It’s truly a double honour to be asked to give CIFAR’s Dodge Lecture.
First of all, it’s a tremendous honour to be asked by CIFAR to give this lecture because of CIFAR’s fabulous work across many, many disciplines. But second, this is a lecture in honour of David Dodge. David exemplifies what it means to be a great public servant. He has served as Deputy Minister of Finance and of Health, Governor of the Bank of Canada, Chancellor of Queen’s University and Chairman of the Board of Directors of CIFAR.
David has always selflessly done what was needed. And I’m going to give you a taste of why that matters. Compared with the U.S., the financial crisis let Canada lightly off the hook. From 2008 to 2010, the rise in the Canadian unemployment rate was 2 percentage points. In contrast, the rise in the United States was almost double that. Instead of 2 per cent, it was 3.8 per cent. That 2-percentage-point difference is hundreds of thousands of people who, in Canada, had jobs that they wouldn’t have.
Something right was happening in Canada and David Dodge, who was the Governor of the Bank of Canada from 2001 to 2008, was a significant part of what was right. As you will see, this lecture concerns why we need heroes like David.
I’ve written a book called Phishing for Phools with Bob Shiller. It’s meant to be a popular book, and there are two motivations for that. The first is that we’re influenced more than we think by popular books. And the public and economists have too great an acceptance of the view that whatever markets do is right. Of course, all economists would take into account standard problems such as pollution and unequal income distribution. But that does not exhaust the reasons why competitive markets yield bad outcomes.
The book explores the notion that markets deceive us and manipulate us. We call this “phishing for phools.” Every economist I know knows this. But that leads to a second very general motivation.
The rule of what can and cannot be published in economics leaves holes. There are some perfectly valid and important things to say, but there’s no way to say them that would be acceptable in any journal. For example, quite a few economists thought that financial derivatives would lead to the current crisis. But economists could not figure out a way to express those views in the form of a paper. I believe that Phishing for Phools happens to be one of those holes in economics, because although we all know it, it cannot be published. And because it cannot be published in journal form, it gets ignored. And because it was ignored, we had the financial crisis, the central economic event in the history of our times. That’s what I’m going to talk about today.