Discurso stuglitz en oit 09.pdf

8/10/2019 Discurso stuglitz en oit 09.pdf

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Address by Professor Joseph STIGLITZ,2001 winner of the Nobel Prize in !ono"i! S!ien!esto the Go#ernin$ %ody &Gene#', (0) th Session * +'r!h 200 -

The sitting opened at 10.40 a.m. with Mr. Rapacki in the Chair

Thank you very much for this award [ILO Decent Work Research ri!e"#00$% and for this opportunity to talk to you. Obviously, the most engrossingtopic of the day is the question of the global economic crisis. But I want to talk inparticular about aspects on decent and social protection. I want to begin bytalking about some of the broader issues.

This is a crisis that is touching every country in the world. It is touchingthe developing countries for a while there was a myth, I call it a myth, thatthere would be decoupling, that the crisis that began in the !nited "tates wouldleave untouched, first #urope, then developing countries. It is very clear that thisis not the case. $lobali%ation has meant that we have become all very integratedand you cannot have a ma&or downturn in the largest country in the worldwithout ramifications for all the countries of the world.

La crisis está tocando a todos los países dejando sin piso el mitode que se habría producido un desacople pues la crisis comenzó enEstados Unidos y ha afectado a Europa y a los países en desarrollo. Porla globalización estamos ahora todos más integrados .

'oreover, the way globali%ation was managed, allowed the !nited "tatesto e(port its to(ic mortgages all over the world. )e are very thankful that youhave bought as many of them as you have. *ad you not done that, the downturnin the !nited "tates would have been much worse. This crisis, which has a veryclear +made in the !" - label on it, not only did the !nited "tates e(port ourto(ic mortgages, we also e(ported our deregulatory philosophy that encouragedyou to buy these to(ic mortgages and to make sure your regulators did not stopit. "o again we thank you.

La forma en que la globalización ha sido manejada permitió aUSA exportar sus hipotecas tóxicas, y de no haber sido asi elderrumbe habría sido peor !e modo que esta es una crisis "made inUsa#, pues $stados Unidos no solo exportó sus hipotecas tóxicas sinotambien su filosofia desregulatoria que estimuló a comprar esashipoetcas y asegurar que los reguladores no lo impidieran

The recession that began in the !nited "tates has become global.

a recession que comen%/ en #stados !nidos devino global

La recesion económica comenzó en estados Unidos pero haafectado a países en desarrollo que manejaron mejor sus economias



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que $stados Unidos% Aplicaron &uenas politicas monetarias, y buenosmarcos regulatorios A'()A *(S $+ ()-A* SU .)/S/S . ota de !"#$

The economic downturn is affecting even those developing countrieswhich had succeeded in managing their economies well, that had good monetarypolicies, good regulatory frameworks. In fact, one of the observations we madeas we looked in the ommission at the monetary and regulatory policies, wasthat some of the developing countries really did a much better &ob than the!nited "tates and the !nited "tates should go there and study what good centralbanks do in India and elsewhere, because in fact they actually did avoid thee(cesses that marked merican foreign markets. One of the central bankers in"outh2#ast sia, when merican banks wanted to come and sell riskyderivatives, said +can you e(plain it3-4 they said +no, we can5t-4 she said +well, ifyou can5t e(plain it, you can5t sell it.- "o they were protected against theravages of the derivatives which have had such a negative effect on the !nited"tates and )estern #urope.

Un miembro de un &anco .entral del sudeste asi0tico preguntó aun banquero de in1ersion estadounidense que pretendía 1enderlesderi1ados financieros%

2Usted puede explicarlo3

2*o, respondió el americano

2Si Ud no puede explicarlo, no puede 1enderlo )espondió el asi0tico

#ven these countries that had good monetary policies, good regulatoryframeworks, are now being affected. The channels through which this crisis isaffecting all the countries of the world are multiple. The most direct channelthrough which it began was of course, financial markets. 6inancial flows, whichwere so strong in good years, are now reversing, meaning that access to financeis becoming a problem in many developing countries. These pro&ections are for adramatic fall in the flows to developing countries4 in some cases actual reverse

capital flows.%ncluso los países que han manejado bien sus economías estan

siendo ahora afectado s

& los canales para recibir ese impacto son 'arios(

)El primero * son los mercados financieros. Los fujos financierosque fueron fuertes en los a+os buenos* se estan ahorare'ersando y ello signica que el acceso al financiamiento se está'ol'iendo problematico para muchos paises en desarrollo. Pero no

es el ,nico canal( -e está produciedo una caída sin precedentesen las e portaciones / esta caída puede ser orden del 012 31 4$.



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But that is only one of the channels4 there is an unprecedented fall ine(ports. The declines of magnitude that no one ever e(pected to see declinesof 78, 98 per cent in e(ports.

There are impacts through remittances and labour flows. Inevitably, when

employment goes down among those who are first hurt are immigrant labourers. :ou see protectionist measures going on all over the world. It was a good thingthat the $0;, in their meeting last <ovember, committed themselves not toengage in protectionism, but it is a sad thing that they did not honour thosepromises.

"ay impactos a tra'5s de las remesas y flujos laborales( 6uandocae el empleo los primeros afectados son los trabajadores inmigrantesy aparecen las politicas proteccionistas y los gobiernos presentes en la6umbre del 789 de no'iembre de 899: en ;ashington prometierone'itar* no están honrando su palabra.

The protectionism that has occurred has been both direct and indirect,intentional and unintentional, but it has been pervasive. =ust to look at onecountry> the !nited "tates in their stimulus package, there was a +Buy merica-provision. learly this is a violation of the spirit of no protectionism. Thenunintentionally, I think unintentionally which is worse, because they said that tothe e(tent that this violates international )TO agreements, it will be suspended4that sounded good.

El proteccionismo que está ocurriendo ha sido tanto directo comoindirecto* intencional y no intencional. !asta mirar a un solo país(Estados Unidos en su paquete de estímulo incluyó una pro'ision de<compre americano =* y esta es una clara 'iolación del espiritu del noproteccionsimo.

Pudo ser no intencionadamente / y creo que no fueintencionalmente$* lo cual es peor.

>ijeron que si esto 'iolaba los acuerdos de la ?@6* serían

suspendidas.Ello suena bien.

But in fact we know that the )TO agreements on governmentprocurement are between the !nited "tates and other advanced industrialcountries. "o by putting that language in there, what they were in fact doing wassaying +we will continue to buy goods from the other advanced industrialcountries, or the rich countries, but we will discriminate against goods from poorcountries-. This is even more invidious than an across the board statement.

Pero como los acuerdos de la ?@6 son fundamentalmente entreeconomias desarrolladas el compromiso significará que <nosotros



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continuaremos comprando bienes de otras economías desarrolladas*de los países ricos* pero continuaremos discriminando contra losbienes de los países pobres=.

The banks that are getting bailouts were told that they could not hire

immigrant workers, so there have been restrictions on hiring ?no matter howqualified@ the workers from abroad. =ob offers have had to have been rescinded.Immigration is being affected. The spirit of international trade agreementsrecogni%es that tariffs are a trade distortion, and a very invidious tradedistortion, but so are subsidies.

Los bancos que han obtenido programas de rescate hablan de nocontratar trabajadores inmigrantes y habra restricciones paracontratar trabajadores del e terior* sin importar su calificacion.

