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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

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