Colm McCarthy’s suggestion that an inquiry into what went wrong is gaining some level of support in political circles. While there is plenty of material to digest in terms of what went wrong locally, there is also a lot of interest in understanding what went wrong in the international financial system. Part of the debate concerns the role of economists, especially in terms of forecasting such crises.
More recently, a group associated with the British Academy wrote a letter to the Queen to answer her question to Luis Garicano of the LSE as to “if these things are so large, how come everyone missed it?”, while Robert Lucas defended mainstream macroeconomics in the Economist magazine in this article.
An important dimension of this debate is the relative roles of economists in policy organisations, the financial sector and academia in assessing the risks of a crisis and speaking out on these risks. While some of the debate has focused on the role of academic economists, it is maybe more difficult to evaluate from the outside the performance of economists in policy organisations in providing risk assessment, since their advice is often confidential. In this regard, the external evaluations of the performance of the IMF in previous international crises sets an interesting precedent, with the Independent Evaluation Office now playing this role on a regular basis.
In relation to Ireland, the testimony of Kevin Cardiff of the Department of Finance at a recent Oireachtas Committee hearing is quite interesting in explaining the evolution of the thinking of the Department in the run up to the crisis. You can read the transcript here.