The Global Crisis: Causes and Main Theoretical Explanations

Abstract

The effects of the sub-prime global financial crisis have had devastatingeconomic consequences worldwide. The bursting of the housingbubble in the United States began in 2007 and quickly spread to mostof the developed countries of the world, later arriving in many developingcountries. Looking at the 30 most advanced capitalist economiesmembers of the Organization of Economic Cooperation andDevelopment (OECD), the drop in output and income due to the crisiswas 6.5% in 2009 (Roberts, 2009: 1). The ultimate outcome was thecollapse of significant financial institutions, and more importantly, amajor adjustment of financial corporations and the stock market.Due to the impact of the crisis in the global economy, different economistsand social scientists have actively worked to explain its causesand possible solutions. Heterodox schools of thought, especially thePost-Keynesian and Marxian, have provided very interesting explanations.They critique the shortcomings of the neoclassical approach,offering alternative explanations based either on the functioning ofthe financial system or on the evolution of the rate of profit.In this context, this chapter aims first, to explain the main causes,characteristics and effects of the global financial crisis and how itspread globally, and second, to analyze the notions and explanationsprovided by the neoclassical, Post-Keynesian (traditional andMinskian perspectives), and Marxian theories regarding the inner causes and triggers of crises. The chapter is subdivided into three sections.The first explores the reasons and consequences of the globalfinancial crisis, the next focuses on the development of the main theoretical explanations of the crisis, and lastly, the main conclusions are highlighted.