There is now acknowledgment that the economic model itself is the source of the problem. Zhou Xiaochuan, governor of the Chinese central bank, commented: "Over-consumption and a high reliance on credit is the cause of the US financial crisis. As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits." More ominously, Chinese President Hu Jintao recently noted: "From a long-term perspective, it is necessary to change those models of economic growth that are not sustainable and to address the underlying problems in member economies."

Limits to Growth

The GFC’s seriousness and gravity is unquestioned. Initially, the world viewed the destruction of financial institutions as an entertaining blood sport. There was a sense of schadenfreude as the Masters of the Universe received their comeuppance. The "financial" crisis has now spread to the "real" economy: jobs, consumption, and investment. It is now everybody’s problem.

The GFC coincides with another crisis: the Global Environmental Crisis (or GEC). "Toxic debt" and "toxic emissions" clamor simultaneously for politicians' attention.

Irreversible climate change, scarcity of vital resources (food and water) and falling biodiversity are not unconnected with the existing economic system. Economists and politicians implicitly assume that high levels of growth drive increased living standards and rescue people from poverty and social development. No limit to economic growth is recognized.

Demagogic debates about the ideological differences between neo-liberalism, compassionate capitalism and social democracy are unhelpful. In truth, all competing economic philosophies are underpinned by the same reliance on growth and built-to-fail economic models. The world needs to adjust to a new economic order and a world of reduced expectations. In the short run, the primary focus surely should be to dealing pragmatically with the GFC and its potentially devastating human and social costs. There will be time enough for recriminations and blame.

Dead Economists

At the fall of the Berlin Wall, when asked, "who won?" political scientists cited the triumph of capitalism over socialism. The economist’s response was simply: "Chicago". The reference is to the Chicago Graduate School of Business and its unshakable belief in free markets, exemplified in the title of Milton Friedman’s most accessible work: Free To Choose (1990).