Financial Crisis, Macro-Stabilization Policy and the Debt Culture: Are We Thinking Out of the Box Yet?

26 Pages Posted: 25 Sep 2017 Last revised: 20 Jul 2021

Date Written: July 2017

Abstract

Every global crisis presents a new learning experience for the humanity. Some crises also have paradigm-shifting significance. The last crisis of 2008 might be one of those. Yet, the macro-policy approach of the major industrialized economies seems to be still based on macro-stabilization or counter-cyclical policy frameworks within the entrenched conventional economic and financial paradigms.

Fiscal stimulus packages are to revive the economy as fast as possible and the monetary policies have tinkered with the lowest interest rate in many decades. More public and private sector debt is encouraged and facilitated. More debts to cure excessive debt! Might these policies still be effective, even though so far their effects have been non-sustaining throughout history?

Drawing on the theories of indebtedness from both cultural, moral and structural/legal perspective and experience in our modern time, this paper examines the conventional framework for macro-stabilization policy. It makes the case that while these policies might bring some non-sustainable reprieve from this contagion, one of the key areas that needs to be identified and probed into further is the role debt culture plays in modern, industrialized societies, led by USA in particular.

Understanding the current crisis in light of the interaction between cultural, moral and structural factors in fostering a debt-prone culture – a culture that is debt-seeking, debt-promoting, debt creating and debt-proliferating - is vitally important. Debt culture deserves especial scrutiny not just because it had profound impact throughout history, but also that it continues have critical impact, recurrently leading to serious economic crisis.

Keywords: Financial crisis; Macroeconomic policy; Countercyclical discretionary policy; Financialization; Debt culture

JEL Classification: E19

Suggested Citation

Farooq, Mohammad Omar, Financial Crisis, Macro-Stabilization Policy and the Debt Culture: Are We Thinking Out of the Box Yet? (July 2017). Available at SSRN: https://ssrn.com/abstract=3041676 or http://dx.doi.org/10.2139/ssrn.3041676

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