Naked Economics: Undressing the Dismal Science pdfdrive com

Do we really have monetary policy figured out? I asked that question in the first
edition of this book, back in 2002. Here is part of the answer: “The Japanese
economy—that miracle of the 1980s—remains stubbornly resistant to traditional
monetary and fiscal fixes, prompting what the Wall Street Journal has called
‘one of the great economic debates of the age.’
4
Could something similar
happen here?”
It did, beginning in 2007. That doesn’t make me a genius (as I’ve also
predicted that the Cubs will win the World Series on multiple occasions).
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It
does prove that we have not conquered the business cycle (the economic ebb and
flow that leads to periodic recessions). We thought we had it tamed, and then the
financial crisis nearly took us right off the rails. These swings in the economy
take a lot of innocent victims with them.
Ben Bernanke and the Fed seem to have done a lot of things right. What did
they do wrong that we don’t know about yet? Remember, Alan Greenspan was a
genius (keeping inflation in check) until he wasn’t anymore (because loose
money fueled the asset bubbles).
The financial crisis taught us that we have a regulatory challenge as well.
How do we manage the “systemic risk” in an interdependent financial system?
The iron law of capitalism is that firms that make big mistakes should fail. We

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The iron law of capitalism is that firms that make big mistakes should fail. We
allowed that with Lehman Brothers and it nearly took all of us with them. The
global financial system does not look like a textbook model where strong firms
thrive in a crisis and weak firms fail; it’s more like a group of mountain climbers
tethered together on the edge of a precipice. How do we allow the market to
punish wrongdoers without sending all of us spilling down the mountain? More
broadly, can we do a better job of moderating global booms and busts?