>e modo que la inmigración esta siendo afectada.

El espíritu de los acuerdos de comercio internacional reconoceque los aranceles son una distorsión * pero hay distorsiones peores*como los subsidios.

4 ellos junto con otras restricciones crea un desni1el ydistorsiona el patron de comercio

nd that is why there are general restrictions and subsidies, e(cept inagriculture, and we know that that helps create an unlevel playing field anddistorts the trade patterns of trade.

But the advanced industrial countries, as part of the crisis, have beenproviding massive subsidies to their enterprises and to their financialenterprises. "o, even if you thought that at one time there was a level playingfield, no one today can claim that today there is a playing field. *ow can a bank,financial institution, an automobile company from a developing country competewith an automobile company with a financial service sector company from the!nited "tates that received billions and billions, hundreds of billions of dollars ofassistance3

Los paises industrializados est0n pro1eyendo subsidios masi1osa sus empresas y entidades financieras

.ómo puede un banco, entidad financiera o compa5ia automotrizde un país en desarrollo competir con una compa5ia o ser1iciofinanciero que recibe cientos de miles de millones de dolares deapoyo3

nd it is not only the companies that have received aid, the fact is that the!nited "tates and )estern #urope has put on notice that if you are a bigcompany and you have problems, we will bail you out. Or at least, we may bail

you out. nd that has changed the ability of these companies to undertake risk.AiAi1 tells you lose?3@ if we undertake big risk and we lose, our ta( payer picks



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it up. If we win, we get the profits. )ell that has changed the whole profile of theability to bear risk. nd so the level playing field has been destroyed for years tocome and we should recogni%e that the old trade and investment regime hasbeen intentionally, or unintentionally, altered in a fundamental way.

$uropa (ccidental y $stados Unidos han introducido la pr0cticade que si Usted tiene una gran compa5ia y tiene problemas, nosotrosse la rescataremos 4 esto ha cambiado la habilidad de las companies

para tomar riesgos Si nosotros tomamos un gran riesgo y perdemos,nuestros ciudadanos los rescatar0n con los impuestos que pagamos

Pero si nosotros ganamos* nostros recibimos los beneficios.

Esto ha cambiado el perfil de la habilidad para tomar riesgos.&entonces el campo de juego ha sido destruido y llegamos a reconocerque el antiguo r5gimen de comercio e in'ersion ha sido/intencional o nointencionalmente$ alterado de modo fundamental.

Take even the issue of guarantees, guarantees provided to our banks.#ven if the developing countries reciprocated and provided guarantees,symmetric policies can have asymmetric effects. guarantee by developingcountries to their banks does not have the same weight that a guarantee fromthe !nited "tates. nd that is part of the reason why you see the anomaly ofreverse capital flows. 'oney is going to the !nited "tates the source of theoriginal problem. The !nited "tates caused the global financial crisis by badregulation and bad financial practices but money is going into these bad financial

institutions because the !" $overnment has provided a guarantee.Incluso si los países en desarrollo actuaran de modo recíproco

adoptando politicas de garantias* esas politicas sim5tricas puedentener efectos asim5tricos. La garantia de los países en desarrollo a susbancos no tienen el mismo peso que una garantía de los Estados Unidosy esta es la razón por la que se obser'a la anomala situación dere'ersion de los flujos de capital.

$l dinero esta yendo a los $stados Unidos, que fue la fuente del problema

Estados Unidos causó la crisis financiera global por su malaregulación y malas prácticas financieras pero el dinero esta yendo haciaesas malas instituciones* porque el gobierno de U-A ha otorgado unagarantía..

"o, what I want to make clear is the profound ways in which this crisis hasreally altered the nature of global competition and we will need to rethink all theelements that go into the rules of the game going forward. )hat is clear is thatthis is a global crisis and with a globally integrated economy, a global crisis ofthis kind can only be addressed globally.



Lo que quiero es aclarar las 'ías profundas por las cuales la crisisrelamente ha alterado la competencia global. osotros necesitaremosre pensar todos los elementos que componen las reglas de juegohacia el futuro.

Lo que resulta claro es que esta es una crisis global, en unaeconomia globalmente integrada y una crisis global de este tipo solo puede ser superada globalmente

The Cirector2$eneral handed me a speech that he gave in $eneva at thebeginning of <ovember of 0;;1 at the last global crisis, the first crisis of the eraof globali%ation and in that he made a number of statements, one of them was adecisive re&ection of protectionism. gain, we did that this time but we did notfollow through. But another one is we need a global stimulus package for theworld economy. )ell, we are once again in a situation where we need a globalstimulus package for the world economy. But, the locus?3@ of decision makingremains at the national level.

ecesitamos un paquete de estímulo global para la economíamundial* pero el lugar para tomar las decisiones permanece en el ni'elnacional. "ay entonces una disyunción entre la acción global y el ni'ellocal y nacional de toma de decisiones. 6ada país mira los costos/impacto en el d5ficit$ y beneficios de un paquete de estímulo* pensadopara atender las necesidades de su economia nacional* no de laeconomia global.

$l resultado es que el estímulo total sera insufiente a menos quese haga de modo coordinado

nd so there is a dis&unction between what is needed, which is a globalaction, and the locus of decision making which is local, national. )hy is thatimportant3 )ell, it is important because each country as it looks at the stimuluspackage weighs the benefits and the costs, the cost of things like the increase inthe national deficit. But the benefit it looks at is the local benefit to its owneconomy, not the global economy. The result of that is that there will beinsufficient global stimulus unless it is done in a globally coordinated way.

To put it another way, if we look at the way we most usually look atmacroeconomics, we take about multipliers. *ow much e(tra $CD is generated,or how many &obs are generated, by each dollar of government spending, eachdollar of stimulus. But there is a very big difference between the nationalmultiplier and the global multiplier. nd that is especially true in small, openeconomies. #conomists talk about this as leakages. "ome of the money that wespend does not stay in the economy. If all the money stayed in the economy, wespend the money, it recirculates, it keeps recirculating and it keeps boosting theeconomy.

Para mirarlo de otra manera analicemos a ni'el macroeconómicolos multiplicadores.



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6uánto P%! adicional se genera o cuántos empleos se generan porcada dollar que el gobierno gasta como estímuloB.

"ay una gran diferencia entre el mutiplicador nacional y elmultiplicador global.

AL6( !$L !/*$)( 7U$ 6AS-A8(S *( $)8A*$.$ $* LA$.(*(8/A .

S/ $)8A*$.$ )$./).ULA*!( , 8A*-$*!)A $S-/8ULA*!( LA$.(*(8/A

$* U*A $.(*(8/A A&/$)-A AL6( !$L !/*$)( 7U$ 6AS-A8(S 9A A (-)(S A/S$S 4 S$ 8A*-/$*$ !$*-)( !$ LA $.(*(8/A 6L(&AL$*-(*.$S $L 8UL-/ L/.A!() 6L(&AL $S 8A4() $)( $L8UL-/ L/.A!() *A./(*AL $S )$LA-/9A8$*-$ $7U$:(

4 el resultado neto es que no ser0 un estímulo suficiente

In an open economy some of the money that we spend does not staywithin the economy but goes into other countries, but it stays within the globaleconomy. )e are not part of a gala(y here, we still trade only within the world."o, within the world there is a closed economy. "o it all stays, there are noleakages within the world. nd so the global multipliers are very large. But thenational multipliers, as we become more integrated, have become relativelysmall. nd the net result is that there will be an incentive not to have enoughstimulus.

