Welcome to the latest installment of our interview series “Where is the General Theory of the 21st Century?”
“Where is the General Theory of the 21st Century?” is an interview series which we ask top economists a very important question: “Why haven’t economists come up with a new General Theory after the Great Recession?” We want to know how the macroeconomics academia has evolved since the Great Recession, and why the responses from macroeconomists since 2008 are different from their counterparts in the 1930s.
In this installment, we make another interesting “detour” from normal Macroeconomics topics. Instead, we invited Prof. Charles Calomiris to discuss the role of political institutions in causing the Financial Crisis of 2008.
Charles Calomiris is Henry Kaufman Professor of Financial Institutions at Columbia Business School, Director of the Business School’s Program for Financial Studies and its Initiative on Finance and Growth in Emerging Markets, and professor at Columbia’s School of International and Public Affairs. In the first part of our interview, Prof. Calomiris explained some major ideas in his book “Fragile by Design”, which he co-authored with Prof. Stephen Haber.
(The interview is edited for clarity. All mistakes are ours.)
Q: EconReporter C: Charles Calomiris
Q: What is the Game of Bank Bargains in brief terms?
C: The Game of Bank Bargains is a phrase which Stephen Haber and I invented. We use it to explain the formation of coalitions which are based on different ideas of how certain political groups would like the banking system to be structured, so to achieve their own purposes. Some coalitions want to see a particular outcome, while other coalitions want to see some different outcomes.
Part of the game is to construct a coalition that is likely to win. This involves some internal tradeoffs within the coalition. We think of it as a bargaining game, in which the coalition endogenously emerges as part of the bargains…