Speaking at Beta Theta Pi on Tuesday, Chief Economist and Vice Chairman at J.P. Morgan Chase John Lipsky ’68 discussed the state of the global economy.
“My claim is that this is one of the three major turning points of the post-World War II era,” Lipsky said at the beginning of his talk.
According to Lipsky, economies have been growing around the world while sustaining low inflation rates. This period of growth has been the result of fiscal policies designed to help the economies cope with the periodic shocks they have been experiencing since the late 1990s. Now policymakers are starting to withdraw the measures, like lowered interest rates, that had been in place to help the economy stay on track.
“Virtually everywhere policymakers are taking back the stimulus,” Lipsky said. “My guess is that a year from now you’ll find out if this has been a success or not.”
Lipsky put current trends in historical perspective, comparing the financial market shocks of the late 90s to the ones that lead to the Great Depression. Fiscal policymaking, Lipsky argued, are the difference between the recent market shocks and those of the late 1920s.
In 1929, contemporary analysis blamed shocks in the financial market on excessive credit creation, so policymakers cut down on credit and allowed banks to collapse. The depression started to affect the whole world, and countries’ policies made matters worse, according to Lipsky.
“Fiscal policymakers added to the problems by doing things like competitive depreciation and [establishing] international trade barriers,” Lipsky said.
In contrast, current fiscal leaders have been taking down trade barriers and allowing for more credit.
“This [recent] period was a fantastic success,” Lipsky said. “Not only was there not a Great Depression, there wasn’t even a global recession.”
Lipsky said that the first turning point in the post-WWII global economy came directly after the war, when the International Monetary Fund (IMF) and the organization that would later become the World Trade Organization (WTO) were established, creating an international treaty basis for the international financial system.
“That’s something you guys probably take for granted,” Lipsky said to the audience.
He said that global trade rules have had a huge importance.
The second turning point he addressed came in 1990. After communism collapsed, the IMF had 184 members – 180 more than it had when it was founded – exchange rates were fluid, and the larger international capital market grew. Before, exchange rates had been fixed and international trade had been much larger than international capital investment.
After the talk, Lipsky took questions on the economics of social security, China, and what he does in his job as chief economist.
Lipsky graduated from Wesleyan in 1968 with a B.A. in Economics and after a brief time in the military, went to Stanford, where he earned a Ph.D. in Economics. He has worked at the International Monetary Fund and was the chief economist at a smaller Wall Street firm before his position at J.P. Morgan Chase. J.P. Morgan Chase controls over $1 trillion in assets.
According to Michael Frank ’08, a member of Beta Theta Pi and director of its lecture series, Lipsky’s connection as an alum was part of why he was chosen as a speaker for the series.
“Mr. Lipsky was an obviously desirable choice for our lecture series because of his interesting work experience, connection to the school, and renowned lectures,” Frank said.
Frank and others who attended the lecture found it informative and exciting.
“His talk was fantastic,” Frank said. “In less than an hour he managed to comprehensively cover the world’s significant economic history since World War II and explain why the next year is so important in terms of the future of world markets.”
Daniel Heller ’06, an Economics major, agreed.
“The selection of courses I’ve taken here at Wes has been heavily microeconomic, meaning that I haven’t had much of a chance to study the global economy,” Heller said.
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