This is the opening of my essay that I blogged on last week, “How Little We Know,” on the hopes for financial reform:
When an airplane crashes, expert investigators probe the cause of the crash. Their analysis can lead to changes in aircraft design, flight procedures, and regulations in hopes of reducing the likelihood of a crash in the future. The growth of knowledge in the airline industry has been extremely productive. Between 1989 and 2008, there was a seven-fold reduction in the probability of a fatal crash.
There is a natural tendency for economists (and even for normal people) to presume that similar analytical techniques can be applied to financial crashes. After all, economists presumably know more than we did in the past. We have ever more data and ever more sophisticated techniques for analyzing the data. Yet there is no evidence to suggest that financial market regulation is more effective than in the past. If anything, the opposite appears to be the case.
You can download it here at The Economists’ Voice. I think it requires an institutional subscription, but evidently astute readers have found ways to get it.