by Sandy Ikeda
The most recent issue of Critical Review on the Causes of the Financial Crisis includes contributions from John B. Taylor, Daron Acemoglu, Steven Gjerstad and Vernon L. Smith, Lawrence J. White, and Joseph E. Stiglitz to name just few.
I’ve not yet read the entire issue, but did have the opportunity to read an earlier draft of the introductory essay by CR’s editor, Jeff Friedman, entitled “A crisis of politics, not economics, complexity, ignorance, and policy failure.” While the title reveals where Friedman stands on the origins of the crisis, his emphasis on “ignorance” in particular reflects his appreciation of the role of what Kirzner has termed “sheer ignorance” in creating the unintended consequences that drive the dynamics of interventionism. (He cites Hayek, Selgin, and myself, alas there is no reference to Kirzner.) He points out the effect of policies not only on the existing structure of regulations, but also the impact on future, unknowable interventions
I also found that his article does an excellent job of clarifying a number of points for me, including the nature of tranches and CDOs, which to the uninitiated (like me) seem highly arcane, and shedding light on the subtle but crucial roles of the Basel I and II agreements in the crisis. It’s a very useful essay, telling what can be seen as an Austrian-based story of the financial crisis.