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Noah Smith

Finance Stumps World's Best Minds

The old ideas unraveled in the financial crisis.
It took down a lot of ideas with it.

It took down a lot of ideas with it.

Photographer: Nicholas Roberts/AFP/Getty Images

If the financial crisis and the Great Recession changed one thing in the minds of macroeconomic policy makers, it was to make them care about finance. It seems almost unimaginable, seven years later, to think that anyone could have ignored the connection between the financial system and the rest of the economy. It’s an almost dreamlike experience to look at the macroeconomic models made before 2009 -- many of which are still in use today -- and search in vain for any reference to leverage, asset prices or the financial industry. 

Today’s macroeconomic policy mavens are determined not to repeat the mistakes of the past. At the International Monetary Fund’s April conference on “Rethinking Macro Policy,” much of the focus was on the interaction between government policy and finance. IMF Chief Economist Olivier Blanchard summarizes the conference here and here