Looking back at the collapse of Lehman Brothers a decade ago, it is easy to think that another debt-driven crash could arrive sometime in the near future. But the most consequential trends today are less about the business cycle, and more about fundamental changes in the functioning of the global economy.
GENEVA – It is human nature to pass judgement for calamitous events that harm almost everyone. It is also natural for the stories that emerge from such events to influence current assessments and future choices. The story of the collapse of Lehman Brothers a decade ago is a case in point – but with a slight twist.
Today, experts point to a “dangerous dependence of demand on ever-rising debt,” and conclude that little has really changed since the global financial crisis. The data on global debt are certainly correct, but any prediction that we draw from them is likely to be overwrought, owing to our own hindsight bias.
We are hardwired to try to make sense of events that shock us, and this often involves recasting them as having been predictable. This heuristic, in turn, leads us to overestimate our ability to predict the future under what we perceive to be “similar” circumstances.
GENEVA – It is human nature to pass judgement for calamitous events that harm almost everyone. It is also natural for the stories that emerge from such events to influence current assessments and future choices. The story of the collapse of Lehman Brothers a decade ago is a case in point – but with a slight twist.
Today, experts point to a “dangerous dependence of demand on ever-rising debt,” and conclude that little has really changed since the global financial crisis. The data on global debt are certainly correct, but any prediction that we draw from them is likely to be overwrought, owing to our own hindsight bias.
We are hardwired to try to make sense of events that shock us, and this often involves recasting them as having been predictable. This heuristic, in turn, leads us to overestimate our ability to predict the future under what we perceive to be “similar” circumstances.