Thursday, October 23, 2008

Market Failure

It will be difficult to find a confrontation between economic principles and reality as dramatic as the one that we are witnessing.

And precisely this striking evidence is what Alan Greenspan admitted on a hearing on Capitol Hill on Thursday.

In his own words:

Mr. Alan Greenspan: “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,”

Mr. Waxman: “In other words, you found that your view of the world, your ideology, was not right, it was not working,”.

Mr. Greenspan: “Absolutely, precisely. You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Is difficult to find a better evidence of how far neo-liberal economic assumptions on market auto-regulation, are from explaining the realities of markets and economic behavior in times of crisis. This is nothing so new ... in any crisis we know that markets go mad and explode. However, here it is again, or as Galileo said – e pur si muove.

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