Economic Policy Challenges: Macroeconomics and Fiscal Policy

These economists, MIT PhDs all, ponder what remains in the macroeconomist’s toolkit to pull the U.S., and much of the developed world, out of recession. They discuss aspects of fiscal and monetary policy that may prove useful in spurring recovery, as well as the complicating matter of politics. IMF chief economist Olivier Blanchard describes a “two-speed recovery” around the globe, where emerging market countries like China and India are growing at a brisk clip of around 10%, and developed nations like the U.S. are lagging behind, with growth rates 3% and below. Stronger Eurozone states are struggling to prop up debt-laden Ireland and Greece. Blanchard hopes to avoid a larger European calamity by opening up the books of European banks to allay investors’ fears and help recapitalize the banks at appropriate levels. The U.S. and China represent another hot spot for the IMF, with the U.S. running a vast current account deficit (due to years of high U.S. consumption and low household savings), and China a large current account surplus. Both nations want to reverse the situation, but their timetables differ radically. China fears increasing domestic consumption too rapidly and overheating its economy, so is thinking in terms of years. The U.S. wants faster action. If net exports do not improve in the U.S., says Blanchard, then it will be “confronted with a difficult choice: either it does fiscal consolidation, risking slowing growth, or continues large deficits There are reasons to think one might want to worry.” Emerging markets “have learned lessons from previous crises,” says Pedro Aspe, and are generally rebounding from the downturn. In Latin America, they have followed the lead of Chile, adopting an independent central bank, trade liberalization, pension reforms, and flexible labor markets. When they need a stimulus, they lower interest rates and keep public debt low. Aspe also raises red flags around debt and financing in the Eurozone: “You take more f...

Channel: MIT World Video Length: 0s Date Found: Tue, Mar 08 2011 4:27 AM Category: Science Date Produced: Tue, Feb 08 2011 12:00 AM View Count: 6