When “…The Queen asked economists why so few of them had foreseen the global financial crisis,” Ross Gittens wrote in a recent business section of The Sydney Morning Herald (3/9) “..our professor Geoff Harcourt and some other academics petitioned her to say, among other things, that one reason was their profession's loss of interest in economic history.”
“That sad truth was demonstrated convincingly by two American professors, Carmen Reinhart and Kenneth Rogoff, in a book which has since become a modern classic, This Time Is Different: Eight Centuries of Financial Folly,” he added.
“It's just out in paperback, published by Princeton University Press.
“In their landmark study of hundreds of financial crises in 66 countries over 800 years, Reinhart and Rogoff find oft-repeated patterns that ought to alert economists when trouble is on the way. One thing stops them waking up in time: their perpetual belief that ''this time is different''. ..".
…Royal Visit to London School of Economics…
Readers wondering about Her Majesty’s involvement could look at this column: “Economic crisis: HM gets the answers” which was posted here on 28 July 2009
One of the intriguing questions about the GFC was why most economic commentators, those in authority in our central banks and most of the politicians who were subsequently so certain as to the remedies which should be applied were unaware that it was looming.
As we noted here on 9 December 2008 (“Financial crisis: The Queen asks ‘Why did nobody notice?’ 9 December 2008) it was left to our Sovereign to ask the question, “Why did nobody notice?”
According to a report in the Daily Express of 28 November, 2008, The Queen’s question “wrong-footed” academics when she visited the London School of Economics. They had expected “chit-chat” rather than direct and serious interrogation.
….economists apologise to The Queen…
After The Queen asked, a group of eminent economists apologised to Her Majesty for failing to predict the financial crisis. The Economist reported that a letter has been sent to The Queen in response to her question.
It said the letter stated that "financial wizards" who believed that their plans to manage risky debts and protect the financial system were infallible were guilty of "wishful thinking combined with hubris".
It spoke of a "psychology of denial" that gripped the political and financial world in the build-up to the crisis. It said financial experts convinced themselves and the world's politicians that they had found clever ways to spread risks across the markets. Signatories to the three-page letter included Tim Besley, a member of the Bank of England's monetary policy committee and historian Peter Hennessy.
The newspaper said the content was discussed during a seminar with a group of leading economists in June, including Nick MacPherson, a permanent secretary at Britain's Treasury, and Goldman Sachs chief economist Jim O'Neill.
The letter concluded:
"In summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."