Per Jacobsson Lecture: The World Turned Upside Down: Economic Policy in Turbulent Times
IMF SEMINAR EVENT
DATE: October 19, 2019
DAY: Saturday
4:00 PM - 5:00 PM
LOCATION: IMF HQ1, Meetings Halls A&B (HQ1-3-430 A&B)
Overview
Following the Great Depression, and again after the collapse of the Bretton Woods system, there was a period of intellectual and political upheaval. Keynesian and rational expectations revolutions changed economic policy. No-one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas determining economic policy. The failure to re-examine those ideas risks another financial crisis.
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Per Jacobsson Lecture: The World Turned Upside Down: Economic Policy in Turbulent Times
Key Points
During the great economic crises of the 20th century, there were periods of intellectual and political upheaval. Keynesian and rational expectations revolutions changed economic policy. The current environment of “extreme” uncertainty should lead to a fundamental questioning of the basic ideas underpinning economic policy. The failure to re-examine those ideas risks another financial crisis.
- Context: The global recovery since the last financial crisis has been frustratingly slow and global debt to GDP is higher today than in 2007. Conventional economic thinking and too much reliance on economic models has led policymakers to misdiagnose and incorrectly plan for current challenges. The current environment is characterized by an unusual high level of political and economic uncertainty, making investors reluctant to invest. Investment is also unevenly distributed, with too much investment in some areas, and too little in others, such as infrastructure in many advanced countries.
- Low growth trap. Conventional economic thinking attributes the current global secular stagnation to supply factors and is resistant to crediting this to demand factors. The aim of the traditional Keynesian model is to boost aggregate demand, either through temporary fiscal or monetary stimulus. To escape permanently from a low growth trap requires a reallocation of resources, supported by exchange rate polices and supply side reforms, and correcting unsustainable national saving rates.
- Preparing for the next financial crisis. Regulators have pursued regulations that would have prevented some of the problems that occurred in the last crisis. As a result, regulatory systems have become overly complex. In addition, the cost and political economy of financial bailouts are too great. The focus needs to be on building a robust and resilient ex ante framework. Policymakers should consider an “insurance scheme,” where banks would pay a form of premium to central banks in normal periods, which in turn can lend in a crisis on terms already agreed.
Panelists
Moderator: Guillermo Ortiz
Guillermo Ortiz is currently Senior Advisor, Board Member of BTG Pactual and former Chairman of BTG Pactual Latin America ex-Brazil. He was Chairman of the Board of Grupo Financiero Banorte from March 2010 to December 2014.
Dr. Ortiz is Chairman of the Per Jacobsson Foundation, and a member of several organizations such as the Group of Thirty. He also serves in the Board of several companies.
He was Governor of Banco de Mexico from January 1998 to December 2009. From December 1994 to December 1997, Dr. Ortiz served as Secretary of Finance and Public Credit in the Mexican Federal Government. He served in the Board of Governors of the IMF, the WB and the IADB.
In 2006 he was appointed to the Board of the Bank for International Settlements (BIS) and was elected Chairman of the Board in 2009. At the BIS he also chaired the Central Bank Governance Forum. He chaired the External Panel for the Review of the Fund’s Risk Management Framework at the International Monetary Fund (IMF). He also participated in several working groups to examine aspects of the International Monetary Fund (IMF) governance and finance. Prior to heading the Ministry of Finance in Mexico, he was Executive Director at the IMF.
Mr. Ortiz earned a BA degree in Economics from the Universidad Nacional Autónoma de México and a PhD in Economics from Stanford University.
Panelist: Mervyn King
Mervyn King served as Governor of the Bank of England from 2003 to June 2013. He was previously Deputy Governor from 1998 to 2003, Chief Economist and Executive Director from 1991, and non-executive director of the Bank from 1990 to 1991. He was knighted (GBE) in 2011, made a life peer in 2013, and appointed by The Queen to be a Knight of the Garter in 2014.
Lord King is the Alan Greenspan Professor of Economics and Professor of Law at New York University and School Professor of Economics at the London School of Economics.
In 2016 he published The End of Alchemy. With a new preface, it appeared in paperback in 2017, and has been translated into many languages. His new book (with John Kay) on Radical Uncertainty will appear in 2020.
Born in 1948, Mervyn King studied at King’s College, Cambridge, and Harvard (as a Kennedy Scholar) and taught at Cambridge and Birmingham Universities before spells as Visiting Professor at both Harvard University and MIT. From October 1984 he was Professor of Economics at the London School of Economics where he founded the Financial Markets Group.
Mervyn King is a Fellow of the British Academy, an Honorary Fellow of King’s and St John’s Colleges, Cambridge and holds many honorary degrees. He is a Foreign Honorary Member of the American Academy of Arts and Sciences.