The Mexican Economic Crisis: Alternative Views

Economic Review 21 ew economic events succeed in capturing the sustained attention of both economic practitioners—policymakers, business economists, and press commentators—and academic economists. The ongoing economic crisis in Mexico is one of those events. Since the crisis broke out in December 1994, it has been the subject of innumerable newspaper and magazine articles as well as a large number of academic papers. Most of the nonacademic analyses have tried to answer a question posed by the Wall Street Journal on July 6, 1995: “How could so many smart people on Wall Street, in Mexico City, and in Washington have been so blind to so many warnings?” This question captures the conventional wisdom about the crisis, which is that it was the inevitable result of fundamental imbalances in the Mexican economy—imbalances that should have been obvious to informed observers and could have been corrected by relatively simple (though not necessarily painless) adjustments in Mexican economic policy. Most of the academic papers on the crisis have tried to identify the imbalances and the associated policy errors and to explain how and why they produced a crisis. We believe that many of these explanations for the Mexican economic crisis, both academic and nonacademic, are based on questionable assumptions and dubious analysis. The principal purposes of this article are to identify some of the major problems with the “conventional view” of the crisis and present an alternative view that seems more consistent with the evidence. Why look at alternative explanations? Economic science has not yet advanced to the point of being able to identify a single, generally accepted explanation for most major economic issues or events. Understanding the he Mexican Economic Crisis: Alternative Views