Are We Asking the Right Questions?

As a college president, I don’t have the time to follow the tick-by-tick intrigue of the FOMC dot-plots, or the latest down revision to the “risk free” neutral rate of interest, or the latest developments in how wage growth and labor force participation rates cause inflation.

However, while I am drinking my morning coffee and watching my friends and former colleagues on Bloomberg TV, I try to ask myself if policymakers are collectively asking the best questions – the right questions – in order to ensure that our policies underpin economic opportunity in the U.S. I also want to be reassured that we have learned from the mistakes that led to the last financial crisis, and that we have correspondingly implemented appropriate institutional reforms.

Sadly (the new vernacular), I do not believe that we have. Almost 10 years after the financial crisis, we continue to show a lack of urgency in dealing with the problems that caused the crisis, and which in turn may beget the next one.

In no particular order, I attribute three policy failures as proximate causes of the 2008 Financial Crisis (in no particular order) – the FOMC’s monetary policy decisions during the period prior to the financial crisis institutional; weakness in the design of Fannie Mae and Freddie Mac; and insufficient regulatory supervision and oversight of financial institutions. To my mind, these three policy failures formed a potent cocktail that drove and exacerbated the boom-bust cycle that we still continue to recover from.

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