Guillermo Calvo on the Crisis, Money, and Macro

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4.7 • 4.4K Ratings

🗓️ 21 October 2013

⏱️ 70 minutes

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Summary

Guillermo Calvo of Columbia University and the National Bureau of Economic Research talks with EconTalk host Russ Roberts about the nature of macroeconomic crises and what we have learned or should have learned in the aftermath of the most recent one. Based loosely on his recent paper, "Puzzling Over the Anatomy of Crises," Calvo discusses a wide array of issues related to macroeconomics and the role of financial instability in economy-wide crises. Topics include the role of money, the problem of short-term lending in the financial sector, the black-box approach of modern macroeconomic theory and the forgotten economists we might want to reconsider.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:07.8	of Stanford University's Hoover Institution. Our website is econtalk.org or you can subscribe,
0:14.4	comment on this podcast, and find links and other information related to today's conversation.
0:19.6	We'll also find our archives where you can listen to every episode we've ever done going
0:23.3	back to 2006. Our email address is mailadycontalk.org. We'd love to hear from you.
0:31.7	Today is October 7, 2013, and my guest is Guillermo Calvo of Columbia University.
0:38.4	He writes widely on international capital markets, debt, and many other issues related to macro
0:43.8	economics. Guillermo, welcome to Econ Talk. Thank you very much. Our topic for today is a
0:49.6	recent paper you've written titled puzzling over the anatomy of crises, liquidity, and the veil
0:56.2	of finance. Now, there are many who argue that the current crisis is nothing new.
1:01.7	The old models can explain the new world we find ourselves in, but your title suggests some
1:06.2	uncertainty about what got us into this mess and your focus is on the role of money in the
1:10.9	financial sector. I want to start with the expression, money is a veil. What do economists
1:17.3	mean when they say that? Well, that's a very deep concept, if you wish, that the economy is developed
1:27.2	in order to show that money really does not add anything substantial to the economy beyond what
1:38.9	a real sector can do for you. That helps, for example, explain the possibility that if you increase
1:49.0	money supply, all that will happen is that prices will increase in the same proportion.
1:56.4	So that helps to sort of put money in its place, if you wish, but that result is based on some
2:11.6	assumptions that when you make them explicit, you realize that you are talking about this special
2:18.8	case. So once again, coming back to the concept, the veil of money intends to convey the notion
2:27.1	that money could or is essentially a veil, but it doesn't imply that in practice it will be
2:35.6	a veil. And actually, the veil was removed by economists many years ago. I mean, when
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