Sir, There is a very simple reason why Professor Cornelius Hurley’s eminently sensible call for regulators to be required to explain their actions in the 2008 financial crisis to the public ( Letters, December 24) has not been pursued. It is that at the root of the response of the US Treasury and the Federal Reserve to the crisis, and indeed the basis of their management of the US economy for several decades before, lay their unquestioning belief in the validity of the equilibrium-tending macroeconomic model, the so-called dynamic stochastic general equilibrium model. This had for many years gained the status of a prevailing orthodoxy in economics and more realistic analyses (eg, those of Hyman Minsky) were systematically ignored. Yet in a broadcast on CNBC in October 2011, former Fed chairman Alan Greenspan made the extraordinary admission that “all our models failed — all, across the board”.

The DSGE model still dominates macroeconomic policymaking. An unwillingness to question the model and the regulators who persist in supporting it seems increasingly like a desire not to rock the boat while the storm continues to rage.

Giles Conway-Gordon

Ronan, MT, US

Letter in response to this letter:

Never neglect the role of the word ‘stochastic’ / From Michael Wickens

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