It's certainly the best that i've read - "A Crisis of Politics, Not Economics: Complexity, Ignorance and Policy Failure"(.pdf) is the editorial of the special edition of Critical Review, and Jeffrey Friedman has, in my opinion, written the definitive account of what happened. Not only does he draw heavily on the other articles within the journal (written by a galaxy of Nobel winners and insightful heterodox economists), but he brings to the fore several strands of his own research. Aside from encouraging you to read it for yourself, I want to underline 3 pieces of brilliance:
- You can't solve an insolvency crisis with liquidity. This is the crux of the argument against quantitative easing and although it's only a small part of the paper it's on the money
- Avarice isn't the issue, confidence is. There's nothing inherently greedy about the actions of the bankers - why isn't hoarding considered "greedy" rather than speculation (and opening yourself up to potential losses). Indeed if the problem was speculation, why were the most common tranches the ones rated AAA? The problem wasn't greed or speculation, but simple ignorance about the quality of those ratings
- "As much as he [Tim Geithner] may recognise his fallibility, his role as regulator compels him to act as if he were omniscient" - this is part of Friedman's discussion of the policy failure inherent within social democracy. The sheer scale of the regulatory apparatus make it impossible for policymakers or scholars to trace through the consequences of policy reforms across the system as a whole. Hence the possibility of "perfect storms" brewing that no one can see coming.
The main strength of the article is the humility. It isn't an ex-post "it was obvious all along", but pinpoints specific regulatory instances that create this possibility. It's hard to summarise the political lessons, but the "first do no harm" principle shines through. Read it!
Austrians should be applying free-market insights to policy-relevant topics, not analyzing the transcendental essence of radical ignorance.
Friedman's article demonstrates why the two are intertwined.