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Back to school: top economists on what their subject needs to learn next

From clipping the wings of the property market to re-assessing the place of the banks, our big brains nominate one lesson they wish their colleagues would learn

By Prospect Team   May 2018

Larry Summers: Get to grips with vicious cycles

The central lesson of 21st century economic experience is that modern economies are not self-equilibrating systems. Indeed, modern economies are often dominated by positive feedback effects that destabilise. Margin calls, bank runs, portfolio insurance, option hedging all cause more selling of assets as their values go down. When selling causes lower prices, which cause more selling, the market mechanism is in trouble. We now understand how it can give way to long-term economic problems such as secular stagnation, where excessive saving…

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