C (24:36)

And.

B (24:36)

Tax cuts went forward. Now, I want to make very clear that I'm making a partisan point here. One can make a pretty convincing argument that had the election outcome been different in the United States in 2000, had you had a war presidency in 2001, that the surplus may have disappeared through higher spending rather than lower taxes. The point is, we didn't save for a rainy day, and we're still dealing with the consequences of that. And you see that in sequestration. Move to the south. Look at Chile in 2007. By contrast, Chile was running a large fiscal surplus. The people of Chile took to the streets and burned Andres Velasco, the finance minister, in effigy, because they wanted him to return people's money. Velasco said, no, this is money for a rainy day. When the financial crisis hit in 2008, Chile was able to institute a $4 billion tax cut package to stimulate the economy and move forward. So counter cyclical fiscal policy. That's really what this will mean in the context of fiscal policy. Clarity. The second point that I mentioned, Third World countries, not all Third World countries, but the Third World countries that were able to turn themselves around and become today's emerging markets that are driving global growth, did so when their governments demonstrated a clear commitment to a change of direction. The story I'd like to share, I think that best demonstrates clarity, comes from the tiny island of Barbados. So you may be asking, what can you possibly learn from Barbados? There are 250,000 people in Barbados. One of the important lessons of turnaround is that there are nuggets of truth in unexpected places. So In Barbados in 1992, there was a financial crisis. The country was on the verge of running out of foreign exchange reserves. Heavily dependent on tourism, the US Economy was in recession. The IMF went to Barbados and said, you need to devalue the currency. Barbados currency, the Barbadian dollar, was fixed to the US Dollar. The officials in Barbados, particularly those of the Finance Ministry, said, no, we'd rather not do that. We'd rather not devalue the currency. But importantly, in contrast to the typical or usual next chapter that comes in that story of tussle with the imf, Barbados did something Unique. It proposed an alternative. No, we don't want to devalue the currency, but instead we want to think about doing something which will be the economic equivalent to restore competitiveness in our economy. We think that we can cut wages and by cutting wages we can accomplish the same thing. We don't want to devalue the currency because for a long time by pinning our currency to the dollar, we've been able to avoid the problems of high inflation. And we're worried if we devalue the dollar that everything from corn flakes to automobiles is going to go up in price. People are going to start demanding even higher pay increases and that's going to set up a spiral of inflation so they'll think we want to actually cut wages. Now, the problem is they're mostly students in this audience, but those of you who are working currently, raise your hand if you want your wages cut. Not a lot of takers, but Prime Minister Erskine Sandiford convened three party talks in the government, the private sector and the labor unions. In the fall of 1992, a vote was taken, narrowly passed, that there was going to be a wage cut. People took to the streets, 30,000 people. Now, it doesn't sound like a lot, but 30,000 people is 12% of the population of Barbados. So this is the equivalent of roughly 36,000 people marching on Washington about their wages being cut. And so the countries are coming apart at the seams, about to come apart at the seams. The head of the labor union, Sir Leroy Trotman, to his everlasting credit, pulls back, much to the displeasure, much to the displeasure of his union members and reconvenes the three party talks. The church has to get involved, the Anglican Church. But eventually, by early 1993, this tripartite agreement is solidified. The stock market goes on a five to six month tier. The Barbadian economy recovers quickly. And for its troubles, Erskine Sandiford and the ruling party got kicked out of office. In fact, Sandiford's party did not return to office for 14 years. When asked in retrospect, was the price he paid too high, Sandiford's response was the price I paid was a small price to save the country. That's clarity. Generalizing from Barbados to Latin America more generally. In the early 1980s, even before Baker made his famous speech, if you were to look at the price earnings ratio on stock markets in Latin America, the price to earnings ratio was three and a half. It's not a mistake, three and a half. Incredible uncertainty, incredible risk, inflation closed markets. 3.5 price earnings ratio implies a cost of capital in the stock market of 27%, enormously high. As Latin America begins to embrace reform, something extraordinary happens. By 1994, as governments have demonstrated a clear commitment to reducing inflation and there are fits and starts. It's not a smooth path, but there's a clear change of direction. Reducing inflation, beginning to embrace free trade, privatizing to a large extent inefficiently run state owned enterprises, something remarkable happens. The price range ratio library goes from three and a half to 14. Remarkably, if you look at that period of time from 1970 through roughly 1995, Asia grew much more quickly than Latin America over that period. So there was no Asian miracle in Latin America. Asia had lower inflation than Latin America, but stock returns in Latin America were almost double