Deficit Hubris Looks Like the Next Economics Mistake

The 2008 financial crisis and the deep recession that followed taught the world to be more skeptical of macroeconomic theories. In the years leading up to that crisis, many leading macroeconomists displayed a startling amount of complacency, bordering on hubris. The defining quote came in a 2003 essay, when Nobel-winning macroeconomist Robert Lucas made a startling declaration:

Lucas believed, like so many others did, that the Federal Reserve and other central banks had learned how to use monetary policy to fine-tune the economy and smooth out recessions. And part of the reason for his belief was an overreliance on the modern macroeconomic theories that he himself had helped create. Indeed, those theories completely failed to see the Great Recession coming.