Economics in Crisis

Apr 29, 2011 J. Bradford DeLong

Asked recently to name where to turn to understand what was going on in 2008, former US Treasury Secretary Larry Summers cited three dead men, a book written 33 years ago, and another written the century before last. Economists today, by contrast, have allowed themselves to be continually distracted, confused, and in denial.

BERKELEY – The most interesting moment at a recent conference held in Bretton Woods, New Hampshire – site of the 1945 conference that created today’s global economic architecture – came when Financial Times columnist Martin Wolf quizzed former United States Treasury Secretary Larry Summers, President Barack Obama’s ex-assistant for economic policy. "[Doesn’t] what has happened in the past few years,” Wolf asked, “simply suggest that [academic] economists did not understand what was going on?”

Here is the most interesting part of Summers’ long answer: “There is a lot in [Walter] Bagehot that is about the crisis we just went through. There is more in [Hyman] Minsky, and perhaps more still in [Charles] Kindleberger.” That may sound obscure to a non-economist, but it was a devastating indictment.

Bagehot (1826-1877) was a mid-nineteenth-century editor of The Economist who published a book about financial markets, Lombard Street, in 1873. Summers is certainly right: there is an awful lot in Lombard Street that is about the crisis from which we are now recovering.

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J. Bradford DeLong

Writing for PS since 2002
213 Commentaries

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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A Global Economy Without a Cushion

Stephen S. Roach

From 1990 to 2008, annual growth in world trade was fully 82% faster than world GDP growth. Now, however, reflecting the unusually sharp post-crisis slowdown in global trade growth, this cushion has shrunk dramatically, to just 13% over the 2010-19 period, leaving the world economy more vulnerable to all-too-frequent shocks.