<ot only that, as each country thinks about the issue of how to design astimulus, what is it asking3 It is asking how can I, my country, get the mostbenefit3 <ot how can the world get the most benefit3 "o it is focusing on thosekinds of stimulus of spending that do not leak out, that stay within the country.But in doing that, the global impact is reduced, the benefit that you get from thestimulus is lower than it otherwise would be.

6omo cada país piensa acerca de cómo dise+ar un estímulo* sepregunta

CDcómo puede mi país* obtener el mayor beneficioB.

o se pregunta(

CD6ómo puede el mundo obtener el mejor beneficioB.

!e modo que ese tipo de estímulos se queda en el ni1el nacional yde ese modo el impacto global es reducido y el beneficio que se podríaobtener es menor de lo que seria con otra forma de operar $ntonces,como estamos pensando de modo nacional a;n si enfrentamos un

problema global, el impacto neto que tendremos del estímulo ser0

menor



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& ello es moti'o de gran preocupación pues esta parece ser lamas profunda y amplia recesion desde la 7ran >epresión.

"o, because we are thinking so nationally, even though we face a globalproblem, the net impact of the stimulus that we will have and the net si%e of the

stimulus will be smaller than it otherwise would be. nd that is of great concernbecause this is likely to be the deepest and longest economic downturn since the$reat Cepression.

The particular problem is, I have articulated the view that I think, forinstance, the stimulus in the !nited "tates is too little and not well designed. Inlooking at the si%e of the stimulus, one has to look at what else is going on in theeconomy. re there automatic stabili%ers or automatic destabili%ers3 nd one ofthe sad facts of the so2called reforms in recent decades, is that we have beenweakening the automatic stabili%ers. Important automatic stabili%ers are thesocial protection and employment insurance schemes. )hat these do is thatwhen the economy gets weaker, spending goes up automatically and that helpsto stabili%e the economy but at least in the !nited "tates and many othercountries these automatic stabili%ers have been weakened. Drogressively?3@ ta(systems have been lowered, we have moved from defined benefit systems todefined contribution social security systems again weakening the automaticstabili%er of the economy. nd in some cases converting them into automaticdestabili%ers.

Por ejemplo* el paquete de estímulo de Estados Unidos es muypeque+o y mal dise+ado.

Uno de los hechos tristes de la reforma de d5cadas anteriores esque debilitaron los estabilizadores automáticos* como la protecciónsocial y los esquemas de seguro de desempleo* que permitian aumentarel gasto automáticamente cuando la economia estaba d5bil y ayudabana estabilizar la economia. Los sistemas impositi'os progresi'os /quegra'abann mas a quienes tienen mas patrimonio o reciben masrentas $* fueron rebajados.

<ow think a bit about the nature of the world when we had good socialprotection and the world that we have been moving into with weak socialprotection, the world where you had defined benefit contribution, definedpension programmes and the world of today where, at least in the !nited "tates,we have a lot of defined contribution. )hat has happened to most mericans3

They have seen their retirement accounts devastated, fallen in half, at the sametime as the value of their house has fallen dramatically by 0;27; per cent, insome cases 8; per cent. "o, the amount that people put away to pay for theeducation of their children or for their own retirement has been wiped out. )eused to have a defined benefit system that would protect them against thesekinds of risks but mistakenly we got rid of this.



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Pensemos un poco acerca de la naturaleza del mundo cuandoteniamos buena protecciónsocial y el mundo que tenemos* mo'i5ndosehacia una d5bil protección social.

Al menos en $stados Unidos , para la mayoria de ciudadanos sus

cuentas de retiro han sido de1astadas , han caido a la mitad al mismotiempo que el 1alor de sus casas ha caído dram0ticamente entre <= y>=? y en algunos casos en un @=? !e modo que el dinero que la genteaportó para la educación de sus hijos y para su retiro ha sidoe1aporado

"o what would that mean3 )hat that means is that, as people, mericanssee their savings accounts eroded, the amount that they had for their retirementeroded, they will reali%e that they have to save more. In many ways, for the longrun for the merican economy, that is a good thing. Our household savings ratehad gone down to %ero and that was not sustainable. But in the short run, it is areal problem. In the short run, as people have seen their savings accountseroded, their retirement accounts eroded, their social protection eroded, they willhave no recourse but to try to save more. lready, there are indications that thesavings rate in the !nited "tates may have gone from %ero all the way up to 8per cent and still going up. )ell this is a massive change in aggregate demand. Ifpeople are saving more, they are spending less. nd it is the reduction inspending that is weakening the global economy, leading to a lack of aggregatedemand.

.omo los americanos 1en sus cuentas de ahorro y sus ahorros para retiro erosionadas, se dan cuenta de que deben ahorrar mas, locual es bueno para la economia en el largo plazo La tasa de ahorro dela economia había caído hasta cero y ello no era sostenible, pero hayindicadores que muestran que tras el inicio de la crisis el ni1el deahorro de los hogare se ha ele1ado de cero a @? y sigue aumentando,lo cual implica un gran cambio en la demanda agregada

4 esto debilita la economia global .

En lugar de tener una economía que cuando estaba d5bil seajustaba automáticamente* ahora estando la economia d5bil se tornarámas d5bil.

& en Estados Unidos hay otro problema a ni'el del presupuesto yes que en las localidades hay un mecanismo desestabilizador. Elesquema presupuestal implica que cuando los ingresos caen se debenreducir los gastos o aumentar los impuestos y ello act,a como un factordesestabilizador enorme.

eci5n comenzó la recesión se estimó que la caída en losimpuestos podría ser alrededor de F19.999 millones por a+o y ahora seestima que podría ser de 899 mil millones al a+o. Guiere decir que endos a+os alcanzaría a la mitad del paquete de estímulo del gobierno y



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puede uno darse cuenta cuán peque+o es el paquete de estímulo delgobierno .

"o we used to have a system that meant that when the economy startinggetting weaker, it ad&usted automatically4 now we have a system where when

the economy gets weaker, it gets weaker still. )ithin the !nited "tates, we havea further problem that it is important to reali%e, that the stakes in the localitieshave automatic destabili%ers. They have balanced budget frameworks whichmeans that when revenues go down, they have to cut back e(penditures or raiseta(es, and these act, as I say, as automatic destabili%ers. The magnitude of theseare enormous. few months ago, before the downturn got much worse, it wasestimated that the shortfall in state ta(es would be around H18; billion a year.<ow it is probable much larger than that, say H0;; billion a year. )hat does thatmean3 That means over a two2year period, the negative stimulus from thereduction in stakes offsets 9; or 8; per cent of the total federal stimulus. )hen

you see it that way, you reali%e how small the !" stimulus package really is andclearly not up to the task lying ahead.