what they were in Asia. The reason for that was because of this incredible turnaround. As a price earnings ratio went from 3.5 to 14, the countries in the region began growing faster. Not at 6 and 7% per year as they were growing in Asia, but going from negative growth, in many cases contraction, to growing steadily at 3%, sometimes 4%, sometimes higher a year. And as these countries began to grow faster, earnings began to grow faster. So in order to get from a price earnings ratio of 3.5 to 14, stock prices had to go up. There was a revaluation of assets in the economy. And going back to the point I made earlier, as the cost of capital came down from that 27% that was implied at that 3.5 price earnings ratio to about 7%, which is what's implied at 14, investment took off, growth expanded, and yes, wages, wages went up in the manufacturing sector. So growth is not a zero sum game. So that's the power of clarity. Let me speak briefly about trust and then we'll take questions. So what is the role of trust? Something has happened in the global economy. If you look at the global economy today, and again I mentioned the troubles that emerging markets are facing currently. And just let me underscore that the lessons that the First World has taught the Third World, that many third World countries embraced in order to become emerging markets, it's not as though the emerging markets have arrived, that the work is all done. That's not the point I'm making at all. The point is that advanced countries need to embrace or re embrace the lessons that they've taught the Third World, become pupils instead of teachers. But emerging economies need to continue going down that, that long pragmatic path to growth and continue to embrace Those key reforms that are so needed. I re emphasize that point because as we look at emerging markets now, they stand. The BRICs, for instance, are 21.5% of global GDP even as they slow. But if we look at what they've done in order to get to this point where they're now a real force in the global economy by embracing those key reforms, there's not been a commensurate recognition by the international financial institutions, the bodies where international economic policy gets made, the imf, the World bank, the institutions that together large with the U.S. treasury pushed an agenda of reform, that agenda of reform known as the Washington Consensus. And so we have mistrust a lack of trust between emerging market governments and advanced country governments because of this lack of reciprocation. So as much talk as there is about fiscal deficits and the potential problems that fiscal deficits pose, the bigger problem in many ways right now is what I call the global trust deficit. In 2010, the G20 ministers met in South Korea and decided collectively the G20 finance ministers and central bank governors that it was time to embrace IMF reform. Meaning that two of the 24 seats of the IMF executive board, that body were key decisions get made about who gets money and on what terms. Also known as conditionality. That same conditionality that was used as leverage to push the Washington consensus. Two of those 24 seats, it was decided, should go from European economies to the dynamic emerging economies. It was also decided that the quotas of emerging markets should be increased. The quotas essentially the paid in capital of the imf. And that would basically increase the voice and vote of the emerging markets. So this is ratified at the G20 meetings, but IMF reform has not yet gone through. Why? The United states has a 17% voting share. In order for IMF reform to go forward, it needs to be ratified by 85% of the votes. So the US Congress has effective veto power. And currently the money that was set aside for emergency IMF lending by the US a couple of years ago, I think roughly $64 billion, which would contribute to the United States patented capital is being tied to the sequester. So we have a lack of progress on IMF reform essentially because the US Congress has said we want to push a domestic political agenda and tie it to global prosperity. That breeds mistrust. And the reason why this matters is because we sit at a moment where advanced nations are growing below potential emerging economies have been driving global growth but need to continue to embrace reform. Especially at this moment in time where there's so much uncertainty what's going to happen. And we see the volatility in emerging markets, but the reforms that emerging markets, the ones that have turned around, have embraced, these are not easy things to do. And in turnaround, I talk about some of the struggles that countries have gone through in order to push through these agendas. And so domestic leaders need something, need something on which to give their populations hope that they're actually moving forward and being embraced as a result of making these kinds of changes. And because we're not seeing this time of reform, because we're not seeing the kind of reciprocation that would in fact hold emerging economies even more accountable for playing a leadership role and embracing those much needed reforms, because we're not seeing that we're seeing increasing signs of fractionalization and regionalization. An example would be the brics, who now have their annual meeting. There's nothing wrong with having an annual meeting. There's nothing wrong about thinking about shared goals and shared interests. But the BRICs have proposed their own regional development bank. The trouble with this is this is symptomatic of the deeper mistrust. It's symptomatic of a view that says, well, we've played by the rules.

