Rogoff talks financial crisis

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Photo by Sara Miller.

While many economists claim that today’s economic crisis is different from past recessions, Kenneth Rogoff ’75 said he believes the current financial downturn has much in common with crises over the past eight centuries.

Rogoff, a Harvard professor and internationally recognized macroeconomist, spoke to roughly 60 students, faculty and other guests at Linsly-Chittenden Hall on Tuesday. During his talk, entitled “Policy Dilemmas in the Aftermath of the Financial Crisis,” Rogoff — who previously worked for the International Monetary Fund and the Federal Reserve and co-wrote an economics textbook used in Yale macroeconomics courses — spoke about how policymakers should apply lessons from past financial crises in responding to the latest recession.

Rogoff said the mistake made by the U.S. and European governments was not realizing the crisis was going to last as long as it did.

Past recessions have shown that “recovery is often slow and you get double dips before it gets better,” he added.

Rogoff said many economists believe the current recession is unique, but that there have been plenty of crises in history during which housing prices decreased and banks collapsed.

Addressing the claims of other economists, Rogoff challenged the notion that innovation has slowed in recent years. He cited great advances in artificial intelligence, medicine and the energy sector.

Rogoff presented various competing explanations for the existing economic situation, drawing from the theories of different economists.

He said his favorite explanation involves quantitatively looking at what happened after the onset of the financial crisis in 2008.

Referring to graphs depicting changes in real housing prices, which he used to assess economic trends, Rogoff noted that the U.S. housing market has significantly recovered during the six years following the 2008 crisis. This gradual recovery, he said, is typical of financial recessions.

Rogoff said policymakers could have responded more effectively to the onset of the financial downturn.

The U.S. in particular underestimated the mortgage debt, he said.

“Having taken more aggressive steps to realize the debt was unsustainable and addressing it earlier would have been good,” Rogoff said.

In the past, Rogoff said countries have tried various measures to reduce debt. Some countries have tried to “grow really fast,” Rogoff said, adding that this is a good solution when it works but is rarely achieved. Alternatively, taxes can be raised, but Rogoff said this has been “amazingly unsuccessful” in many countries.

Dhruv Aggrawal ’16, who attended the talk, said he enjoyed the opportunity to hear from such a distinguished professor.

“He ran us through the essentials about the nature of what we are seeing now in financial markets,” he said. “I think he defended his theory that it had a lot in common with previous theories used throughout history.”

Economics professor Pinelopi Goldberg said she found the presentation interesting, adding that “it is startling that all these crises were very similar.”

“There are striking similarities across time,” said Antonia Woodford ’14, a former staff reporter for the News  and editor in chief of the Yale Journal of Economics, which organized the event. “In terms of the aftermath [of the crisis], it’s not really all that different.”

Rogoff published “Foundations of International Macroeconomics” in 1996.

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