By Andres Oppenheimer
We all know
what conventional economists say about the future of Latin America: Venezuela,
Argentina, Bolivia and other countries that pursue populist policies will go
downhill, whereas Chile, Peru, Colombia and others that pursue “responsible”
economic policies will do great.
So when I
interviewed the most unconventional among the best-known U.S. economists —
Nobel Prize winner Paul Krugman — last week, I was eager to know whether he
agrees with the conventional wisdom on Latin America.
Krugman,
who has just published a book entitled “End this depression now!” — where he
argues that the United States and Europe should increase their economic
stimulus packages to jumpstart the world economy, rather than continuing to cut
public spending — is often cited by Latin America’s populist governments as a
supporter of their big spending policies.
Earlier
this year, Argentina’s President Cristina Fernández de Kirchner
enthusiastically cited in a speech one of Krugman’s “Conscience of a Liberal”
blogs in The New York Times, in which he stated that Argentina’s economy is
getting unfair treatment from the media.
Asked whether
he agrees with mainstream U.S. economists that Latin America’s “populist”
governments will end up destroying their economies, while “responsible”
governments will do much better, Krugman surprised me for being much closer to
the mainstream — at least on this issue — than one might have suspected.
“The little
bit that we know is that the old rules still apply: If you print money to cover
your bills even when the economy is not in a recession, you will get high
inflation. If you follow irresponsible populist policies, it will hurt growth.
So I don’t think that Venezuela is any kind of role model,” he said.
“On the
other hand, the hard-line free market stuff has not worked the way it was
supposed to,” he added. “We had heard promises of great growth in Mexico for
decades now, and Mexico is not terrible now, but it certainly has not had the
kind of takeoff. The economies that seem to do the best are the ones that seem
to have somewhat middle-of- the road policies, that are basically free market,
responsible fiscal policies, but also make some serious efforts at poverty
reduction, Brazil being the obvious case.”
Asked about
Argentina, he said that “it’s not a good story either, although it’s not in the
Venezuelan league.”
According
to Krugman, “Argentina had a remarkable recovery from its crisis of the early
years of the last decade, but clearly they have gone on with the populist
policies too far too long....If they had made a turn to more moderate policies
in 2007, then the Argentine story would be an entirely positive one. Instead,
they kept their foot on the gas pedal.”
Despite the
fact that the region’s economy is expected to slow down from 4.3 percent last
year to about 3.7 percent this year, Krugman said he is “still relatively
optimistic” about the region.
“I don’t
see anything in the latest data that would lead me to believe that it’s
actually going to get caught up in the full depth of the (world) crisis,” he
said.
On whether
he is more optimistic about Brazil or Mexico, he said that “while I am not a
dire pessimist about Mexico,” Brazil right now looks more promising. “I don’t
think there is an easy policy explanation about why Brazil has done better. It
just seems that there seems to be more of an entrepreneurial drive,” he said.
Asked what
would be his advice for Mexico’s virtual president-elect Enrique Pena Nieto,
Krugman said that Mexico has been pursuing sound economic policies, but that
now “it needs to work on all the boring but necessary stuff: education,
infrastructure and rule of law, which is a big issue for Mexico.”
“The best
thing you could do for the Mexican economy would be to control the drug trade
and the crime wave, and hope that the re-shoring of production from China (to
Mexico) finally generates the economic miracle we keep waiting for,” he added.
My opinion:
I agree with most of Krugman’s views on Latin America, especially his
recommendation that Mexico focus on the “boring but necessary stuff,” such as
education and infrastructure.
That should
be sound advice for the entire region, and perhaps for the United States, too.
I would only add that the biggest challenge for our part of the world is to
stop seeing these tasks — especially education — as “boring,” and re-packaging
them as the most exciting challenge of our generation.
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