C (40:38)

We'Ve.

B (40:38)

Emerged, we're still emerging, there's a lot of work left to do, but we're not being acknowledged and so we're going to take our ball and go to our own field. Well, that's precisely the kind of zero sum mentality that we need to avoid in order to really achieve global prosperity.

C (40:56)

So.

B (40:58)

Just to summarize then, the three key lessons from the history of Third World countries struggle with the Washington Consensus that has allowed them in many cases to transform their economy, to turn around their economies and become today's emerging markets to now account for more than half of global growth and about half of global gdp. And that we need discipline, clarity and trust. Advanced economies need to learn these lessons. Emerging economies, especially now in this time of volatility, need to continue to embrace those lessons for us all to share a more prosperous future. So the choice is ours. It's up to our leaders and it's up to, frankly, people in this room and outside these walls and countries all over the world to hold their leaders accountable. We have a choice. We can either go down the zero sum path, which says that the slowdown in emerging markets will sort of take a schadenfreude sort of attitude to say this is their comeuppance and gee, isn't it great to Maintain our hegemony on top of the pile. Or we can say, no, growth is not a zero sum game. Growth is good for everybody. Let's figure out a way for everyone to embrace discipline, clarity, and trust. So with that, let me stop and take any questions.

A (42:31)

Okay, great.

B (42:32)

Thank you.

A (42:46)

Okay. Peter covered a lot and we should have a number of good and interesting questions. Let me remind you that there are stewards with microphones, the people in red shirts, and tell us who you are when you ask your questions. So lady in about the third row there, fourth row.

C (43:03)

Hello. Good evening, everybody. I had the pleasure earlier on this year in July of visiting China, and I was in Chengdu, and last year alone, Chengdu saw the largest GDP growth in China of 15%. And on your point about discipline and more specifically, countries acting in a manner that's more appropriate for the whole instead of the individuals, what fiscal lessons, and indeed discipline lessons do you think we can learn from economies such as China?

B (43:37)

I think the key lesson. Am I audible? I think the key lesson from China for Western economies can be summarized in the word pragmatism. So in chapter three of Turnaround, I talk about China's and specifically Deng Xiaoping's decision essentially to empower local villages to begin doing small scale experiments with the market economy. And Deng's basic view was, which he summarized in a simple metaphor when he said, I don't care whether a cat is black or white, I care whether a cat can catch mice. In other words, extend that to a market economy issue was let's do things that work. And so everything from allowing farmers to keep some of the proceeds from the things they produced to other small scale reforms that slowly open the economy, free economic zones in places like Shenzhen, there's just a very practical approach, not an ideological approach. And still many issues in China. China's struggling right now with the need for financial or better allocation of capital. So again, underscore the point. The work's not done. But we could use a healthy dose of pragmatism in advanced economies. I'll just give you a very specific example. There's a real lack of clarity right now if you think about economic policy, whether it be the United States or in Western Europe, we have essentially expansionary monetary policy and contractionary fiscal policy in an environment in which we're growing below trend and still trying to recover. So economic policy and monetary policy are working across purposes. And I would argue that specifically with regards to fiscal policy in the United States, one of the reasons for that is theological reasons. So I think A healthy dose of pragmatism would be a very useful thing.

