“Huge excesses in asset prices and leverage ratios had built up in the financial system in the run-up to the crisis. But conventional economic theory led Federal Reserve chairmen Alan Greenspan and Ben Bernanke and other key regulators to believe that markets were nearly perfect and that they need not even look for excess in the system; they thought they could be asleep at the wheel. Had they been on guard and acted to dampen the excesses when they arose, the crisis would have been less severe or perhaps been avoided all together,” Goldberg says.
Well before the crisis struck, the authors warned of the fatal flaw in contemporary economics: the presumption that market outcomes can be explained as if the future followed mechanically from the past. Puzzlingly, the underlying belief that nothing genuinely new ever happens – that any change and its consequences can be fully foreseen – has survived even the crisis.