Macroeconomics and the unknowable future

Published in the Financial Times.

Martin Wolf is so right that “a macroeconomics that does not include the possibility of crises misses the essential” (“Economics failed us before the global crisis,” March 21). Indeed, institutions, debt and the temptations of leverage are essential to the theory, especially leverage, which is the snake in the financial Garden of Eden. The expectations of the most rational, intelligent and well-informed people are often enough surprised and shocked by events. That the financial and economic future is not only unknown, but unknowable, is what an adequate macroeconomic theory must incorporate.