Choosing Bankruptcy: The Onset of Debt and Financial Crisis

Gary Magee and Wayne Geerling

Chapter Chapter 6 in Socialism with a Human Face, 2022, pp 257-312 from Palgrave Macmillan

Abstract: Abstract In the 1970s and 1980s, the SED’s policy of continually expanding the provision of social welfare brought the state to the point of bankruptcy. Despite awareness of the trajectory the country was on, the party’s leadership opted not to act, choosing instead to continue on the same path. For some, this failure to act to avert crisis is seen as proof of the senior leadership’s irrationality. In this chapter, the decision of the state’s highest rulers to pursue the course they did is evaluated from the perspective of prospect theory. In addition to shedding new light on the thinking that underpinned such a calamitous course of action, this approach also offers a new periodisation of the history of debt accumulation in the GDR.

Keywords: East German financial crisis; Foreign borrowing; Debt accumulation; Prospect theory; East German economic history (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palscp:978-981-19-0664-0_6

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DOI: 10.1007/978-981-19-0664-0_6

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