ABSTRACT
Pier Carlo Padoan’s interesting and provocative analysis has two main parts: financial instability and international games. Padoan extends Hyman Minsky’s financial instability hypothesis to the international arena. If the inverted relation is rare, then international financial instability can be viewed as an aberration inflicted by the private banking system, perhaps once in a generation. In that case, the volume of international lending will come to resemble the emotional price fluctuations witnessed on the stock market. The methodological comment is that game theory applied to international negotiations leaves fascinated but unpersuaded. In most international negotiations there are many actors and, therefore, multiple hands on the levers of power, most international negotiations are single events. Indeed, external credit often erodes national resolve to pursue the disciplined fiscal and monetary policies that improve net exports: witness not only Mexico in the 1970s, but also the United States in the 1980s.
