OPEN LETTER: THE WAY FORWARD

This is an open letter to world leaders attending the November 15 White House summit on financial markets and the world economy.

Dear world leaders:
The winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide. For more than three decades, mainstream neo-liberal economists have preached, and regulators have accepted, the myth of the efficiency of unregulated markets, ignoring the critical

lesson provided by John Maynard Keynes's analysis of interconnection of financial markets and the international payments system.

Those who do not learn the lessons of history are bound to repeat its tragedy. Neo-liberal economists in the last three decades have denied the possibility of a replay of the worldwide destructiveness of the Great Depression that followed the collapse of the speculative bubble created by unfettered US financial markets of the "Roaring Twenties". They fooled themselves into thinking that false prosperity built on debt could be sustainable with monetary indulgence. Now history is repeating itself, this time with a new, more lethal virus that has infested deregulated global financial markets with "innovative" debt securitization, structured finance and maverick banking operations flooded with excess liquidity released by accommodative central banks. A massive structure of phantom wealth was built on the quicksand of debt manipulation. This debt bubble finally imploded in July 2007 and is now threatening to bring down the entire global financial system to cause an economic meltdown unless enlightened political leadership adopts coordinated corrective measures on a global scale.

The US subprime mortgage problem that started in 2007 has developed predictably to a morass that has caused the abrupt failure of interconnected financial markets and threatened the viability of financial institutions worldwide as contagion spread at electronic speed via an antiquated, dysfunctional international payments system.

To arrest the global financial meltdown, much can be learned from Keynes' vision of how the international payments system should work to permit each country to promote a national full employment policy without having to fear balance of payments problems or to allow financial incidents in other countries to infect the domestic banking and non-bank financial systems.

Another Great Depression can be avoided if world leaders would reconsider John Maynard Keynes' analytical system that contributed to the golden age of the first quarter century after World War II. The undersigned and others have long advocated a new international financial architecture based on an updated 21st century version of the Keynes Plan originally proposed at Bretton Woods in 1944.

This new international financial architecture will aim to create (1) a new global monetary regime that operates without currency hegemony, (2) global trade relationships that support rather than retard domestic development and (3) a global economic environment that promotes incentives for each nation to promote full employment and rising wages for its labor force.

Sincerely,
Paul Davidson, Editor, Journal of Post Keynesian Economics, Visiting Scholar, Schwartz Center for Economic Policy Analysis, The New School, New York, USA;
Henry C K Liu, Visiting Professor of Global Development, Department of Economics, University of Missouri-Kansas City, USA.

Partial list of supporters:
Irma Adelman, Professor of Economics, Graduate School, University of California at Berkeley, USA;
Philip Arestis, Director of Research, University of Cambridge, UK;
Angel Asensio, University Paris 13, France, member of ADEK and Post Keynesian Economics Study Group;
H Sonmez Atesoglu, Professor of Economics, School of Business, Clarkson University, Potsdam, USA;
Rainer Bartel, Associate Professor of Economics, Johannes Kepler University, Linz, Austria;
Janine Berg, Senior Labour Economist, International Labour Office, Brasilia, Brazil;
W Robert Brazelton, Professor-Emeritus/Economics, University of Missouri-Kansas City;
Luiz Carlos Bresser-Pereira, Professor Emerito da Fundacao Getulio Vargas, Brazil;
Christopher Brown, Professor of Economics, Arkansas State University, USA;
Paul D Bush, Professor Emeritus of Economics, California State University, Fresno, USA;
Fernando J Cardim de Carvalho, Professor of Economics, Institute of Economics, Federal University of Rio de Janeiro, Brazil;
Massimo Cingolani, Directorate for Lending Operations in Europe, European Investment Bank, Luxembourg;
Eugenia Correa, Posgrado de Economia, Universidad Nacional Autonoma de Mexico;
Dr James M Cypher, Researcher-Professor, Economics, Doctorate in Development Studies, Universidad Autonoma de Zacatecas, Mexico;
Sheila C Dow, Professor, Department of Economics, University of Stirling, Scotland, UK;
Miguel Angel Duran, Lecturer in Economic Theory, University of Malaga, Spain;
Jorge Garcia-Arias, Associate Professor of Economics, Department of Economics, University of Leon, Spain;
Alicia Giron, Instituto de Investigaciones Economicas, Universidad Nacional Autonoma De Mexico;
Eric R Hake, Assistant Professor, Eastern Washington University, USA;
John T Harvey, Professor of Economics, Texas Christian University, USA;
Baban Hasnat, Professor, Dept of Business Administration & Economics, The College at Brockport, State University of New York, USA;
Geoffrey M Hodgson, Professor of Economics, University of Hertfordshire, UK;
Lena Lavinas, Assistant Professor of Welfare Economics, Institute of Economics at the Federal University of Rio de Janeiro, Brazil;
Frederic S Lee, Professor, Department of Economics, University of Missouri-Kansas City, USA;
Noemi Levy-Orlik, Professor, Economic Department, National Autonomous University of Mexico;
Brent McClintock, Associate Professor of Economics, Department of Economics, Carthage College, Wisconsin, USA;
John McCombie, Director, Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge, UK;
Sergio Cabrera Morales, Economics Faculty, Universidad Naciona Autonoma de Mexico;
Tracy Mott, Associate Professor, Department of Economics, University of Denver, USA;
Alcino Ferreira Camara Neto, Dean of Law and Economics, Federal University of Rio de Janeiro, Brazil;
Paulette Olson, Professor, Department of Economics, Wright State University, Dayton, Ohio, USA;
Walter O Otsch, Head of the Centre for Social and Cross-Cultural Competency, Johannes Kepler Universitat Linz, Austria;
Maria Cristina Penido de Freitas, Brazilian Economist, PhD on economics, University of Paris, France;
Daniela Magalhaes Prates, Professor, the Economy Institute of the University of Campinas, Sao Paulo, Brazil;
Alcino F Camara Neto, Professor and Dean Federal University of Rio de Janeiro, Brazil;
Clyde Prestowitz, President, The Economic Strategy Institute, Washington DC, USA;
Colin L Richardson, Internet Economist, William Penney Laboratory, Imperial College London, UK;
Louis-Philippe Rochon, Associate Professor, Laurentian University, Ontario, Canada;
Irma Erendira Sandoval, Social Science Research Institute, Universidad Nacional Autonoma de Mexico;
Prof Dr Herbert Schui, former professor of economics, University for Economics and Policy, Hamburg, Germany; MP at the Deutscher Bundestag Parliamentary Group, DIE LINKE economic spokesman;
Mario Seccareccia, Professor of Economics, University of Ottawa, Canada; Editor, International Journal of Political Economy;
Mark Setterfield, Professor of Economics, Trinity College, Connecticut, USA;
Anwar Shaikh, Professor of Economics, Department of Economics, Graduate Faculty, New School for Social Research, New York, USA;
James I Sturgeon, Professor of Economics & Economics Department Chair, University of Missouri-Kansas City, USA;
Eric Tymoigne, Assistant Professor, Department of Economics, California State University, Fresno, USA;
Cathleen Whiting, Associate Professor of Economics, Willamette University, Oregon, USA;
Gregorio Vidal, Department of Economics, Posgraduate Programme, Universidad Autonoma Metropolitana, Mexico;
L Randall Wray, Research Director, Center for Full Employment and Price Stability, Department of Economics, University of Missouri-Kansas City; Senior Scholar Levy Economics Institute, New York, USA;
Haibo Yan, Associate Professor, Postdoctoral Mobile Research Station, Institute of Economics, Chinese Academy of Social Sciences, Beijing, China.