Reflections 10 years after the GFC
It is timely 10 years after the global financial crisis to reflect on what has been learnt and what has changed. Regrettably little, according to recent reports and expert opinion. Capital requirements for banks may have been increased somewhat, lending criteria reigned in a little and in some cases executive bonus provisions have been curtailed.
But overall the financial system operates as before, leveraging off ever increasing piles of debt as banks continue to make record profits.
Let us not forget that this was a financial crisis, not an economic crisis. The economic devastation caused through the collapse of businesses, consequent unemployment, loss of savings and widespread austerity measures implemented by most western governments – this was a consequence of a financial system out of control.
It is now more important that ever to understand how money is created and functions in our globalised world. Leaving it to bankers and financial elites, mainstream economics commentators and financially illiterate politicians is not a socially responsible option.
Positive Money is a UK based not-for-profit research and campaigning organisation. They have prepared a number of informative videos on money which can be viewed below:
Modern Monetary Theory (MMT) is attracting growing attention amongst some economists and even politicians. Understanding how sovereign creation currency really works can release us from the mindset that the government needs to balance its books and cannot afford public programs without raising taxes. Our current economic policies create ever increasing levels of private debt with the massive cost to the welfare of our society and environment. It’s time to lay to rest the mantra of jobs and growth to “pay our way”. What is needed are public investment decisions which benefit the real economy (not share and property prices) and a social justice charter that allocates to citizens a fair distribution of goods and services.
Stephanie Kelton is a lucid exponent of Modern Monetary Theory which challenges the orthodox position that governments have to “pay their way’ just like any household or business.
An engaging and informative video by Geoff Ginter explores how money is created and the changes that took place since the Gold Standard was abandoned.
For criticisms of MMT see the this article by Thomas Palley – What’s wrong with Modern Money Theory: macro and political economic restraints on deficit-financed fiscal policy.
See also this book, Can Heterodox Economics Make a Difference?, for critical discussions on MMT, among other topics, with leading heterodox economists worldwide.