Abstract
Stagnation in the world economy and decline in major world economies following the credit crunch of 2007–2008 have contributed to the emergence of a vast literature prescribing economic policy response. The focus is on explaining how the credit crunch occurred and suggesting remedies for resuming economic growth. Much of this literature tracks the wrong solution because it asks only technical questions of a narrow range of mathematical models of the economy where a “rational economic man” is assumed to be in charge of his destiny even when members of the nomenklatura of capitalism pull the strings. When broader issues, for example that of corruption in finance, are raised, they are viewed within the narrow framework of individuals being good or bad. That leads to an impoverished analysis of the credit crunch, viewing the phenomenon entirely as a technical problem in economics requiring a purely mechanical response. Tinkering with the Basle guidance on risk measures, introducing quantitative easing, capping bonuses of the top earners in banks, or levying fines on shareholders do no provide a solution. The structure of the economy does not change. For example, a banking sector that has grown in relation to the size of the economy on the back of an inflationary rise in household wealth in much of the EU (ESRB 2014: 5, figure 8) is difficult to scale down without a substantial downward adjustment in house prices.
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Chakravarty, S.P. (2015). Globalized Finance in Disarray. In: Thomakos, D.D., Monokroussos, P., Nikolopoulos, K.I. (eds) A Financial Crisis Manual. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137448309_13
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DOI: https://doi.org/10.1057/9781137448309_13
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