Your crisis, my crisis

David Leonhardt attributes the following thought to Larry Summers: "any system that created the Mexican peso crisis, the Asian financial crisis and the current troubles needs to be changed."  I couldn't agree more. But I also cannot help but recall that at the time of the Mexican and Asian crises, it was far more common to attribute those mishaps to the misbehavior of the governments involved. 

When developing countries get into a financial crisis, the problem must lie with their venal politicians and lack of financial discipline.  When it is U.S. that is in trouble, the fault must lie with the system.  Of course.

Comments

[rong]

Can't agree more. US is always different, but they forgot that somehow they're the ruler of the system.

[cfournier]

Is that the quality of the discourse at Harvard University?

Who said what you claim, that is that in the case of the Mexican crisis it was the government and now it is the system? Because if I remember right, quite a few economists and even more lay people blamed the system back then, and not the government. And today, quite a few economists and lay people are blamning the US government and not so much the system. And apart from that, developing countries are different from the US in so many respects, that it would make sense to attribute the blame to different factors. Not that this is necessarily the case here, but a priori restricting oneself to the "one factor explains all crisis" explanation would be intellectually dishonest.

[Brett]

That's more human nature, if I recall correctly. We tend to see the problems of other peoples as having to do with their inherent qualities (i.e. they're lazy, irresponsible, stupid), whereas our problems are seen as being imposed upon us (we were unlucky, discriminated against, etc).

[Leigh Caldwell]

In the case of the US, is it a meaningful distinction?

If Mexico is in trouble, the only options open to them are to work within the constraints around them and change their own behaviour. If the US is in trouble, on the other hand - the only options open are to work within the constraints around them and change their own behaviour.

It just happens that there are fewer constraints on the US. Boundaries which for Mexico are "the system", for the US are just levers under the government's control.

Equally, the US lives within other constraints that it can't readily change.

Either government can reduce fiscal spending (for example); only the US has the option of re-regulating the securitised mortgage market; while neither has the ability to make a million subprime borrowers a good credit risk.

It's therefore very natural that the question of systemic change and of US government self-discipline become conflated. Both are choices made by the same entity.

[Nanashi]

Is this a reference to the IMFs stance, during the East asian and Peso Crisis?

[Amin Samman]

This is the nature of the historical event. Hayden White knows it:

Is it possible that the specifically historical event is a happening that occurs in some present (or in some living group), the nature of which cannot be discerned and a name given to it because it manifests itself only as an "eruption" of a force or energy that disrupts the ongoing system and forces a change (the direction or trajectory of which is unknowable until it is launched or entered upon), the end, aim, or purpose of which can only be discerned, grasped, or responded to at a later time? But not just any old "later time". Rather, that later time when the eruption of what seems to reveal in the fact of that affiliation the "meaning", significance, gist, even foretelling, though in a masked and obscure way, both of the original event and the later one.

White, H. (2008) 'The Historical Event', differences, 19(2): p. 30

[Dave Levy]

I agree.

Given our current account deficit/national savings rate, we are extremely lucky our situation is not far worse.

Amazingly, our currency has appreciated in the last two months, making us even luckier.

The only difference I see with our country and other countries “in crisis” now or in the past is the following: We can borrow cheaply in our own currency to foreign investors. That’s it.

Happy Thanksgiving!

Dave
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[Nathan Smith]

1. It seems that after the peso crisis and the Asian crisis, there were a good deal of questions about "the system." And today, there is a lot of criticism of both "Washington" and "Wall Street." So I'm not sure that the bias you claim is real.

2. Are you denying that Mexico, for example, is more corrupt than the United States. According to the latest Transparency International Corruption Perceptions Index, http://en.wikipedia.org/wiki/Corruption_Perceptions_Index the US is the 20th-cleanest country, while Mexico is the 72nd-cleanest. If the CPI is informative, that seems to provide some justification for being readier to entertain the "venal politicians" hypothesis in the case of Mexico than in the case of the US. Just sayin'.

3. Is it possible that the peso crisis, the Asian crisis, and the current financial crisis may be a price worth paying for a system that has continued to generate long-run growth? After all, US economic growth has been punctuated with recessions and financial panics for a couple of centuries, and it's not clear we're any the worse for it, all things considered.

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