Economic Theory & the Great Recession

October 22, 2011by

Crisis & Confidence in Capitalism

The public debate about the moral and practical value of economic systems, while often obfuscated by the rhetoric of media pundits, revolves around the modern battle between capitalism and socialism. It is entirely speculative to speak about economic systems apart from the socio-political structures that inform and govern them, but much has been learned from various experiments with different versions of these two chief contenders in the ring of economic theory. In the following talks you will find a critique of capitalism, a defense of some central capitalist principles, and a new kind of capitalism beginning to spread across the globe. One of the key moral questions to consider here is, What blend of principles and socio-political structure will give rise to the conditions of greatest economic justice in the world today?

Crises of Capitalism

The 6 Killer Apps of Prosperity

Patient Capitalism

The Credit Crisis

Late in the year 2007 the greatest economic crisis since the stock market crash of 1929 began. It continues to profoundly impact people’s lives on a daily basis, and experts say little to nothing has been done to prevent it from happening again or hold accountable those who were most responsible.

We can identify four general causes:

  1. Deceptive and high risk banking and investment practices.
  2. Government incentivization of consumer debt and deregulation of measures to prevent institutions from becoming “too big to fail.”
  3. Inaccurate evaluation of the quality of investment assets by ratings agencies (Standard & Poors, Fitch, Moody’s), exacerbated by reckless use of David X. Li’s gaussian copula formula for calculating risk.
  4. Excessive consumer borrowing.

To give you a sense of the background and various dynamics at work as things played out, we will first watch a visualization of the credit crisis. This should help those of you not familiar with the complexities of the banking and financial industries get a better grasp on the general situation. Next, you will follow FRONTLINE “inside the meltdown” to get a much more up-close-and-personal look at what happened. Here, several moral problems with both government and business come into focus. Finally, we take a look at some of the social scientific research that sheds some light on the human elements at play here.


Lying, Cheating & Stealing

One of the key moral issues pervading the financial crisis–and which remains a key issue for the banking, investment, and business industries–is the way in which greed has fed destructive behaviors like deception, lying, cheating, and stealing. Behavioral economist Dan Ariely, in part motivated by scandals in the business world, has conducted research for years on these topics to try and get a better grasp on the various factors involved. In the following talk he presents some important insights on the personal and social dynamics of cheating and stealing.

TED talks:

The Wealth Gap

Is America really the land of opportunity?

Another more general ethical issue concerning economic systems is the resultant distributions of wealth they lead to in particular socio-political contexts. In the following features, Richard Wilkinson displays and explains the hard data on economic data, and in a segment from PBS’s The Business Desk Paul Solmon conducts a survey on people’s awareness of the wealth distribution in America interwoven with some data from a recent study on perception of wealth inequality in the US. The moral question is one of justice as fairness.

Watch the full episode. See more PBS NewsHour.


In the Media

To cap things off, here’s another angle from the Daily Show on what’s being called by some the “class warfare” debate:

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
What Are You Friggin’ Nuts Over There?
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook
The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
World of Class Warfare – The Poor’s Free Ride Is Over
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook