The book demolishes standard macroeconomic theory and shows how central banks’ blinkered obeisance to that theory has, by making bubbles, crises, recessions and, latterly, inflation inevitable, undermined the pillars of a capitalist society.
It has become a commonplace to blame central banks for recurrent bubbles and financial crises, recessions, massive wealth inequality and widespread disenchantment with capitalism, and latterly for inflation. But this important new book argues that the enormous intellectual error of which central banks have been guilty sprang from the generation-long arrogance of the mainstream academic macroeconomics profession, which ignored interwar lessons and the crucial importance of intertemporal disequilibrium. The book shows why and how the intellectual error, most evident in the deliberations and actions of the US Federal Reserve from the mid-1990s onwards, set in train the global consequences which now threaten the continued existence of a capitalist society. In particular, it explains how central banks have needed the financial-sector misbehaviour they so piously castigate. While a key early figure in this Greek Tragedy was an ardent advocate of capitalism – Alan Greenspan, the revered former Federal Reserve Chairman – culpable hubris has underlain the whole structure of modern macroeconomic theory. Nemesis, the book shows, has followed ineluctably.