2.8 A World Economic Crisis Results
25
from unprecedented unemployment rates. In some countries, more than 50% of
young people did not have a job. In many regions, this caused social unrest, political
extremism and increased rates of suicide, crime and violence.
Unfortunately, the failure cascade hasn’t been stopped, yet. There is a long way
to go until we fully recover from the financial crisis and from the public and private
debts accumulated in the past years. If we can’t overcome this problem soon, it even
has the potential to endanger peace, democratic principles and cultural values, as I
pointed out in a letter in 2010.
21 Looking at the situation in Ukraine, we are perhaps
seeing this scenario already.
While all of this is now plausible with the benefit of hindsight, the failure of
conventional wisdom to provide an advanced understanding of events is reflected by
the following quote, made by the former president of the European Central Bank,
Jean-Claude Trichet (*1942) in November 2010:
“When the crisis came, the serious limitations of existing economic and financial models immediately became apparent. Arbitrage broke down in many
market segments, as markets froze and market participants were gripped by
panic. Macro models failed to predict the crisis and seemed incapable of
explaining what was happening to the economy in a convincing manner. As
a policy-maker during the crisis, I found the available models of limited help.
In fact, I would go further: in the face of the crisis, we felt abandoned by
conventional tools.”
Similarly, Ben Bernanke summarized in May 2010:
“The brief market plunge was just an example of how complex and chaotic,
in a formal sense, these systems have become… What happened in the stock
market is just a little example of how things can cascade, or how technology
can interact with market panic.”
Even leading scientists found it difficult to make sense of the crisis. In a letter
on July 22, 2009, to the Queen of England, the British Academy came to the
conclusion
22 :
“When Your Majesty visited the London School of Economics last November,
you quite rightly asked: why had nobody noticed that the credit crunch was
on its way? … So where was the problem? Everyone seemed to be doing their
own job properly on its own merit. And according to standard measures of
21 See https://www3.unifr.ch/econophysics/?q=content/open-letter-george-soros.
22 See http://wwwf.imperial.ac.uk/~bin06/M3A22/queen-lse.pdf.
25
from unprecedented unemployment rates. In some countries, more than 50% of
young people did not have a job. In many regions, this caused social unrest, political
extremism and increased rates of suicide, crime and violence.
Unfortunately, the failure cascade hasn’t been stopped, yet. There is a long way
to go until we fully recover from the financial crisis and from the public and private
debts accumulated in the past years. If we can’t overcome this problem soon, it even
has the potential to endanger peace, democratic principles and cultural values, as I
pointed out in a letter in 2010.
21 Looking at the situation in Ukraine, we are perhaps
seeing this scenario already.
While all of this is now plausible with the benefit of hindsight, the failure of
conventional wisdom to provide an advanced understanding of events is reflected by
the following quote, made by the former president of the European Central Bank,
Jean-Claude Trichet (*1942) in November 2010:
“When the crisis came, the serious limitations of existing economic and financial models immediately became apparent. Arbitrage broke down in many
market segments, as markets froze and market participants were gripped by
panic. Macro models failed to predict the crisis and seemed incapable of
explaining what was happening to the economy in a convincing manner. As
a policy-maker during the crisis, I found the available models of limited help.
In fact, I would go further: in the face of the crisis, we felt abandoned by
conventional tools.”
Similarly, Ben Bernanke summarized in May 2010:
“The brief market plunge was just an example of how complex and chaotic,
in a formal sense, these systems have become… What happened in the stock
market is just a little example of how things can cascade, or how technology
can interact with market panic.”
Even leading scientists found it difficult to make sense of the crisis. In a letter
on July 22, 2009, to the Queen of England, the British Academy came to the
conclusion
22 :
“When Your Majesty visited the London School of Economics last November,
you quite rightly asked: why had nobody noticed that the credit crunch was
on its way? … So where was the problem? Everyone seemed to be doing their
own job properly on its own merit. And according to standard measures of
21 See https://www3.unifr.ch/econophysics/?q=content/open-letter-george-soros.
22 See http://wwwf.imperial.ac.uk/~bin06/M3A22/queen-lse.pdf.