A (45:49)

Okay, good. More questions. And so. Oh, there's one in the very back. Man in a blue sweater. Then there's one down in the third row.

B (46:07)

I don't know.

A (46:08)

Yeah, you just.

B (46:09)

Yeah.

C (46:12)

Hi. You were saying earlier about the US and of course, President Bush's policies with regards to returning the money to the American people. But do you not also agree, though, that from 2001, which is 9, 11, and then the global war against terror, the American economy has pretty much been in the red? And of course, British economic history from the time of Henry VII and Henry VIII would say that war is the quickest way to lose money and that is the reason for America's decline and not necessarily economic reforms. Or alternatively, do you think that it was President Bush who was trying to work on a per capita basis and he was increasing global GDP on a per capita basis by reducing the number of people on the planet?

B (47:08)

Let me ask you the first question. So you raise a very important point. The reason why everyone from Keynes to pick your favorite modern macroeconomist mine is probably Stanley Fisher would argue that you want to run countercyclical fiscal policy is precisely because you don't know what shocks you're going to face in the future. And so by running a surplus and maintaining a surplus when times are good, countercyclical fiscal policy basically says, run surpluses sometimes are good. Be like the ant, because you don't know when you're going to run into a rainy day. And so it was that lack of prudence that made us all the more vulnerable, made the United States all the more vulnerable fiscally to the shocks of War, the.combursing and so on. And so that's the essence of fiscal discipline. Again illustrated in the case of Chile by Andres Falasco. Not splurging when times are good so that when times are bad, you have something to fall back on.

A (48:29)

Okay, I got one in the third row here. Sorry. Getting a lot of exercise up and down here. There he goes.

C (48:38)

Hello.

B (48:39)

I wanted to ask, with present existing technology and present raw materials, how much.

C (48:47)

Sustained growth is possible for the world?

B (48:54)

Big question. So the imf, the OECD put out estimates of potential, what they call potential growth rates. Potential growth rates or trend growth are interchangeable terms which basically mean the rate at which the world economy can grow without overheating, generating essentially higher inflation. My sense of those numbers are for the. For advanced economy. For the United States, throughout trend growth is typically around somewhere in the neighborhood of 2.75 to 3%, probably closer to 2.829 than to 3. For Europe, those numbers are lower, probably closer to 2. For various structural reasons that I alluded to, whether it be lack of labor market reform or harmonization across markets, potential growth is higher in the advanced, in the emerging economies, probably closer to five and a half percent. So if you take for the world as a whole, trend growth rates are probably about 4%.

A (49:59)

Okay, so that's the woman in yellow getting hands all over on one side here.

B (50:07)

Hi, my name is Orla. I wanted to ask you a question about investing in Brazil. In your book you talk about emerging economies or growing economies being reticent to implement disciplinary policies and swaying in favor of the populous vote. And that appears to be what is currently happening in Brazil, particularly post the riots, you know, around the cost of public transport and so on. I'm curious to understand your views, if that is the way it is, trending, reinvesting in Brazil. So, investment advice. This is a free lecture but no free investment advice? Just kidding. You raise a very good point. This is really the key issue. What do leaders do when they're faced with competing pressures? And this is why it's so critical for emerging economies themselves to continue to embrace the lessons of the past. Because we've seen in the 70s and the 80s, specifically, I'll give the example of my home country of Jamaica. In the early 1970s, Jamaica was faced with an oil price shock. Not the same issues that Brazil currently faces. But essentially there's been a similar shock in that Brazil is now experiencing a period of slowdown. And the question is, does the Brazilian government try to meet all the demands of the populace or does it make disciplined choices and realize that there are trade offs and budget constraints? So making the early 1970s was led by a very charismatic man by the name of Michael Manley, who decided that he was going to push forward with a very aggressive social agenda. Michael Manley was a student, by the way, at the llc. So I don't blame what happened on his education here. Correct. Michael Manley was a man with great heart and great intellect, but who was in a bit too much of a rush to get Jamaica to a better place. And what he learned by ignoring budget constraints and the need for trade offs was that you could very quickly destroy progress during Michael Manley's term, from first term in office from 1972 to 1980, as a result of putting in place policies that essentially pandered to the populace in spite of trying External circumstances. The stock market lost 90% of its value investment, real investment, physical investment declined dramatically from about 20% of GDP to about 12% of GDP. What that means in real terms is unemployment went up. Michael Manley famously declared, I forget what year it was Exactly. It was 1977. He said, Jamaica has no room for millionaires. There are five flights a day to Miami for everybody who wants to be a millionaire. My parents weren't millionaires and had no desire to be millionaires. But they decided it was going to be a lot easier to raise a family in a country that was more friendly towards business. And so the lesson is that Brazil, the Rousseff government, needs to make some very hard choices. They've got to deal with their infrastructure problems. They've got Olympics to put on. They're going to have to make some difficult decisions about spending.

