The Bloomberg editorial board this week gave a surprisingly critical appraisal of contemporary economics, arguing that researchers haven’t answered the discipline’s most pressing question: “Can policy makers know with any certainty when markets are dangerously out of line, and is there anything they can do about it?”
Central bankers still debate whether it’s possible to recognize asset bubbles when they occur, and whether they can or should be deflated. Regulators and bankers are still at odds over new financial products such as credit derivatives: Do they simply improve the market’s ability to process and reflect information, or do they also present new dangers of their own?
This is a failure that left the world unprepared for the most recent financial crisis, and the economics profession has been far too complacent about it. Economists can’t be expected to predict the future. But they should be able to identify threatening trends, and to better understand the conditions that can turn a change in prices into a financial tsunami.
The Dish 