Ah, the Eternal Sunshine of the Recessed Mind!
Here’s an unintentionally–but riotously–hilarious mea culpa by Olivier Blanchard.
Here’s the CliffsNotes version: Yes, we didn’t see nothing coming. But that isn’t our fault. The Global Financial Crisis—the biggest calamity since 1929—was invisible to us because it had been lurking in the dark corners of the financial system.
However, we had been creating highly sophisticated economic models in which there were no financial institutions—at least nothing like those in the real world. Ours were transparent. They were well-capitalized. Their risks were perfectly hedged. There was no uncertainty. There was no chance of financial instability because the market forces always—inevitably—drove toward equilibrium. We had very nicely behaved DSGE models—models with no default risk. Where everyone was civilized and played nice. No one ever missed a payment. All debts were always paid. On time.
In our world, even Lake Woebegone would have been impossibly unruly.