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The Credit Crunch
Forever Blowing Bubbles
Mike Fuller on the circular cause of the credit crunch.
The global credit crunch has led to a spate of books trying to make its convolutions intelligible to the public. Robert Peston’s Who Runs Britain?, Niall Ferguson’s The Ascent of Money, Hugh Pym and Nick Kochan in What Happened? all do an excellent job in allowing the non-specialist to at least half-understand the role played in our current woes by arcane entities like shadow banking, credit default swaps, collateral debt obligations and special investment vehicles – those things which, in happier times Gordon Brown praised as the ingenious financial innovations of those brilliant folk in the City to whom we owe so much. But while these books are good are unravelling some of the intricate details, perhaps the deepest analysis of the crisis is contained in Graham Turner’s book The Credit Crunch. Turner analyzes the global financial crisis in the spirit of the great economists – those ‘worldly philosophers’ such as Adam Smith, Karl Marx and John Maynard Keynes – tying it into broader themes in economic theory and history. Implicitly if not explicitly, Turner relates the crunch to the Circular Flow of Income, that standard economist’s tool for analyzing the health and ills of any economy:
For any economy, national or global, to function effectively, it needs a smooth flow of finance between production, consumption, savings and investment.
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