Ebook The World Economic Crisis
The economic crisis that has roiled the world over the past nine months gives a new meaning to a phrase, so beloved of philosophers and sociologists, “a world historical event.”
As a “world” event, these months have revealed, with shocking ferocity, the interconnectedness not only of national economies and economic domains, but also of the political and moral beliefs that surround capitalism. Sub-prime loans in certain American states set off a chain reaction that spread across the economic spectrum—from the insurance industry and the automobile industry to commercial and investment banking—and across continents, as countries as distant as Ireland and Iceland, Spain and China experienced economic upheaval and crisis This global event has triggered a profound meditation on the perils of a global economy.
As a “historical” event—the economic crisis raises a number of pertinent questions from a liberal perspective. In what sense is this crisis historical? Is it a repetition of earlier bubbles—from the South Sea bubble of 1720 to the Great Depression of the 1930s—or is it something radically new? Moreover, how should liberals interpret these moments of economic collapse? Are they ruptures exposing fundamental structural weakness in capitalism? Are they events inwhich the system recalibrates itself and expands its interests? Or are they events in which the system simply demands to be recalibrated?
Some have traced the crisis to the climate of easy borrowing created in the United States by Alan Greenspan, the chairman of the board of governors of the Federal Reserve, in response to the collapse of the hedge fund Long Term Capital Management in the late 1990s and the bursting of the dot.com bubble that inflated the housing market bubble. Others (again tracing the origin of the crisis to the United States) suggest that the repeal of the 1933 Glass teagall Act, which was designed to limit speculation by separating commercial from investment banking, created an environment that allowed reckless lending. Others regard the crisis as symptomatic of a fundamental instability in the type of finance capitalism that has developed in America, Britain and some other Western countries. These accounts are neither mutually exclusive nor exhaustive. But economics alone may not provide a satisfactory understanding of the events of the past year, for they include shifts in geopolitics that go beyond economic performance. Market economies are not controlled solely or even
chiefly by economic theories; they rely on ideas about right and wrong, fairness in society, and orderliness in the world. For that reason, a liberal analysis that is at once systemic and historical, particular and global, must also emphasize the extent to which political ideologies and economics shadow one another.
Content
I. Introduction
III. The Question of Property
IV. Economic Self-Interest
V. What the Crisis Means for Liberalism
- Appendix 1: Origins of the crisis
- Unparalleled expansion and unbridled optimism
- Lack of perspective of the economic profession
- Blind belief in the strength of large financial and economic institutions
- Failure of statal regulatory supervision
- Incapacity of management, boards, and investors to assess real risk
- Accumulation of public and private debt
- Contagion effect
- Lack of preparation among monetary authorities
- Low interest rates and high world growth
- Failure of market discipline
- Lack of checks and balances
- Size and centrality of the shadow banking system
- Rating agencies
- Compensation schemes
- Procyclical regulatory practices and regulations
- Accounting practices
- Macroeconomic settings
- Global imbalances
- Poor forecasting ability on the part of international financial organizations and governments
- Cross border resolution and burden sharing among national regulators
- Access to adequate liquidity and financing
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