The financial markets may have survived 2009; the same can't be said for the ideology of the market. No surprise, then, that the big ideas and big thinkers of the year are an entirely different bunch than Foreign Policy might have collected before the Great Recession.
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For a generation, mainstream economic policy skewed libertarian. Risk wasn't just tolerated but embraced, and the assumption was that government could only stifle growth. The Washington Consensus, pushed in tony conferences across the world, held that a country could do no better than reining in government spending and deregulating its economy. That orthodoxy was already under attack, but the collapse of the global economy dealt it a death blow. This was the year that the state made a comeback.
The new consensus: We need government bailouts and radical new central banking powers to save a teetering financial system; massive deficit spending to revive our comatose economies; and constant vigilance to keep Wall Street and Canary Wharf in check. Even Alan Greenspan, a walking symbol of the laissez-faire era if there ever was one, has signed on to that last verdict. "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity," the former Federal Reserve chairman told a U.S. congressional committee, "are in a state of shocked disbelief."
Perhaps no single person has done more to bury the old worldview than Greenspan's successor, Ben Bernanke (No. 1). Bernanke spent his academic career studying the 1930s, concluding that a wave of bank failures transformed a deep recession into the Great Depression. The lesson he drew is that the Fed must do "whatever it takes" to prop up banks in a crisis, according to biographer David Wessel. Even by that standard, though, Bernanke turned out to be ambitious. By the end of this year, he'd effectively printed more than a trillion new dollars to increase the supply of credit. Thanks to this and other unprecedented moves, future Fed chairmen will have almost unchecked authority to intervene in financial markets. Wessel suggests Bernanke has turned the Fed into a "fourth branch" of government, and it's hard to disagree.
Once Barack Obama (No. 2) took office, Bernanke gained a soulmate in Larry Summers (No. 14), the U.S. president's chief economic advisor. While fighting the Asian financial crisis as a Treasury Department official in the 1990s, Summers concocted his own version of the Bernanke doctrine: "overwhelming force." This year he put that mantra to work at home. Summers championed the largest stimulus package in history at nearly $800 billion, part of a synchronized spending spree that reached from London ($30 billion) to Beijing (nearly $600 billion).
But though governments responded, it fell to outside experts to mount an autopsy of the crisis. The diagnoses tend to run along a single theme: financial innovation run amok. Back in 2003, Greenspan famously observed that derivatives -- basically bets on the value of another asset, like a bond or a currency -- are "an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so." Others made a similar case for "securitization," which amounts to slicing up an asset (like a mortgage) and selling it off to investors.
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