The Ghost of Andrew Mellon: A Comment at the Reinventing Bretton Woods 60th Anniversary Conference, Rome, July 2004:
Voltaire is famously supposed to have said: "I disagree with what you say, but I will defend to the death your right to say it."
When I hear the great and good say that "crises are overwhelmingly domestic in origin" I find that have an opposite reaction: I agree with what they say, but I am averse to hearing people in their institutional and institutional positions say it.
If domestic policies were perfect--if domestic policies were good--if they left no significant vulnerabilities uncovered--there would be no crises. For example, the Mexican government in 1994 undertook a six-month liquidity goosing of the economy in the runup to its presidential election. The Mexican government also undertook to boost its long-run credibility by offering its creditors the infamous Tesebonos--peso-denominated but dollar-indexed bonds. These two policy missteps produced the Mexican crisis of 1994-5--a crisis that was bad, and that without Camdessus's, Fischer's, Clinton's, and Rubin's willingness to stick their necks *way* out on very short notice would have been horrible.
What this seems to me to miss is that policy is *never* perfect, and I at least certainly did not think before 1994 that it was a *very* bad thing for a government to be willing to offer its creditors inflation-indexed debt, or that a short pre-election monetary goosing was more than a *minor* sin against the gods of monetarism. Yet the gods of monetarism proved to be jealous gods: the punishment was swift and terrible.
To say that "crises are overwhelmingly domestic in origin" seems to direct our attention away from just what it is that makes the gods of monetarism such awful and jealous gods, and what relatively small changes to our international institutions might make the gods of monetarism kinder and gentler ones. Yes: the shocks that generate crises are primarily domestic, or at least the domestic elements are necessary prerequisites. But the propagation mechanisms are global and international.
I feel the icy breath of the ghost of Herbert Hoover's Treasury Secretary Andrew Mellon when we focus on the sins of the bankers and borrowers rather than the workings of the system.