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The Global Crisis and the Remedial Actions: A Nonmainstream Perspective

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  • Sunanda Sen

Abstract

The global financial crisis has now spread across multiple countries and sectors, affecting both financial and real spheres in the advanced as well as the developing economies. This has been caused by policies based on "rational expectation" models that advocate deregulated finance, with facilities for easy credit and derivatives, along with globalized exposures for financial institutions. The financial crisis has combined with long-term structural changes in the real economy that trend toward underconsumption, generating contractionary effects therein and contributing to further instabilities in the financial sector. The responses so far from US monetary authorities have not been effective, especially in dealing with issues of unemployment and low real growth in the United States, or in other countries. Nor have these been of much use in the context of the lost monetary and fiscal autonomy in both developing countries and the eurozone, especially with the debt-related distress in the latter. Solutions to the current maladies in the global economy include strict control of financial speculation and the institution of an "employer of last resort" policy, both at the initiative of the state.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_677.

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Date of creation: Jul 2011
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Handle: RePEc:lev:wrkpap:wp_677

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Keywords: Global Crisis; Expectations; Underconsumption; Ponzi; Labor Flexibility;

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  1. Hyman P. Minsky & L. Randall Wray, 2008. "Securitization," Economics Policy Note Archive 08-2, Levy Economics Institute.
  2. L. Randall Wray, 2008. "Financial Markets Meltdown: What Can We Learn from Minsky," Economics Public Policy Brief Archive ppb_94, Levy Economics Institute.
  3. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  4. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-27, December.
  5. Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2011. "Jobless Recovery Is No Recovery: Prospects for the US Economy," Economics Strategic Analysis Archive sa_mar_11, Levy Economics Institute.
  6. Thomas I. Palley, 2009. "The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis," IMK Working Paper 11-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. L. Randall Wray & Eric Tymoigne, 2008. "Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment," Economics Working Paper Archive wp_543, Levy Economics Institute.
  8. Greg Hannsgen & Dimitri B. Papadimitriou, 2009. "Fiscal Stimulus, Job Creation, and the Economy: What Are the Lessons of the New Deal?," Economics Policy Note Archive 09-10, Levy Economics Institute.
  9. Hicks, J. R., 1979. "Critical Essays in Monetary Theory," OUP Catalogue, Oxford University Press, number 9780198284239, September.
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