Robert Skidelsky mounts another attack on 'Chicago school'- tainted economists

This short article gives a very readable account of why the financial system has gone into systemic failure. Skidelsky contrasts his own analysis with that of 'the "money glut" school. In their view, there was only one cause of the crisis: excessive credit creation that took place when Alan Greenspan was US Federal Reserve chairman. .. This view draws on the "Austrian" theory of booms and slumps, and also Milton Friedman's explanation of the Great Depression. It was wrong then, and it is wrong now.'

Unlike many political leaders who have learned to use the phrase 'systemic failure' Skidelsky is able to point to key influences which have given rise to the failure: i.e. economists and economic theory that 'assumes that markets are perfectly efficient. If they go wrong, it must be because of policy mistakes. This view is also self-contradictory, for if market participants are perfectly rational and perfectly informed, they would not have been fooled by a policy of making money cheaper than it really was.

This suggests a more fundamental reason for the economic crisis: the dominance of the Chicago school of economics, with its belief in the self-regulating properties of unfettered markets. This belief justified the deregulation of financial markets in the name of the "efficient-market hypothesis". It led to the spread of financial risk-management models, which grossly underestimated the amount of risk in the system.'