In January, a group of economists and finance experts assembled on the MIT campus for a two-day economics and finance symposium that was part of MIT’s 150th anniversary celebration. The panelists included MIT alumni, faculty and former faculty — and an impressive number were winners of the Nobel Memorial Prize in Economic Sciences. Here are some brief highlights from just two of the seven Nobel Prize winners who either spoke at or sent prepared remarks to the symposium.
“Economics Gave Us the Wrong Model”
“Without the right economics, we’re going to get the wrong economic policy.…Three times in the United States in the last 125 years, we’ve had major, major downturns. The first was in the vast recession of the 1890s, the second was the worldwide depression of the 1930s, and now, as I speak, we’re facing a very deep and a very robust downturn. And economics gave us the wrong model here, because it failed to predict it. So I see this as a tell-tale — a telltale that the system’s not generating the right economics.”
— George A. Akerlof, the Koshland Professor of Economics at the University of California, Berkeley, and a 2001 co-recipient of the Nobel Memorial Prize in Economic Sciences.
“Structural Risks that are Inherent”
“Today, no major financial institution in the world — and this includes all the central banks — can function without the computer-based mathematical models of modern financial science and the myriad of derivative contracts and markets used to extract price and risk discovery information, as well as to execute risk transfer transactions. But as I need hardly say, the global financial crisis of 2008-2009 [was] of a magnitude and scope not seen in nearly 80 years, which at least some attribute to the cumulative changes in the financial system brought about by financial innovations — particularly those involving derivatives and mathematical models.
Now, in determining the causes of the financial crisis, … I think there are many plausible hypotheses, but they are still hypotheses.