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Notes for the June 2005 Macroeconomic Workshop

English Pages, 21. 6. 2005

I am really glad that this gathering is taking place and is taking place here, in Prague. I would like to congratulate the organizers, participants and sponsors on all the work which has been done. I only wish I could stay here for the entire workshop because macroeconomics has always been my favourite topic and my field of research, but I have some other presidential appointments these days.

Macroeconomics has been, as we all know, disregarded for some time. This partly reflected the problems in the sixties and seventies connected with unjustified ambitions of Keynesian macroeconomics (or, perhaps, of Keynesian macroeconomists) to mastermind the economy, but it also reflected the fact that the post-1989 fundamental and radical transformation in this part of the world as well as the challenges of other emerging markets turned attention of economists and policy-makers to systemic changes, to institutional issues, to microeconomic problems, to the establishing of a general institutional framework which makes macroeconomic policy – eventually – possible and meaningful.

It is understandable. I do believe, however, that macroeconomics and macroeconomic policy are relevant even in such institutionally unstable circumstances. I would dare to argue that the macroeconomic side of the matter had bigger impact upon the successes and failures of individual transforming countries in this part of the world than is usually assumed or accepted. It, undoubtedly, had much bigger impact than the eternal enemies of macroeconomics, the institutionalists of all schools, claim. The institutions matter, but money matters as well.

My own experience tells me that the rational and cautious macromanagement in the moments of price and foreign trade liberalizations was crucial for avoiding all kinds of institutions-destroying (or at least radically weakening) inflations and – as we sufficiently and painfully learned – the macromanagement was no less crucial a stage later, in the moment of disinflation, in the moment of impatient and unnecessarily ambitious attempts of some transforming countries, or of some of their politicians, to prematurely suppress the necessary and healthy adjustments of all kinds of nominal variables in the moment of transition. As you know, the Czech Republic succeeded in the first task, but failed in the second. I wish the economists (and central bankers) pay more attention to both experiences.

We are greatly honoured that Prof. Prescott is here with us today. He should know that some of us had studied his works well before he got the Nobel Prize. Some of us highly appreciated and - hopefully - understood both the conceptual approach as well as the arguments of his real business cycle theory. In a country where Schumpeter was born, it was not difficult to convert us to believing that business cycles are an integral part of the process of economic growth and a rational response to many sources of instability and as such, they are therefore inevitable and healthy. And, in addition to it, in a country which during the communist era experienced such a “government failure” as ours, no one believed in the potency of ambitious macroeconomic fine-tuning. I must add that our experience with our own failures of macroeconomic, especially monetary policy in the second half of the 1990´s did not make us unnecessarily optimistic about macromanaging the business cycle.

I am glad that Prof. Prescott intends to speak here today about the retirement issue, about the challenges we – in Europe, as well as in our country – face in the era of aging, if not of depopulating of our continent. We need an academic analysis, because our public debate about this issue has been either political and ideological or has been governed by short-sighted lobbying.

Nevertheless, it is quite obvious that regardless of the current and the future demographic changes we have to

- shift the pension system (the financing of retirement) from the philosophy of insurance to the philosophy of savings;

- decollectivize the pension system (from the redistribution of public funds to the investing of private money into private account);

- define the appropriate social policy aspect of the pension system.

I am looking forward to listen to Prof. Prescott.

Václav Klaus, Prague-Budapest Spring Workshop in Macroeconomic Theory, ČNB, Prague, June 21, 2005