John Kay

If the eurozone had quickly recognised defeat in Greece, it would have suffered a manageable failure and learnt an important lesson for the future. Instead it has followed the martingale.

As the eurozone crisis deepens and political leaders flail in the face of the huge debts that have left financial institutions and member states teetering on the brink, it is important to understand how we got here if we are ever to figure a way out. In 2005, well before the financial crisis, when the [...]

A semantic confusion leads us to use the word market to describe both the process which puts food on our table and the activity of gambling in credit default swaps. That confusion has enabled people to claim the virtues of the former for the latter.

John discusses credit default swaps on the today programme. Listen here.

The eurozone’s difficulties have been created by member states not markets, giving members more resources to fight markets makes things worse, not better.

Rational expectations fail for the same reason communism failed – the arrogance and ignorance of the monopolist.

The skill of the statesman is to distinguish situations in which ambiguity makes coexistence possible from those that will make the future more troublesome. In this respect, politicians who have steered world affairs through the financial crisis have not served us well.

The reputation of economics and economists, never high, has been a victim of the crash of 2008. The Queen was hardly alone in asking why no one had predicted it. An even more serious criticism is that the economic policy debate that followed seems only to replay the similar debate after 1929. The issue is budgetary austerity versus fiscal stimulus, and the positions of the protagonists are entirely predictable from their previous political allegiances.

The jobs and growth the bankers claim will be in jeopardy are their own: the pressing needs of the real economy point not to delaying change, but to implementing it as speedily as possible.

A few failed components may bring about collapse in a complex interdependent system. As in the Gulf of Mexico spill, or at the Fukushima disaster, or in the credit market in 2008.