At work we are writing occasional articles for the fine people over at Rates Blog at the moment. I’ve decided to focus on an issue that will get people irritated – an explanation of the GFC where I largely defend economists (although admiting that the mainstream missed the development of the shadow banking sector).
I’ve stuck with the view I’ve articulated in the past (as can be seen here with and with the links), but I’ve attempted to articulate it in a clearer fashion. I’m aiming to have a related article out at some point trying to discuss why the crisis has persisted – after all in the article I’ve linked to above, if my explanation was true, the actions of the Fed and US Treasury should have led to the crisis being over by now. My view is that policy failure in Europe put us on this darker and more persistent path. The three other primary views are:
- Fed and US Treasury policies did nothing, and this is still in essence the same crisis.
- Financial crises, but default, are long and ardueous.
- This is irrelevant and monetary policy has just been too tight due to central bankers being more conservative.
I would note here that these views (including the one I posited) are not mutually exclusive, and each has a significant grain of truth to it.
Our explanation for the crisis matters right now because it determines what sort of policy response we think is right – which is the main reason why many analysts out there are purposefully “over-arguing” how confident they are about their explanation. In truth, things are never as simple as they seem.
Note: And before anyone starts saying that by defending economists on some level (even though I do appropriate blame on them as well) and therefore I’m being purely self serving regarding my own failure to publically warn about the crisis, I’d also note that I only started my job in 2007 – I was just starting to get used to data sources and writing about economics on a regular basis (including starting the blog) once the crisis had begun.
It would be in my interest to attack the establishment that was already in place and pretend to be a “fresh voice” – but unlike some economists around the world who seem quick to attack the rest of the discipine, and misrepresent the views of other economists to sell their own image, I’d prefer to take a bit more of a balanced view [this comment isn’t aimed at New Zealander commentators, just to make that clear].