Tenth Anniversary Lehman Brothers at the European Parliament

I argued of course not: equipped with a dominant economic theory in which such crises were impossible, and with a financial sector holding politicians in its thrawl, the emphasis has been on learning as little as possible.

I begin with a paper from 2010 by Lee Ohanian, once a senior figure in the Minneapolis Fed and still influential, entitled “The Economic Crisis from a Neoclassical Perspective” (see https://www.aeaweb.org/articles?id=10.1257/jep.24.4.45), in which Ohanian confused the level of outstanding private sector debt with its rate of change. As I remark at the beginning of my presentation, this is like confusing speed with distance, and trying to defend yourself from a charge of speeding by talking about how far you were from the court when charged.

I explain why a collapse in credit was the cause of the crisis, and why mainstream economists are unable to grasp this rather simple point. Then I talk about a potential policy approach to reducing the private debt burden currently handicapping many OECD economies, without risking inflation and without moral hazard.

NOTE: The talk itself is about 30 minutes long, and at present there’s 30 minutes of silence afterwards because of a SNAFU in recording the questions. I’ll try to edit the video now on YouTube to remove the Silent Movie part