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Back to the Future, Courtesy of Argentina

President Nestor Kirchner of Argentina is often portrayed as an anti-capitalist radical for proposing a "haircut" of over 90% on the value of Argentina's defaulted external debt. But, whatever his motives, the anxiety that led up to Argentina's last minute deal with the IMF to repay $3.1 billion owed the global lender may serve to help to rescue what capitalism is really about: the appropriate judgment of risk.

Economic development involves financial flows and the buildup of debt. In a domestic setting, bankruptcy and default are common. Indeed, one characteristic sign of economic vitality is the frequency of bankruptcy, for business failures indicate a willingness to gamble and take risks on innovation.

Today, there is a higher level of bankruptcy in the United States than in the European Union, and it is easier for bankrupt Americans to embark on new ventures. As a result, Americans are more prepared to be innovative.

But in the history of international finance over the past sixty years, bankruptcy and default are almost unheard of. One consequence is that international markets are not as dynamic as they might be, and prosperity not as widespread.