It is my conviction that more than ever – and here I quote John Maynard Keynes – “madmen in authority…are distilling their frenzy from some academic scribbler from a few years back”.5 Economic theories, some of them dating back to the 1930s,6 have helped us to incorporate financial insights tractably into our models – think of the financial accelerator, the debt deflation channel, the credit channel, the modelling of collateral-constrained and creditconstrained agents, to name but a few.
Therefore, saying that models had nothing to teach us about the crisis (before or after) is just not right. It’s true that we did not avoid the Great Recession, but if we, around the world, were able to prevent a much more damaging depression, we owe much of it to the science of economics.