Urban Land, Household Debt and Overseas Borrowing
A Great Financial Crisis can only occur as a surprise. If it is anticipated by the financial players, there may be a series of little financial crises as the players adjust their expectations but the imbalances which cause great crises will not build up. Great crises are therefore consequences of selective blindness. They result from disregard of the first and perhaps only worthwhile lesson in economics, which is that everything depends on everything else. Despite the plague of dishonest accounting (itself a sign of trouble), in the boom which begat the current GFC the selective blindness was not due to lack of data - throughout the boom the national accounts of the Anglophone countries documented an unsustainable reliance on growing consumer debt as a source of demand. The blinkers were imposed by neo-liberal economics, that legacy of European intellectual turmoil and American Cold War evangelism which became the hegemonic economic theory following the end of full employment. This was ultimately an economics of process: provided all economic decisions were subject to demand and supply in competitive markets, the invisible hand would guarantee economic efficiency and the optimum use of resources. This being the case, there was no perceived need to check the macroeconomic balance sheets for signs of impending trouble. With honourable exceptions, faith in competition brought blindness, and this ingrained faith still hinders an appreciation of what went wrong. For a full appreciation of present problems, it is necessary to examine the macroeconomic balance sheets (ABS 2008).