Saturday, January 9, 2010

Explaining the Great Recession

Nice review of the various explanations for the economic calamities of the past few years. 

Particularly sharp--that greed and stupidity cannot explain it since they are, ahem, constants in human behavior.

The reviewer considers a bunch of explanations and sneaks in his assessment in the conclusion:

Historians are still debating what caused the Great Depression, so it's not likely this argument will be settled anytime soon. But if we haven't at least learned that our financial markets need stronger regulatory supervision and better controls to prevent bad bets by big firms from going viral, we'll be back in the same place before you can say 30 times leverage.
And, I have to concur.  Capitalism works better than its alternatives--but it needs to be regulated.  After all, it has been the work of economists (game theorists) who have taught us that what is rational for individuals can leave us all left worse off.

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