James Tobin would have been saddened by the subprime crisis, but he would not have been surprised. He would have been saddened by the human consequences, not so much for investment strategists forced to forgo their bonuses as families unable to keep their homes. He would have been further saddened that economic analysis had not done more to warn of financial risks so that policymakers could have avoided those social costs. But he would not have been surprised that financial markets, left to their own devices, produced unforeseen and socially suboptimal outcomes.

At the same time, Tobin would have been reluctant to move too far in the direction of re-regulation. He appreciated the role of financial markets in resource allocation and in enhancing the productive efficiency of the economy. He emphasized the role of finance, and financial innovation, in mobilizing resources for the investment that undergirds economic growth and rising living standards. He understood the limits of our knowledge about how markets work and that interventions could have unintended consequences. He would have urged regulators to proceed cautiously. He would have cautioned against killing the golden goose.

He also studied these problems for the better part of fifty years. We by comparison have had considerably less time to assess the causes and consequences of the current crisis. Not only do we lack the perspective that time and distance create, but there is the fact that the crisis continues to unfold.