To put it another way in terms of &obs &obs I know is very important foreverybody and has a special focus here the stimulus package was supposed tocreate or save, the number we talked about was 7. million &obs, but we havealready lost upwards of 0.8 billion &obs in the !nited "tates, I think, and we arelosing ;;,;;; per month. It is likely to continue to do that. But meanwhile, thereare almost 0 million new &ob entrants every years into the labour force. "o at this

&uncture, we already have a &ob shortfall of 8 million and over the ne(t two years,we will have another shortfall of another 0 7 million so that the &ob creation orsaving of 7.8 billion is &ust inadequate relative to the needs of &obs. By 0;1;, wewill have a very large &ob deficit in the !nited "tates.

Para colocarlo en t5rminos de empleos* /y esto es algo muyimportante para toda persona$( El paquete de estímulo supone crear osal'ar alrededor de 0.H millones de empleos *pero ya hemos perdido 8.1millones y se están perdiendo H99.999 por mes. & todo parece que así'a a continuar. Pero adicionalmente hay alrededor de dos millones detrabajadores entrando cada a+o a la fuerza de trabajo.

!e modo que la propuesta es insuficiente y tendremos un se1erod ficit de empleo

The problems I am talking about the !nited "tates partly because I knowthe numbers better but I think these problems are being replicated, in somecases even more dramatically, even worse in other countries around the world.

$ste es el problema de $stados Unidos cuyos numeros conozcomejor



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ero pienso que estos problemas estan siendo replicados enalgunos caos dram0ticamente y peor , en otros paises alrededor delmundo

That brings me to looking at this from the perspective of the developing

countries. There is a global agreement that we need to have a global stimulus.But those in the developing world do not have the resources to have the stimuluspackage. The !nited "tates could spend HE;; F;; billion to have a stimulus, butmost developing countries do not have the resources. That means that unlessthere is substantial assistance, that part of the world will not be able to engagein counter2cyclical policies. That means that there will not be a robust recovery ina significant part of the world that is being most affected, that are part of theinnocent victims as a result of bad regulatory and monitoring policies in the!nited "tates. These are innocent victims but they will not be able to engage inthe counter2cyclical policies to save themselves unless something is done. But it

is more than a question of, you might say, responsibility or even humanitarian, itis a question of self2interest because there cannot be a robust recovery for theglobal economy if there is a significant part of the global economy that remainsweak. "o, it is imperative, I think, that assistance be given.

8irando el problema desde la perspecti1a de los paises endesarrollo, hay un acuerdo global en que necesitamos un estímuloglobal, pero los países en desarollo no tienen los recursos $llosignifica que a menos que haya asistencia sustancial, esta parte delmundo no ser0 capaz de compromterse con politicas anticiclicas 4 queno habra recuperación en una parte sustancial del mundo que estasiendo mas afectada con 1íctimas inocentes de malas políticasregulatorias en $stdos Unidos

4 esto es mas que una cuestión humanitaria, es una cuestión deinter s propio porque no podr0 haber una recuperación robusta para laeconomía global si una parte significati1a de la economia global

permanece d bil

$ntonces es imperati1o, que la asistencia sea dada

<ow there have been proposals and our ommission is going torecommend that at least 1 per cent of advanced industrial countries stimuluspackages be allocated to developing countries. )e should reali%e how small thenumbers are 1 per cent of a HE;; billion package is HE billion divided amongthe developing countries, it is not going to be enough, but it is better thannothing. The real point is that we have to e(plore a whole variety of innovativeways of bringing finance to the developing countries and in our e(tended report,we will develop several of these ideas.

uestra 6omisión 'a a recomendar que al menos F4 del paquetede estímulo de los paises indsutralizados sea asignado a los paises en

desarrollo /I mil millones del paquete de Estados Unidos repartidoentre todos los países en desarrollo no sera suficiente* pero es mejor



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que nada$. & tenemos que e plorer otras 'ias para atraerfinanciamiento a los países en desarrollo.

But there is another problem. One is the problem of lack of resources butthe other problem is the policy space, the policy frameworks. If we go back to1GGE GF, the last global financial crisis in #ast sia, I'6 came to the help ofthese countries, provided assistance, but it provided assistance with conditionsand those conditions made the downturns worse. They converted the downturnsinto recessions, recessions into depressions. :ou know, some people say, oh )ewill not have another great depression because today we know what to do, weare so much smarter than they were in the 1G7;s. But we should remember, adecade ago we were almost as smart as we are today but the I'6 and the !"treasury came into Indonesia, they gave it advice about their financial systemand they managed to destroy their financial system. They managed to imposeconditions that led to a deep depression in Indonesia> the unemployment rate inthe central island of =ava got up to 9; per cent. "o anybody that thinks thatbecause we are so smart today that we could avoid a depression, should &ustremember what happened in =ava &ust a decade ago. "ome of the same peoplemay be in the policy2making positions today that were in policy2making positionsthen. 'aybe they have learned their lesson but maybe they have the samemental framework. "o we do not know. But we should obviously be concerned.

Un problema es la falta de recursos pero otro problema es elmarco de las politicas.

-i recordamos la crisis de Asia en FJJI FJJ: el K@% 'ino conayuda y dió asistencia pero con condicionalidad y esas condicionesempeoraron la situación. 6on'irtieron la crisis en recesión y esta endepression.

"ay quienes dicen que no tendremos una depresión como la deFJ8J* pues ya concemos mejor el problema. "ace una d5cada eramostan inteligenentes como ahora pero el K@% y el esoro americano'inieron a %ndonesia y le aconsejaron sobre su sistema financiero ydestruyeron sus sistema financiero.

%mpusieron condiciones que dejaron una gran depression en%ndonesia* el desempleo en la isla de Ma'a ascendió a 394. Entoncesnadie que nos crea muy inteligentes y crea que podemos e'itar unadepresión debería mirar lo que ocurrió en Ma'a hace una d5cada.

@uchos de los que dieron los consejos siguen en los mismoscargos( es posible que hayan aprendido la lección* pero es tambi5nposible que matengan el mismo esquema mental

*o lo sabemos, pero debemos estar preocupados



17

)hat happened ten years ago has another important implication. Becausethe countries in #ast sia were so badly affected because the I'6 so badlymanaged these crises, many countries in the region and, actually, manycountries all over the developing world, said we can never let this again happento us. I was talking to the prime minister of one of the countries and he said )ewere in the class of 5GE. )e learned what happened if you do not have enoughreserves and so, the class of 5GE and those who studied the lessons of the classof 5GE have accumulated huge amounts of reserves, in the trillions of dollars.

That is good for them. It means that they are more protected. But for the globaleconomy, it presents a problem. It presents a problem because these people arereceiving income which they are not spending, it is like burying income in theground, and that is leading to a problem of lack of global aggregate demand. ndthe problem of lack of global aggregate demand is, in a sense, one of thefundamental problems underlying this crisis.

Lo ocurrido en Asia hace diez a+os tiene otra implicación(6omo los países fueron tan afectados porque el K@% administró

tan mal esa crisis* los paises han tomado precauciones s para que esono les ocurra de nue'o.

Por ejemplo han acumulado enormes reser'as /trillones dedólares$. Eso es bueno para ellos pues significa que estan masprotegidos* pero para la economía global significa un problema(

Esos son ingresos que los paises reciben y que no están gastando*

es como si estu'ieran enterrando esos ingresos bajo la tierra. & ellosignifica un gra'e impacto negati'o en la demanda agregada global.

& la falta de demanda agregada global es en cierto sentido unalos problemas fundamentales subyacentes a esta crisis.

