Ben Bernanke’s speech at the Nobel Prize banquet, 10 December 2022.
Your Majesties. Your Royal Highnesses. Excellences. Dear laureates. Ladies and gentlemen:
On behalf of Professor Douglas Diamond, Professor Philip Dybvig, and myself, we wish to thank the Sveriges Riksbank, the Royal Swedish Academy of Sciences, and the Nobel Foundation. My colleagues and I would also like to acknowledge the brilliant guidance of our mentors, the late Steve Ross, the late Dale Jorgenson and Stanley Fischer.
A perennial question is whether economics is really a science. It’s true, for example, that we economists can’t do large-scale controlled experiments, although neither can evolutionary biologists or seismologists. However, one thing we surely have in common with physics, chemistry, and the rest, is that ignorance or misapplication of basic principles can result in enormous damage. In economics, that damage can take the form of financial crises and economic depressions.
While financial and economic crises often have terrible human costs, at least they can give us insight into how economies and financial systems work, why they break down, and how we might avoid such outcomes. For that reason, all this year’s economics laureates have been recognized for work on banking and financial crises and their effects. We agree that financial systems are prone to instability, which can be very costly for the economy and society as a whole. There is consequently a strong case for government oversight of the financial system, as well as for safeguards, like sufficiently high levels of bank capital, that reduce the risk of crises.
The famous investor Warren Buffet once said, “It’s when the tide goes out that you can see who is swimming naked.” Financial crises separate the prepared from the unprepared. Our work, and that of many other economists, is aimed at assuring both that the financial system is prepared, and that the tide doesn’t go out very often.