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Friday, 29 January 2016

Was the global financial crisis really a “debt crisis”?

Alexandra Zeitz (St Antony’s College, Oxford)

Speaker: Anatole Kaletsky, Gavekal Consultancy
Chair: Adam Bennett, St. Antony’s College, Oxford

We are accustomed to analyses of the 2008-9 financial crisis that point to and dissect particular causes of the crisis, using these to call for post-crisis reform, regulation and rethinking. In a presentation at the PEFM seminar on January 25, Anatole Kaletsky instead gave a much wider-ranging and sweeping account of the causes of global financial crisis, and outlined the fundamental shifts in the relationship between governments and markets that he believes it has unleashed.

In 2010, Kaletsky published Capitalism 4.0: The Birth of a New Economy in the Aftermath of the Financial Crisis (Bloomsbury). In his presentation in early 2016, he argued that many of the false diagnoses of the crisis that he wrote the book to challenge continue to dominate post-crisis conversations. Rather than placing blame on individual bankers or on high pre-crisis debt levels, Kaletsky sees the global financial crisis as the demise of an entire theoretical and ideological view of the economy, collapsing in on itself as economic rules came to be applied dogmatically. 

Blind faith in the efficient market hypothesis led both regulators and market participants to make bad decisions – foremost among them the Henry Paulson’s decision to allow Lehman Brothers to fail – bringing down the intellectual consensus that had supported the previous structure of capitalism.

In Kaletsky’s view, the rupture the crisis provoked in both economic theory and practice will lead to a new practice and understanding of capitalism. In fact, he argues this reinvention of capitalism is just the latest in an ongoing process of evolution and adaptation. Kaletsky’s historical narrative begins with “Capitalism 1.0,” emerging in 1776 with the independence of the United States, and coincidentally also the publication of Adam Smith’s Wealth of Nations.