Some reflections on the crisis.

AuthorIglesias, Enrique V.
PositionViewpoint essay

THE WORLD HAS BEEN SHAKEN by an economic crisis of historic proportions. Comparisons with past experiences are always difficult. In some ways, this reminds us of the crisis of 1929, but there are also significant differences. What is clear is that we are facing a crisis that have profound effects, not only on the world economy, but also on globalization processes, and in societies and politics.

The crisis has revealed serious limitations in our ideas and analytical categories. Economists were not able to anticipate the magnitude of the crisis and are not able to agree on the measures that need to be taken now. It has become necessary to dust off the teachings of Keynes and to turn to his counsel.

The inability to predict the future or to know what policies to follow has also affected international organizations.

We do know some things. We know that the crisis will have to end at some point. But we don't know when, much less how. Very few economists are predicting that it will be over soon. I must agree with those who believe that this crisis will be long and painful.

We also know that this crisis will not lead us back to where we were before. It will leave us with another economic, social, and political reality. Surely, it will be a better world than the one we have now. We must call upon our past experiences and remember society's historic capacity to recover. But how do we get to that better world while incurring the fewest economic, social, and political costs possible? The task will certainly not be easy but this is the question we must ask ourselves.

The causes of the crisis have been duly analyzed. An excess of a cheap and abundant liquidity fed dangerous bubbles in the real estate market, the stock market, and in raw materials. Control and oversight groups failed dramatically, especially in the non-banking financial system. It is frankly inexcusable that the regulatory bodies of the countries with the largest economies have failed so spectacularly, as have private risk management organizations. Perhaps the crisis was not preventable. But certainly its costs would have been much lower if these failures could have been avoided.

In the end, what has been destroyed is confidence in both public and private institutions. The capitalist system is based on confidence, and when that falls, the whole system melts down. It is not easy to recover trust once it has been lost.

We must also say that governments have responded more quickly and...

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