Wall Street Journal
April 1, 2013
What did the worst financial crisis and deepest recession in 75 years teach academic economists and policymakers on whose watch it happened? At a recent London School of Economics forum, convened to honor Bank of England Governor Mervyn King, Olivier Blanchard offered some answers.
Mr. Blanchard, 64 years old, is well positioned to offer such reconsideration. An internationally prominent macroeconomist, he spent 25 years on the MIT faculty before becoming chief economist at the International Monetary Fund in September 2008, just before the collapse of Lehman Brothers.
Here are Mr. Blanchard¹s five lessons in his own words, lightly edited by The Wall Street Journal’s David Wessel:
#1: Humility is in order.
The Great Moderation [the economically tranquil period from 1987 to 2007] convinced too many of us that the large-economy crisis - a financial crisis, a banking crisis - was a thing of the past. It wasn’t going to happen again, except maybe in emerging markets. History was marching on.
My generation, which was born after World War II, lived with the notion that the world was getting to be a better and better place. We knew how to do things better, not only in economics but in other fields as well. What we have learned is that¹s not true. History repeats itself. We should have known.