Tuesday, July 15, 2008

A paradigm shift?

I'm trying to write some elegant prose that ties the following elements together:
1. The recent financial crisis in the subprime and housing market
2. The wide inequality gap that has led other commentators to call this the Second Gilded Age
3. An ever louder chorus calling for increased regulation of financial markets
4. Globalization's effects on job security
5. The shift of some countries (notably Latin American countries) to socialist and populist models or some kind of authoritarian but market based economics (e.g. Russia, China).
These all lead to a decrease in the "faith" of free markets to "get the job done" and eventually leads to increased government intervention and perhaps even a return to the mixed economies of the 1970s (without the Keynesian spending, although the increasing calls for a fiscal stimulus may suggest otherwise). On the academic side, rational expectations and efficient markets theories will no longer be in center stage and although no new paradigm has emerged, these theories come under greater criticism.

Unfortunately, I've been out of economics too long to tie these together logically (but not long enough to note that this is an extreme view in terms of the "failure" of market based economics) and have not been writing enough to string together anything coming close to elegant.

Update: Dani Rodrik ties some of these strands together very eloquently here.

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