Can we avoid another financial crisis?
In 2008, conventional economics led us blindfolded into the greatest economic crisis since the Great Depression. Almost a decade later, with the global economy wallowing in low growth that they can’t explain, mainstream economists are reluctantly coming to realise that their models are useless for understanding the real world.
How did mainstream economists not see the crisis coming? Was it unpredictable, as they now assert, or did their theory blind them to the real causes? Will another financial crisis occur?
These questions and others are asked and answered in Steve Keen‘s new book Can we avoid another financial crisis? , a short (25,000 word) explanation for the lay reader of how we got into this economic mess, and why we are unlikely to get out of it.
Reviews:
Leave a comment
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Writing down debts is one possibility, but we did not need to write down debts in 1933 (although arguably the market did it for us). What we needed was an economic system that diverted the largest pile of dollars to those that provide consumption in the economy and only a smaller remainder to those that provide capital liquidity. If you fix the leak in the boat then you don’t have to bail so much.
«Academic theory, by a path of its own, has arrived at a position which has considerable resemblance to Marx’s system. In both unemployment plays an essential part. In both capitalism is seen as carrying within itself the seed of its own decay. On the negative side, as opposed to the orthodox equilibrium theory, the systems of Keynes and Marx stand together, and there is now for the first time, enough common ground between Marx and Keynes to make discussion possible». Joan Robinson – in Pilling (1986), Feiwell (1989) and Wheen (2006).
As a «reborn» Marxist socio-economist, I draw attention to the (in)famous «law of the falling tendency of the rate of profit»… Since profit maximization seems to be the «carrot» that keeps capitalists and their executive «mandarins» searching for ever more profit opportunities, it might be a good idea to search for both a theoretical and an empirical demonstration that we really are now in the situation that the real rate of profit» is now down to zero (financial cosmetics notwithstanding…).
As Keynes as noted, «But worse still. Not only is the marginal propensity to consume weaker in a wealthy community, but, owing to its accumulation of capital being already larger, the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate;» (Page in «The General Theory»).
In a nutshell, since the incentive to invest is no longer operative (for those individuals who have the financial resources to do so…), it comes down to the State to do take the iniciative. The Chinese leadership seems to be fully aware of this. But then so was Hjalmar Schach.
The folks that control the financial system have discovered that there is no need to invest in enterprises in the real economy in order to “make” money. All you have to do is to create it out of nothing by inventing “financial instruments” and trading them back and forth in a speculative environment.
So why bother trying to keep people employed to do something useful?
Let ’em rot!
Who cares?
Oops, hungry people will acquire guns…..
What Are The Commonalities Between These Four Statements?
The idea that you must go to where the game and the natural abundance of the earth is has now been replaced by the idea that you can now raise and grow the game and the natural abundance in a particular spot.
The idea that the sun and the planets revolve around the earth is now replaced by the fact that the earth and other planets revolve around the sun.
The idea that salvation can only be obtained via the Sacraments of the Catholic Church is now replaced by the idea that salvation can be accomplished by a direct relationship with God.
The idea that Debt and employment are the only valid economic and monetary factors has now been transcended by intelligently integrating monetary Gifting into the system.
Answer: They are all paradigm changes, all inversions of former absolute truths, all break ups of systemically dominating ideas (scarcity, ego-centrism, non-directness/spiritual exclusivity and empirical/scientific exclusivity/validity)
Why should mainstream economists have been able to predict a depression? Their models do not permit such a thing. In the models, unemployment is frictional. People not in the work force simply don’t want to be in the work force, especially as the models ignore the individual and social income effects and consumption effects of what happens when one isn’t and the negative impacts upon society.
According to Keen, “There was a time when the question this book poses would have generated derisory guffaws from leading economists.” True. But there was also a time before that when the question posed by this book wouldn’t have even occurred to most leading economists. Based on the assumption that financial crises could not be avoided. That such crises are a normal part of capitalism. It’s a simple trade-off. Wealth requires crisis. This is clearly shown in the history of the US economy. Dozens of limited/local crises combined with a dozen or so major/national crises. This is amazing in a nation only 250 years of age. One of the reasons I thinking the name “casino” capitalism is so appropriate for the US. The addition of new theories for economists to play with could not possibly cure this situation. Just how does one predict a crisis in the functioning of a set of economic arrangements that are inherently crisis-prone? What are the triggers, the events, the warning signs? Before 1960 American economists saw these crises as normal, needing no explanation. After 1960 American economists considered such crises irrelevant for economics. Normal or irrelevant, the conclusion is the same. Economists should not study economic/financial crises. These are beyond the scope of the discipline. Blaming economists for not predicting the 2007-2008 crisis is thus foolish. Economists never wanted to predict this crisis, or any other.
“The effort to make ourselves significant is what Greek tragedy calls ›hubris,‹ a brand of pride. Every hero in every Greek tragedy finally falls because he does not recognize that pride.”
Ortthodox economists and their critics suffer big time from hubris. It is a conditions of whiich groups of social scientists particularly suffer. You are right Ken, If the system is inherently crisis prone the black swans are unpredictable. The antedote is humility. Historians are particularly tuned to the drama of arrogance because they are constantly being told that the study of history is irrelevant to the quest for solutions to human problems.
I’ve made the comment before that the social sciences began with desire to “be like” 19th century physics. In the view of these new sciences, the perfect science. But it turns out the 19th century physics model is a bust. Promoting the clockwork universe it was limited by its own fundamental assumptions. The social sciences also rejected the model, moving instead in directions proposed by Wittgenstein, Weber, and others. Economics remained loyal, however to the model of 19th century physics. That, in my view explains a lot about the current problems of economics. It also explains, at least in part the hubris of economists. After all, Newton conceived his task as revealing the clockwork universe made by the clockwork God. 19th century physics refused to see the limitations of it assumptions and thus became irrelevant. Much like mainstream economics of the last 50 years.
You are quite right when you say «economists never wanted to predict this crisis, or any other.»… But then this reminds me of a grafiti in a wall of the Lisbon University Institute, a couple of years ago, «if they can’t predict this kind of event, what good are these economists for?»…
For many economists this is not a crisis but merely a natural part of capitalism. No need to predict or concern themselves with events that are not important.