Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org

where you can subscribe, find other episodes, comment on this podcast, and find links to

another information related to today's conversation. Our email address is mail at econtalk.org. We'd

love to hear from you. My guest today is Darren Asimoglu, the Charles P. Kindleburger Professor

of Applied Economics in the Department of Economics at MIT. Darren, welcome to Econ Talk.

Thank you very much, Russ. Thank you for having me. Darren, I'd like to talk about a recent essay

that struck me as both eloquent and incisive. It was also short, and that's a rare combination.

It gave your thoughts on the current crisis, and we'll put a link up to the essay, and I want to

use that essay as the basis for our conversation today. So let me begin with a quote. Talking about

the crisis you say, it's an opportunity for us, and here I mean the majority of the economics

profession, unfortunately myself included, to be disabused of certain notions that we should not

have so accepted in the first place. It's also an opportunity for us to step back and consider

what the most important lessons we've learned from our theoretical and empirical investigations

that remain untarnished by recent events, and ask whether they can provide us with guidance and

current policy debates. The first, and here you're talking about the lessons that you think we've

learned, the majority of us, I suspect it's a super majority. It's a big proportion of the

department of the profession. You write quote, the first is that the era of aggregate volatility

had come to an end. We believed that through a stoot policy or do technologies, including better

methods of communication and inventory control, the business cycles were conquered. Our belief in

a more benign economy made us more optimistic about the stock market and the housing market.

If any contraction came, it must be soft and short lived, and then it becomes easier to believe

...