Andrés Velasco for PS Say More

The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( Welcome to Say More, a weekly newsletter offering readers exclusive insights into the ideas, interests, and personalities of some of the world’s leading thinkers. In each issue, a Project Syndicate contributor is invited to expand on topics covered in their commentaries, address new issues, and share recommendations about everything from books and recordings to hobbies and social media. This week, Project Syndicate catches up with [Andrés Velasco]( a former finance minister of Chile who is now Dean of the School of Public Policy at the London School of Economics and Political Science. In the [last edition]( of Say More, [Daoud Kuttab]( an award-winning Palestinian journalist and Deputy Chair of the International Press Institute, suggested how the international community can stop Israeli human-rights violations, demanded stronger action to protect journalists worldwide, and corrected a common misunderstanding about Palestinians. Andrés Velasco Says More… Project Syndicate[Andrés Velasco]( As Chile’s former finance minister, what do you think of the government’s economic-recovery strategy, which includes plans to issue up to $8.7 billion of bonds next year – $3.3 billion in foreign currencies – to fund higher government spending? Are there lessons that other emerging economies can learn from the fact that Chile is able to pursue such a strategy at a time of [social upheaval]( Andrés Velasco: Since 2000, Chile has maintained rigorous fiscal discipline. By saving in good times, the government has made it possible to spend in times of crisis, such as after the 2008 global financial crisis and during today’s mass – often violent – protests. Indeed, with today’s social upheaval and political uncertainty undermining growth, providing some fiscal stimulus is the right thing to do. But two caveats are in order. First, if consumption and investment – and, thus, economic growth – are to recover, violence and looting must end. Second, accumulated savings can be used only to cover temporary fiscal shortfalls. If the government is planning to increase fiscal outlays permanently (as I believe it should), it will have to raise taxes. PS: In examining Chile’s upheaval, you [highlighted]( the link between mass street protests and increased access to higher education following prolonged periods of peace and prosperity. “Education attunes you to injustice,” you wrote, “and prosperity means that protesting does not jeopardize your livelihood.” Education also raises people’s expectations, which, as Alexis de Tocqueville famously argued, is precisely when revolutions happen. How might developing economies manage education and expectations to avoid this outcome? AV: There is no easy solution to this conundrum. Expanded access to higher education is a wonderful thing, for both students and society. But unless the economy and demand for higher-level skills are growing quickly, the relative wages of university graduates will decline, and the generation that experiences the transition will be left disappointed and angry. Governments’ best chance is thus to focus on providing good jobs, with good wages, that will allow graduates (and the broader society) to make the most of all those newly acquired skills. In emerging economies, this means combining education policy with a healthy dose of modern, light-touch industrial policy. PS: Shifting focus to another Latin American country in crisis, a month before Argentina’s presidential election, you [lamented]( that its liberal reformist president, Mauricio Macri, would lose, owing to “the same types of mistakes made by his Peronist predecessors.” He did lose – to the Peronist candidate Alberto Fernández. What are the most urgent reforms Fernández’s government should pursue to end Argentina’s seemingly interminable cycle of overborrowing and debt restructuring, and what would it take to get it to do so? AV: Sadly, the issues Argentina faces today are the same issues it faced ten, 20, 50, and 100 years ago. Again and again, the interminable boom-and-bust cycle has dashed Argentines' hopes of a more stable, prosperous future, as it has sapped the economy’s capacity for growth and investment. The new government confronts three key challenges. It must restructure its debt without driving investors away. It must put its fiscal house in order without deepening the recession. And it must rein in inflation without overvaluing the exchange rate and setting the stage for another balance-of-payments crisis. Nice work if you can get it. PS: You recently [criticized]( development economists’ growing reliance on randomized controlled trials. RCTs, you wrote, “are best suited to narrowly defined policy issues,” but “can say little about the big issues that inflame passions,” such as “whether more globalization is desirable, how big government ought to be, or what triggers economic growth.” Can any approach to economics answer such questions, or must economists simply accept that the most they can offer is best estimates of the consequences of alternative policies and then let the politicians fight it out? AV: It is very hard to provide persuasive answers to those big questions. But that should not stop economists (or other social scientists) from trying. Since citizens, politicians, and the media want those answers, if social scientists do not provide them, cranks and demagogues will. If economists keep saying more and more about less and less, we will become irrelevant. By the Way... PS: As 2020 gets underway, much of Latin America is in crisis, owing largely to profound political uncertainty or instability, not just in Chile, but also in Venezuela, Bolivia, and elsewhere. And, of course, crises get most of the international news coverage. Are there any bright spots in the region that deserve attention? AV: While all those political crises are going on, it is easy to forget that in every Latin American country except Venezuela, people are better fed, more educated, and healthier, with much longer life expectancies, than a decade or two ago. Even inequality – at least as it is conventionally measured – has fallen somewhat in much of the region. So it is certainly true that not all news in the region is bad! PS: So-called behavioral economics has attracted significant attention in recent years, for calling into question the fully rational homo economicus that populates conventional economic models. Are there other common misconceptions that are distorting economic policymaking, and how might they be corrected? AV: Just as humans are not fully rational when making personal economic choices, when making political and policy choices, we are not fully rational either. To be effective, political leaders need to recognize the important role that identity and emotion play in politics. Otherwise, populists and demagogues – who do recognize this – will retain the upper hand. PS: What changes – organizational, policy, or otherwise – do you most regret being unable to make during your time as Chile’s finance minister? AV: I wish I had been more successful in persuading politicians of the need to reform the labor market and pursue more active industrial policies, in order to create more and better jobs for new entrants to the labor force. One cannot understand the recent explosion of violence in Chile without paying attention to the nearly one million young people who have no regular job and do not attend school. PS: When protests first erupted in your home country, were you as shocked as much of the world seemed to be, or would you say that the writing was on the wall? AV: With the benefit of hindsight, many talking heads like to pretend they saw it coming. But the sad truth is that no one did, and that includes me. Velasco Recommends We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Velasco's picks: AV: I recommend three very different, yet equally revealing takes on the crisis in contemporary politics – in particular, the role of emotion and identity. [The Righteous Mind]( [The Righteous Mind]( Why Good People Are Divided by Politics and Religion]( By Jonathan Haidt [Identity]( [Identity: The Demand for Dignity and the Politics of Resentment]( By Francis Fukuyama [El pueblo soy yo]( [El pueblo soy yo]( By Enrique Krauze From the PS Archive From 2017 Velasco defends political centrism as a coherent philosophy emphasizing liberty, patriotism, and openness. Read the [commentary](. From 2018 Velasco calls for reforms that would permit developing countries to borrow from abroad without risking disaster. Read the [commentary](. [Liberalismo en tiempos de cólera]( From Debate [Liberalismo en tiempos de cólera]( By Andrés Velasco and Daniel Brieba The best antidote to authoritarian populism, the authors argue, is progressive liberalism. Here´s why societies should pursue both liberty and equality – and why doing so will keep the populists at bay. Around the Web In case you missed it, here are some other places around the web where Velasco's work or ideas have appeared recently. In a 2019 interview, Velasco explores the state of democracy, immigration, trade wars, and the Indian economy. Read the [discussion](. In a Spanish-language interview on CNN Chile, Velasco discusses populism in Chile and the world and affirms that the only group with the conceptual tools to defeat populism is the center. Watch the [video](. [Informed. Insightful. Inspiring.]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. This newsletter is a service of [project-syndicate.org](. © Project Syndicate, all rights reserved. [Unsubscribe from this list](