I think it is important to do, as we think about this crisis, to keep in mindthe underlying problems. t the beginning of the crisis, a reporter askedDresident Bush +what is the problem3- and his reply was, +well we built too manyhouses-. It was true that we built too many houses in the wrong places andbeyond people5s ability to afford, but market economies are not supposed to do

that, so you have to ask yourself why did the market economy fail3 The questionthat people are now saying, well there was e(cessively la( monetary policy andweak regulations. But then you have to ask why were there these e(cessivelyla( monetary policies and weak regulation3 !nless you ask those questions youwill not understand what to do about the current crisis .

Es bueno tener en mente los problemas subyacentes(

Al inicio de la crisis un reportero preguntó al president !ush(

2B.u0l es el problema3

& el president respondió(



19

2&ien, construimos demasiadas casas#

$so es 1erdad, pero construimos muchas casas en el lugar equi1ocadoy mas alla de la capacidad de la gente para pagarla, pero ello no es

posible en una economía de mercado y por ello debe cuestionarse por

que falló la economía de mercadoLo que la gente está ahora diciendo es que hubo una politica

monetaria la a y regulaciones debiles. & cabe entonces preguntar(

CDPor que había esas politicas monetarias la as y d5biles regulacionesB

One of the reasons there were the la( regulations was that there was amisguided economic philosophy that said that unfettered markets are the bestway of running an economy, markets are self2ad&usting. 6ortunately, almosteverybody recogni%es that that market fundamentalist view is wrong. #ven lan

$reenspan, which is viewed as the high priest of this view, has said +I made amistake- at a great cost to everybody in the world that he had to learn thismistake at such e(pense, but at least he learned it, but some people have notquite learned that mistake. 'arkets are not self2regulating.

Una de las razones para que hubiera regulaciones la as fue lafilosofía que dice que los mercados se autoajustan.Afortunadamentecasi todo el mundo reconoce que ese enfoque fundamentalist delmercado es erróneo.

%ncluso Alan 7reenspan* quien es 'isto como el -umo -acerdote

de este enfoque dice

2 "4o cometi un error#

A un costo muy ele'ado para toda la gente en el mundo que han tenidoque aprender este error con tal costo* pero al menos 5l lo aprendió*pero hay gente que a,n no lo aprende

"L(S 8$).A!(S *( S$ AU-())$6ULA*#

There is an important role for government to try to make the market

economy work. 'arkets are at the core of a well2functioning economy but, bythemselves, they are not enough. There needs to be a balance between the roleof the market and the role of the government, trying to understand whenmarkets work and when they do not, the limitations of markets, the limitations ofgovernment, are an essential part of developing appropriate policy frameworks.

That is one problem.

'ay un importante papel para el gobierno en hacer que laeconomia de mercado funcione

Los mercados son el n,cleo de un buen funcionamiento de la

economía * pero por ellos mismo no son suficientes.-e necesita quehayaun balance entre el papel del @ercado y el papel del gobierno*



18

tratando de entender cuando los mercados funcionan y cuando no* laslimitaciones del mercado* las limitaciones del goberno y estas sonparte esencial del desarrollo de marcos politicos adecuados.

The second problem is why were monetary policies so la(3 )hy did

$reenspan create a bubble3 gain, a very simple answer in the absence of la(monetary policy, there would have been insufficient aggregate demand in the!nited "tates and in the world. *e did it to keep the merican economy going,but why was there insufficient aggregate demand3 t the national level and atthe global level, and in an globali%ed economy we can only really answer thesequestions from the global level. )ell again, there are two answers. One of theanswers is, over the last, particularly 7; years, there has been an increase ininequality. In effect, we have been transferring money from the poor to the rich,from people who would spend the money to people who do not need to spendthe money and the result of that is that there is a weaker aggregate demand.

El -egundo problema es por qu5 hubo políticas monetarias tanla asB.

Por qu5 7reenspan creó una burbujaB.

>e ue'o* una respuesta muy simple( En ausencia de políticamonetaria la a podría haber habido insuficente demanda agregada enEstados Unidos y en el mundo. El logró mantener la economíanortemericana en funcionamiento* pero por qu5 había insuficientedemanda agregadaB.

En una economia globalizada esto puede responderse de modoglobal.

Una de las respuestas es que particularmente en los ;ltimos >=a5os ha habido un incremento de la desigualdad $n efecto hemosestado transfiriendo dinero de los pobres hacia los ricos !e gente quedesearia gastar su ingreso a gente que no necesita gastar su ingreso yello ha debilitado la demanda agregada

In the !nited "tates we thought we could solve the problem because we

told the people who had no money, keep spending as if you did have money andthey en&oyed it for a while, and so we had this massive debt credit financebubble that enabled merica to continue to spend and merica, the richestcountry in the world, was living beyond its means. )hen merica was critici%ed,the "ecretary of Treasury said, you should be thanking us because if we were notspending so much, the global economy would be weak. There was a sense inwhich he was right but if that is true, it is indicative that there is a fundamentalflaw in the global economic system because if the global economic systemrequires the richest people in the world to spend beyond their means, there is aflaw in the global economic system.

En Estados Unidos pensamos que podíamos resol'er el problemadiciendo a la gente que no tenía dinero



1

C< contin,en gastando como si ustedes tu'ieran dinero ydisfr,tenlo mientras tanto=.

Así formamos esta masi'a burbuja de deudas por cr5dito que hapermtiido a Estados Unidos continuar gastando y este país * el mas rico

del mundo* estaba 'i'iendo mas allá de sus medios.

6uando Estados Unidos era criticado por ello el -ecretario delesoro dijo(

2"Ustedes deberían agradecenos porque si nosotros no gastamosmucho, la economia global podr0 ser d bil#

"ay una gra'e falla en el sistema mundial si require que la gente ricagaste mas alla de sus medios.

The problem is, that system is now broken, because the system was basedon merican consumers spending beyond their means by borrowing andborrowing and borrowing, it was based on a bubble. *ouse prices that were outof line, the bubble has broken, people now know they cannot continue to financeconsumption in this way and this, you might say, engine of global economicgrowth has been taken away.

El problema es que ese sistema está colapsado* porque estabasado en que los consumidores americanos gastaran mas alla de susmedios a tra'5s de prestar y prestar y prestar . Estaba basado enuna burbuja.. Los precios de la 'i'ienda se dispararon* la burbuja

e plotó* y la gente ahora sabe que no puede seguir financiando elconsumo de esta forma y el motor de la economia global se haparalizado.

$ntonces la desigualdad global fu una de las razones por lasque la politica monetaria fu d bil y la otra fu el masi1o ahorro dereser1as que los países hicieron para e1itar ir al C8/

$ntonces hemos creado un sistema económico global, en ciertosentido, no sostenible .

"o global inequality was one of the reasons that monetary policy wasweak but the other reason was that global savings that countries had to do toprotect themselves to having to turn to the I'6 in the case of economic volatility,the massive build2up of reserves, the savings that was going on in other parts ofthe world. "o, we created a global economic system which was, in some sense,not sustainable.

