, regulation and planning were predominant truths in the former government building for several decades. yet neither did these truths remain eternal. in the 1970s, deficits ballooned when the government used countercyclical policies to “ build a bridge ” over the global downturn. but it was a bridge to nowhere. inflation took off and government finances were strained to breaking point. the policy of micro - managing the economy had gone too far. wage and price controls at the end of the 1970s, the last gasp of the postwar paradigm, did little to help. norway was close to being placed under imf administration. in fact, it was not possible to steer the economy towards permanent prosperity. the old doctrines collapsed. 6 new ideas for managing the economy took shape because the old system no longer functioned. underlying the new truths was the notion that economic policy needed to operate through the proper market incentives and that economic policy must be sustainable and predictable. at the ministry of finance, the new ideas took hold primarily because a younger generation was taking over, just as when nissen was pushed aside. political micro - management lost considerable traction. through the 1990s and up to the mid - 2000s, economic growth was high and both inflation and unemployment low in much of the world. cyclical fluctuations were moderate. the new truths appeared to be working well. this period is known as the great moderation. but underneath the positive developments, imbalances were building up both within and across countries. as we have all experienced, it is easy to ignore the bill as long as the food keeps coming and the conversation keeps flowing. countries and governments can live with deficits for a while, but sooner or later the bill has to be paid. einar lie provides a detailed account of the break between classical and the new, more keynesian thinking at the ministry of finance in the book norsk økonomisk politikk etter 1905 [ norwegian economic policy after 1905 ], pax forlag, 2012. hermod skanland ( 2004 ) : doktriner og økonomisk styring : et tilbakeblikk [ doctrines and economic management in retrospect ], norges bank ’ s occasional papers no. 36, oslo. bis central bankers ’ speeches budget deficits and high sovereign debt levels meant that the authorities had little slack when the financial crisis hit in autumn 2008. 7 countries rapidly embarked on an unavoidable path of fiscal austerity at the very time

duties beyond those strictly related to remedying the time inconsistency problem. they also comment on how fiscal policy ought to be formulated. this quickly encroaches on what is properly the domain of politics, rather than helping the political system to be consistent in implementing its own plans. a more detailed discussion of fiscal policy boards, with a focus on the board in sweden, is found in matsen, natvik and torvik ( samfunnsøkonomen no. 2, 2010 ). the financial crisis has also reminded us of weaknesses in models and methods used in analyses behind the economic policies pursued. we must with humility acknowledge that we understand less about the functioning of the economy than we would have liked. mervyn king, the governor of the bank of england, recently voiced this view in a speech, “ twenty years of inflation targeting ”, which he gave on 9 october 2012 at the london school of economics ( see http : / / www. bankofengland. co. uk / publications / pages / speeches / 2012 / 606. aspx ). similar reflections have also recently been expressed in an interview with andrew haldane, the executive director for financial stability at the bank of england, under the title “ our models are no longer working properly ” ( see http : / / economicsintelligence. com / 2012 / 10 / 24 / bank - of - englands - haldane - on - the - crisisof - economics - our - models - are - no - longer - working - properly / ). in his article, “ time on the cross : how and why not to choose between economics and history ” in pat hudson ( 2001 ), living economic and social history, glasgow : economic history society, pp. 81 – 85, marc flandreau gives a personal and colourful account of how he inadvertently and unwittingly and in the spirit of “ having it both ways ” became an economic historian, because he refused to choose between economics and history. various observers have pointed out a number of factors that help to explain the financial crisis : low key rates in all major countries over several years in the early 2000s, conflicts of interest in important financial institutions such as credit rating agencies and considerable economic differences are just a few of them. bis central bankers ’ speeches in many ways, central banks are the response the authorities could apply when crises arose. central banks were established to exercise control over the monetary system, enabling states to