5989630446f86f380ebb9c28_px163c.jpg Pedro Molina

Economics in Crisis

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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