Policy Workshop with the Center for Latin American Studies on the Uneven Recovery: Emerging Markets versus Developed Economies

Friday, October 14, 2011
Stauffer Auditorium, Hoover Institution, Stanford University
George P. Shultz, Pedro C. Aspe, Francisco Gil Díaz, Stephen Haber, Allan Meltzer, Leszek Balcerowicz, Michael J. Boskin, John B. Taylor, Pablo Villanueva
George P. Shultz, the Thomas W. and Susan B. Ford Distinguished Fellow of Hoover Institution, discussed how changing demographics, including longevity and fertility, are having economic consequences in the United States, Mexico, and other countries across the world.  He argued the capacity for states to act as sovereigns has declined, and discussed the war on drugs and how a country’s neighbors influence its national security.  Shultz called upon those present to think about how to reduce violence across countries in this changing demographic environment. 
Pedro C. Aspe, former finance minister of Mexico and cochairman of Evercore Partners, spoke about why, by most measures, Mexico has recovered from the recent financial crisis much faster than the United States.  He stated one must first understand why the crisis occurred to understand how to recover from it.  Aspe argued Mexico recovered well by bouncing back quickly in manufacturing and trade, by having sound fiscal and monetary policy responses, and because Mexico has seized opportunities to increase its global competitiveness.  He conjectured it would take more time for the U.S. to fully recover.
Francisco Gil Díaz, former finance minister of Mexico and executive president of Telefónica (Mexico and Central America), further discussed Mexico’s recovery from the recent financial crisis.  He echoed many of the comments of Pedro Aspe, and explained that Mexico’s ability to attract foreign investment, its increase in global competitiveness, and many of Mexico’s comparative advantages are due to low transportation costs of goods and the country’s location, size, labor force, and general macroeconomic environment. 
Stephen Haber, the Peter and Helen Bing Senior Fellow of Hoover Institution and professor of political sciences of Stanford University, spoke from a banking perspective about how Mexico weathered and has been insulated from the financial crisis.  He stated that at the time of crisis Mexico had sound monetary policy, stringent banking regulation and requirements, and no housing boom, and argued these components prevented the widespread crisis seen in the United States.  Haber further argued that the environment in Mexico is as it is as a result of policy responses to previous crises in Mexico near the turn of the century.
Allan Meltzer, visiting fellow of Hoover Institution and professor of economics of Carnegie Mellon University, discussed his perception of the economic position of the United States during a time when the market system is becoming more globally applied.  He proposed actions the United States could take to help them more effectively recover from the recent financial crisis and prevent such crises in the future.  Meltzer’s suggestions included adopting a monetary policy that gives people more confidence inflation will remain low, having a budget agreement, adopting immigration policies that encourage immigration amongst people that can make significant contributions to the economy, setting a credible inflation target, and increasing the accountability of Federal Reserve leaders. 
Leszek Balcerowicz, visiting fellow of Hoover Institution and former finance minister and central bank governor of Poland, discussed how emerging and developed economies in Europe have been recovering from the financial crisis, as well as what progress different countries appear to have made in recovery and potential reasons why.  He noted the variation across countries in the depth of recession and recovery, as well as in all key aspects of economic performance during the recovery period.  However, Balcerowicz also pointed out that less variation exists across the recoveries in emerging Europe, notwithstanding deep recessions having taken place in those countries. 
Michael J. Boskin, senior fellow of Hoover Institution and professor of economics of Stanford University, spoke on the current monetary, fiscal and overall economic situation of the United States, as well as the efficacy (or lack thereof) and effects of implemented stimulus and other policy responses to the recession.  He argued a glide path from the current economic state to a long-term smooth safe rate of growth is needed, and that all policies not consistent with this transition should be eliminated.  Stating one should be cautious believing proposals to stimulate the economy in the short run work, Boskin also made recovery recommendations in the areas of monetary policy, fiscal policy and financial regulation. 
John B. Taylor, the George P. Shultz Senior Fellow in Economics of Hoover Institution and professor of economics of Stanford University, argued the correlation between changes in current account imbalances (i.e. net exports) and changes in reserves appeared to be weak, refuting the idea that current account changes had large influences on interest rates just prior to the crisis.  He discussed the influence interest rates in one country have on those in other countries and stated more focus should be put on monetary rebalancing, without current account rebalancing.  Taylor proposed having global leadership and a global inflation target to accomplish these ends. 
Pablo Villanueva, PhD student in economics and president of the Mexican Student Association of Stanford University, asked the audience questions regarding how the changing demographics might influence economic outcomes, as well as how countries can most optimally invest.  Villanueva also discussed the perspective of the rising generation in Mexico, and what effect he felt this would have on economic development in Mexico in the coming years. 

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