Lecture by Tommaso Padoa-Schioppa
The theme I have chosen for this lecture reflects the conviction that the market-government nexus lies at the heart of the crisis. It is the place where something went wrong.
In summary, I shall argue that while the crisis seems to come from the market side of the nexus, what really went wrong is on the side of the government. Firstly, government was captured by the myth that finance can regulate and correct itself spontaneously and hence retreated too much from the regulatory and supervisory role that is necessary to ensure stability. Secondly, fiscal and monetary policies fuelled imbalances and inflated bubbles. Thirdly, policy making remained almost exclusively concentrated at the level of the nation state, hence leaving unmanaged the rapid emerging reality of global finance. The crisis has only partially corrected such errors. The exit from the configuration that led to the crisis should be a government which – of course – respects economic freedom, but at the same time exerts its role forcefully, and is not prostrate before the twin idols of the market and the nation state.
The market-government relationship is, of course, as old as society itself. But in the last two centuries it has entered a new era fraught with opportunities and challenges that we do not understand fully and master even less. The 2007-20xx crisis is not an incidental blip on the screen of history, it is a strong call for political and institutional reform.