A (53:54)

Way up in the back of the far side there.

C (54:09)

Hello, Professor Henry. My name is Zara. I'm an editor at the African Business Review magazine and I just want to ask you quickly about your comments on the BRICS Development Bank. You mentioned that the proposition of a BRICS Development bank is perhaps exemplary of zero sum thinking, which is a result of global mistrust. And I wanted to ask you that, is it really a symptom of zero sum thinking or is it perhaps an example of these Third World countries following in the lead of First World countries which some might argue have institutions which pursue and secure their own interests?

B (54:53)

I think in some ways you've answered your own question. I don't mean that to be facetious. What we really need is a principal set of institutions which already exist that fully embrace the new role that the former Third World is playing in the global economy. Which is not to say there's no room for regional arrangements, but we need to live in an and world rather than an or world. And my sense is that the regional arrangements we're seeing the BRICS pursuing is very much in the spirit of or rather than. And there's responsibility on both sides there. There's responsibility on the side of advanced countries to essentially make good on their promise on IMF reform. And it's then going to be incumbent on the dynamic emerging economies to actually step up to the plate. I guess I was going to say step up to the plate. We're in Britain. I should say step up to the wickets. Bad joke. Although cousin was a very good. Was a very good cricket player. Jimmy Adams is a cousin of mine. Some of you may know who he is. Played on the West Indies side. But anyway, the point is the BRICs then need to accept the responsibility of what it means to lead. And that's the outcome that we need to see.

A (56:28)

Okay, got the blue shirt about halfway.

C (56:36)

Hello, my name's Richard. I'm a postgraduate economic history student. Thank you so much for your talk. You mentioned early in your talk about how using the markets to validate these particular economic choices following the Washington Consensus. I wonder how much we can always trust the opinion of the stock markets. They've been notably wrong on several occasions. And do we need to make a dividing line between the market's opinions, maybe government's actions, and the market's opinions on purely economic developments and say, you know, how big the tech bubble is going to get and so on, and the housing crisis. What have you thought about that?

B (57:13)

Excellent question. So the point that I try to really emphasize in the book is not that markets are hyper efficient, that markets are always right. We know that markets sometimes get out of step with the overall economy. So you don't need to be a strict adherent of the most extreme form of efficient markets hypothesis in order to believe that the information that's contained in the response of the stock market to really talking about tectonic shifts in economic policy are informative. And so I go through a description of the book of essentially the limitations of markets, because you're right, there are real limitations of markets. But what the data suggest is that when we look at the response of markets, and I should also mention, I don't just look at the response of the stock market to these events, I also look to see whether these, because these are essentially forecasts. The stock market is a bit like, that's like a restaurant guide. You go to a restaurant, you don't know whether the items on the menu you're going to actually enjoy that meal or not. But if you have essentially a guide in the US it you tells called a Zagat's guide to where you're about to eat, you can get a pretty good sense of what it is you're getting yourself into. The historical evidence on the stock market is much the same. It provides a tool by which policymakers considering undertaking a particular course of action, that is fiscal austerity, can have a sense of, well, what's been the experience of past countries who have done this? What was the stock market's forecast of whether these policies would work? And then after the fact, I also look at evidence and look on growth and inflation as complementary evidence. And basically all the pieces kind of point in the same direction that these market friendly policies implemented at the right time do lead to positive changes in these economies. Economies. Okay, thanks.

