AEA Meeting Highlights Role of Consensus in Promoting Economic Reform
| Author | John Starrels |
| Position | Senior Editor, IMF Survey |
| Pages | 22-23 |
Page 22
Among the major subjects discussed at the January 4-6 annual meeting of the American Economic Association in New Orleans were European monetary union, general reform issues, prospects for economic reform in the countries in transition, the fiscal role of government, and the role of the IMF. In addressing these issues, participants stressed the importance of sound macroeconomic fundamentals and the need to obtain domestic political support for economic reform programs.
Michael Mussa, Counsellor and Director of the IMF's Research Department, maintained that monetary integration would provide European governments with additional leverage to enact sound policies. Mussa expressed concern, however, that the EMU could be the object of a future political backlash if it were to be burdened with the responsibility for reforming Europe's fiscal and social policies.
Europe's support of monetary union was a "stroke of genius" given its mounting fiscal problems, noted Robert Mundell of Columbia University. To combat unemployment, Europe should adopt an ambitious package of structural measures embracing deregulation, lower taxes, denationalization, and privatization, he said. Rudiger Dornbusch of the Massachusetts Institute of Technology and Ronald McKinnon of Stanford University both maintained that earlier consensus by European central banks on the need for fiscal consolidation and low inflation had promoted the concept of EMU. Flexible entry criteria would make it possible for the monetary union to occur on schedule, predicted Peter Kenen of Princeton University.
Robert Bates of Harvard University called upon economists to devote more attention to assessing the structure of political power in industrial countries to help explain the growing readiness of politicians to surrender power to economic technocrats in the service of reform. The key dynamics underlying economic reform were the crucial interactions among demographic change, the stock of usable knowledge, incentive structures, and the institutional framework within which economic life unfolds, maintained Douglass North of Washington University at St. Louis. Dani Rodrik of Columbia University recommended more research on the "distributional consequences" that frequently overwhelm the efficiency gains of...
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