When the top economists brainstorm - WEF

The other day, WEF conducted a brainstorming session on the topic "What happened to the world economy?". This was attended by renowned economists from around the world and they brainstormed on various reasons and causes for this crisis. The economists were distributed into separate groups and finally, one from each table summarized their discussions.

As expected, the biggest wrong assumption the economists had was that, the markets would self-regulate. This was endorsed by many economists. Of course, there were few who declared that the basic structure of the economy is wrong. Their point is, if a failure of a single module in an industry brings down the whole economy, then the underlying model is wrong. The other valid point made in the discussion was, that the present risk model which is purely based on past data should not be believed completely, as it wont predict the future. Also, the available data is too small to rely upon.

Though most of the points discussed were quiet common, the one blame which always received the applause was 'the greediness of the bankers and the compensation' they received . The group criticized the compensation model for the bankers, which is purely based on the revenue they generate, it doesn't matter on how you do that. An other pundit suggested that, the executives whoever is responsible should be jailed and should be set as an example for all the wrong-doers. This was also well endorsed by a group of applause. Another table cited that the regulators always believed that China would do all the savings and the rest can just spend. Few think heads blamed that the banks depended too much on Mathematics model, instead of applying common sense. One economists just simply attributed to one word "Stupidity". Even though, regulators were blamed, one group of economists differed by targeting the 'interest groups" who had the control over the regulators.

Of course, lack of corporate governance and ethics were identified as a fundamental problem, which would have prevented this at the first place.

Finally, the economists were asked to vote on the assumptions and causes. In the below order, the first point got the highest vote and so on.

1. Assumption that markets would self-regulate
2. Cheap flow of money
3.Assumption that good times last forever. ie..house rates never fall
4.Putting regulation over ethics
5.High leverage
6. Assumption of economic literacy
7. China can do the saving.

The group also concluded that the regulation of the international framework as the top action item.

Watch the full video here: ( 90 mins) - Scroll to the last 20 mins for various voting results.

World Economic Forum, WEF 2009, economists, World Economy