What Have We Learnt?
Edited by Steven Kates
Chapter 7: Four Theses on the Global Financial Crisis
J.E. King* There are (at least) four lessons to be learned from the global financial crisis. The first lesson is the complete failure of mainstream economic theory to anticipate, explain or provide policies to mitigate the effects of the global financial crisis. The second is the continuing relevance of the nation-state in an era of globalization. Third, there is a whole set of lessons concerning the relationship between private debt and public debt. Finally, the macroeconomic limits to neo-liberalism have become very clear. These four lessons are linked, but it will be convenient to consider them separately. I shall begin with the failure of mainstream theory. 1 THE FAILURE OF MAINSTREAM MACROECONOMIC THEORY The failure of mainstream economic theory in the face of the global financial crisis has been widely recognized. As one British journalist noted, in one sense the crisis was very good news for economists: ‘The recession has apparently led to a surge of school-leavers applying to study economics at university. Applications were up by 15% in January , and similar increases have been recorded for school economics lessons for 16- and 18-year-olds.’ But it was not all good news. ‘One of the areas prospective economics students might care to study is why most economists failed to foresee the recession, and why those who did made not a blind bit of difference’ (Brown, 2009: 14). Similar questions were asked by Queen Elizabeth of the then Prime Minister, Gordon Brown. The answers, in a nutshell, are that mainstream economists...
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