A note on competing&n

A note on competing economic theori

Abstract
The financial crisis that erupted in 2007， continues in 2008 and likely continues longer， is in
need for explanation by economic theory. The monetary authorities and financial regulat0rs
provide us with piecemeal engineering on the fly but there is a lack of overview. The lack of
convincing theory and strategy becomes especially worrying when we see the crisis affecting
the real economy. People and economic activities that already suffer are not well-represented in
national statistics， which provides newspapers with a rosy picture as if the current crisis only
affects the financial sect0r and not the real economy. When the crisis starts t0 bite those who are
in the statistics then the financial crisis will become recognized for the economic crisis that it is，
but apparently with little guidance from economic theory on how t0 s0lve it. The time honoured
s0lution is t0 have the poor and powerless work harder and earn less t0 s0lve the problems of
the rich and powerful. But economic theory can do better. The paper compares various
competing economic theories and suggests that economists study a particular theory that
apparently hasn’t had sufficient attention yet. The current financial crisis finds a fundamental
cause in stagflation. This stagflation originally was open but was later hidden by financial
deregulation and innovation. By tackling stagflation the financial crisis would become
manageable. A suggestion on how t0 tackle stagflation is provided by Colignatus (2005)，
“Definition & Reality in the General Theory of Political Economy”， Dutch University Press
Keywords： financial crisis， economic crisis， stagflation， inflation， unemployment， Phillipscurve，
taxes

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