Real World Economics: Nobel economics prizes: New ideas from old lessons – St. Paul Pioneer Press

by | Oct 16, 2022 | Financial

Ed LottermanThe Nobel Foundation’s 2022 awards for “economic science” to former Fed chair Ben Bernanke and economists Douglas Diamond and Philip Dybvig are deserved and welcome.
All three are good researchers who made scholarly contributions to economics that also have had beneficial practical consequences in real economies — pocketbook issues that you and I feel today. And, unlike some years, none of the three winners are arrogant jerks.
Yet circumstances are incongruous. The awards were given for research in money and banking just as there is near worldwide inflation, great perturbation of foreign exchange markets and fears of dramatic falls in financial markets. Real world economics indeed.
The three new laureates studied how and why banking systems can break down — and the effects when they do. What causes sudden crises? How do these become widespread financial panics, with myriad banks and investment firms teetering on the edge of default? What are the societal costs of a banking system collapse? How can this all be avoided?
Ironically, in our country, we have followed these scholars’ prescriptions for bank and economic solvency for 21 years — yet financial systems seem brittle. What gives?
Before answering, another question in this year’s awards must be addressed: Weren’t the ideas for which they are getting money and medals already common knowledge? Knowledge not only shared by economists and historians, but also by …

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