In his lecture at the Latsis Symposium 2012 “Economics on the Move” in Zurich, Nobel Laureate Joe Stiglitz nails the fundamental problem and crisis of modern macroeconomics, which failed to predict the financial crisis.
If you say…what is good science is prediction… and you can’t predict the most important event in 75 years, what good are you? In particular, it might be very nice you can talk about the likelihood of an one tenth increase in GDP growth rate…and you miss a major economic downturn….or worse, they said the things can’t happen…
Here are the money quotes,
We all know the shock in this crisis…was a credit bubble and we have had those credit bubbles since the beginning of capitalism…So it was remarkable the intellectual bubble led people to believe there were no such thing as credit bubbles when there was 200 years of history of that…..How could people be so stupid?
…The theory was with well functioning financial markets, spreading risk, diversifying risk, risk is contained. They came to believe the models and that’s always dangerous..
Say it ain’t so, Joe. Say it ain’t so!
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