The End of Alchemy

Why has almost every industrialised country found it difficult to overcome the stagnation that followed the financial crisis in 2007-2008, and why did money and banking, become the Achilles heel of a market economy? The post-war period saw unprecedented economic growth and stability followed by the worst financial crisis the world has ever witnessed. Most accounts of that crisis focus on the symptoms and not the underlying causes of what went wrong. Crises are not new, but there is no reason to accept them as inevitable. We can reform our system of money and banking to make it safer and regulation much simpler. Too many of the economic models used by central banks ignore the consequences of a world characterised by extreme uncertainty. Until that is recognised, recovery from the crisis will continue to be slow and patchy. But most actors in the present drama – whether banks, central banks, or even countries – are trapped in a prisoner’s dilemma that prevents them escaping the current stagnation. Future economic success will require new ideas.