Sunday, February 15, 2009

Baseline Scenario

I’ve spent a lot of time lately scouring the blogosphere looking for materials to incorporate into my macro classes that will explain the financial crisis to beginning economics students. I’ve uncovered a treasure trove of material that I will be sharing in future posts. I’d like to start with a remarkably informative website that I have only recently discovered.

Simon Johnson is a Professor of Economics at MIT, senior fellow of the Peterson Institute for International Economics, and a former chief economist of the IMF. Professor Johnson hosts a brilliant blog called the Baseline Scenario that is dedicated to explaining what happened to the global economy and what we can do about it.

In a riveting interview on Bill Moyer’s Journal on PBS Professor Johnson argues that there can be no real solution to our economic predicament until we restore basic integrity to the financial system. Johnson is highly critical of Treasury Secretary Timothy Geithner’s plan to address the financial crisis which proposes to inject up to 2.5 trillion into the financial system.

Professor Johnson's argument is that the big money center banks constitute an oligarchy that is exerting excessive influence on our system of political economy.

Some excerpts from Professor Johnson’s interview with Bill Moyers:

"I think I'm signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we've seen many times in other places.

But they're places we don't like to think of ourselves as being similar to. They're emerging markets. It's Russia or Indonesia or a Thailand type situation, or Korea. That's not comfortable. America is different. America is special. America is rich. And, yet, we've somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs...

I have this feeling in my stomach that I felt in other countries, much poorer countries, countries that were headed into really difficult economic situation. When there's a small group of people who got you into a disaster, and who were still powerful. Disaster even made them more powerful. And you know you need to come in and break that power. And you can't. You're stuck...."

While some of the material on the Baseline Scenario blog is quite challenging there is a section called Financial Crisis for Beginners which has explanations of some of the key financial concepts for the newbies. Professor Johnson has also posted webcasts of some of the sessions of his MBA level Global Crisis class at MIT last semester.

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