The reason why I mention this is, and I emphasi%e this, is that right now inthe discussions, in the $0; and other forums, there is a lot of emphasis of tryingto fi( the regulatory system that needs to be fi(ed, a lot of attention about

providing some short2run stimulus, that needs to be providing some short2runstimulus. The question is, what is going to happen in two or three years5 time3



1E

)hat is going to replace the sources of aggregate demand that fuelled the globaleconomy in the period 0;;7 ;E, or even before that3 )e have gone from onebubble to another bubble, one unsustainable basis to another unsustainablebasis, and unless we make some of the more fundamental reforms, we will notbe able to return to sustainable robust economic growth. That is why I have triedto emphasi%e here some of the more fundamental problems underlying thecurrent crisis.

En di'ersos foros se presta atención a pro'eer estímulos de cortoplazo.

Pero la cuesión es qu5 'a a pasar en dos o tres a+osB.Gue se estáhaciendo para reemplazar las fuentes de demanda agregada quedinamizaron la economia global entre 8990 y 899I o antesB.

"emos ido de burbuja en burbuja* de una base insostenible a otray a menos que hagamos algunas de las reformas fundamentals* noseremos capaces de retornar al desarrollo robusti y sostenible.

I want to spend a few minutes now talking about some of the underlyingideas, some of the economic paradigms, because I think that that is important tounderstand the policy responses. 6or the past several decades, there have beentwo paradigms that have been waging war with each other for the hearts andminds of people all over the world. One was a model based, that I referred toearlier, on market fundamentalism that was based on rational individuals, basedon rational e(pectations, individuals with rational individuals, rational

e(pectations and reacting in competitive markets, with profit2making competitivefirms and the view was that these unfettered markets were sufficient to ensureeconomic efficiency. The best role for government was a limited role forgovernment and a belief that somehow the benefits of growth that this wouldengender, would trickle down to everybody in society.

The other model was a set of ideas that goes back to many sources, manystrands, I will &ust pick up one of them was a strand that was emphasi%ed byJeens3, which said that markets often do not always work well, that we had sucha thing as the $reat Cepression and that the markets did not self2correct, but outof the Jeens5 introduction ?interdiction3@, it turned out that there were twoseparate strands of Jeens in economics, one of which has been more influential,but unfortunately was wrong. That was a strand that goes back to *icks anddisseminated more effectively by Daul "amuelson, which argued that theproblem in the market economy was rigid wages and that if it were not for wagerigidities, the economy would work in the way that classical economics predictedand markets would clear and everything would be fine, dam "mith would be inheaven. <ow, &ust as an aside, modern economics e(plained why dam "mith,

dam "mith actually understood dam "mith much better than the moderndescendents of dam "mith. dam "mith understood that markets do not workwell.



1F

El otro modelo fue un paquete de ideas que retorna a muchasfuentes y dice que los mercados no siempre funcionan bien y unamuestra de esto es la 7ran >epresión.

Paul -amuelson argumentó que el problema en la economía de

@ercado fue la rigidez de los salarios si no hubiese rigidez de salarios laeconomía podría funcionar como lo predijeron los clásicos.

ero Adam Smith ad1irtió que los mercados no funcionan bien $lentendió el rol de los monopolios y que las firmas tartan siempre deformar monopolios pero se necesita que haya competencia

Los modernos descendientes de Smith no lo han leído y solo leenlas parte que les interesan, pero la economia moderna explica por quesa tradición de Adam Smith estaba errada

8i trabajo sobre información imperfecta, mercados incompletos,información asim trica y muestran que los mercados en general no soneficientes

*e understood the role of monopolies, that firms got together to alwaystry to form monopolies and you need to have competition. But the moderndescendents of dam "mith did not read dam "mith. They only read the partsthat they liked. But modern economics is e(plained by why that tradition of

dam "mith was wrong. 'y own work on imperfect information, incompletemarkets, asymmetric information and simply the notion that some people notethings differently from other people, what our work showed was that the reasonthat the invisible hand often seems invisible is that it is not there and thatmarkets are not, in general, efficient. This important idea is a very simple one,and has not been taken fully on board by those who believed in efficient markets.

The Jeynesian view, the rigid wage Jeynesian view, had a particularmanifestation, which was called the neo2classical synthesis, which said that theeconomy had two regimes, one in which things worked perfectly and in which

dam "mith was right, and the other regime was the unemployment. "o all youhad to do was to ensure the economy was at full employment and then youcould ensure that markets work perfectly.

et me make clear, those of you who studied under 3 and knew this, thereis no theorem. This is not based on economic science. It is &ust a wish that it weretrue. It was an article of faith. If you thought about it, you could understand thatthe logical of this was very peculiar. It was much more reasonable to say thatwhen you see a mark of failure like a complete breakdown of the economy, likewe are seeing today, and we saw in the $reat Cepression, that is symptomaticand it is like the tip of an iceberg. That is a mark of failure that is so large thatyou cannot ignore it. #ven market advocates say that something is wrong today.But much of the other time there are phenomena where markets are notperfectly efficient, where things are not working well, but it is harder to detect.)hat we are seeing is the tip of the iceberg, but underneath that there are



1G

massive smaller market efficiencies that we ought to be aware of and in my ownwork I have tried to e(pose a number of those.

The implication of the Jeynesian rigid wage theory was very invidious butvery pervasive, because it said that if the problem with the inefficiency of the

market economy, the reason the market economy was not working as well asdam "mith said it was, was because of rigid wages, what is the solution3 $et rid

of the rigid wages and let their markets be more fle(ible. That has been the basisof a whole set of doctoring to undermine &ob protections and undermine labourrights.

'ay quienes postulan que la razón para que la economia demercado no funcione bien es la rigidez salarial y postulan que el8ercado debe ser mas flexible y para ello buscan desmontar la

protección laboral y los derechos laborales

There is another strand that has grown out of Jeynes and one which Ithink is clearly much more fundamental and that is due to Irving 6isher, 'insky,who has become much more in fashion, and work that I did with Bruce$reenwald. Dart of the motivation of our doing this work was a simplyobservation wages are not rigid. In the $reat Cepression wages fell by aboutone third. *ow can somebody say that wages are rigid when they are falling3

nd they are falling by that amount

6omo @insNy y junto con !ruce 7reenOald mi trabajo fuemoti'ado por una simle obser'ación(

"Los salarios no son rígidos# .

$n la 6ran !epresión los salarios cayeron alrededor de un tercio

.ómo puede alguien decir que los salarios son rigidos cuandocaen3 en semejante monto3

The problem that Jeynes recogni%ed was that wages were too fle(ible.)hen wages fall, what happens to people5s income3 It falls. )hen people5sincome falls, what happens to their ability to demand goods3 It falls. )hat wasthe problem with the $reat Cepression3 ack of aggregate demand. )hat is theproblem today3 ack of aggregate demand. Imposing more wage fle(ibility canresult in e(acerbating the underlying problem of lack of aggregate demand.

$l problema que Deynes reconoció fue que los slarios son flexibley pueden caer $ntoncs cuando el ingreso cae tmabne cae la capacidadde demander bienes

$ste fue el prolema de la 6ran !epresion, pues hubo falta dedemanda agregada

/mponer mayor fexibilidad salarial puede exacerbar el problemasubyacente de falta de demanda agregada



0;

"o these two ideas, these contrasting Jeynesian views, the rigid wageversus the problem of e(cessive fle(ibility. $ive two very different policyresponses, two different ways of thinking about what is wrong.

