Capitalism in Transition? C.P. Chandrasekhar

After much dithering, high drama and every effort to avoid the inevitable for fear that it would straightjacket capitalism, governments in the developed industrial countries have taken the first, major, necessary step to begin resolving the financial crisis. They have, effectively, nationalized a large part of the private banking system. These moves come at the end of a long series of interventionist efforts that pointed in two directions. First was that governments believed that the problem facing the financial sector in the wake of the subprime crisis was not one of generalised insolvency, but one of inadequate liquidity resulting from…

The End of Neo-Liberalism Prabhat Patnaik

The Great Depression of the 1930s was a spectacular practical demonstration of the contradictions of “laissez-faire capitalism”. John Maynard Keynes, the renowned economist, writing in the midst of the Depression, had attributed the failure of markets, especially financial markets, to their intrinsic incapacity to distinguish between “speculation” and “enterprise”, and to get dominated by the activities of speculators to a point where “enterprise becomes the bubble on a whirlpool of speculation”. As a result, the level of employment and output in the economy, and hence the livelihoods of millions of people, became dependent on the whims and caprices of a…

A Perspective on the Crisis Prabhat Patnaik

Discussions of the current world economic crisis tend to focus exclusively on the bursting of the housing bubble in the United States. This no doubt is the immediate cause of the crisis, but underlying its operation is the fact that the stimulus for booms in contemporary capitalism has increasingly come from such bubbles. The U.S. whose size and strength make it, in the current regime of trade liberalization, the main determinant of the pace of expansion of the world economy as a whole, has increasingly come to rely on such bubbles to initiate and sustain booms. The dot-com bubble whose…

Minsky’s “Cushions of Safety”, Systemic Risk and the Crisis in the US Subprime Mortgage Market Jan Kregel

The sub prime crisis in the US has little to do with the mortgage market, or subprime mortgages per se, but rather with the basic structure of the financial system that produces overestimates of creditworthiness and underpricing of risk. The bottom line is that the system has been structured to make credit too cheap, leading to excessive risk in order to provide higher returns. The financial fragility that was identified in Minsky’s work cannot be eliminated, only damped by systemic policies. However, it is possible to eliminate fragility that emerges from the structure and regulation of the financial system. mortgage_market…