We have arrived at the point in a crisis when ambitious leaders call for a “new Bretton Woods”. It is easy to mock such language. Yet it is easy to see why this crisis should make people think in such heroic terms.
By Edmund Phelps
What theory can we use to get us out of the impending slump quickly and reliably? To use the “new classical” theory of fluctuations begun at Chicago in the 1970s – the theory in which the “risk management” models are embedded – is unthinkable, since it is precisely the theory falsified by the asset price collapse. The thoughts of some have turned to John Maynard Keynes. His insights into uncertainty and speculation were deep. Yet his employment theory was problematic and the “Keynesian” policy solutions are questionable at best.
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