Is it time to start celebrating the end of the great recession? Nobody at a major recent conference at the Centre for International Governance Innovation in Waterloo seemed to think so.

Kenneth Rogoff of Harvard University pointed out that stock markets usually recover from such crises early, but unemployment may remain high for much longer.

Paul Krugman, last year's economics Nobel Prize winner, was especially cautious. He pointed out that when a few countries fall into recession, growing exports often help them to get out. Now, with the whole world in recession, that cannot happen.

Krugman argues for continued stimulus spending. He hopes that the government action required to fight climate change could provide the necessary economic boost.

Most conference speakers seemed to think that the crisis has been handled fairly well so far. Nobody was arguing that more financial institutions should have been allowed to fail, and the failure to rescue Lehman Brothers was regarded as questionable, at least.

But many were also very concerned about the effects that those rescues have had on the remaining institutions, which are now even bigger, and have management that has every reason to expect that if they, too, take big risks that go bad, government will step in.

Heads, they win. Tails, the taxpayer loses and they still walk away with their multi-million-dollar bonus cheques.

There were plenty of ideas about ways in which the rules could be changed to reduce this problem.

Marcel Biato, a Brazilian policy advisor, suggested that banks might be kept smaller by levying higher taxes on larger ones, or by requiring larger ones to keep a larger fraction of their money in reserve in case depositors want out.

Rogoff notes that one factor in such crises is a mismatch between the terms of loans held by financial institutions. If an institution owes money that can be demanded with little or no notice, and has assets in the form of long-term loans it has made to others, it creates a dangerous situation.

If the short-term lenders want their money and nobody else is willing to put any in, the institution can fail even though, on paper, it is in good shape. Rogoff suggested that regulators need to focus on keeping this risk manageable.

Krugman stressed the need for international cooperation on regulation. He wants such regulations to focus on the way financial company executives are paid, so that the incentive to take risks is reduced and behaviour leading to sound long-term growth rewarded.

International cooperation is important to avoid the situation where different countries try to lure financial institutions with lax regulation.

He also wants to improve the systems which provide countries with a “lender of last resort” to which they can go in a crisis.

Right now, the central banks of many countries, including Canada, have an “inflation target” of about 2%. Krugman suggested that this might be raised, perhaps to 4%.

This would result in higher inflation and higher interest rates during “normal” times, and would give central banks more room to cut interest rates in a recession before they get to zero, as they have now.

Another area in which Krugman wants more international cooperation is that of fiscal stimulus. Today, governments are reluctant to provide stimulus which spills outside their borders. Hence the “buy American” provisions in the U.S. stimulus package.

Krugman suggests that a better way would be formal cooperation. For example, Canada and the U.S. could agree to complimentary stimulus packages without such provisions. Some of each package would wind up stimulating the other country's economy, but the effect would go both ways.

A number of speakers commented on the growth of protectionist sentiment in various countries. Many governments are under pressure to introduce measures to keep out foreign competition.

Perhaps the most surprising suggestion came from Jagdish Bhagwati, another American former Nobel Prize winner.

Normally, Dr. Bhagwati is a strong advocate of free trade. But he actually suggested that countries like Canada might appropriately consider retaliation if U.S. protectionism gets out of hand.

Other speakers, however, stressed that protectionist measures have, so far, been very minor, and most countries have stayed within the letter of international law with any measures they have adopted.

We are a long way from the protectionist trade wars that were so devastating in the 1930's.

Over all, most speakers seemed to feel that we are probably at the beginning of the end of this crisis, and that it could have been much worse without effective government action. But they seemed less certain that governments are going to put in place adequate measures to prevent more such crises.

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