What went wrong? How can we avoid it happening again? Those are the questions everyone asks about the global economic crisis, and on March 24, York hosted a prestigious panel of experts who were actually in a position to offer some answers.
After the Meltdown: The Limits and Possibilities of Economics was the inaugural conference of Glendon’s new Centre for Global Challenges (CGC), which provided an ideal milieu for three .jpg)
internationally recognized economists to discuss the crisis and its aftermath with a high-profile audience that included both York faculty and students and MPs, civil servants and corporate leaders.
Left: George Akerlof
George Akerlof, Koshland Professor of Economics at the University of California, Berkeley, and 2001 Nobel Laureate in Economics, was joined by Tim Besley, Kuwait Professor of Economics and Political Science at the London School of Economics and director of the Suntory & Toyota International Centres for Economics & Related Disciplines, and Pierre Fortin, an economics professor at the Université du Québec à Montréal and past president of the Canadian Economics 
Association. Eugene Lang, co-founder of Canada 2020 and vice-president of Bluesky Strategy Group, was the panel moderator.
Right: Pierre Fortin
The conference highlighted the CGC’s mandate to establish a bilingual think-tank for civil discourse on the major issues of the day – a place for ongoing collaboration between scholars and practitioners, across disciplines and across generations, said CGC director Alex Himelfarb, who co-chaired the event with Chaviva Hošek, president & CEO of the Canadian Institute for Advanced Research (CIFAR).
“Canada is undergoing profound changes without a public debate,” said Himelfarb, who is also director of the Glendon School of Public & International Affairs. “The issues which confront us and shape our future are complex, with local and global implications. Yet complexity always loses in the media and in public discourse.”
Left: Tim Besley
In his panel presentation, Akerlof examined why economies falter under the effects of strong psychological forces which can alter human and corporate behaviour against their own best interests. The topic formed part of his award-winning book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton University Press, 2009), which he co-authored with Yale economist Robert Shiller. Akerlof explained that irrational behaviour and a belief in “snake oil”, as well as corrupt market forces, can lead economies into near-disaster.
Right: Moderator Eugene Lang
The 2008 meltdown was in large part a result of economists, government officials and investors wanting to believe that financial institutions were solid and investments would continue to increase in value. “Every boom and every bust has a story and people are willing to believe these and act upon them,” said Akerlof. “Economies fall into depressions as a result of cycles in psychology – indulging in over-optimism – and because [people] fail to understand the risks involved.” Akerlof dismissed the idea that unregulated markets are the best way to go. He called for clearly defined government regulations founded on a modern, psychology-aware Keynesian approach to restore prosperity.
Fortin, speaking in French, pointed to the under-regulated financial system of the United States as the major cause of the worldwide financial crisis. He outlined three lessons from the 2008 recession and its aftermath. First, Canada should have confidence in its superior financial system and continue to maintain strict financial regulations. Second, restoring the balance between budget revenues and expenditures – eliminating the accumulating, crisis-driven deficit – should be a priority once the economy regains strength. And third, give serious consideration to raising the target rate of inflation from the current two per cent to three or even four per cent to allow more elbow room for regulating the availability of credit.
Left: Alex Himelfarb, CGC director; Kenneth McRoberts, Glendon principal; and donor Paule Doré
Fortin also addressed the coming demographic shift – the large numbers of baby boomers approaching retirement age while Canada’s birth rate remains low. Declining tax revenues, reduced economic growth and exploding health-care costs need to be addressed, he said. The health system needs independent and transparent evaluation mechanisms and intelligent use of private-sector participation. To accelerate economic growth, he said, older, experienced workers need to be kept in the workforce through incentives.
Besley, a policy-maker at the Bank of England during the recent economic crisis, outlined how the gradual deregulation of financial markets, especially in the US and the United Kingdom, was based on a sense of optimism. “Countries opened up their markets believing that this would lead to the free flow of capital from rich to poor countries, but in fact the opposite happened, with capital flowing from the poor to the rich and this should have been a warning,” he said.
Right: Chaviva Hošek, conference co-chair
Markets experienced a divergence between the surplus countries – Germany, China and Japan – and the deficit countries, namely the US and the UK. A significant increase in household indebtedness, huge worldwide increases in housing prices and the emergence of a new “aristocracy” of financial sector specialists were some of the results of unregulated transactions. What followed were distortions in the supply of risk capital – global imbalances which have not yet been resolved.
“Governments have little appetite for increased involvement in financial regulations,” said Besley. “A review of the role of the state and finding local solutions will be necessary. In the challenge of global financial governance and taking a central political action, Canada can have an important seat at the table.”
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Right: Attendees Justice Paul Rouleau (left); Kevin Page, first parliamentary budget officer of Canada; MP Mauril Bélanger; and Nicholas Rouleau
The conference was sponsored by CIFAR, the Centre for Global Challenges, the Hennick Centre for Business & Law, Canada 2020, the Glendon School of Public & International Affairs, The Mark and Global Brief. Himelfarb also paid tribute to corporate director Paule Doré, whose financial and spiritual support he said enabled the new centre and the conference to transform from idea to reality.
Submitted by Marika Kemeny, Glendon communications officer