Monday, April 4, 2011
Financial crisis expert suggests robust recovery is unlikely in near term at 2011 Gorlin Lecture
Dr. Carmen Reinhart, one of the world’s foremost authorities on financial crises, visited Oakland University on Thursday, March 24, to deliver the SBA’s 21st annual Gorlin Memorial Lecture to an enthusiastic crowd of more than 200 students, faculty and members of the community at the Oakland Center.
Reinhart’s talk, entitled “A Decade of Debt,” spelled out the antecedents of the great financial crisis of 2007-08, detailed the aftermath of the crisis, and reflected on economic prospects for the future. She noted that, even three years out from the crisis, advanced economies such as the United States continue to be dogged by high unemployment and slow economic growth. She argued that the great buildup in both private and public indebtedness that took place prior to the crisis has cast a very long shadow on the economy and, therefore, that a robust recovery in the near term remains unlikely.
Reinhart wondered aloud whether we have entered an era of “new normal.” Provocatively, however, she argued that the post-World War II era was not at all normal viewed in the light of financial history (the subject matter of her book). She argued that policymakers in the United States and Europe learned many lessons from the last major international financial crisis — the Great Depression of the 1930s — and took regulatory steps to insulate and head off future shocks from the financial system to major world economies.
This regulatory caution led to several decades of relative calm for the advanced economies following World War II. The calm, however, sowed the seeds of its own destruction, as new generations forgot the hard learned lessons of the Great Depression and, during the 1990s and early 2000s, systematically dismantled the regulatory structure in place. This return to laissez-faire, she argued, set the table for the events that unfolded in 2007/08, as the housing bubble expanded and debt accumulated at an alarming rate.
Following her talk, Reinhart took questions from the audience, leading to a number of interesting and lively exchanges. At the end of the evening, SBA Dean Mohan Tanniru took the stage and presented Reinhart with the Gorlin Award for Excellence in the Field of International Economics. The audience members applauded Dr. Reinhart appreciatively as she received the award. After receiving the award, Reinhart graciously remained on campus to autograph copies of her book.
Reinhart is, at present, the Weatherstone Senior Fellow at the Peterson Institute for International Economics in Washington, D.C. Her recent book, This Time IS Different: Eight Centuries of Financial Folly (co-authored with Kenneth S. Rogoff of Harvard University) is a New York Times bestseller and has been critically acclaimed by, among others, the Financial Times, the Wall Street Journal, and the Economist magazine. In addition to her current position at the Peterson Institute, Reinhart is a member of the Council on Foreign Relations, a research associate at the prestigious National Bureau of Economic Research (NBER), and an economic advisor to the Congressional Budget Office. Prior to joining the Peterson Institute, Reinhart was professor of economics and the Director of the Center for International Economics at the University of Maryland. She has previously served as the Chief Economist at Bear Stearns and has also worked under the auspices of the International Monetary Fund.
The Gorlin Lecture was established more than 20 years ago by the Gorlin family to celebrate the life and legacy of Dr. Alice Conner Gorlin, Professor of Economics and charter member of the School of Business Administration. Professor Gorlin joined the Oakland faculty in 1972, having earned her doctorate in economics from the University of Michigan. During her time at Oakland she established a record as a distinguished scholar of the Soviet economy and as an outstanding teacher of economics. She was a cherished friend and mentor to faculty colleagues, and she held the distinction of first tenured female faculty member in the School of Business Administration (then known as the School of Economics and Management). She passed away tragically in 1987 at an early age and in the prime of her career.
The Gorlin Lecture Series is a profoundly meaningful way by which OU’s School of Business Administration annually remembers and honors the contributions and legacy of one of its pioneering faculty members. This was clearly evident at the Reinhart talk. Students were exposed to the insights and research findings of one of the world’s foremost experts on a topic of international importance. How fitting given the mission of the Gorlin Lecture — “to promote understanding of international issues and events.”
A signature event on the Oakland University calendar, the Gorlin Lecture series has featured many illustrious speakers through the years, including J. Bradford DeLong of the University of California at Berkeley, Michael Mussa of the Peterson Institute, Matthew Slaughter of the President’s Council of Economic Advisers and of Dartmouth College, Jeffrey Sachs of Columbia University, Mancur Olson of the University of Maryland, Joel Mokyr of Northwestern University, and Catherine Mann of Brandeis University. The OU School of Business Administration takes great pride in welcoming Dr. Carmen Reinhart to the ranks of this who’s who list of leading thinkers in the realm of international economics.
By Kevin J. Murphy
Professor of Economics
School of Business Administration