A short summary of how dysfunctional economic reasoning really is.
Last week the International Monetary Fund hosted a conference of some of the world’s top macroeconomists to assess how the most intense crisis to have shaken the industrialized economies since the Great Depression has changed the profession’s collective understanding of how the world economy works.
Two things struck me about the conclave. The first was hearing George Akerlof, a Nobel-winning economist from Berkeley, take to the lectern to compare the crisis to a cat stuck in a tree, afraid to move.
The second was realizing how, after five years of coping with the consequences of the disaster, there is still so much uncertainty about what policies are needed to prevent another financial shock from tipping the world economy into the abyss again a few years down the road.
“We don’t have a sense of the final destination,” said Olivier Blanchard, chief economist of the monetary fund. “Where we end I really don’t have much of a clue.”
Footnote: Olivier Blanchard, chief economist of the I.M.F. said economists don’t know “what financial stability actually means.”
And they thought ‘economic stability’ meant low and stable inflation. That´s not it. They have to progress and realize that economic stability means NOMINAL stability.