The crisis how bewildered should we feel
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The crisis: How bewildered should we feel?. Ricardo Hausmann Center for International Development & Kennedy School of Government Harvard University. Agenda. New researchable questions in light of the crisis Not many We reconfirmed many of the things we learned in the 1990s

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The crisis: How bewildered should we feel?

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The crisis how bewildered should we feel

The crisis:How bewildered should we feel?

Ricardo Hausmann

Center for International Development &

Kennedy School of Government

Harvard University


Agenda

Agenda

  • New researchable questions in light of the crisis

  • Not many

  • We reconfirmed many of the things we learned in the 1990s

  • So, what should we be thinking about going forward?


The crisis

The crisis

  • The biggest crisis in 70 years

  • …but not in Latin America

  • We have seen worse…

    • 1982, 1987-90, 1994-95, 1998-2002

  • …making us focus a lot on crisis avoidance, resilience and management


What had res done before the crisis

What had RES done before the crisis?

  • Volatility

  • Banking crises

  • Fiscal pro-cyclicality and solvency

  • Currency mismatches

  • Sudden stops

  • Monetary / exchange rate policy rules


The lessons before this crisis

The lessons before this crisis

  • The importance of inter-temporal fiscal solvency

  • …of liquidity

    • Reserves, debt maturity

  • …of currency mismatches

    • Debt denomination

  • …of tough and well supervised capital and liquidity requirements on banks

  • …consistent exchange rate / monetary policy regimes

  • …credible communication with citizens and markets

  • …importance of counter-cyclicality in policy

    • Space to be counter-cyclical

    • Ways of being counter-cyclical


What have we learned from this crisis

What have we learned from this crisis?

  • That we were right

  • Countries that followed the lessons managed to cope with a very bad situation and look well going forward

  • Countries that decided to disregard these lessons have been doing worse and look less well going forward


What have we not solved

What have we not solved?

  • How to accelerate the region’s growth of good jobs

  • Growth policies are high bandwidth

  • They involve hundreds of thousands of pages of legislation

  • …and hundreds of public entities

  • They involve the provision of a very large set of rather specific public inputs

  • Deeply interacting system

  • Impossible to be perfect

  • How to improve?


Two mental frameworks

Two mental frameworks

  • Intelligent design vs. evolution

    • Full knowledge vs. search algorithms

  • Central planning vs. the market

  • GM vs. Toyota

    • Central planning vs. decentralized problem solving

  • Science vs. technology

    • General propositions vs. tinkering

    • The byclicle

  • Economic theory vs. economic policy

  • The technocratic dream vs. the US congress


The challenge

The challenge

  • Private inputs vs. public inputs

    • Why not the market?

  • Information and prices

  • Incentives and profits

  • Capital markets and resource mobilization

  • How to elicit the information?

    • Toyota’s andon chords

  • Why be responsive to that information?

  • How to design and evaluate solutions ex ante, given complex interactions?

  • How to mobilize resources?


Elements of a market for public inputs

Elements of a “market” for public inputs

  • Information hubs

    • Industrial zones

    • Development banks

    • Investment promotion agencies

  • Trade associations

  • Transparency

  • Democracy

  • Narrative


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