Excerpt from a Business Week interview with Arminio Fraga, who helped turn around Brazil’s economy as president of the Central Bank from 1999-2002 [emphasis added]:
What do you think America needs?
The U.S. is clearly the most amazing economic machine ever put together. It’s an amazing model. And it may have, as a result, gotten complacent. The U.S. needs to blend the sort of firefighting that’s been taking place—you know, zero interest rates, very expansionary fiscal policy—with longer-term policies, longer-term reforms … including this budgetary situation that cannot go on like this forever. And then, more structural things: job creation, business confidence, education, infrastructure, all of that. So there’s a big agenda. I just feel, having spent my life looking at countries that went into a crisis situation and emerged in pretty good shape, in every single case there was this mix of short-term emergency measures and long-term building-the-future-type moves.
But politicians have always been reluctant to inflict pain.
[In the U.S.] It’s been a tough decade on the jobs front. There’s been very little growth if you exclude transfers from the government. There’s no way you can live without the business cycle. This notion that you only keep the upswing—you get rid of the downswing—is an illusion. And you end up paying a price.
Does it come down to regulation?
There is this excitement now because many people believe that markets were a complete failure. And they forget that markets operate in an environment where there is regulation. There are laws, there are rules. And one could argue in a pretty powerful fashion that sure, markets are far from perfect, but a lot of the regulatory aspects were pretty bad as well. Now I see the pendulum swinging, let’s call it to the left. If you have a system where the rules are such that the losers don’t pay, that’s a bad thing, and not just for economic reasons. I can argue all night long that that’s inefficient. I also think it’s terribly unfair. And I think society doesn’t put up with that for very long.