There have been various explanations forwarded about the East Asian financial crisis taken place since 1997, some of which were even fraught with intense sentimental smog, such as the allegation of "conspiracy" from social critics, or the invariable fallout of the "globalization" of social apologists. The purpose of this paper, however, is to retreat to the traditional economics in which an analysis will be carried out with its "down to earth", classical economic approach. Such an approach will as a result give its own different verdict in respect of the Asian turmoil. The first is that all agents in the crisis are merely acting upon their own self-interests; the second is that the dynamic path and the result of these actions could be different. At one extreme, an action could be at the direct expense of others, or precisely, create negative externalities in economic terms; at the other, it could possibly reach the so-called "win-win" position, an optimal solution.
As we will not only concern with the situation within a country, but also with the interaction among countries, it is necessary thus to distinguish these two circumstances where relevant actions are executed. The first is that within a nation-state, there is a society with a national government, whereas in the similar sense the phenomenon has not yet been found in the international sphere where all nations in the world are virtually living in the situation of not far from anarchy. The second is that people have the freedom to move from one place to another place, but they do not have the same freedom to do so among countries. That said, hence, the same action or policy executed would lead to different outcomes on national level and international level.
Economic freedom the liberal economics emphasizes is the one under certain rules, which excludes such an action that might hurt others, so that the pursuance of self-interests will simultaneously enhance social welfare. Heretofore, these rules could be approximately realized only when there is a government. As with discussions of international affairs, therefore, we should pay attention to the change of meaning of Freedom. Our purpose here is to try to come up with likely ways of establishing rules necessary whereby the mutual benefits would result, or the actions to hurt others may not only lead to an unfair distribution of wealth, but also decrease the global welfare (including that of ones who hurt others’ interests) by the damaging of ones to others and the retaliating of ones who were hurt together.
For our analysis, we select hedge funds, financial markets and nation-states as the protagonists among many others in the crisis. What makes the selection intriguing is that the three of them not only are three kinds of different institutions, but also represent three groups of people. We will thus search for the possible answers to the financial crisis amidst the interaction between the institutions and the groups of people.
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