Johannes Witteveen: "If you want the free market to function properly, you need to intervene"

A couple of year ago, in 2007, at the beginning of the crisis, Witteveen and I had a conversation about the need for free, creative thinking about economic problems and how some of the world's economic problems could be solved. Here is what we said.

- The Fondad network is quite large, it includes people like the French economist Charles Wyplosz, the North-American economist Barry Eichengreen, the Latin American economist Jose Antonio Ocampo... Unfortunately, the climate in which we now live makes that academics and policymakers are less enthusiastic, less motivated than people like Triffin and Monnet to come up with challenging policy proposals inspired by a long term view. That's an important difference.

Yes, yes.

- They adapt their proposals and their thinking to the circumstances ...

And do not look at what is possible ...

- By which they miss an important aspect of thinking. Thoughts should be free ...

Yes, yes.

- And they are not free.

No, that is indeed a big problem. Therefore, I think it's so important to see the problems of today against the background of problems that we have not resolved properly in the past [such as the problem of a privatised international monetary system based on the US dollar].

- But if I say that to the president of the Dutch central bank or whatever policymaker, they may still say 'yes, you are right', but then go back to the order of the day. Fondad defends the public interest, it is not inspired by self-interest, neither the Dutch or European self-interest, nor the US self-interest, but by the international public cause ...

I find that very important, very valuable. The time may come that the policymakers will have to start thinking again. (Softly) That time is close.
 
- For years, people were trapped by the idea that everything should be left to the market, that the market would take care of everything and that the risk assessment systems of the banks were good...

The market is always good, they think, and any intervention is wrong. But that is absurd. If you want the free market to function properly, you need to intervene in the strategic points. That is a credo of Tinbergen I made my own. 
 
- That is a fundamental problem. There are fashions among economists, and whether they're reigning at universities or at policymakers' institutions, these fashions affect enormously the way of thinking.

Yes, they influence the economists, the media and policymakers. But fashion can change again.

- Indeed. But it is important that people who analyse at some depth the problems get the space to develop their ideas and promote them.

Yes, yes.

- And that they encourage each other.

Yes, and that they're going to warn in time. And that people think in time about what could be done.