Perry G. Mehrling

Academic Council
Institute for New Economic Thinking

Perry Mehrling is a member of the Academic Council at the Institute for New Economic Thinking.

Mehrling has been a professor of economics at Barnard College since 1987. He teaches courses on the economics of money and banking, the history of money and finance, and the financial dimensions of the U.S. retirement, health, and education systems. He also has held visiting positions at the MIT Sloan School of Management and Boston University.

Mehrling is the author of The New Lombard Street: How the Fed Became the Dealer of Last Resort, which was published by Princeton University Press in 2011, and Fischer Black and the Revolutionary Idea of Finance, which was published by John Wiley & Sons in 2005 and reissued in a revised paperback edition in 2012.

Mehrling received a bachelor’s degree from Harvard University, a master’s degree from the London School of Economics, and a Ph.D. from Harvard University.
 

My Content

Look around and you’ll see that the economic problems facing us today are many. Even worse, the most pressing of these problems pose a daunting challenge even to analyze in their full complexity, let alone solve. It may seem that implementing any credible solution within current political and economic institutions is at least implausible, if not impossible. So why am I hopeful about the future?
The Eurocrisis has many dimensions—bank solvency crisis, sovereign debt crisis, political unity crisis, and economic/unemployment crisis—but time after time it has been the liquidity crisis dimension driving events, and ECB response to the liquidity crisis driving institutional evolution.  The reason is simple.  Liquidity kills you quick.
Everyone wants to ring-fence something, but they can’t agree on what:  Vickers, Liikanen, Volcker. In all proposals, the idea is to have bank capital separately allocated for some activity, and to prevent that capital from being exposed to any other activity.  Some people want to lock the wild animals in a cage to keep them away from us; some people want to lock the tame animals in a cage to keep them safe from the dangerous world outside.
At the heart of the Eurocrisis lies a vicious circle where once there was a virtuous one.  Over the last week or two, the FT has been reflecting on the connection between the sovereign debt crisis and the bank crisis, conjoined twins (as George Soros has put it) of the current Eurocrisis.  See here, here, here.
    Below is a revised version of a talk I gave at the New School University, at a conference to launch Lance Taylor's latest book.  The date of the event was April 28, 2011, more than a year ago, and the delay in revision was entirely my fault--overcommitment and pressing deadlines on many fronts.  Sorry about that.  Lance Taylor, Maynard’s Revenge:  The Collapse of Free Market Macroeconomics (Harvard 2010).

My Video Content

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Most economists think about aggregate consumption through the lens of Friedman’s permanent income hypothesis or Modigliani’s life-cycle hypothesis. But long ago there was a third contender, Duesenberry’s relative income hypothesis, which argued that household consumption decisions are powerfully shaped by the behavior of their reference group.

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The financial crisis that ran from 2007 to 2009 has been called a "Minsky Moment," meaning it offered a much-needed reminder to all economists of Hyman Minsky's neglected dictum that "capitalism is essentially a financial system." 
 
But even with this reminder, it is hard to know what to do next, since it is difficult to express Minsky's vision using the standard equilibrium methods of economics. Arguably that is one reason that Minsky has remained a minority taste in economics.  
 
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The current dominant strain of macroeconomic thought adopts an analytical simplification of the representative agent that deliberately abstracts from some of the most interesting and important questions we confront today.  
 
A central reason for this abstraction is analytical convenience. In general, we don’t know how to handle genuinely dynamic models with multiple agents trading at disequilibrium prices. 
 
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George Soros opens the Institute for New Economic Thinking (INET) Paradigm Lost Conference at the Foreign Ministry in Berlin April 2012. Perry Mehrling and Axel Leijonhufvud respond. #inetberlin

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Robert Skidelsky and Perry Mehrling taking questions from the audience after the report from the Economics Curriculum Task Force at the Bretton Woods Conference on April 9, 2011.