)hat is clear today because of this current crisis is that almost no one

today, and I say +almost no one-, can believe that in the rational e(pectations,the rational model, and efficient markets model. I say +almost no one- becausein merican academics, there are a number of them who are I think of them asreally not economic scientists but religious <o evidence will change their beliefs

They continue to believe that markets are fully efficient, even as unemploymentgoes up, as symptoms of irrationality become so evident and, what can I say,e(cept to apologise for my brethren. The question now is once we re&ect themarket fundamentalists, we have to try to understand the ways in which marketsfail and for this there are two views, whether it is rigid wage or a fle(ible wage,give two very different interpretations of the appropriate policy response.

@uchos de quienes creen en las e pectati'as racionales* elmodelo racional y el modelo eficiente de @ercado no parecencientificos económicos sino religiosos.

o hay e'idencia que cambie sus creencias.

Siguen creyendo en la eficiencia de los mercados a;n si eldesempleo aumenta, como sintoma de irracionalidad e1idente

)hy is downward fle(ibility of wages, to put it another way, deflation ofsuch concern3 It is a concern, as they say, because partly because of the loss ofaggregate demand as I have emphasi%ed, but it is important for another reason.

The presence of deflation when dead contracts are nominal, not inde(ed, meansthat there becomes problems of bankruptcy. Bankruptcy of markets most 3around the world. Deriods of deflation have historically been very difficult periodswith weak growth and partly because of the pervasiveness of deflation,happening in the !nited "tates in the late 1FG;s. It was a problem in =apan and itis a worry about it being a problem today. Bankruptcy is a concern because youcan lose organi%ational capital, if it is not well managed. If it is well managed, itis &ust a financial reorgani%ation and that is an important point to reali%e. lot ofpeople today are e(cessively afraid of bankruptcy because it has been, in someinstances, very badly managed. But well2managed bankruptcies, like under

hapter 11, where it is &ust a financial reorgani%ation and you maintain theintegrity of the firms can be an effective way of going forward. One should not beafraid of it.

The nature of the problem that we face today can be put in the followingway. The people in merica, in the global economy, are the same as they werebefore the crisis. Their skills are the same as they were before the crisis. Themachines are there the same as before the crisis. The real resources of oureconomy are the same as they were before the crisis. The problem is that there

is an organi%ational failure, a coordination failure, a macro2economic failure.)hat we are failing to do is to put to work these human resources and the



01

physical resources to produce the output. )hat that highlights is the importanceof economic policy and organi%ation. It is not our resources that havedisappeared. It is the way we organi%e these resources to create &obs and tocreate value with these resources. "o the challenge for us, going forward, is totry to create the aggregate demand that will put these resources back to work.

That means we have to go back and ask what kinds of policies and reforms arelikely to do that3 )hen we start asking that question, we reali%e that what wehave been doing in many of our policy frameworks has been making thingsworse. I have already mentioned this. )e have weakened our automaticstabili%ers by weakening social protection. )e have tried to destabili%e theeconomy by making wages more fle(ible, rather than providing &ob security.

La gente en Estados Unidos* en la economía global es la mismaque antes de la crisis* -us capacidades son las mismas que ellos tenianantes de la crisis . Las máquinas son las mismas antes de la crisis. El

problema es que hay una falla sist5mica una falla de coordinación* unafalla macroeconómica.

Esto pone de relie'e la importancia de la política económica y dela organización. o es que nuestros recursos hayan desaparecido.

El problema es la forma en que hemos organizado esos recursospara crear empleos y crear 'alores con esos recursos.

)e try to destabili%e the economy by making wages more fle(ible ratherthan providing &ob security. )e have given greater an(iety, which in times like

this increases savings rates and weakens consumption, we have weakened socialprotections all these so2called reforms have made our economic system lessstable, less able to weather a storm.

'emos desestabilizado la economia haciendo mas flexible lossalarios que pro1eyendo seguridad en el empleo $n tiempos comoestos al incrementar el ahorro se ha debilitado el consumo hemosdebilitado la protección social y todas esas reformas han hechonuestro sistema económico menos estable y menos apto para enfrentarla tormenta

<ow, I want to spend &ust a minute talking about some of the risks goingforward and how we deal with the crisis, risks to creating a society of the kind Ithink we want to create. I already mentioned the inadequacies of the stimulus,but a second important feature of addressing the economic crisis has beenfiguring out what to do with the failed banking system, the financial system, andit is a challenge. )e all know what needs to be done.

Gueremos restaurar el cr5dito* de una manera que coloque lamenor carga en el d5ficit fiscal. >esafortunadamente lo que haocurrido en los Estados Unidos es justamente lo opuesto. "emos



00

incrementado la deuda * hemos gastado cientos de miles de millones dedóllares y no se incrementa el cr5dito.

-i tomaramos los I99 mil millones delplan de rescate bancario ycreamos un ue'o banco con apalancamiento de F8 a F* tendria una

capacidad de pr5stamo de :.3 trillones* incluyendo pr5stamos parapeque+as empresas.

)e want to restart lending, we want to restart lending in a way that putsthe least burden on the government deficit, the government debt. !nfortunatelywhat has happened in the !nited "tates has done &ust the opposite. )e haveincreased the debt, we have spent hundreds of billions of dollars and no increasein lending. "o we managed to figure out how to increase the debt, that issomething a lot of countries know how to do well. But we did not figure out howto start lending. <ow if you thought about it for a minute, you can say, well, if wehad taken E;; billion dollars and created a new bank, unburdened with the past,allowed it to lever 10 to 1, very modest leverage compared to the risky lending 7; to 1, 8; to 1 that our banks that we are bailing out engaged in 1;; to 1 at

&ust 10 to 1, that E;; billion would have created F.9 trillion dollars of lendingcapacity. "o we could have taken that E;; billion dollars and generated all thelending capacity we need, including loans for small businesses, to maintainenterprises, so the problem is not that we could not have done it, but we chosenot to do it. )e chose to do it in ways to protect some e(isting vested interest.

To understand what was going on, when asked to think about the financialsystem and what has been discussed in the following way. )e created some to(ic

assets, to(ic waste if you think of it, and as I said we were lucky, we sold some ofit to #urope but we still have a lot of it back in merica. The mistakes aremistakes that have been made, those are bygones, and basic law in economics islet bygones be bygones. "o what we have to do is simply a question of the lossesare there, they have been made, the banks loaned on the basis of a bubble andthe bubble has broken. <othing is going to change that. lot of people in thefinancial sector posts and a lot of other people want people to believe thatsomehow if there were &ust a restoration of confidence, the losses woulddisappear.

They wish that that were true, and I wish that they were right, but they arewrong. There was a bubble and that was apparent at the time and is doublyapparent now. "o the losses are there.

"o the question is> who bears the losses3.

nd that is close to a %ero sum game.

<ow what do the banks want3 Kery easy.

The banks want the !" ta(payer to take up those losses.

If I were a banker, I would want it to. <o one likes to bear the losses, noone likes to bear the consequences of their mistakes. "o they are trying in one



07

surreptitious way or another, one non2transparent way or another, to force thoselosses on to the merican ta(payer. The irony is that lack of transparency gotinto the mess and now some people are trying to use a lack of transparency toget us out of the mess. "o an e(ample of a non2transparent way of doing this isyou insure the losses, you take a bundle of these to(ic assets and you say, I willinsure the loss.

