The left has been so spectacularly unsuccessful at countering the pernicious effects of neoliberalism, it has allowed its adherents to ride roughshod over history from the 2008 global financial crisis all the way back to the Great Depression. 

Economic historian, Dr Philip Mirowski tells Renegade Inc. the suppression of research into their true origins may prevent us from ever truly understanding what happened.

 

Dr Mirowski’s recent book, Never Let A Serious Crisis Go To Waste explores the historian’s fascination with the triumph of orthodox economics following the Global Financial Crisis.

“I thought economics would really suffer culturally in 2008, ‘09, ‘10,” he says. “But the opposite has occurred. That amazed me.”

Dr Mirowski says the stories offered by orthodox economics about the cause of the crisis are totally implausible.

“I couldn’t believe the stories they were offering,” he says. “They are totally implausible explanations of what actually happened in the run up to 2008, and it doesn’t seem to bother anybody other than of course your average Joe with a mortgage.

“None of the shadow banking entities were harmed in any way. There were all made whole. So weirdly enough, even though it was a lie that we were all living, the government made that lie true. See? This is a totally different story altogether. We are still living the lie, and the system is still relatively insecure. But no one in economics wants to say that. I’m very serious about this.”

The economic historian told Renegade Inc. that shadow banking – lending and other financial activities conducted by unregulated institutions – has all but completely displaced ‘normal’ banking.

“When people freak out about Dodd Frank and stuff like that they’re missing the point,” he says. “Because it’s all shadow banking. It’s all credit based money now. There is a very good case to be made that the way in which shadow banking is organised was an attempt to have the people making the loans totally escape the consequences of any default.

“Of course you can do that individually. You can’t do that collectively because that means everybody escapes the consequences. In a sense that was the real root cause, along with Collateralized Debt Obligations and things like that, but that is secondary. The cause was that the whole world’s financial sector came to believe that it could escape the consequences of the kind of practices that it had developed in shadow banking.

“And here’s the weird part: we know that the whole thing failed. And yet the central banks of the world didn’t allow anyone to be punished for their failure.”

Dr Philip Mirowski says we still have no plausible understanding of the true cause of the financial crisis.

Because everyone was satisfied with this ‘stupid’ mortgage story, there has been no call for a serious rethinking of what actually happened, and certainly no call within economics itself. The result is the right has managed to re-write history, all the way back to the Great Depression, the catalyst for which the jury is still out.

“Keynes didn’t really describe what happened in the Great Depression,” he said. “He just came up with a good story for how to fix it. That’s why there was this rethinking 30 years afterwards, which Milton Friedman is responsible for.

That’s what happens when no one settles on a plausible story of the cause of some really big historical crises: the loudest and most powerful are left to fill in the blanks.

Orthodox economics has come to dominate most universities since the crisis. Renegade Inc has interviewed several heterodox economists who attested to coming under intense scrutiny and pressure within their own departments for exploring economic alternatives or, in Dr Mirowski’s experience, researching what really happened during the Global Financial Crisis.

“I’m dead to economists, by the way,” he said. “You should know that… As soon as the crisis hit, that was over. They really battened down the hatches. There’s no room for true heterodoxy in formal economics anymore.”

“No economics department will have me give a talk anymore. Before the crisis it was sort of cute to have these little rebels but now there are no rebels anymore because they’ve all been neutralised.”

The historian says there is no plausible theory of money in orthodox economics. And while modern monetary theorists have made some inroads proposing explanations that far closely resemble reality, it is still too fascinated by the ghost of Keynes.

“Keynesianism is dead now,” he says. “There’s not going to be a new Keynes. That’s another left nostalgia thing. It’s not going to be like that.”

“We’ll know that we’re really getting somewhere when we’ve got a strong story about shadow banking and what to do about collateral, repurchase agreements: real stuff.”

But without deep pockets and a structured network to carry your ideas, the left and heterodox economists are up against one of the most well-funded ideologies in the world. Its donors include the likes of Charles Koch who fund think-tanks that inject its ideology into governments, corporations and universities, even organising summer camps like the Liberty Fund Summers for high-school students, set up to identify potential future leaders who are put through Ivy League schools with the objective of ensuring their ideologies travel with them into the private sector.

“There’s nothing like that on the left. There’s absolutely nothing.”

Claire Connelly

Claire Connelly

Claire Connelly is the lead writer of Renegade Inc. An award-winning freelance journalist, speaker, and founder of subscription journalism experiment, Hello Humans.

Specialising in economics, technology and policy, Connelly is working on her first book due out in 2018.

With more than a decade of experience under her belt, Claire has written for leading publications including The Australian Financial Review, The Saturday Paper, ABC, SBS, Crikey, New Matilda, VICE & others. She is the co-host of The Week In Start-Ups Australia, and features regularly as a commentator on TV and radio shows including Radio National's Download This Show, ABC's The Drum, Ten's The Project, and more.
Claire Connelly

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9 thoughts on “Everything you think you know about the financial crisis is wrong

  1. Article says nothing, orthodox economics is a conspiracy. This guy is persecuted etc. Write about what this guy has to say about how economics is wrong and constructively how he thinks things can and should be done. Otherwise it’s just an empty moan.

    1. I’m with Donald – there’s little to no actual content in this article. I kept waiting for it to get to the point, and was disappointed to discover that there isn’t one.

    2. My thoughts precisely Donald. The article is vacuous with absolutely no point to it whatsoever. What is the proof for the mortgage story being untrue? Sure no one is properly explaining things but there are economists out there challenging neo liberalism and there is also a push from economics students to not just preach from the old order. So I totally disagree with the premise of the article though I can’t comment on it’s conclusion, ‘os there isn’t one!

  2. “Because everyone was satisfied with this ‘stupid’ mortgage story, there has been no call for a serious rethinking of what actually happened” Perhaps Dr Mirowski needs to read “After the Great Complacence” which is an academic work & which looks at what happened, why and how to reform. The book was publish in 2011. The US mortgage debacle was a scandle – & too some extent masked underlying financial weaknesses – the Complacence book looks at that.

    At least in Europe – no attempt what so ever has been attempted to reform the finance sector – the usual players – making all the usual mistakes.

    For those that prefer something lighter “Whoops” by John Lanchester is quite good.

  3. Claire, ‘left’ and ‘right’ are both canards, offering devotees the illusion of choice. The mainstream political establishment has already wholly embraced the economic doctrine of neoliberalism, and all who choose to work within that framework will succumb. What remains is, and has been for some time, little more than an exercise in identity politics.

    With all due respect to Dr Mirowski, a more complete historical on the exploitation of crises by neoliberal economics can be found in ‘The Shock Doctrine’, by Naomi Klein.

  4. Well we live in a debt cult, don’t we..? That’s the root of the problem. Debt and corporate socialism (routine state topping-up of substandard pay, happily accepted by those who profess to believe in the values of the ‘free market’)) have replaced proper wages and secure jobs. Adverts on Tv offering loans from ‘sunny, friendly people’ at 1300% interest and no-one seems to bat an eyelid. When something outrageous as that is not just legal but becomes normal, unquestioned it seems, you know you have a problem coming down the line.

    Usury has become completely normalised – indeed, the word doesn’t even seem to appear in the lexicon any more.

    One can only wonder what will occur in countries like the USA and UK – who mostly no longer have their wealth-creating manufacturing base – when cheap credit is no longer available to keep the party going.

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