We learned a lot and did nothing: a reflection on the Panel Discussion «11 years after the crisis: What are the solutions now?»

Aug 5, 2019 by

From my perspective the most popular question to ask an economist today is: «Why didn’t you prevent the crisis?». It is easy to define the probability of events after they have actually happened and judge scientists for not being able to solve all the problems of humankind. And, while this particular question is (in itself) an indicator for the importance of the 2008 Global Financial Crisis, it is also a constant reminder that there are lessons that we can learn from our own mistakes. There might be issues and economic processes we are not able to stop or fully prevent, but we can still look into the past and seek some answers to address current issues.

The discussion started with a very precise and clear point by Helene Schuberth: although for these 11 years we learned a lot about how the crisis could have been mitigated, we still have acted too little on that knowledge. Helene has mentioned 6 major issues about the current financial and banking system that need to be addressed to cope with the potential effects of the next crisis: 1) both public and private sector, especially in the emerging markets, are even more leveraged today than they were before the crisis, 2) shadow banking system that was supposed to be partly eliminated is still a huge part of the global GDP, 3) cross-border capital operations are still managed by «too big too fail» institutions and 4) the financial system is still designed in a way it serves the wealthiest but not those who represent the real economy. Other two things that they mentioned were both connected with the question of globalisation: first, the retrenchment of the international flow of goods and capital was expected but did not happen: the flow just shifted to the developing countries. Second, the global monetary system is still dependant on the dollar and no other currencies came to power as reserve currencies. As a policy-maker from the Austrian Central Bank, Helene was quite sure though that major systemic changes are always accompanied by transition costs: Whether we want to induce capital control or try to limit the «grey» or shadow sector of the economy we need to be ready that the constraints as lobbying and rigidness of laws won’t take long to occur.

From a more practical perspective on how the current situation is still far from the «steady-state» economy, Christian Felber spoke about the actual policies needed to be implemented at both state and local level: their suggestions addressed the «anti-constitutional» practices of “for-profit” commercial banks to make money on those in need and to finance everything else aside from the real economy. As it’s widely known, the unsoundness of the financial and banking system and the following asset-pricing bubble were one of the major reasons for the crisis to happen. Thus, Christian’s proposition of «ethical» banking sounded like a plausible way of how we can move away from the paradigm where the financial system is not a public good towards a «common-good oriented» banking system.

Sigrid Stagl, however, was not that optimistic about the possibility of change and its pace: they pointed out that the decade we had after the crisis can be called a «lost decade» since we, as a society, could have moved much further with the reforms connected to climate mitigation, financial soundness, and transparency. They were quite sure that people should fight for what they think is right which applies to both social movements and economic movements of scientists and activists within the economic community. In fact, they claimed that these movements should progress together: pluralism of opinions in the economists’ community accompanied by grass-root initiatives for climate and societal change can fight together. Then, a shift from «profit maximization» paradigms to one within which the financial assets are redefined and companies are held responsible for their effects on society and the environment becomes possible.

Although not all the participants of the discussion seemed to agree on the policy implications and feasibility of measures that needed to be done for the sake of new economic stability and prosperity, all of them acknowledged that a shift should happen in the power-relations and structures of today’s societies. Regardless of the scale, we start from – local or global – we need to take action and counter people currently holding most power who might not support those actions.

Written by: Ekaterina Vashkinskaya

Based on the panel discussion “11 years after the crisis. What are the solutions now?” with speakers Helene Schuberth, Sigrid Stagl and Richard Werner.