The US financial system, the great recession, and the “speculative spread”

The Great Recession was an enormous surprise to mainstream economists, while not as much to non-mainstream economists, due to differences in views of the financial economy and its interaction with the real economy. While policy makers continue to follow mainstream economic theory, with the implication that regulation and transparency can fix any market glitches, many remain skeptical of the ability of regulation to prevent this type of crisis in the future. Deeper restructuring of the economy, with curbs on the worst practices of speculation, are necessary to provide long-term stability. We have explored one way in which to measure speculation versus production, in what we call a “speculative spread,” and suggest that this may be an important means to understanding to what degree the economy is overfinancialized.