In this essay, we reflect on difficulties that may constrain the achievement of substantive change in areas of public policy. Our focus is the discipline of finance – as a field of practices and a field of research – in the aftermath of the Global Financial Crisis. Our exploratory analysis indicates difficulties in concretizing substantive change in both fields, although difficulties do not imply absolute inertia and structural inalterability. In particular, we found indications that, apart from a few exceptions, the core of finance research has largely failed to invest in the promotion of paradigmatic diversity, and continues to resist the idea. Yet, the stakes involved are significant, since finance's lack of diversity in research paradigms arguably translates into a body of knowledge that presents important limitations when trying to make sense of important phenomena, not least of which are infrequent but highly significant events unfolding in the political economy. Although we are aware of the underlying obstacles, we maintain that there is a need for finance academics to increase their commitment to research diversity and engage more thoroughly in the examination of finance in action. While the development of behavioral finance constitutes an interesting intellectual ramification, which allows the field to experiment in relaxing the assumption of investor rationality, a stronger engagement in diversifying knowledge, paradigmatically and methodologically, is needed for richer and grounded understandings of finance in action to concretize.
The Global Economic Crisis Essay
In the late 2000s, the World suffered from a big global economic crisis which caused “the largest and sharpest drop in global economic activity of the modern era”, in which “most major developed economies find themselves in a deep recession”, according to McKibbin and Stoeckel (1). Because its consequences have a very big impact to the whole world, many economists and scientist have tried to find the causes of the crisis; and some major causes have been emphasized are greed, the defection of the free market system, and the lack of prudent regulation and supervision. This essay will focus on the global imbalances, one of the most important causes of the current economic crisis.
Many researchers have pointed out that the global imbalances are the root of the recent financial crisis. Portes claims that “the underlying problem in international finance over the past decade has been global imbalances, not greed, poor incentive structures, or weak financial regulation, however egregious and important these may be.” (2). According to him, the global imbalances lead to “the increasing in dispersion of current account”, which “puts a burden on financial systems to intermediate.”
In 1996, the US current account and emerging market plus developing country current account were each about zero. In 2008, US current account was in deficit by $ 600 bn, the emerging market/developing country current account in surplus by $ 900 bn. (sect. 1.1)
Moreover, the global imbalances also make capital flowing incorrectly, from developing countries to advanced countries, from advanced countries to other advanced countries. This makes developing countries with fast productivity growth show capital outflows and vice versa, leads to the surplus of developing countries, and increases the rate of deficit of developed countries. For example, China, a developing country, has been considered as one of the countries with biggest surplus for a long time, while the US, on the other hand, the developed country with highest rate of deficit. In general, the developing and developed countries together make a financial ecosystem that when a member problem, the whole system will be collapsed rapidly. McKibbin and Cagliarini gave a good example here:
Rising demands from China (and, to some extent, India), plus a booming world economy saw commodity prices rise across oil, minerals and food from late 2004 to late 2007. The shock to the global economy from this commodity price boom was as big as the first oil shock in the 1970s. (qtd. in McKibbin and Stoeckel 5).
As a consequence, the global imbalances contribute...
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