Macroeconomic Theory and its Failings
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Macroeconomic Theory and its Failings

Alternative Perspectives on the Global Financial Crisis

Edited by Steven Kates

This innovative book focuses on the current global financial crisis and the inadequacies of the economic theories being used to guide policy. In so doing, it tackles the economic theories that have been used firstly to understand its causes and thereafter to contain the damage it has brought.
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Chapter 14: An Institutionalist Perspective on the Global Financial Crisis

Charles J. Whalen


Charles J. Whalen INTRODUCTION This chapter presents an institutionalist perspective on the financial crisis that has been at the center of world attention since mid-2008. It is divided into three sections. The first provides a brief history of the institutionalist understanding of how an economy operates, with special attention to how this understanding differs from that offered by neoclassical economics. The second outlines an institutionalist explanation of the global financial crisis. The third identifies some of the public-policy steps that are required to achieve a more stable and broadly shared prosperity in the USA and abroad. The particular variant of institutional economics that informs this chapter is what can be called post-Keynesian institutionalism (PKI). This strand of institutionalist thought, which emerged in the USA in the early 1980s, is rooted in the contributions of Thorstein B. Veblen (1857–1929), Wesley C. Mitchell (1874–1948) and John R. Commons (1862–1945), but also benefits from the insights of John Maynard Keynes (1883–1946) and even Joseph A. Schumpeter (1883–1950). The publications of Hyman P. Minsky (1919–96) were a model of PKI in the 1980s and 1990s, and his ideas remain relevant today. In addition to the author of this chapter, recent contributors to PKI include Martin H. Wolfson, David A. Zalewski, Kenneth P. Jameson, Slim Thabet, Chris Niggle, Fadhel Kaboub, Eric Tymoigne, L. Randall Wray and Zdravka Todorova.1 HOW AN ECONOMY OPERATES In a 1996 essay, institutionalist William M. Dugger observed that institutional economists have traditionally been ‘notoriously independent...

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