Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One
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The failure of economists to anticipate the global financial crisis and mitigate the impact of the ensuing recession has spurred a public outcry. Economists are under fire, but questions concerning exactly how to redeem the discipline remain unanswered. In this provocative book, renowned economist Meghnad Desai investigates the evolution of economics and maps its trajectory against the occurrence of major political events to provide a definitive answer.
Desai underscores the contribution of hubris to economists’ calamitous lack of foresight, and he makes a persuasive case for the profession to re-engage with the history of economic thought. He dismisses the notion that one over-arching paradigm can resolve all economic eventualities while urging that an array of already-available theories and approaches be considered anew for the insights they may provide toward preventing future economic catastrophes. With an accessible style and keen common sense, Desai offers a fresh perspective on some of the most important economic issues of our time.
of the collapse in prices. Banks and banking became a perennial subject of political debate in America from then on. The agrarian populists following Thomas Jefferson were suspicious of the banks and opposed to Hamilton’s reforms. The controversy again erupted when Andrew Jackson, elected President in 1828, vetoed the renewal of the Charter of the Second Bank of the United States. On both sides of the Atlantic farmers favored easy money, while financiers and business people liked balanced budgets
and half a century after Ricardo. The Industrial Revolution had spread much wider and entrenched itself in the British economy. In Smith’s time, agriculture was predominant; now industry was. Workers had left their lands and were recruited into factories to work under “miserable conditions,” an observation which his friend Engels had made about factories in Manchester in his 1845 book The Condition of the Working Class in England. Marx could see that the growth of the industrial economy had made
uncompetitive. Data on wholesale price movements were becoming available on a regular basis for a number of countries. This allowed Keynes to illustrate his argument with British and American wholesale price indices. Keynes was ignored and Britain went back to the Gold Standard at the old parity. The decision proved disastrous and led to economic stagnation and labor strife in Britain in the second half of the 1920s. On the continent, Germany had been burdened with a large reparations demand.
struggle between labor and capital over shares in income. Marx envisaged a cycle whereby, as the boom proceeded, labor markets got tighter and wages rose faster than productivity. The rate and share of profit then declined. This meant some businesses losing out, which is typical in a recession, with others adopting labor-replacing machinery. This slowed down wage rises and profits rose again. Once again, boom was restored to resume the next cycle. But Marx’s works were not being much studied in
not deepened thanks to the regime of low interest rates. What is also surprising is that the enormous amount of money injected into the economy has not caused inflation, as was the doctrine of the monetarists during the 1970s. But then the monetarists also had a closed economy model and the world has become open and globalized. In fact, much of the money has gone abroad in search of higher yields via hedge funds and private equity firms. The emerging economies have been experiencing sustained