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After the fall

The global financial crisis has served as a benchmark for the many subsequent challenges for the world economy. It also raised questions about economists’ ability to communicate effectively with the public, something that ECO and the wider research community have since sought to improve.

Newsletter from 15 September 2023

Today is the 15th anniversary of the collapse into bankruptcy of Lehman Brothers, a major US investment bank. This was perhaps the standout moment in the global financial crisis of 2007-09. While big problems in the world’s financial markets had been evident since the summer of 2007 – not least in the run on Northern Rock here in the UK – Lehman’s fall led to a full-blown banking crisis, a massive policy response from central banks and finance ministries to prevent economic meltdown, and a deep recession in many countries.

Since those frightening times, the events leading up to and during the global financial crisis have been immortalised in film and theatre. Think, for example, of The Big Short, Inside Job and The Lehman Trilogy, as well as numerous scholarly and popular books, articles and surveys on its causes and consequences.

The crisis also prompted Queen Elizabeth II to ask a group of top economists: ‘It’s awful – why did nobody see it coming?’ – a question answered on the day by London School of Economics professor Luis Garicano and later, more formally, by the British Academy. And it has been the benchmark for a series of economic crises that have followed, including the impact of Brexit, the Covid-19 pandemic, Russia’s invasion of Ukraine, the disastrous UK mini-budget a year ago and a further crisis in US and Swiss banks earlier this year.

We have addressed many questions about the economics of these later crises here on the Economics Observatory – and we’ve often made reference to the global financial crisis as a point of comparison. To mark 15 years since its high point, we invited economic historian John Turner (Queen’s University Belfast and co-author with his QUB colleague Will Quinn of an excellent account of past economic crises – Boom and Bust: A Global History of Financial Bubbles) to go back to basics and explain carefully why it happened.

John is one of our lead editors and he has commissioned some related pieces for us published last week. One is a look at what we can learn from banking crises of the past by Linda Yueh (University of Oxford and author of The Great Crashes: Lessons from Global Meltdowns and How to Prevent Them). A second, by Rebecca Stuart, another of John’s QUB colleagues, compares the rescues of Switzerland’s two big banks in 2008 and 2023.

An earlier ECO piece by Rebecca explores why Credit Suisse failed this spring and was bought out by its traditional rival UBS, which had itself been close to financial disaster shortly after Lehman’s collapse. And John has recounted what happened at Silicon Valley Bank in March this year, the largest bank failure in the United States since the global financial crisis.

What’s going on

There has been a flurry of economic research, education and policy events around the last days of summer and early autumn. In late August, the Federal Reserve Bank of Kansas held its annual Economic Policy Symposium in Jackson Hole, one of the longest-standing central banking conferences in the world. This year’s gathering of economists, financial market participants, academics, US government representatives and news media discussed ‘Structural Shifts in the Global Economy’. Highlights from previous meetings are available on the Kansas City Fed’s website.

Around the same time, the European Economic Association held its annual congress in Barcelona – summaries of some of the most interesting studies are here. And last week, the Money Macro and Finance Society (MMF) gathered in Portsmouth for its annual conference.

Also last week, Heriot-Watt University in Edinburgh hosted the biennial Developments in Economics Education conference run by the Economics Network. The event – back in person for the first time since Covid-19 – brings together academics working on economics pedagogy in higher education. Sessions covered topics one might expect, such as the increasing use of AI tools like ChatGPT and developments resulting from the pandemic, related to teaching and learning as well as student wellbeing. But other perennial themes were also discussed from engaging and motivating students to effective assessment and employability. 

Coming up in early October, there’s a gathering of US and European economic experts at Chicago Booth’s London campus to discuss economists’ views on five pressing global policy challenges: climate and energy; financial stability; fiscal rules; market power and competition policy; and AI and the economy. Also in London in early November, there will be the Bank of England Watchers conference organised by MMF and King’s College London. And in mid-December, the Centre for Economic Policy Research is hosting the second edition of its Paris Symposium.

Our house

The Observatory is also running a series of events. This week, we supported the International Public Policy Observatory with an online seminar exploring trends in economic inactivity among those aged over 50, and policies that can help to boost the workforce.

Graeme Roy (University of Glasgow and another of our lead editors) detailed rising rates of inactivity since the pandemic, which can be a barrier to economic growth in some locations. Much of this increase has been among those citing long-term ill health and is concentrated among the over-50s. The Office for Budget Responsibility has estimated that the growth in working-age inactivity due to ill health since the pandemic has added £6.8 billion to the UK's annual welfare bill and cost £8.9 billion in forgone tax income. We will be publishing more on this trend – and in particular how it has affected cities such as Glasgow and Belfast – in the coming weeks.

Later this month, we will be collaborating with the Institute for Government on an event examining the UK 's fiscal frameworks and fiscal rules, whether they remain fit for purpose, and the fiscal risks faced by the devolved administrations. You can sign up to attend here

And finally, in mid-November, the Festival of Economics 2023 will be taking place in Bristol. With our friends at Bristol Ideas, we will be bringing together economic thinkers and practitioners from universities, thinktanks, business, politics, central banks and the media to discuss the cost of living crisis, food security, childcare, empire, the UK’s long-term health and care needs – and much more. Among the speakers, Linda Yueh will be returning to today’s theme of the global financial crisis to answer the natural follow-up to the late queen’s question: how can we prevent another economic crash?

Author: Romesh Vaitilingam, Editor-in-chief
Image: Wall Street Sign. Author: Ramy Majouji on Wikimedia Commons (transferred from en.wikipedia)
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