Robert Pollin, economics and co-director of the Political Economy Research Institute, writes a column about the collapse of Wall Street and what he calls the return of reality-based economics. He says history shows that unregulated free markets undergo periodic booms and busts that can be moderated by government intervention of various types. (Monthly Review, September 2010)
As with Minsky, Sweezy and Magdoff also did not develop a fully adequate framework for understanding financial bubbles and crises. There are significant holes and deficiencies in both approaches that need to be worked through by other researchers, as is true with all meaningful research programs. But this brings up a larger question: why, over the past thirty years, were something on the order of 90 percent of professional macroeconomics economists working on aspects of the Friedman/Lucas framework, while less than 1 percent was developing the Minsky/Sweezy approach? Cassidy, unfortunately, ignores this question, perhaps because the answer is obvious. Whatever its failings in terms of intellectual coherence or relevance, the Friedman/Lucas model—and neoliberalism more generally—does an outstanding job serving interests of big business and the rich, while the Minsky/Sweezy approach challenges the legitimacy of free market capitalism and its beneficiaries. This is especially true when you make the one small adjustment to the Friedman/Lucas model, which is the key innovation of neoliberalism, as opposed to classical liberalism. That is, neoliberalism is all for allowing the free market to rip, including especially on Wall Street, but also will not hesitate to embrace government bailouts when the inevitable financial crises emerge. Seen in this way, Wall Street bailouts are not only absolutely needed for keeping capitalism afloat; they are also central for maintaining the legitimacy of mainstream, pro-business economic theory.
Cassidy ends How Markets Failwith a call to arms: “Before the political will for reform dissipates, it is essential to put Wall Street in its place and to confront utopian economics with reality-based economics.” However, throughout his long, careful study, he never focuses seriously on how we might translate the insights of reality-based economics into a workable set of policies and institutions that can both rebuild stable financial systems and, more fundamentally, begin again to advance the historic project of creating sustainable democratic, egalitarian economies. This is a gap that will obviously need to be filled by a wide range of reality-based economists, alongside citizens unwilling to serve as patsies for either the grand schemes of Wall Street or the outlandish propositions of utopian economics.