The Great Financial Crisis: Causes and Consequences Review

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The Great Financial Crisis: Causes and Consequences ReviewI've been teaching the financialization of the US economy for some years now. It's not been easy to find a clear, thorough and convincing analysis of the tendency of the economy to shift from industrial production to financial speculation and other forms of debt as a source of business profits. The onset of the current financial crisis makes it more urgent to have available to both students and the general public a lucid and detailed explanation of what's happening and why. In my opinion, this book fits the bill. There's nothing else quite like it.
Foster and Magdoff's book makes the economic and political issues crystal clear without undue simplification. So, for those who suffer from "economics anxiety" this book is an oasis in a desert of dry, incomprehensible and often ideologically obfuscating economicspeak. The authors discuss the financialization of what was previously an industrial economy, the explosion of debt and speculation which followed the deindustrialization of America, the household debt bubble and how all this came to a head in the present meltdown.
The book is helpfully divided into two parts, the first discussing the causes of the meltdown, and the second describing and analyzing the consequences. Key terms such as securitization and derivatives are defined, the views of major economists from Milton Friedman to J.M. Keynes and Hyman Minsky are explained and, perhaps most importantly, there is an extensive analysis of the relation between the financial and the real, i.e. tangible-goods-and-services-producing, economies.
The authors demonstrate that the real economy is afflicted with a built-in tendency toward mounting underutilization of its technological and human resources, so that the gap between actual and potential production tends to get wider and wider. This manifests itself as growing unused productive capacity (what economists call "capacity overhang"), unemployment and wasteful production. As this problem grew in severity and profitable industrial investment opportunities withered, investment-seeking capital moved toward financial means of generating "profits." The scare quotes indicate that what this process of financialization produces is phantom, spurious "wealth," which must eventually dissipate in popped bubbles, recession or depression and the liquidation of real wealth as the widget-producing economy disintegrates in escalating unemployment and widespread business failures.
A brief review cannot do justice to this very helpful and insightful book. I have come across no better analysis of what will probably turn out to be the most severe crisis to beset modern capitalism, bar none, including the Great Depression.
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