Be a man and take it on the chin

... is Ricardo Hausmann's advice to monetary and fiscal authorities in the U.S.

I like especially the opening sentence:

The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis.

I wonder who Ricardo has in mind by the "same voices." Well, I don't actually. It's pretty clear...

Comments

[just wondering]

Given Hausmann's rather one-sided views on alternative approaches to development in Latin American I wonder if isn't fair to say that he's often been 'one of those voices' and thus a quite able judge of what it takes to be one.

[paine]

dani
let us hope
dearest brave and candid
ricardo H
don't meet some
damn iterate job loser
in an ally
"argh
would it be doctor dick
blockin me path .. "
and his man ness
might get challenged
in the insuing cntra temps

by err
an ad hoc administation
of a killkenny
knuckle drill

[Luis Enrique]

that's a great article. Perhaps it was omitted for reasons of space, but I wonder if he'd had room whether Ricardo would have included anything along the lines of strengthening the social safety net, to reduce the pain of 'adjustment'. That omission is likely to bring on a severe bout of 'you economists don't care about real people'.

[pgl]

There have been a lot of critics of this Keynesian remedy to a possible insufficiency of aggregate demand. Each seems to start with the premise that Keynes's view of macroeconomics expreseed in the General Theory is simply junk science. Well yea - if one believes in the new classical model where markets instantly clear, then we don't need "no stinking" aggregate demand stimulus.

[hari]

Summers ...is one of them calling for long term fiscal stimulus NOW!

While he was at IBRD, the medicine we had to receive from him/his advise was a exactly how r.h. is setting up to be.

We live in parallel world. Yet not quite similar...

[Per Kurowski]

“Stop behaving as whiner of first resort” Ricardo Hausmann tells the US. Do not give “the US consumer more rope with which to hang himself”. Hear hear!

But as Hausmann says not only should the US not bet all on finding a dream-adjustment like reducing the over-consumption in the US “in a way that does not hurt longer term growth” by looking at what others (China) could do for it; it needs “to keep on growing”.

The US has to be careful that the reduction of consumption does not diminish its size, since it is not only a matter of getting back into equilibrium; it is also about being able to take care of the outstanding stock of debt.

And so “Stop behaving as a whiner and get yourself some 40 million more working immigrants to help you out!” could also be a valid message.

Why should industrial China be able to use rural China for their growth and North America not Central America?

[hari]

Can you imagine Summers is now demanding some agreed international regulatory
principles to make sure SWF don't undermine American equity capital by using "capital arbitrage".

The same guy was not at all worrried about American capital intevening either as FDI or even arbitrarily into Latin America in the good old days!

Hausman is out to take revenge for the about face by the same cynics today.

[paine]

"And so “Stop behaving as a whiner and get yourself some 40 million more working immigrants to help you out!” could also be a valid message.

Why should industrial China be able to use rural China for their growth and North America not Central America?"

right on per

i couldn't agree more

[paine]

" if one believes in the new classical model where markets instantly clear, then we don't need "no stinking" aggregate demand stimulus.'"

at long last i can agree with u

[brad setser]

Hmmm -- Last I checked I thought Dr. Hausmann believed that the US was so skilled at creating dark matter that it had little need to adjust ...

Back in the 1990s, my sense was that Summers often thought the IMF was too focused on fiscal adjustment when, in Summers view, the problem was often a combination of exchange rate misalignments and a shortage of liquidity. Europeans, the IMF staff and for that matter others at the Treasury tended more to toward the view that macro policy needed to be contractionary to restore confidence. Summers didn't set the global policy response in vacuum.

Despite my comment above, I should also note that I am huge fan of Dr. Hausmann's work. No other economist has his skill at coining a memorable phrase, and few are as skilled at finding new and interesting lines of inquiry.

[cvj]

I'm a bit confused, does Hausmann's essay mean that he endorses the IMF's policies as applied in Asia, Russia and Latin America?

[Justin Rietz]

I think we need to go one further step: decrease government spending to balance out the rebates, thus leaving the budget balance unchanged. This is fiscally prudent, puts money in the hands of the people who need it, and leads to spending and investment that is more productive than that of the government (i.e. less money wasted on non-productive projects and bureaucracy).