The 2008 Global Economic Crisis

Nicoli Nattrass

Centre for Social Science Research

The global financial crash of 2008 sparked an economic, social and intellectual crisis. Coming after a long period of sustained growth (the so-called ‘great moderation’ of the 2000s), the financial crisis originating in the US mortgage market revealed that growth had been based on unsustainable borrowing and on an asset price bubble. Both have their roots in financial deregulation and rising inequality as the rich channelled excess income into financial assets and poorer people borrowed. The crisis reverberated around the world and global growth has yet to recover.

The extent to which the regulatory failures that allowed the crisis to build and burst were due to corporate ‘capture’ of the state or whether they were simply based on bad ideas (or stupidity) remains an open question. However, the fact that regulatory reform subsequent to the crisis has not been as far reaching as initially proposed raises concerns about the continuing power of the financial sector to set terms favourable to itself.

The global crisis thus provides a lens for looking at the socio-economic challenges of contemporary capitalism. But what one sees depends on the particular narrative of the economic crisis. There are three broad narratives:

1)Individuals responding to incentives and maximising self-interest;

2)Corporate power and regulatory capture;

3)Rising inequality as the underlying source of the problem

These explanations are located in the traditions of micro-economics, political-economy and critical macroeconomics respectively. We touch on all three in this course, paying attention to how they arise in both popular and academic explanations.

1)Introduction

2)The Big Short (as a lens on the psychology of finance)

3)Economic theories and the crisis

4)Inequality and the crisis

5)The aftermath and policy

1: Introduction.

The Financial Crisis Schools Brief (1):

2: Lewis: The Big Short

Michael Lewis, The Big Short.

See also this Bloomberg video (features Michael Burry and Michael Lewis)

3:Economic Ideas and the Crisis

Krugman, P. 2009. ‘How did economists get it so wrong?’, New York Times, September 2:

4:Inequality and the Crisis

Stockhammer, E. 2013. Rising Inequality as a cause of the present crisis, Cambridge Journal of Economics, doi: 10.1093/cje/bet052.

5:Aftermath and Policy

The Volcker Rule in effect in the US:

CDOs are back:

New York Times, 2 January 2015

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