Almost three years into the recent crisis finance and economics continue as sovereign entities…Unfortunately, the idea that the two are necessarily interrelated, seems to escape the narrow confines stereotyped within each discipline. This divide is reaffirmed in corporate releases and academic conferences (at one of such recent gatherings I presented our latest on fundamental uncertainty bridging financial market to economic policy).
This mummified tradition of separate approach holds undeniable power, as the value of “elegant” regressions supersedes the economic rationale of the exercise and peculiarities of the specific market analyzed. At the same time, hypothetical economic modeling often omits the credit flows as secondary. The mood perpetuates further into the corporate arena where anything but pragmatic calculations telling the story are filtered out.
It is exactly this run for a finite solution that abstracts from the reality of uncertainty in the globalized financial markets (e.g. Minsky, 1975) and untenable economic development goals. It is also why both sides have been caught largely unawares by the current crisis; now seeking a dubious one-way solution out of it.
Yet, the relevance of finance in economics and of economics in finance (if the argument must be built using the standard foundations of each) is critical. Moreover, unlike in the years before, today it is a realization that invites stronger fiscal role (pragmatic, growth/market-stimulating), pushing the discourse into a different, often more opinionated field, where established predispositions are the debate’s simultaneous true drivers and barriers.
And so it goes as in words of A. Einstein that “it is harder to crack a prejudice than an atom.” Until then we continue to ponder on abstract solutions as finance and economic research traverse on parallel orbits.