When stability goes belly up

It may be that debt crises, and not only instability, are an unavoidable characteristic of capitalism unless some mechanism is added to reduce levels of accumulated debt.

As I noted in my previous post, neoclassical economics made it an item of faith that capitalism was inherently stable, and dismissed arguments to the contrary as no more than left-wing propaganda. My favourite statement of this perspective came from the pen of Nobel Prize winner Ed Prescott, who was one of the key players in introducing the concept of “rational expectations” into economics. Not only was capitalism inherently stable, he claimed in 1999, but it was so stable that we can reliably expect the economy to double the standard of living every 40 years. Marx and his ilk were simply wrong:

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