For this week’s installment of What Went Wrong? we bring you an interview with the Nobel Prize winning economist, Vernon Smith. Having studied bubbles inside and out, he has said before that most bubbles don't have the power to bring down an entire system. So what happened this time?
Smith believes we've forgotten the lessons of the twenties and thirties when it comes to the housing markets—if you look at the situation now, you’ll notice a lot of the same conditions in this recurrence. Did Bernanke do a good job in trying to prevent the crisis? Smith thinks he simply didn't see it coming-- what we faced was truly a solvency problem, not a liquidity problem. To remedy the situation, Smith proposes a bit of healthy inflation. But his main concern is: how do we achieve a small amount of inflation without risking too much?
A network of top economics bloggers provided some questions for the interviews. They also weigh in on the answers every week:
Economist’s View - Mark Thoma, Professor of Economics, University of Oregon
Economics One - John B. Taylor, Professor of Economics, Stanford University and former Undersecretary for International Affairs, U.S. Treasury Department
The New Republic’s The Stash - Noam Scheiber
The New Yorker’s The Balance Sheet - James Surowiecki - Columnist, and author of bestseller The Wisdom of Crowds
Marginal Revolution - Tyler Cowen, Professor of Economics, George Mason University
Reuters Finance, Felix Salmon
The American Prospect’s Beat the Press - Dean Baker, Professor of Economics, Bucknell University and Co-Director, Center for Economic Policy Research
The Money Illusion - Scott Sumner, Professor of Economics, Bentley University
Café Hayek - Russ Roberts, Professor of Economics, George Mason University and a research fellow at Stanford University’s Hoover Institution
The Atlantic’s Atlantic Business Channel - Dan Indiviglio
The Fly Bottle - Will Wilkinson, Research Fellow, Cato Institute
The Big Questions - Steven Landsburg - Professor of Economics, University of Rochester and Columnist, Slate
Econlog - Arnold Kling, Adjunct Professor of Economics, George Mason University and former employee of both Freddie Mac and the Federal Reserve
The Atlantic’s Asymmetrical Information - Megan McArdle, Managing Editor, The Atlantic
Causes of the Crisis - Jeff Friedman, Visiting Professor of Political Science, University of Texas and Founding Editor, Critical Review,
Naked Capitalism - Yves Smith, President of Aurora Advisors, and former employee of both Goldman Sachs and McKinsey & Co.