The unfettered capital flows help to hold a nation politically accountable.

The fundamental point for a nation as a whole is that capital flowing across its borders allows a nation’s residents to enjoy higher standards of living than would otherwise be possible—time paths of consumption that are higher, better adapted to national preferences, and not rigidly tied to the peculiarities of their geography.

Just as individual firms can hedge against events that could alter the profitability of their operations, an entire jurisdiction can collectively hedge against the future by accumulating income-earning assets held outside the jurisdiction.

Changes in cross-border assets and liabilities are a necessary counterpart of goods and services transactions.

The trade-off between local autonomy and external openness, and the still more fundamental trade-off between decentralized independent decisions and centralized cooperative decisions, exists at the core of all levels of governance.

A trade-off is a compromise between two incompatible goals. When goals are incompatible, neither can be fully achieved without sacrificing at least some part of the other.

Even the strongest proponents of free enterprise and decentralized market decisions recognize the need for an appropriate framework of laws and regulations, and for practical definitions of private property rights.

It is a basic characteristic of market capitalism that market extremes and decentralized decisions can lead to market failures. It is a basic characteristic of politics that governance extremes and rigidities can lead to governance failures. Virtually every jurisdiction therefore has some combination of decentralized markets and government

The existence of market failures and the propensity for free-riding behavior is not a compelling reason for concluding that a jurisdiction should dispense with markets and decentralized decisionmaking. Collective governance can itself be costly or misguided, resulting in a governance failure.