The professors and the banks: US views on the subprime crisis

Abstract

This review article surveys accounts of the recent global financial crisis by ten leading economists – nine in the US and one, Martin Wolf, in the UK – all of whom are critical of mainstream economic thinking. Since their explanations of the crisis are very similar, the review concentrates on their differing views on three questions: the reform of the financial sector; the state of academic macroeconomics; and the global economic imbalances. Some of the writers have also considered recent austerity policies and their opinions on this topic are also discussed. The article closes by referring to some of the gaps in these accounts.

Keywords:

• financial crisis
• macroeconomics
• austerity

• JEL classifications:
• G01
• G18
• E10
• E12
• E60

Notes

1. Note that Stiglitz describes himself as being in the centre among Clinton’s advisors, with ‘Robert Rubin and Larry Summers on the right and Robert Reich … on the left’ (p. 37).

2. For an account of the financial crisis and the sovereign debt crisis which followed, see Blackburn (2008) and Blackburn (2011).

3. To be fair to Roubini it should be added that the next sentence is, ‘That said, he was not alone in sounding the alarm.’ The list of honour given includes three of the writers discussed here: Rajan, Rogoff and Shiller.

4. See also Toporowski (2012) ‘Neologism as Theoretical Innovation in Economics: the Case of ‘Financialisation,’ mimeo, SOAS.

5. Respectively, ‘Interview with Eugene Fama,’ New Yorker, January 13, 2010; Mulligan blog, Supply and Demand (in that order), http://home.uchicago.edu/~cbm4/; ‘Chicago Economics on Trial,’ Wall Street Journal, September 24, 2011; ‘A look at the global one percent,’ Wall Street Journal, March 9, 2012.

6. For a critique, Pesaran and Smith (2011).

7. For the case of Gréau, see Grahl (2011).

8. This proposal is more fully discussed in a previous book, see Duncan (2003, chapter 12).

9. If these points are valid, then the European Union’s Lisbon Strategy, now extended with the 2020 Strategy, looks to be without logical foundation because it was derived from a fear (indeed, a moral panic) that the EU was being outpaced by a very dynamic US economy.

10. See Brenner (2009); Duménil and Lévy (2011).

11. For example, James Crotty (2011): ‘After tracing the long-term evolution of our current deficit crisis, I show that this crisis should be resolved primarily by raising taxes on upper-income households and large corporations, cutting war spending, and adopting a Canadian or European style health care system. Calls for massive government spending cuts should be seen as what they are – an attack by the rich and powerful against the basic interests of the American people.’ New estimates show an astonishing accumulation of private wealth shielded from tax authorities in offshore centres: James S. Henry, ‘The Price of Offshore Revisited,’ Tax Justice Network, July, 2012.