Olivier Blanchard, an economics professor at the Massachusetts Institute of Technology currently on leave from the International Monetary Fund, predicted a dark future for the state of international economic affairs in front of a nearly full Leverone Auditorium on Monday.
Blanchard described “vicious cycles” resulting from relationships between growth, banking and fiscal factors, maintaining that any negative event can impact the economy.
“All of these things mean even a small shock can have a very large impact,” Blanchard said.
Blanchard addressed a crowd of predominately Northwestern economics faculty and students. His hour-long lecture touched on far-ranging subjects including public debt, fiscal consolidation and banking leverage.
Blanchard focused mainly on the “brakes” that have slowed economic recovery and how to alleviate their negative effects. He stressed that small-scale solutions – such as the Federal Reserve adjusting its interest rate – can counteract national debt. These solutions aggregated over the long term are likely to be more successful than the “enormous adjustments” that some countries have implemented, he said.
The future effects of economic policy were also featured prominently in the talk.
“I want to give you a sense of the economic forces that are shaping the world and give you an idea of where things may go,” Blanchard said.
Halfway through his speech, Blanchard shifted his thoughts to solutions that could remedy crises in Europe and abroad.
“The message has been: Unless the market forces you to, don’t do an enormous adjustment that some countries have been doing,” he said.
Economics Prof. Lawrence Christiano said he found that perspective “controversial” but welcomed it nonetheless.
“He talked about the core issues of our time,” Christiano said. “We couldn’t have had a better speaker talking about more fundamental issues than him.”
McCormick senior Michael Chua said he noted the complexity of the topics Blanchard tackled. Chua’s only qualm was that Blanchard afforded much attention to “the debt side of the picture,” but admitted that, “this issue of short-term economic growth versus short-term debt reduction is one of the most difficult to address.”
“I liked what he said in terms of the high volatility in equity in developing countries,” said Chua, referring to how investors are inconstant in their financial commitments to emerging economies.
Held annually since 2008, the lecture honors NU alumna Susan Schmidt Bies, who earned her Ph.D. in economics from NU in 1972 and later served on the Board of Governors of the Federal Reserve System. Speakers are chosen for their work in economics research and for significantly affecting economic policy.
