Critical Review Explores The Causes Of The Financial Crisis

August 6, 2009

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.

6 Responses to “Critical Review Explores The Causes Of The Financial Crisis”

  1. Zombiehero Says:

    Just as the Great Depression paved the way for Keynes, I think this “Great Recession” could pave the way for a more Austrian perspective in mainstream Macro.

    Well at least I hope so, or we are all screwed…in the long run.


  2. The great Mateusz Machaj also contributes in the latest issue discussing the role of financial capital regulations in causing the economic crisis. He’s the one who wrote “Market Socialism and the Property Problem: Different Perspective of the Socialist Calculation Debate” for the Quarterly Journal of Austrian Economics.

  3. Mario Rizzo Says:

    Keep in mind that Lawrence J. White is not Lawrence H. White, the Austrian economist.


  4. We need more research and papers by Austrian economists on the crisis if this is going to be an “Austrian moment.”

  5. TGGP Says:

    For an explanation of derivatives and the like, you can read Charles Davi.

  6. Bob V Says:

    I found the following link-referenced site helpful in understanding the MBS, CDO, CDS, and bond-insurer concoction.

    http://www.generationaldynamics.com/cgi-bin/D.PL?d=ww2010.i.cdo080123


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