But what does that do3 Coes it make the loss go away3

<o, it &ust puts the loss on to the balance sheet of the !" $overnment. Butthere is a difference in the accounting frameworks. 'oving the losses off thebank5s balance sheet shows up in what way3 s a gain to the bank, so it looksbetter. But the !" $overnment does not keep its books in a way that shows thelosses, the e(pected losses. )e do not record the losses until they occur. "o thebank5s balance sheet right away looks better because we have said, do not worryabout those losses, we take them off the books, but the !" balance sheet, whichlooks a lot worse, it does not show up there because we will not see those lossesfor a few months, or a few years down the line.

"o we can all go through the fantasy of saying, look, we solved theproblem. )e solved the problem because we were being non2transparent and wehave bad accounting frameworks that only have government losses show upwhen they are reali%ed.

)ell, it is a trick but it does not solve the problem because it means in afew years time our national debt is going to be larger. In fact, it is worse than a

%ero sum gain, it is a negative sum gain.)hy is it a negative sum gain3

Because if you do not get incentives working right, you get bad behaviour,and part of the problem of the financial sector is that incentives haveconsistently been bad. Deople have looked at the behaviour of the banks, theway that as we were pouring money into the banks, they were taking money outin bonuses and paying dividends, and they have said, are not these bankersterrible3

nd everybody says, yes, merican bankers are ethically challenged. Thatis true.

But for the most part, that is not the problem. 6or the most part it isbecause they were responding to perverse incentives. They had incentives to acton a short2sided way and a way that engaged in e(cessive risk taking and theybehaved in a way that their incentives drove them.

In fact, as I looked at the behaviour of the banks and the years leading upto this, I was worried, because my theory was very strongly that we should beseeing very serious problems, and we did not see those problems and I got

worried that my theory was wrong, but at last what I had thought came to betrue, so I feel a lot better.



09

Take though the problem of the insurance scheme. )e have insured, forinstance, the losses of ity Bank they pick up 1; per cent, we pick up G; percent. Take a mortgage, mortgages are a key part of the problem. mortgageought to be resolved. The house is under water, the value of the mortgage ismuch greater than the value of the house and it would be better for everybody ifthe people get to stay in their home. It does not do anybody good to throw themout of their home, the house gets wrecked, the community gets weakened,millions of mericans are losing their homes, the communities are beingdestroyed, they are losing their life savings we have a social problem, not &ustan economic problem.

)e need to do something about this, but this provision makes it evenworse. )hy3 Take a mortgage that ought to be resolved. But there is a smallprobability that the prices go up. :ou do not resolve it, the prices go up.

)ho gets to keep the gain3 ity Bank, it gets the upside. If it goes down,which is very likely, who bears the loss3 The !" ta(payer. It is a heads I win, tailsyou lose situation and therefore, we have created a situation where they have anincentive not to resolve these mortgages and to engage in e(cessive risk2takingbehaviour. )e have created asymmetric " ?3@ incentives. )ell, that is why thisis a negative sum gain.

'ore broadly, and this is true not only in the !nited "tates, but in othercountries, the !nited "tates $overnment has provided most of the capital perksfor several of the ma&or banks, but we do not have control. )henever you have adisparity between who provides the capital and who is making the decisions, you

have perverse incentives the first law of economics. )hen you get that, youget bad behaviour which is wealth destroyed.

"o we have created incentives for wealth destruction rather than wealthcreation.

'emos creado incenti1os para destruir riqueza mas que paracrear riqueza

)hy is this important3

On the sub&ect of social protection> few years ago Dresident Bush cameto the merican people and said> +)e have a problem. Our social security, whichis our old2age pension programme, is broken. If we do not do something about it,we will have to break the covenant, the social contract. It will also break oureconomy.- t that time, do you know the si%e of the deficit in the social security,what we call the E82year deficit it was about 8 ; billion dollars. 6or less thanwe have spent on bailing out the sick banks who are still sick, we could have put

merica5s social security system on sound a financial basis for generations tocome. )e could have told all the retirees for the ne(t E8 years, you do not haveto worry about your retirement, but now Dresident Obama is saying +)e have tore2e(amine social security because we do not have the funds-.

especto de la proteccion social(



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"ace pocos a+os el Presidente !ush dijo al pueblo americano(

2 "tenemos un problema *uestro sistema de seguridad social,nuestro programa de pensión para la tercera edad, esta quebrado#

$n ese tiempo el tama5o del deficit era de alrededor de @E= milmillones .on una suma inferior a la que hemos gastado en el rescatede bancos enfermos habriamos podido sanear el sistema de seguridadsocial y dejarlo con bases sólidas para las generaciones futuras

Lesources are limited, that is the sub&ect of economics. :ou have to makechoices. )e have made some choices to bail out our ailing banks, and there areconsequences of those choices. One of the consequences is that there will beelderly people whose retirement benefits will be put in &eopardy. Those are thechoices that are the consequences of how we are mismanaging our response tothis crisis. That is one aspect.

Los recursos son limitados* ese es el objeto de la economia.

ienes que hacer opciones. "emos hecho las opciones pararescatar nuestros bancos y hay consecuencias de esas opciones. Una dedichas consecuencias es que los beneficios de retiro de la gente mayorest5 en riesgo.

Esas son las elecciones y esas son las consecuencias de laerrónea forma como hemos manejado nuestra respuesta a la crisis.

The other aspect is the one that I mentioned before that the underlyingproblem is the insufficiency of aggregate demand caused by two factors> thegrowing equality, and unless we deal with that we are not going to be able tohave robust recovery4 the other one is the global imbalances related to the buildup to e(cessive reserves, but if we do not address the problems in thedeveloping countries in a more effective way than we did in the past, thedemand for more reserves will grow even greater.

et me &ust conclude this is a rich sub&ect which one could go on forages. The good news is that the crisis is going to go on so I will have a lot ofchances to come back and talk to you before the crisis is over. et me &ustconclude by saying that as we approach the problems of this crisis, I think it isimperative to keep in mind the importance of maintaining the automaticstabili%ers, maintaining the social protections, addressing the problems of globalinequality, addressing the problems of inequality within our countries, becausethose are, in very many ways, at the root of the current crisis. )hile we all workhard to fi( the problems and the regulatory system, we have to recogni%e thatthat is fi(ing the plumbing, and it is important to have good plumbing, but if wedo not address these more fundamental problems, we will not be able to restoreour global economy to sustainable, robust and equitable growth.



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Guiero resaltar la insuficiencia de la demanda agregada causadapor la creciente desigualdad y la otra es el desbalance global creadopor la acumulación de reser'as.

Es importante mantener estabilizadores automáticos como la

protección social* controlar los problemas de la inequidad global queestán en la raíz de la actual crisis.

-% ? -?@?- 6APA6E- >E E-?L#E E- ?- P ?!LE@A-KU >A@E ALE- ? -E E@?- 6APA6E- >E E- AU A UE- AE6? ?@%A 7L?!AL "A6%A U 6 E6%@%E ? -?- E %!LE ?!U- ? &EGU% A %#?.

Thank you.

Discurso stuglitz en oit 09.pdf

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