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January 13, 2017


Peter K.

The problem is economists who provide cover for progressive neoliberal politicians like Bill and Hillary Clinton, like defense attorneys. They damage economics by association.

Now voters no longer listen to or trust economists or experts in the media.

Economists and the corporate media were squarely against both Brexit and Trump and voters ignored their warnings.

Stewart S

A lot of economist pedal that line about bankers being responsible for the crisis but this strikes me as an attempt to deflect blame. Bankers were the proximate cause but the ultimate were the Governments and their economic advisers who aggressively promoted deregulation. Larry Summers was a keen advocate as was Ed Balls. Any comment on this by an economist treated with a degree of skepticism. Better ask a historian (although maybe not Niall Ferguson).


I want to point out that total leverage has never actually been a good lead for crises (I believe Noah Smith discussed this once but I can't find the article). What matters is the quality of loans (and that's often hard to get data on), not some aggregate ratio.

Luis Enrique

Yes a profession that has no problem with warning of public finance crises unless defecits are cut, or currency crises if current account defecits aren't, has no business bleating about crises not being predictable. You can still warn about the risks and draw attention to indicators. In particular, the way in which you depiect the financial system can be 'prone to acts of self destruction' not 'knows what it's doing best left alone'. Britmouse may be right that leverage is a bad risk indicator, but economists weren't even looking for one.

Mark Evens

That the Derivatives Emperor had no clothes was evident in the years leading up to the crash. Unfortunately, those who pointed this out at the time were silenced by greedy bank managers and ignored by sycophantic regulators. The problem remains that people are heavily incentivised to take risks with others' money and not penalised if they fail. Regulation may have upped its game since then, but not a lot.
The crash was entirely predictable and was predicted - it just wasn't talked about.
There seems to be no political appetite for meaningful reform of the sector, so the seeds are there for the next banking crisis.

Displaced Person

Some economists, especially Milton Friedman and his followers, provided the rational and the ideology for deregulation (and the later claim that risk could be quantified, priced and traded). See An Engine Not a Camera. While I believe that it is true that most economists, micro and macro, were unaware of the mortgage lending practices and actual economics of securitization, that is not to their credit. Tens of thousands of traders, lawyers and accountants did. See The Fall of the House of Lehman.


The mistake economists made, and keep making , is saying that there models performed well before the crisis. Even Haldane said this. A key point Minsky makes is that it precisely when things look OK when in reality they are not. As a Marxist you are aware that the problems leading up to 2008 were long in the making - and relate to deindustrialisation, financialisation and social problems such as inequality in advanced countries. It is not a case of picking the right model. It is a case of looking at what is going on and being historically very literate. Put another way, it is working more like those in the other social sciences and humanities. Do we use a model to explain the causes of WWII? No. A proper historian forgets models and looks at everything involved leading up to that event. When trying to work out what the long terms trends are, we should be working the same way.

Lucas and Sargent with sticky prices does not tell us anything useful at all. It should be very clear to most sensible people by now.



I am not up for a rant this morning, but yes, the banksters (a term from the Great Depression) caused the financial crisis. And, at least in the US, there is evidence that they were aware of the danger, which is why they engineered changes in the bankruptcy law in 2005. But the politicians are supposed to keep the bankers in check, which they not only failed to do, they actively dismantled protections put in place in the wake of the Great Depression, despite the huge red flag of the S&L crisis. And the politicians rely, in no small part, on the advice of economists. Where were the economists warning that that might not be a good idea? Where?

Alan Greenspan, the so-called Maestro, infamously said that laws against financial fraud were unnecessary, because the financial sector is self-regulating. Where did he get that cockamamie notion? Maybe from a tete-a-tete with Ayn Rand, but most likely the idea originated with laissez-faire economists. Greenspan combined with Geithner and Larry Summers, a noted economist, to squelch Brooksley Born's attempt to regulate derivatives. (And it was derivatives that greatly amplified the damage from the mortgage crisis.) And, as head economics advisor to Obama, Summers put a lid on the recommended economic stimulus. Summers talks about a New Normal of slow economic growth, without any apparent self-knowledge about his role in bringing it about. Before the publication of their noted paper with the spreadsheet errors, Reinhart and Rogoff met privately in the winter of 2009-10 with Republican Senators to push the idea of austerity, a move which may have contributed to the advent of the Tea Party later that year. Keynes talked about the ideas of dead economists. We have to be on our guard for the ideas of living economists, as well.

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