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From Prosperity into the Crisis and Back. On the Role of Economic Theories in the Long Cycle

Stephan Schulmeister

No 571, WIFO Working Papers from WIFO

Abstract: This essay reconsiders the interaction between the development of economic theories and economic reality since the 1920ies. I begin with the systemic cause of the financial crisis, the coincidence of three "bear markets" (stocks, real estate, commodities) which followed three parallel "bull markets". I then sketch the macroeconomic effects of the "manic-depressive" fluctuations of asset prices and show how they paved the road into the present crisis. As next step, I explain how "bulls" and "bears" are brought about. Then I sketch how the treatment of financial markets in economic theory and policy has shaped the long cycle from the financial boom of the 1920ies, the Great Depression, the post-war prosperity under "realcapitalistic" framework conditions to the "finance-capitalistic" regime since the 1970ies. The paper concludes with proposals how Europe could find roads to new prosperity. After the upcoming financial crisis there will be a window of opportunity to implement these proposals.

Keywords: Asset; price; dynamics (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-11-02
New Economics Papers: this item is included in nep-his, nep-hpe and nep-pke
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