The Global Financial Crisis according to James Galbraith

Global Financial Crisis Survey

James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. Galbraith served in several positions on the staff of the U.S. Congress, including executive director of the Joint Economic Committee. In September of 2014 he published The End of Normal: The Great Crisis and the Future of Growth.

1. Which FCIC View best represents the causes of the Financial Crisis?

The FCIC Majority View is factually rich, accurate and useful, but does not contain a theory of the crisis. The other two are the reverse.

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

The government enabled the fraudulent circus that was the financial sector. But then -- the financial sector controlled the government. So it's not really meaningful to distinguish the two.

3. I believe the crisis is ongoing

It's still ongoing, in certain respects, though more severe in Southern Europe than in the United States.

4. What were the primary causes of the Global Financial Crisis?

Too difficult to answer in one paragraph, which is why I devote a book to it: The End of Normal.

5. What still needs to change as a result of the crisis?

The first thing that needs to change is our economic ideas. These still (including in this questionnaire) treat the crisis as an (anomalous) event with a "cause", and presumably also with a "cure." It is instead the cumulation of a sequence of historical events, of changing circumstances and deepening difficulties. In The End of Normal I point to (a) the changing outlook for resource costs; (b) the unraveling global security regime; (c) the digital revolution; and (d) the epidemic of financial fraud, all as elements of change either leading to the crisis or shaping the conditions under which it may ease, for a time, in parts of the world. The fact that economics deals effectively with none of these developments is a significant part of our problem.

Compiled by Gary Karz, CFA
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Global Financial Crisis Survey

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