The Financial Crisis 2008 Interview with Noam Chomsky

Dandelion Salad

By Noam Chomsky
Interviewed by Simone Bruno
October 13, 2008

I would like to talk about the current crisis. How is it that so many people could see it coming, but the people in charge of governments and economies didn’t, or didn’t prepare?

The basis for the crisis is predictable and it was in fact predicted. It is built into financial liberalization that there will be frequent and deep crises. In fact, since financial liberalization was instituted about thirty five years ago, there has been a trend of increasing regularity of crises and deeper crises, and the reasons are intrinsic and understood. They have to do fundamentally with well understood inefficiencies of markets. So, for example, if you and I make a transaction, say you sell me a car, we may make a good bargain for ourselves, but we don’t take into account the effect on others. If I buy a car from you it increases the use of gas, it increases pollution, it increases congestion, and so on. But we don’t count those effects. These are what are called by economists externalities, and are not counted into market calculations.

These externalities can be quite huge. In the case of financial institutions, they are particularly large. The task of a financial institution is to take risks. Now if it is a well managed financial institution, say Goldman Sachs, it will take into account risks to itself, but the crucial phrase here is to itself. It does not take into account systemic risks, risks to the whole system if Goldman Sachs takes a substantial loss. And what that means is that risks are underpriced. There are more risks taken than should be taken in an efficiently working system that was accounting for all the implications. More, this mispricing is simply built into the market system and the liberalization of finance.


via ZNet – Financial Crisis Interview

FAIR USE NOTICE: This blog may contain copyrighted material. Such material is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues, etc. This constitutes a ‘fair use’ of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.


Chomsky: If I were in a swing state, I’d vote for Obama

Anti-democratic nature of US capitalism is being exposed by Noam Chomsky

Noam Chomsky: The United States Has Essentially a One-Party System

The Economy Sucks and or Collapse