Much well-deserved abuse has been heaped on academic economists lately and on their naïve faith in rational actors, efficient markets and the rest. But there is one area where their beliefs still seem to hold sway – regulation.

This is potentially dangerous. Politicians grappling with financial crisis insist this kind of thing should never happen again. They look to regulation to ensure it. And regulators – very often macroeconomists by training – hasten to comply.