The Roots of the Crisis
The Roots of the Crisis
The crisis has its origins in part in the ‘high theory’ provided by mainstream economists, who have helped to create the perception that a deregulated financial market could be an instrument of market efficiency, failing to emphasize the ways in which it could be instead a source of systemic instability. Economists generally failed to understand the significance of the micro-structure of a financialized market economy and therefore the origins of the current crisis. Although bearing some similarities with previous crises, the recent financial crisis was different in having at its core the epistemic confusion generated by complex and often ill-defined instruments. Economists can play a constructive role in future discussions on economic policy, beginning with a recognition that they have recently failed to serve the public interest.
Keywords: John Maynard Keynes, The General Theory of Employment, Interest and Money, Sanjay G. Reddy, Economic Theory, Financial Crisis, The Great Depression, Kenneth Arrow, Gerard Debreu, Fisher Black, Myron Scholes, Pareto optimal, Randall Dodd, Robert Shiller, derivative markets, Charles Kindleberger, Negative feedback Mechanics, economic bubbles, transversality condition, macroeconomics, microeconomics, Dutch Golden Age, financial capitalism, Hannah Arendt
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