is devoted to that important policy
shift to floating rates.

Although biased, the book is informative. The authors have done an
excellent job in providing detailed and up-to-date references. The
editor contributes a comprehensive and readable survey of the debate
concerning short-term capital flows.