Did Capitalism Fail? The Financial Crisis Five Years On
Did the global economic collapse in 2008 stem from structural failures in the capitalist system?
During his keynote address to the European Financial Congress, Institute Advisory Board member Roman Frydman argued that capitalism itself did not fail. Instead, Frydman placed the blame on those who promulgated the theories that guided policy makers.
“I would like to pin a significant share of the blame on economists,” Frydman said. “It was their ideas concerning the role and functioning of financial markets in capitalist economies that provided the supposedly scientific underpinning for policy decisions and financial innovations that made the crisis much more likely, if not inevitable.”
And while some might think the influence of academics on policy is limited, Frydman disagrees. “Economists’ model-building is not some harmless academic exercise,” he said. “These models wield significant influence over real financial-market participants, policymakers, and the wider public.”
These theories created a faith in the mechanistic rational market that was a key cause of the crisis, Frydman suggested, deriding the ”unsuccessful – and largely American – experiment in viewing the macroeconomy and financial markets as machines.”
This view failed because it doesn’t account for imperfect knowledge, a key factor in the economy according to Frydman, one of the founders of Imperfect Knowledge Economics (IKE) and Chair of the Institute’s IKE program.
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