New Directions in Modern Economics series
Edited by Riccardo Bellofiore and Giovanna Vertova
Chapter 3: Marx, Keynes and Hayek and the Great Recession of 2008
The recession which began in 2008 started as a financial crisis of a depth not seen before since perhaps the stock market crash of 1929 and the collapse of the Kreditanstalt in 1931. That shock was called the Great Depression and lasted from 1929 till 1940 in the USA (various other dates for European economies) as the recovery in 1937 was short lived. US GDP in nominal terms was $103.6 million ($976.1 million in 2005$) in 1929 and did not exceed that level till 1941, when it was $126.7 million ($1365 million in 2005$). It was during that crisis that the new theories of Keynes won over the economics profession as well as policy makers and the ideas of Hayek and, to some extent, Marx (about economic cycles at least) were discredited or at least devalued. This time around the recession of 2008 onwards has raised questions about whether Keynesian theories and policies can explain what happened or whether we need the devalued ideas of Marx and Hayek to come back into play (Desai 2008a, 2008b, 2009a, 2009b). The latest recession is as severe as the Great Depression.
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