A (59:24)

So man also in a blue shirt about halfway down in front of you and after him, there's a man just inside from him. Yeah, well, the man. Okay, I was the guy with the blue shirt. Right. You're standing next to him. Yeah.

C (59:38)

Hi there, I'm Jamie Savage. I'm studying A level economics. So apologies if these feel a bit basic for you, but why you talk about these three, three simple lessons the west needs to learn. But why is the west not acting upon it? And what sort of timescale do you think needs these lessons to be implemented?

B (60:00)

So to answer the second question first, ideally the timescales. Now, the first question is a lot harder. Why don't we see this happening? Well, the short answers, I think contained in the title of Craig's fabulous institution, it's the London School of Economics and Politics. And politics and political economy has a central role to play in decision making.

C (60:24)

And.

B (60:26)

Disciplined choices often involve winners and losers. Which is why I said that doing the discipline thinking is doing what's good for the country as a whole over what's good for any individual interest group. But those individuals and interest groups can be very, very powerful. And in the case of Barbados, the example that I gave before, workers were a very, very powerful force. The Prime Minister, in the case of Barbados, had the courage to convene three party talks. I use that as an example of clarity. But there's also an interesting, I think, point about trust in that case as well, which is implicit in the lesson there. Typically, the reason the IMF recommends that countries devalue the currency is because most. The IMF implicitly assumes most leaders don't have the courage to actually have an open discussion with workers about wages. So devaluing the currency is essentially a wage cut without the permission of workers. So in that case where Barbados had the right leader at the right time, you were able to get through the politics through a combination of, you know, clarity of purpose, but also a leader who was able to generate enough trust because he went first to the unions and the people, even though that there was great disagreement about the wage cut because he had approached the head of the labor union and said, honestly, this is what we're thinking about doing at that critical moment in time when the country is coming apart at the seams. Sir Leroy Trotman pulled back and said, okay, I'm going to get my people to follow here. So politics is important. That's almost a Truism, but leadership is critical and politics are the reason why we often don't get the right outcomes.

A (62:21)

Okay, right at about the same space, but man in a black T shirt about four seats in.

B (62:29)

Yeah.

A (62:29)

Raise your hand so she can see you.

B (62:36)

Thank you, Dean Henry. My name is Malik and I'm an American. But I just finished business school here in the uk. And I just wanted to build off of the previous question because I think that really hit at the heart of many of these things is about courage. It sometimes feels that when you're saying you need to have discipline or you need to have clarity, that brings risk and there is political risk associated to that. So can really these advanced countries learn from the Third World countries? Because some of these Third World countries, particularly Russia and China, they have more autocratic leadership who can take on that political risk, whereas the advanced countries can't do that. So how actually transferable is that lesson? Excellent question. I think the lesson is that there are countries. I mentioned the small country, Barbados, there's a bigger country, also starts with the letter B called Brazil, which is a democracy. If you looked at Brazil in 1992 when it was suffering from 3,000% inflation, I think there are very few people who would have thought that Brazil, for whatever its struggles are right now, that over the 20 years from 1992 to 2012, would be a low inflation country that would lift 20 million people out of poverty and do it democratically. Indonesia is being hit by the current volatility as well. Indonesia in 1997 had a massive crisis during the Asian financial crisis and was a dictatorship at that point in time. I'm not an expert in Indonesia, and Indonesia also has a long way to go. But Indonesia is now a fledgling democracy. So I think the real point is that it can be done. We can get to yes countries, and countries can get to yes. And in democracies as messy as they are, and right now in advanced nations, we really suffer from reduced expectations. So we need to hold our leaders accountable, and leaders need to look outside their borders and be a little more humble about where they stand in the bigger picture, because there are countries that have done things that we're saying can't be done.

