I found a flaw... . a flaw in the model.
— Alan Greenspan, October 2008
It's almost three years since the bubble burst. If understanding really does abhor a vacuum, something about why it happened ought to have been learned. Much has been written on the subject, to be sure, lots of it terrifically trenchant. Journalists like Matt Taibbi (in his superb Rolling Stone screeds) and Andrew Ross Sorkin (Too Big Too Fail) establish incontrovertibly that there was colossal greed at work on Wall Street. (The bankers, one can't help noting, admit as much. It's only the criminal charges they're a little defensive about.)
But moral narratives alone will never suffice; what's being reckoned with here, recall, is arguably the greatest systemic failure of all time. The bankers cannot have been the only ones responsible. A more circumspect explanation is to be found in what might be called the "regulatory capture" version of the moral tale, found in books Simon Johnson's 13 Bankers or Joseph Stiglitz's Freefall. In this version of the crisis, self-interested elected officials and the regulators they appointed are (quite rightly) seen to have stood aside for the banks.
Such finger-pointing accounts are even less satisfying in view of our situation today: The global financial system still teeters on the brink of collapse, and virtually nothing has been done to avert another disaster. One would have to be pretty cynical to accept that only greed and personal political ambition are to blame for such thoroughgoing paralysis. In view of the spectacle of "extend and pretend" presently unfolding in power centers from Washington to Frankfurt, what needs explaining is why even the well-informed and quite high-minded remain committed to so unpromising a status quo.
At long last there is progress in this area: Two new books, conjoined twins of a kind but each of them quite extraordinary in their own way, from a trio of economists fronted by Yanis Varoufakis, who teaches at the University of Athens and writes with great command of the European debt crisis on his blog. The first is Modern Political Economy: Making Sense of the Post-2008 World, co-authored by Joseph Halevi and Nicholas Theocarakis, an astonishing tour de force of math, metaphysics, and political economy in the grand tradition, all unfolded in fugal counterpoint. The second, just out from Zed Books, is The Global Minotaur, Varoufakis's short course for a more general reader, Modern Political Economy minus the more abstruse material. According to both, the 2008 financial crisis was the result of two more or less mutually reinforcing conditions: First, a major reorganization of the global economic order in the late twentieth century; and, second, the inherent limits of what economics can say about the outcome of such shifts. The great insight here is that, along with whatever reckless self-interest was at work, the crisis occurred and persists because an alternative was and is mostly unthinkable.
The Global Minotaur of the shorter book's title is what Varoufakis and his co-authors c...