Speakers
Kenneth Rogoff Thomas D. Cabot Professor of Public Policy Harvard University	Nariman Behravesh Chief Economist IHS (Chair)
Raghuram Rajan Eric J. Gleacher Distinguished Service Professor of Finance University of Chicago	Daniel Yergin Chairman IHS CERA (Chair)

Daniel Yergin, IHS CERA Chairman, and Nariman Behravesh, IHS Chief Economist, led a lively discussion on the nature and extent of the world's recovery from the "Great Recession" in the CERAWeek Thursday afternoon special address "What Kind of Economic Recovery--and Where?" Joining in were Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, and Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago and former Chief Economist at the International Monetary Fund.

Dr. Yergin asked about the present state of the economic recovery around the world. Dr. Rogoff said he believes that the worst is over in the United States, although it is not experiencing the "galloping growth" often seen during economic recoveries. Europe faces a decade of slower economic growth, while Asia and Brazil experienced a "normal recession," with growth shooting upward as the recession has passed.

Dr. Rajan focused on the role of trade in economic recovery. Nearly all countries in the industrialized world with large current account deficits (meaning the country imports more goods and services than it exports) were hurting during the recession. With decreasing demand from their usual markets, how will countries with export-driven economies weather the storm? Emerging economies that focus on trade with other emerging economies will fare better, along with those that focus on domestic demand growth.

Dr. Rogoff described the drag on economies that a buildup of debt can cause. Europe is experiencing the aftershocks that often follow financial crises--countries spend to stimulate the economy and bail out the banking system, and then face sovereign debt crises when the bill comes due. Sovereign debt is creating a "severe governance crisis within the euro system." The United States is also faces challenging debt conditions, although less pressing than the euro zone's problems. Dr. Rogoff said, "If Americans think tax cuts are what's ahead, we're in trouble." Dr. Rajan added that creating sound public finances is particularly difficult given the current polarization in Washington.

Both economists commented on the recent banking crisis and fiscal stimulus. "Standing by and watching the [banking] system collapse was not the right answer," noted Dr. Rajan. However, he believes that the Administration could have been tougher on the banks early on; this would have avoided the current political need for punitive measures, rather than those that could be most effective in righting the economy and banking system. Dr. Rogoff gave a lower grade to the Administration's response to the banking crisis--"We just gave away the farm"--and predicted, "The financial bailout will look even worse in ten years than it looks now." He said that the bailout has painted the US government into a corner by making the market believe that lending to big banks is effectively the same as lending to the federal government.

Dr. Behravesh asked both economists whether China's economy is facing a bubble. Dr. Rajan said yes, but that it is "probably not a megabubble." He pointed out that it is in China's best interests to move away from its current export-led growth strategy. To find out how that strategy might end, China need only "look across the strait at Japan." Dr. Rogoff added that housing in China is clearly experiencing a bubble; and moreover, the idea that China will not undergo business cycles is just not true.

Dr. Rajan ended the session on an optimistic note, stating that growth in emerging markets will translate to growth in industrialized countries as well. He said that once we get beyond today's government debt problems, he expects a period of strong economic growth.