“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest,” economist Adam Smith wrote. Smith transformed economic and political thought with his notion that the pursuit of self interest promotes societal good and that an "invisible hand" pushes markets towards equilibrium conditions without the interference of the government.

Although there is no way of knowing what the “father of modern economics” would say about deregulation and the pursuit of self interest in the wake of the financial crisis, yesterday members of the Cornell community packed into Call Auditorium in Kennedy Hall to hear experts’ takes on the subject. Speakers included Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics And Political Science at the University of California, Berkeley; Robert Kuttner, co-editor of The American Prospect; and Prof. Eswar Prasad, Tolani Senior Professor of Trade Policy and senior fellow at The Brookings Institution.Show me the money: ‘The Great Finanacial Crisis’ debate features (left to right) Robert Kuttner of the American Prospect, Univ. of California Prof. Barry Eichengreen and Prof. Eswar Prasad, applied economics and management, yesterday in Call Auditorium.

The presentation by the three panelists, titled “The Great Financial Crisis: What Caused it? What is Next?” was part of the Lund Critical Debate Series sponsored by the Mario Einaudi Center for International Studies.

While some audience members anticipated a debate, Eichengreen, Kuttner and Prasad mostly agreed with one another, providing a forum for the speakers to outline different aspects of what caused the crisis and critique the current situation. In their evaluation of today’s economic policies, the panelists spoke to lingering systemic problems rooted in the financial sector’s power in Washington and the effects of emerging markets on fueling U.S. overconsumption.

From an economic academic’s perspective, Eichengreen pointed at deregulation and an intensification of competition since the Great Depression as causes for the recent financial crisis. Additionally, he noted a lax U.S. monetary policy that targeted a low rate of inflation and the lack of savings in the U.S.

While agreeing that the collapse was due to a regulatory default, Kuttner took a more political standpoint. He commented on the high degree of leverage and opaqueness of big financial institutions. “They’re not just too big to be taken down, they’re too big to understand,” Kuttner said. He also noted a larger problem than unfairly priced stocks: corruption. “Look at the subprime failure of regulators to use the power that they had. … This is systemic fraud.”

Prasad noted the role of global imbalances as a cause of the crisis. Emerging markets — particularly China — he said, caused a flow of money into the U.S. economy that fueled an American consumption binge. However, Prasad added that Americans’ own role in the imbalance should not be ignored. While personal savings in the U.S. have gone from zero percent to seven percent of disposable income, he observed a systemic problem as currently emerging economies have an even stronger incentive to build up reserves in dollars. “All the incentives are leading to rising global imbalances and the imbalances led us to where we are,” Prasad said.

The three panelists called for increasing requirements for banks to hold more capital, tighter regulation and the need for the public to push Washington for systemic change. Prasad concluded, “a lot more needs to be done before we can comfortably sleep at night.”

The presentation was met with a mixed response from students. Makoto Bentz ’09, an avid follower of economic current events commented, “From an academic perspective, it wasn’t particularly new, and I think that most other academics would agree with what was said.”

However, he added, “What really interested me was the disconnection…[The panelists] pinpointed blame but never concretely said how to solve the problems politically in the real world. … It is worrying that world class economists have not been able to figure out a solution.”

Steven Jenkins ’11 was also unimpressed. “I wasn’t particularly moved by the opinions of the panelists. I was planning on watching a debate and all I got was a lecture, and, I admit, a short nap.”

While it may not have been the lively debate Jenkins was looking for, Mariana Giron ’10, found the presentation to be thought-provoking. “The different speakers brought up issues that made me rethink some of my previous assumptions and opinions, such as the effect of globalization on our economic system,” she said.

Nicolas van de Walle, John S. Knight Professor of International Studies and chair of the Foreign Policy Initiative, was struck by the pessimism of the speakers and hopes of a smooth recovery.