A (65:07)

All the way down front, we've got a woman in the first row.

C (65:20)

Thank you, Dr. Henry. My name is Anuja Prasher. I've just returned from Kenya and the Kenyan government have just signed a very large deal with China on energy restoration and building railways and roads, et cetera. And I just wanted to ask you about this question of trust, is it just about trust and institutional reform, or is it really about embracing what the agenda is for the Third World and generating trust there? I talk in my own writing about the development agenda and how important it is. You're a financial instrument, and measurements through the market don't gauge the need on the ground for Third World poverty alleviation or health or education. And now people in the Third world can see what everyone else is enjoying and they want to enjoy the same. So how do you see that sort of agenda marrying into what you're trying to say about lessons learned?

B (66:27)

Yeah, thank you for the question. It's an excellent question. I spoke mostly about the trust deficit between developing country governments and advanced country governments. But trust between citizens and their governments is just as important. And as you say, in a world of Twitter and YouTube and Pinterest and Facebook, the disparities and the absence of discipline, clarity and trust are more salient than ever. So this can work in a couple of ways. It can work as a positive tool for holding governments accountable. But as we've seen too often in the last couple of years, the impetus for change that can come about as a result of technology doesn't necessarily guarantee sustained commitment to that change. And so. I think that's really all we can say at this point. So I think that I'm hopeful. But the what is really quite clear, I think, at this point in the debate, which is why I started off by sort of framing the debate in terms of these two ideologically points of view. But the how is still very hard. And you're right to say that trust between citizens and the governments is just as important as trust between nations.

A (68:23)

Okay, yeah, just here in the third row.

C (68:29)

Hello, my name is Rohit Parak and I work in Deutsche Bank. Going to one of the points you raised earlier in your talk. You mentioned that there's been a growth of 4.9% on average between the time period of 2002 to 2007. Given that, what has followed after since then, what we have actually come to know about the growth that's been largely fueled, I mean, to a certain extent on bubbles, do we actually want that kind of growth? Or rather, would we be willing to compromise on the growth and rather have it more sustainable?

B (69:03)

So I think your question ties really closer to the question that the young lady sitting next to you asked about what is trendable growth? So it may very well be the case that 4.9% growth may not be sustainable over the long term for the world, but much of that growth that happened over that period, certainly over the period from, let's say, 1995 to 2007, was not purely fueled by bubbles. And so what we have to do is make sure that we think about and continue to work on financial reform. In particular, discipline in the context of international finance really means learning the lesson that crises, the kinds of crises that you refer to, are really generated by debt as opposed to equity financing, and that there's too much leverage in the world, both within countries and between countries. Specifically, the international financial system has a set of incentives built into it that really bias suppliers of capital towards providing debt financing as opposed to equity financing. So very tangible example of that would be if you look at the protection that investors get if they invest in, let's say, the equity markets in Brazil. Since the question was asked earlier about Brazil, this is the only investment point I'll make about Brazil. If you invest in equity markets in Brazil, you have to rely on local investor protection laws in the equity market. If you buy Brazilian government debt, you have recourse to courts in the United States or in some cases London to hold the sovereign accountable. And so there's a disparity, there's much stronger protection effectively of debt holders than there is of equity holders, which biases suppliers of capital towards basically lending in the form of debt over equity. And there are other examples of that I point to in the book of this, what I call the debt bias. And so that is really at the root of a lot of the bubble problem and the financial excess. And until we deal with that problem, we'll still have financial crisis far more often than we should. But I think that trend growth for the world is above where it is now. Right now, there isn't enough demand in the world. And so we need disciplined policies to get aggregate demand back up even as we try to get in place. Policies that can drive longer term structural change, that will raise the trend rate of growth.

A (71:48)

And if you want to contribute to global demand, buy Peter's book. And we're at the point in the lecture where I have to tell you, if you want to know more of what Peter thinks, you need to buy the book. He will be signing books outside just now, but before he goes, please join me in thanking Peter.