Economics in the mirror of the financial crisis

Signorino, Rodolfo (2010): Economics in the mirror of the financial crisis. Published in: Steven Kates (ed) (2011). “The Global Financial Crisis – What Have We Learnt?”, Cheltenham, UK and Northampton, MA, USA: Edward Elgar (2011): pp. 182-235.

Abstract

The structure of the Chapter is as follows. In Section 2 I discuss some of the factors that may have played a role in causing the crisis and emphasise that supporters of different economic theories will assign different weights to each factor in their analyses. As a consequence, suggested economic policies are highly sensitive to the economic theory employed in evaluating the set of causes. In Section 3 I seek to defend economists from the common charge that their inability to foresee the crisis is a clear sign of the lack of scientific status of their discipline. In my view, the main liability of mainstream economics lies elsewhere, in its excessive trust on the self-equilibrating mechanisms of free-market economies. Mainstream macroeconomists, enamoured of the efficient financial markets hypothesis, may have been too hasty in dismissing the financial instability hypothesis proposed by Keynes and developed by Minsky. Section 4 briefly outlines Keynes’s and Minsky’s contribution on this subject while Section 5 concludes.

• Item Type: MPRA Paper
• Language: English
• Keywords: global financial crisis; symmetry thesis; John Maynard Keynes; Hyman Minsky
• Subjects: F - International Economics > F3 - International Finance > F30 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; A - General Economics and Teaching > A1 - General Economics > A14 - Sociology of Economics

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