Macroeconomics & Financial Crisis an Interview with Carmen Reinhart

Episode 096 – Macroeconomics & Financial Crisis An Interview with Carmen Reinhart

Aired on August 1, 2018

[Intro Music]

[00:35] Haley: We are at the Ninth International Conference on Complex Systems and we got a moment to chat with Carmen Reinhart, who's a professor of Economics at Harvard Kennedy School. Hi, Professor Reinhart, thank you for joining us.

[00:47] Carmen: Thank you for having me.

[00:48] Haley: Would you just start us off by introducing yourself to our listeners and tell us about the work you're currently doing and what makes you passionate?

[00:55] Carmen: My line of work it's not exactly new, I've been working on different facets of this topic, of these themes for many years now but I do a lot of work on economic crises, financial crises. Financial crises can mean a lot of things whether it is a meltdown like in 2007, 2008 or 2009 or whether it's a country that cannot pay its debts or whether it's a crash in a particular currency like we have seen for instance the Argentine peso slide by more than fifty per cent in the last few months. So, financial fragility is a big interest of mine and economic booms and busts and it's very global in scope meaning it's not about the U.S. or it's not even about the wealthier advanced economies. It encompasses pretty much every region where the issue of crises is relevant.

[01:59] Haley: And what brings you to this conference, what do you hope people will get out of your presentation today?

[02:04] Carmen: What I hope was to spark interest in that topic because it has many ramifications that cut across disciplines. Issues pertaining to behavioural issues are very closely connected with crises. Issues relating to security are related to crises, social issues, distribution of income are related to crises, distribution of income across countries and so it hits and has implications for a broad range of interests and so I'm hoping that a brief intro on the topic will spark interest.

[02:45] Haley: So, you mentioned fragility and I am assuming uncertainty you know as an element of that and so these are some complex systems terms that we hear.

[02:52] Carmen: Absolutely.

[02:52] Haley: What are some other elements of complexity science that you weave throughout your work?

[02:59] Carmen: Well let me stick with uncertainty for a moment because that is sort of a core crux issue when you're talking about crises. Crises are not your run of the mill, oh we have a well-defined cycle and we are in the expansion and then we go into recession and there are these black swan events, there are things that are very difficult. A lot of my work focuses on trying to I don't want to use the term predict but to assess vulnerability to these fragilities but actually pinpointing the timing of a crisis is not impossible but I would say awfully close to impossible. So, the whole issue with uncertainty also, things related are credibility whether a government's response to a crisis, another thing that I look at responses to crises is credible or not depends on how certain people are that they're going to follow through that what they are planning to do is even feasible.

In my talk today, I gave the example that one type of uncertainty or lack of credibility that is fundamental in crises during financial panics. So, in the old days, we would have bank runs people would panic and there would be a bank run because it was no deposit insurance. Okay, now we have deposit insurance, so we don't have people queuing up in front of banks to the same degree as we did in prior centuries. However, you take it modern wealthy country Greece you had bank deposit collapse, not just fall, they collapse. The bank deposits today in Greece are below where they were in 2004. You're talking about you know a decade and a half, why? Well credibility, uncertainty whether Greece is going to stay in the Eurozone or not means that what good is the guarantee of deposits in euro if in effect they're not going to stay in the Euro Zone. So these behavioral issues, uncertainty, credibility are very fundamental to the study of crises.

[05:01] Haley: Yeah, absolutely. So, as an economist complex system science is not necessarily something that is immediately tied to the subject matter educationally. How did you become interested or see the connection between what you were doing and the complex systems community?

[05:18] Carmen: Crises themselves are very complex. They are multifaceted and so I think that there are a lot of fields of research and fields of study that are outside the more narrowly defined realm of economics that are relevant and have a role in enhancing our understanding of these traumatic events.

[05:40] Haley: Absolutely. Well, we're glad that your path had crossed with the NECSI and that you were able to attend this event. Is there anything that we missed in our conversation? Is there any future projects in the works for you or anything like to share about your work personally?

[05:51] Carmen: Well, of course part of what one does as a researcher is also try to bring to bear new sources of information and part of my approach in research is very empirically minded and so bringing new data sources to bear on answering old questions we haven't really talked about because complex systems can range from the theoretical to the applied and that is of course also true in economics, it can range from the theoretical to the applied but you asked about next steps and I think I'm always on the march if you will on bringing new data sources to bear and one of my most recent endeavours continues to be in the realm of finance but has put together massive data basically, from the time of the Battle of Waterloo to the present of a

financial market. In this case sovereign bonds that have been very understudied. So, always looking out for what areas I think are understudied, what areas one could bring in new databases and new evidence to bear.

[07:05] Haley: Has that really lead you to reach out to people in different fields and provide some interdisciplinary to your work?

[07:11] Carmen: I think the interdisciplinary dimension is not so much at the stage of the data gathering itself but more in terms of interpretation and what kind of models you use to make sense of the data that you've gathered, that's when it comes in with force.

[07:34] Haley: Synthesizing it all?

[07:35] Carmen: Yes.

[07:36] Haley: Well, that's awesome. So glad that you took the time to sit and chat with us for a few minutes. Where can our listeners learn more about you or find out more about your work?

[07:43] Carmen: www.carmenreinhart.com has my papers, the data underlying those papers, which really range from very short commentary, general audience articles to the more specific professional journals. So, a range of my work over the last few decades is accessible and downloadable in my web page.

[08:06] Haley: All right, thank you so much. It was a pleasure speaking with you. We love learning about your work your presentation was great. Glad we got to partake in it.

[08:13] Carmen: Thank you and I'm happy to be here.

[Outro Music]

[09:12] End

*DISCLAIMER: Humans transcribed this content. Please keep in mind, there could be some human error.