The immediate task facing governments and central banks is to pull the world economy out of its tailspin. But our collective failure to forecast and avert this crisis carries important lessons for the longer term. The discussion so far has focused on regulation, but we also need to design a new framework for macro-economic policy and the roles of government and central banks.

After the booms and busts that followed the 1971 breakdown of Bretton Woods, we built a regime based on a powerful consensus in academic macro­economics. It appeared to work in stabilising inflation and providing a foundation for continuous growth. We thought we had cracked the problem.