An Institutionalist Perspective on the Global Financial Crisis

Abstract

This essay, prepared for a forthcoming collection of perspectives on the current world economic crisis, offers an institutionalist viewpoint on the financial crisis at the center of world attention since mid-2008. It is divided into three sections. The first section provides a brief history of the institutionalist understanding of how an economy operates, with special emphasis on a tradition known as post-Keynesian institutionalism (PKI). The second section draws on PKI to offer an explanation of the global financial crisis. The third section identifies some of the public-policy steps that are required to achieve a more stable and broadly shared prosperity in the United States and abroad. At the heart of PKI is attention to unemployment and the broader economic concerns facing working families. That focus is rooted in the shared interests of John R. Commons and John M. Keynes, who saw the business cycle as an important cause of unemployment and recognized that attaining greater economic stability requires understanding the operation and evolution of financial institutions.