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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. 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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  1. The crisis:How bewildered should we feel? Ricardo Hausmann Center for International Development & Kennedy School of Government Harvard University

  2. 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?

  3. 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

  4. What had RES done before the crisis? • Volatility • Banking crises • Fiscal pro-cyclicality and solvency • Currency mismatches • Sudden stops • Monetary / exchange rate policy rules

  5. 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

  6. 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

  7. 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?

  8. 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

  9. 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?

  10. 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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