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Economy 4.0

Where the money has gone

David Brancaccio Dec 6, 2011

Kai Ryssdal: So here’s a question — not necessarily one that’s answerable, though. Since things started going sour economy-wise three or four years ago, where’s the money been going? Because global capitalism is in some respects a zero-sum game. There are winners and losers.

As it happens there’s an indicator that tracks exactly that, what’s been happening to whom since the financial crisis of 2008. It’s called the Index of Economic Exuberance (PDF). Tailor-made, really, for our series Economy 4.0, which looks at how to make the global economy work better for more people.

Marketplace’s David Brancaccio is here to discuss. Hey David.

David Brancaccio: Hey there.

Ryssdal: All right, so who is exuberant these days? Who are the winners?

Brancaccio: Well, it’s since the financial collapse we know that the developed world — us — not doing well, doing crummy.

Ryssdal: Yes. That is correct.

Brancaccio: But it’s the lucky parts of the developing world that are getting exuberant. Now if we go beyond the usual suspects — China, India — it’s largely in South America. Argentina, Brazil and Peru are all in the top five for this exuberance. What they’ve done here, it’s a way of answering where the money went after the 2008 financial collapse. Investors love these places because of the higher returns these days.

Ryssdal: What does this thing measure though? I mean, what does it tell us?

Brancaccio: Big picture stuff — inflation, unemployment. A big thing is: keeping your bank credit growing. But the biggest thing is probably foreign investment, capital that’s come pouring into the exuberant countries. This is what it’s like when we’re in grade school. It measures improvement. I remember doing well in improvement back then.

Ryssdal: I always got that in my handwriting test. It was never good enough. All right. So, how does this work though? Does the exuberance, like, trickle down — if I can borrow a phrase from economics gone by?

Brancaccio: Interesting new United Nations reports shows that the gap between rich and poor is narrowing in Latin America, which of course is a good thing. And some of that is all this capital that’s found a home in these exuberant emerging markets. The co-author of the exuberant study, his name is Ernesto Talvi, he’s a former Brookings guy who now heads a public policy research institute in Uruguay.

Ernesto Talvi: It could pull out a lot of people from poverty as it is happening in Brazil, it is happening in Uruguay, it is happening in Argentina. And you’ve seen substantial, dramatic reductions in poverty together with this exuberance in South American countries.

Ryssdal: So riddle me this David. I’m going to pull a little history out on you here, you ready? Fifteen years ago yesterday a guy by the name of Alan Greenspan gave a speech. You know what that speech was about?

Brancaccio: What was about?

Ryssdal: It was about irrational exuberance.

Brancaccio: No kidding! Fifteen years ago?

Ryssdal: Actually no kidding, 15 years ago yesterday. So bubbles, right? That’s what exuberance leads to?

Brancaccio: Well listen to what Claudio Loser, a Latin American specialist who runs a consulting firm in D.C. said to us.

Claudio Loser: Exuberance is the equivalent — in the more common language — of a bubble, I would say. And this bubble can burst.

Ryssdal: See?

Brancaccio: So exuberance is a good thing, but if it’s a bubble it pops, maybe, and the money comes out.

Ryssdal: Right, right, it comes in too fast and it goes out too fast. So who’s at the top of the chart then?

Brancaccio: Ready for this?

Ryssdal: Yeah.

Brancaccio: Argentina. The chuckle in my voice there is — cause you know — that’s a country that spectacularly defaulted on its debt exactly 10 years ago.

Ryssdal: You bet.

Brancaccio: We talked to this IMF fellow — he doesn’t recommend this route to exuberance, which would be: repudiate your old debts, anger the entire international community of investors, start over and then attract new capital if you can.

Ryssdal: So who is at the bottom of the list then?

Brancaccio: You and me, my friend.

Ryssdal: No I’m not!

Brancaccio: U.S. of A.

Ryssdal: Am I really?

Brancaccio: I mean, not quite at the bottom. No. 1 from the bottom. Last place is actually Hungary. But if you think of what this is measuring — unemployment, bank credit — we know how that’s been going in our country since 2008.

Ryssdal: We do indeed. David Brancaccio and our series Economy 4.0. David, thanks a lot.

Brancaccio: You bet.

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