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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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    1. Erik S. Reinert (ed.), 2004. "Globalization, Economic Development and Inequality," Books, Edward Elgar Publishing, number 1570.
    2. Erik S. Reinert, 1999. "The role of the state in economic growth," Journal of Economic Studies, Emerald Group Publishing, vol. 26(4/5), pages 268-326, September.
    3. Jan KREGEL, 2004. "External Financing For Development And International Financial Instability," G-24 Discussion Papers 32, United Nations Conference on Trade and Development.
    4. Deepak Nayyar, 2008. "Learning to Unlearn from Development," Oxford Development Studies, Taylor & Francis Journals, vol. 36(3), pages 259-280.
    5. Rainer Kattel & Jan A. Kregel & Erik S. Reinert, 2009. "The Relevance of Ragnar Nurkse and Classical Development Economics," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 21, TUT Ragnar Nurkse Department of Innovation and Governance.
    6. Wolfgang Drechsler, 2004. "Natural versus Social Sciences: On Understanding in Economics," Chapters, in: Erik S. Reinert (ed.), Globalization, Economic Development and Inequality, chapter 2, Edward Elgar Publishing.
    7. 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.
    8. Paul A. Samuelson, 2005. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization: Response," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 242-244, Summer.
    9. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
    10. Frank D. Graham, 1923. "Some Aspects of Protection Further Considered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 37(2), pages 199-227.
    11. Hugo Reinert & Erik S. Reinert, 2006. "Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter," The European Heritage in Economics and the Social Sciences, in: Jürgen G. Backhaus & Wolfgang Drechsler (ed.), Friedrich Nietzsche (1844–1900), chapter 4, pages 55-85, Springer.
    12. Mario Cimoli & Giovanni Dosi & Joseph E. Stiglitz, 2008. "The Political Economy of Capabilities Accumulation: the Past and Future of Policies for Industrial Development. A Preface," LEM Papers Series 2008/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Marcel A. G. Meerhaeghe, 2006. "Nietzsche and Economics," The European Heritage in Economics and the Social Sciences, in: Jürgen G. Backhaus & Wolfgang Drechsler (ed.), Friedrich Nietzsche (1844–1900), chapter 3, pages 39-53, Springer.
    14. Erik S. Reinert, 2009. "Emulation versus Comparative Advantage: Competing and Complementary Principles in the History of Economic Policy," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 25, TUT Ragnar Nurkse Department of Innovation and Governance.
    15. Santiago Roca & Luis Simabuko, 2004. "Natural Resources, Industrialization and Fluctuating Standards of Living in Peru, 1950–1997: A Case Study of Activity-Specific Economic Growth," Chapters, in: Erik S. Reinert (ed.), Globalization, Economic Development and Inequality, chapter 5, Edward Elgar Publishing.
    16. Giovanni Dosi & Christopher Freeman & Richard Nelson & Gerarld Silverberg & Luc Soete (ed.), 1988. "Technical Change and Economic Theory," LEM Book Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy, number dosietal-1988, November.
    17. Carlota Perez, 2002. "Technological Revolutions and Financial Capital," Books, Edward Elgar Publishing, number 2640.
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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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