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The Terrible Simplifers: Common Origins of Financial Crises and Persistent Poverty in Economic Theory and the new ‘1848 Moment’

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  • Erik S. Reinert

Abstract

One element explaining the financial crisis is what Hyman Minsky called ‘destabilizing stability’: long periods of stability lead to increasing vulnerability. This paper argues that similar mechanisms are at work inside economics: long periods of economic progress in the core countries lead to increasingly abstract and irrelevant economic theories (‘terrible simplifications’). This leads to turning points towards more relevant economic theories, referred to as ‘1848 moments’. The paper further outlines the key variables that need to be re-introduced into economic theory in order to furnish poor countries with the type of productive structures that makes it possible to eliminate poverty.

Suggested Citation

  • Erik S. Reinert, 2009. "The Terrible Simplifers: Common Origins of Financial Crises and Persistent Poverty in Economic Theory and the new ‘1848 Moment’," Working Papers 88, United Nations, Department of Economics and Social Affairs.
    • Handle: RePEc:une:wpaper:88
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    References listed on IDEAS

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    13. Erik S. Reinert & Rainer Kattel, 2009. "The Economics of Failed, Failing, and Fragile States: Productive Structure as the Missing Link," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 18, TUT Ragnar Nurkse Department of Innovation and Governance.
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    More about this item

    Keywords

    Uneven economic development; production-based economics; technological change; innovations; increasing returns; synergies;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • F10 - International Economics - - Trade - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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